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DEPARTMENT OF AGRICULTURE docket number or RIN for this FIRREA Financial Institutions Reform, rulemaking. All comments received will Recovery and Enforcement Act of 1989 Rural Utilities Service be posted without change to https:// FR Federal Register www.regulations.gov, including any FSRIA Farm Security and Rural Investment Rural Housing Service Act of 2002 personal information provided. GAAP Generally accepted accounting Docket: For access to the docket to principles Rural Business-Cooperative Service read background documents or GPO Government Printing Office comments received, go to https:// ICBA Independent Community Bankers of 7 CFR Parts 1779, 3575, 4279, 4287, www.regulations.gov. America and 5001 LNG Loan Note Guarantee FOR FURTHER INFORMATION CONTACT: NEPA National Environmental Policy Act [Docket No. RUS–19-Agency–0030] Thomas P. Dickson, Regulations NMTC New Markets Tax Credit Management Division Team 2, Rural RIN 0572–AC43 OGC Office of General Counsel Development Innovation Center, U.S. OMB Office of Management and Budget OneRD Guaranteed Loan Regulation Department of Agriculture, 1400 OneRD OneRD Guaranteed Loan Program Independence Ave. SW, Stop 1522, PER Preliminary Engineering Reports AGENCY: Rural Business-Cooperative Washington, DC 20250; telephone 202– QALICB Qualified Active Low Income Service, Rural Housing Service, Rural 690–4492; email thomas.dickson@ Community Business Utilities Service, USDA. RD Rural Development usda.gov. REAP Rural Energy for America Program ACTION: Final rule; request for SUPPLEMENTARY INFORMATION: RFA Regulatory Flexibility Act comments. RMA Risk Management Association Table of Contents for Preamble SAM System for Award Management SUMMARY: The Rural Business- § Section Cooperative Service, Rural Housing I. Abbreviations II. Background TBSE Tangible Balance Sheet Equity Service, and the Rural Utilities Service, A. Rural Development’s Mission. UMRA Unfunded Mandates Reform Act agencies of the Rural Development B. Composition of the OneRD Guaranteed 1995 mission area within the U.S. Loan Program U.S.C. United States Code Department of Agriculture (USDA), 1. Community Facilities Guaranteed Loan USDA U.S. Department of Agriculture hereinafter collectively referred to as the Program USPAP Uniform Standards of Professional Appraisal Practice Agency, are proposing a unified 2. Water and Waste Disposal Guaranteed guaranteed loan platform for enhanced Loan Program II. Background delivery of four of its existing 3. Business and Industry Guaranteed Loan Program Through this regulation, Rural guaranteed loan programs: Community 4. Rural Energy for America Program Development (RD) is consolidating and Facilities (CF) administered by the Rural 5. Similarities Between the Four standardizing the rules associated with Housing Service; Water and Waste Guaranteed Loan Programs making and servicing of four guaranteed Disposal (WWD) administered by the III. Basis and Purpose loan programs. The new regulation Rural Utilities Service; and, Business IV. Discussion of the Rule eliminates existing regulations in six and Industry (B&I) and Rural Energy for A. Organization of the Rule B. Delivery of the OneRD Guaranteed Loan areas: 7 CFR part 3575, subpart A which America (REAP) administered by the is the existing regulation for making and Rural Business-Cooperative Service. Program C. Changes of Note servicing Community Facilities (CF) Collectively, these four Rural V. Public Participation and Discussion of guaranteed loans; 7 CFR part 1779 Development’s guaranteed loan Comments From Listening Sessions which is the existing regulation for programs work to assist in building and VI. Regulatory Impact Analyses making and servicing Water and Waste maintaining sustainable rural A. Executive Orders 12866 and 13563 Disposal (WWD) guaranteed loans; 7 communities. This rule incorporates B. Unfunded Mandates Reform Act CFR part 4279, subparts A and B which new and revised provisions intended to C. Environmental Impact Statement D. Executive Order 12988, Civil Justice are the existing regulations for making simplify, improve, expand and enhance Business and Industry (B&I) guarantee the delivery of the four guaranteed loan Reform E. Executive Order 13132, Federalism loans; 7 CFR part 4280, subpart B which programs. These provisions include, F. Regulatory Flexibility Act Certification is the existing regulation for making among others, clearly defining specific G. Executive Order 12372, Rural Energy for America (REAP) project eligibility criteria, revising the Intergovernmental Consultation guarantee loans; and, 7 CFR 4287 requirements for lenders to participate H. Executive Order 13175, Consultation subpart B which is the existing in the programs, and streamlining the and Coordination With Indian Tribal regulation for servicing B&I and REAP documentation requirements for Governments I. Programs Affected guarantee loans. This regulation submission of guaranteed loan replaces those removed sections with applications. J. Catalog of Federal Domestic Assistance K. Paperwork Reduction Act and the OneRD guarantee loan regulation DATES: Recordkeeping Requirements (‘‘OneRD’’), a unified regulation for Effective date: This final rule is L. E-Government Act Compliance making and servicing the four effective October 1, 2020. M. Civil Rights Impact Analysis guaranteed loan programs, codified at 7 Comment date: Comments are due I. Abbreviations CFR 5001. To ensure that the drafting of September 14, 2020. OneRD was a customer-centric process, ADDRESSES: You may submit comments, CDE Community Development Entity the Agency invited public input through identified by docket number RUS–19- CFDA Catalog of Federal Domestic six listening sessions and a Human Agency–0030 and Regulatory Assistance Experience Lab. The public CFR Code of Federal Regulations Information Number (RIN) number CONAct Consolidated Farm and Rural participation provided input on ways to 0572–AC43 through https:// Development Act simplify, improve, enhance and expand www.regulations.gov. FCRA Federal Credit Reform Act of 1990 the delivery of the four guarantee Instructions: All submissions received FDIC Federal Deposit Insurance programs. Through this process, the must include the Agency name and Corporation Agency identified eight broad areas of

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improvement on which to focus its areas and towns with a population of up that has a population of more than efforts: Community impact; Agency staff to 50,000, depending on the level of 50,000 inhabitants, according to the training and empowerment; enabling appropriated funding for a respective latest decennial census of the United technology; USDA-lender relationship; fiscal year. Loan funds may be used to States and not in the urbanized area simplicity and consistency; speed of construct, enlarge, extend or otherwise contiguous and adjacent to a city or approval process; communication and improve essential community facilities town that has a population of more than transparency; and marketing and including health care, public safety, and 50,000 inhabitants. outreach. Comments and Agency public services. Eligible borrowers • Lenders requesting loan guarantees responses to comments received are include public entities, such as from the Agency under OneRD must provided in section V. Public municipalities, counties, special- meet the definition of either a regulated Participation and Discussion of purpose districts, Indian tribes, and not- lending entity or a non-regulated Comments from Listening Sessions. for-profit corporations who are unable lending entity as specified in to obtain commercial credit at § 5001.130. A. Rural Development’s Mission reasonable rates and terms without the • A borrower works with a lender to By statutory authority, Rural Federal Government’s guarantee. obtain a loan for a project eligible under Development is an advocate for rural (2) Water and Waste Disposal one or more of the four programs, America, administering a multitude of Guaranteed Loan Program. The Water providing the lender with necessary programs, ranging from housing and and Waste Disposal Guaranteed Loan information on the borrower and the community facilities to infrastructure program guarantees loans to construct, project. and business development. The enlarge, extend or otherwise improve • A lender evaluates borrower and Agency’s mission is to increase water and waste disposal systems, project eligibility and performs a economic opportunity and improve the including wastewater treatment, solid detailed credit evaluation and, as quality of life in rural communities by waste disposal, and storm drainage, in applicable, an economic or financial providing the leadership, infrastructure, rural areas and in cities and towns with analysis of the project to ensure that the capital, and technical support that a population of up to 50,000. Eligible borrower will be able to repay the loan. enables rural communities to prosper. borrowers include public entities, such • A lender applies to the Agency for To achieve its mission, the Agency as municipalities, counties, special- a loan guarantee and submits the credit provides financial support, including purpose districts, and Indian tribes, as evaluation for the project and borrower, loan guarantees, direct loans and grants, well as not-for-profit corporations and and all required application and technical assistance to enhance the tribal governments who are unable to documentation. quality of life and provide the obtain commercial credit at reasonable • The Agency reviews each foundation for economic development rates and terms without the Federal guaranteed loan application package in in rural areas. This final rule with Government’s guarantee. accordance with the OneRD program comment addresses the use of a unified (3) Business and Industry Guaranteed requirements and approves or denies guaranteed loan regulation for four Loan Program. The B&I Guaranteed the guarantee. Subject to the availability programs to support Rural Loan program guarantees loans that of funds, each approved package is Development’s mission. The regulation further job creation and stimulate rural provided a conditional commitment for implements changes to current economies by providing financial a loan guarantee. guarantee practices to make the backing for rural businesses. Eligible • Each lender is responsible for the processes and procedures consistent borrowers include cooperatives, origination and servicing of its across the four programs. As a loan- corporations, partnerships, trusts or guaranteed loan portfolio and for making agency, Rural Development is other profit or not-for-profit entities, working with the Agency, as necessary, exempt from prior notice and comment Indian tribes, municipalities, counties, to resolve borrower issues (such as (5 U.S.C. 553(a)(2)) to implement or other political subdivisions of a state. default). policies and procedures governing loan (4) Rural Energy for America Program. Using this framework allows the programs. Nevertheless, we are The Rural Energy for America Program Agency to support rural economic providing the public the opportunity to is a guaranteed loan program, providing development effectively and efficiently comment on the requirements found in loan guarantees for the purchase and through loan guarantees and combines this Final Rule. During the comment installation of renewable energy the four programs into one unified period, the Agency will host listening systems, energy efficiency guaranteed loan program in OneRD. improvements and energy efficient sessions and the schedule will be III. Basis and Purpose available on the website. Comments equipment. Eligible borrowers include received will be considered and farmers, ranchers, and rural small As noted earlier, prior to addressed in a future rulemaking. businesses. implementation of this final rule, the (5) Similarities Between the Four four guaranteed loan programs B. Composition of the OneRD Guaranteed Loan Programs. While each origination and servicing processes Guaranteed Loan Program program has some different appeared in separate regulations and This section briefly describes the requirements based on statutory required users to become familiar with scope of each of the four individual authorizations (e.g., borrower and the individual provisions. The four loan programs with regard to eligible project eligibility, necessary programs share many common elements projects, borrowers, and lenders, documentation, and funding limits), the and the Agency has reviewed application processes, guarantee and same basic framework for making loan opportunities to increase commonalities loan terms, and how the four programs guarantees applies to each of the among processes to improve efficiency are combined into a unified guaranteed programs. and customer experience while loan platform. • In accordance with rural area maintaining the distinct purposes of the (1) Community Facilities Guaranteed definition and reservation requirements authorized programs. Loan Program. The CF guaranteed loan found at 7 U.S.C. 1991(a) and 7 U.S.C. The four guaranteed loan programs program guarantees loans to develop 1926(a)(24), projects must be located in and their respective regulations essential community facilities in rural any area of a state not in a city or town combined under this final rule

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developed over time and, in some Uniform processes facilitate electronic regulations are now defined and specific respects, independently of each other. A commerce between the Agency and its Agency standards are provided at review of these programs and their customers. § 5001.202(a) and (b). Providing a single regulations, individually and Improved Flexibility: Maintaining set of credit evaluation factors with collectively, has identified four key separate sets of basic requirements for defined meanings improves consistency operational issues that this final rule different loan guarantee programs in Agency reviews which improves aims to resolve. These issues and the creates inflexibilities, including the response and delivery times. OneRD regulation’s approach related to burden of ensuring new crosscutting In addition to credit risk management, them are as follows: requirements are incorporated into institutional risk management has been Increased Efficiency: Many lenders separate regulations or incorporating addressed and codified. Institutional and, in some cases, borrowers, seek loan new efficiencies where they apply. risk, in this regulation, refers to the guarantees under more than one of the Additionally, the single regulation quality of the lender seeking the loan allows for the addition of other loan four RD loan guarantee programs, for guarantee. Currently, each program area example, a small town builds a senior guarantee programs without having to has its own set of criteria that lending day center with a CF loan guarantee, build a completely new structure and entities must meet to be determined and then adds solar panels through a instead only incorporating any unique eligible. A lending entity can be eligible REAP loan guarantee. Therefore, under factors into the existing OneRD under one program but not another the current conditions, they are required regulation. General provisions, which which creates confusion and to learn multiple, similarly regulated, apply to all guaranteed loan programs, inefficiencies for all parties. By but differently operated, loan guarantee are contained in subpart A of the final implementing one defined, programs. For lenders, the benefit of rule and additional guaranteed loan comprehensive set of criteria across all using a program must be worth the cost programs can be added as needed in the four programs to assess lender of investing in learning and adapting to remaining or new subparts. its rules, thus if the bulk of a lender’s Additionally, each of the four subparts performance, the unified guaranteed business is in one program, any corresponding to the four programs loan platform allows the Agency to differences may disincentivize, through includes an introductory section improve its management of lenders decreased efficiency and increased describing requirements that apply to participating in these programs and costs, the use of the other programs the specific program. provide a one-stop shop for lenders. should the opportunity arise. Efficient use of Agency Resources: With this final rule, the Agency Under this final rule, the Agency Previously, the separate programs did implements lender eligibility criteria expects that lenders (and to a lesser not encourage a streamlined and cross- based on the status, regulated or non- extent borrowers) will find all four loan program use of Agency resources. For regulated, of the lending entity. These guarantee programs easier and more programs that issued fewer guarantees, criteria are in 7 CFR 5001.130 through efficient to use because (1) a single set staff might lack familiarity with the 5001.132, which discuss lender of forms and application process is used applicable regulations and commercial eligibility requirements, the lender’s for the four programs being lender practices and standards, creating agreement, and maintenance of consolidated, (2) the common elements inconsistencies in delivery as the approved lender status. for origination, processing, and program was relearned for each loan. Agency operational risk refers to servicing have been consolidated into a For programs that issued many internal weaknesses that can occur in single part of this final rule, and (3) this guarantees, staff might experience administering separate guaranteed loan final rule relies more on common significant workloads that could be programs using a variety of regulations lending practices, which may reduce the alleviated by cross-trained colleagues. that require unique sets of processes and lender’s and borrower’s costs. The Agency has worked to make procedures. OneRD uses commonalities, Consolidating requirements is expected consistent its approach to evaluating consistency in regulatory language, and to reduce burden for lenders, borrowers, risk relative to the program, industry, integration of information management and the Agency’s staff, easing delivery and conditions applicable to the loan systems to reduce Agency operational and increasing efficiency. Additionally, guarantee. This final rule allows the risk. The use of electronic reporting and those borrowers who may only utilize Agency to more effectively utilize its standardized forms also allows the one of the guaranteed programs will resources via implementation of a Agency to manage its portfolio of benefit when the Agency is better able OneRD model, which emphasizes outstanding guaranteed loans better. to leverage scarce IT resources for consistency, reliance on lender Ultimately, the OneRD guarantee loan improvements to the application expertise, refocusing time spent on loan regulation provides a framework to system. processing to time spent servicing ensure consistent implementation of the Overall, a common platform like the clients, and increasing access to its four guaranteed loan programs and full OneRD regulation is expected to be programs by eliminating regulatory utilization of all four guarantee easier to administer, improve redundancy. programs for the benefit of rural consistency and thus customer Improved Risk Management: In communities. experience, and reduce Agency and developing a portfolio of loan lender risk. Internally, OneRD will guarantees, consideration must be given IV. Discussion of the Rule reduce the time, effort, and training to credit risk management. The ‘‘5 Cs of A. Organization of the Rule necessary to guarantee a loan, especially Credit’’: character; capacity; capital; through efficiencies realized through collateral; and, conditions are industry To help the public locate existing common forms, rules, and information recognized credit evaluation standards. regulatory provisions found in the new technology platforms. With OneRD, OneRD emphasizes that the lender’s rule, the Agency provides the following internal management controls will credit evaluation relies on the table showing new sections and improve through standardized servicing professional judgement of the lender subparts under the OneRD Guaranteed and oversight. Common elements assist and their review of the credit factors in Loan program and where the lenders in managing a diverse portfolio determining risk. These credit factors, information and requirements were while meeting Federal requirements. while implied in the existing previously located.

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TABLE 1—ONERD GUARANTEED LOAN PROGRAM CFR SECTIONS AND SUBPARTS

OneRD section No. and title Current section Nos. and titles

Subpart A—General Provisions

§ 5001.1 General. § 5001.2 Structure of Regulation. § 5001.3 Definitions ...... B&I: § 4279.2 Definitions and abbreviations. REAP: § 4280.103 Definitions. CF: § 3575.2 Definitions. WWD: § 1779.2 Definitions. § 5001.4 Exception authority ...... B&I: § 4279.15 Exception authority. REAP: § 4280.104 Exception authority. CF: § 3575.17 Exception authority. WWD: § 1779.17 Exception authority. § 5001.5 Appeal and review rights ...... B&I: § 4279.16 Appeals. REAP: § 4280.105 Review or appeal rights. CF: § 3575.13 Appeals. WWD: § 1779.13 Appeals. § 5001.6 General Lender responsibilities ...... B&I: § 4279.30 Lenders’ functions and responsibilities. § 5001.7 Agency special initiatives. § 5001.8 Approvals, regulations, and forms ...... B&I: § 4279.1 Introduction. REAP: § 4280.107 Statute and regulation references. CF: § 3570.257 Statute and regulation references. § 5001.9 Standards for Financial information ...... B&I: § 4279.137 Financial statements. REAP: § 4280.132 Financial statements.

Subpart B—Eligibility Provisions

§ 5001.101 Introduction. § 5001.102 Project eligibility—general ...... B&I: § 4279.113 Eligible uses of funds. REAP: § 4280.113 Project eligibility. CF: § 3575.20 Eligibility. WWD: § 1779.20 Eligibility. § 5001.103 Eligible Community Facility (CF) Projects and requirements CF: § 3575.24 Eligible loan purposes; § 3575.20 Eligibility. § 5001.104 Eligible Water and Waste Disposal (WWD) Projects and re- WWD: § 1779.24 Eligible loan purposes; § 1779.20 Eligibility. quirements. § 5001.105 Eligible Business and Industry (B&I) Projects and require- B&I: § 4279.113 Eligible uses of funds. ments. § 5001.106 Eligible Rural Energy for America Program (REAP)—Re- REAP: § 4280.128 Project eligibility. newable Energy System (RES) Projects and requirements. § 5001.107 Eligible Rural Energy for America Program (REAP)—En- REAP: § 4280.128 Project eligibility. ergy Efficiency Improvement (EEI) Projects and requirements. § 5001.108 Rural Energy for America Program (REAP)—Energy Effi- cient Equipment and Systems (EEE) Projects and requirements. § 5001.115 Ineligible Projects General ...... B&I: § 4279.117 Ineligible purposes and entity types. CF: § 3575.25 Ineligible loan purposes. WWD: § 1779.25 Ineligible loan purposes. § 5001.116 Ineligible CF Projects ...... CF: § 3575.25 Ineligible loan purposes. § 5001.117 Ineligible WWD Projects ...... WWD: § 1779.25 Ineligible loan purpose. § 5001.118 Ineligible B&I Projects ...... B&I: § 4279.117 Ineligible purposes and entity types. § 5001.119 Ineligible REAP Projects. § 5001.121 Eligible uses of loan funds ...... B&I: § 4279.113 Eligible uses of funds. REAP: § 4280.114 RES and EEI grant funding. CF: § 3575.24 Eligible loan purposes. WWD: § 1779.24 Eligible loan purposes. § 5001.122 Ineligible uses of loan funds ...... B&I: § 4279.210 Project eligibility requirements; § 4279.117 Ineligible purposes and entity types. REAP: § 4280.114 RES and EEI grant funding. CF: § 3575.24 Eligible loan purposes; § 3575.25 Ineligible loan pur- poses. WWD: § 1779.25 Ineligible loan purposes. § 5001.126 Borrower eligibility ...... B&I: § 4279.108 Eligible borrowers. REAP: § 4280.127 Borrower eligibility. CF: § 3575.20 Eligibility. WWD: § 1779.20 Eligibility. § 5001.127 Borrower ineligibility conditions ...... B&I: § 4279.117 Ineligible purposes and entity types. REAP: § 4280.109 Ineligible Applicants, borrowers, and owners. § 5001.130 Lender eligibility requirements ...... B&I: § 4279.29 Eligible lenders. REAP: § 4280.125(b). CF: § 3575.27 Eligible lenders. WWD: § 1779.27 Lenders.

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TABLE 1—ONERD GUARANTEED LOAN PROGRAM CFR SECTIONS AND SUBPARTS—Continued

OneRD section No. and title Current section Nos. and titles

§ 5001.131 Lender’s Agreement ...... B&I: § 4279.29 Eligible lenders. REAP:. CF: § 3575.64 Issuance of Lender’s Agreement, Loan Note Guarantee, and Assignment Guarantee Agreement. WWD: § 1779.64 Issuance of Lender’s Agreement, Loan Note Guar- antee, and Assignment Guarantee Agreement. § 5001.132 Maintenance of approved Lender status ...... B&I: § 4279.29 Eligible lenders. § 5001.140 Cooperative Stock/Cooperative equity ...... B&I: § 4279.115 Cooperative stock/cooperative equity. § 5001.141 New Markets Tax Credit ...... B&I: § 4279.116 New Markets Tax Credit program.

Subpart C—Origination Provisions

§ 5001.201 General origination requirements ...... B&I: § 4279.30 Lenders’ functions and responsibilities. § 5001.202 Evaluation of Credit Underwriting ...... B&I: § 4279.30 Lenders’ functions and responsibilities; § 4279.131 Credit quality. REAP: § 4280.131 Credit quality. WWD: § 1779.47 and § 1779.48 Collateral. § 5001.203 Appraisals ...... B&I: § 4279.144 Appraisals. REAP: § 4279.144 Appraisals. § 5001.204 Personal, partnership, and corporate guarantees ...... B&I: § 4279.132 Personal and corporate guarantees. REAP: § 4280.134 Personal and corporate guarantees. § 5001.205 General monitoring requirements ...... B&I: § 4279.167 Planning and performing development. REAP: § 4279.167 Planning and performing development. CF: § 3575.42 Design and construction requirements; § 3575.12 In- spections; § 3575.63 Conditions precedent to issuance of the Loan Note Guarantee. WWD: § 1779.12 Inspections; § 1779.42 Design and construction re- quirements. § 5001.206 Compliance with USDA Departmental Regulations, Policies, B&I: § 4279.167 Planning and performing development. and other Federal laws. REAP: § 4280.36 Other laws that contain compliance requirements for these Programs; § 4280.36 Other laws that contain compliance re- quirements for these Programs. CF: § 3575.42 Design and construction requirements. WWD: § 1779.42 Design and construction requirements. § 5001.207 Environmental responsibilities ...... B&I: § 4279.59 Environmental requirements; § 4279.167 Planning and performing development. REAP: § 4280.36 Other laws that contain compliance requirements for these Programs.; § 4280.41 Environmental review of the application.; § 4280.124 Construction planning and performing development. CF: § 3575.9 Environmental review requirements. WWD: § 1779.9 Environmental review requirements. § 5001.208 Conflicts of Interest ...... REAP: § 4280.106 Conflict of interest. CF: § 3575.27 Eligible lenders. WWD: § 1779.27 Lenders.

Subpart D—Guarantee Application Provisions

§ 5001.301 Beginning the application process. § 5001.302 Preliminary eligibility review ...... B&I: § 4279.161 Filing preapplications and applications. CF: § 3575.52 Processing. WWD: § 1779.52 Processing. § 5001.303 Applications for loan guarantee ...... B&I: § 4279.261 Application for loan guarantee content. CF: § 3575.52(b) Applications. WWD: § 1779.52(b) Applications. § 5001.304 Specific Application Requirements for Community Facility CF: § 3575.47 Economic feasibility requirements. Projects. § 5001.305 Specific Application Requirements for Water and Waste WWD: § 1779.42 Design and construction requirements; § 1779.47 Disposal Projects. Economic feasibility requirements. § 5001.306 Specific Application Requirements for Business and Indus- B&I: § 4279.161 Filing preapplications and applications. try Projects. § 5001.307 Specific Application Requirements for Rural Energy for REAP: § 4280.137 Application and documentation. America Program Projects. § 5001.315 Application evaluation and award provisions ...... B&I: § 4279.260 Guarantee applications—general. REAP: § 4280.110 General Applicant, application, and funding provi- sions. CF: § 3575.53 Evaluation of application. WWD: § 1779.53 Evaluation of application. § 5001.316 Community Facility Project priority point system and res- CF: § 3575.53 Evaluation of application. ervation of funds. § 5001.317 Water and Waste Disposal Project priority points system. § 5001.318 Business and Industry Project priority points system ...... B&I: § 4279.166 Loan priority scoring.

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TABLE 1—ONERD GUARANTEED LOAN PROGRAM CFR SECTIONS AND SUBPARTS—Continued

OneRD section No. and title Current section Nos. and titles

§ 5001.319 Rural Energy for America Program Project priority points REAP: § 4280.135 Scoring RES and EEI Guaranteed Loan-only appli- system. cations.

Subpart E—Loan and Guarantee Provisions

Loan Provisions

§ 5001.401 Interest rate provisions ...... B&I and REAP: § 4279.125 Interest rates; § 4279.233 Interest rates. CF: § 3575.33 Interest rates. WWD: § 1779.33 Interest rates. § 5001.402 Term length, loan schedule, repayment ...... B&I and REAP: § 4279.126 Loan terms. CF: § 3575.34 Terms of loan repayment. WWD: § 1779.34 Terms of loan repayment. § 5001.403 Lender fees ...... B&I: § 4279.120 Fees and charges; § 4279.231 Fees. REAP: § 4280.129 Guaranteed loan funding. CF: § 3575.29 Fees and charges by lender. WWD: § 1779.29 Fees and charges by lender. § 5001.406 Loan amounts ...... B&I: § 4279.119 Loan guarantee limits. REAP: § 4280.129 Guaranteed loan funding. § 5001.407 Percent of guarantee ...... B&I: § 4279.119 Loan guarantee limits. REAP: § 4280.129 Guaranteed loan funding. CF: § 3575.30 Loan guarantee limitations. WWD: § 1779.30 Loan guarantee limitations. § 5001.408 Sale or assignment of Guaranteed Loan ...... B&I: § 4279.75 Sale or assignment of guaranteed loan; § 4279.223 Sale or assignment of guaranteed loan. CF: § 3575.65 Lender’s sale or assignment of the guaranteed portion of loan. WWD: § 1779.65 Lender’s sale or assignment of the guaranteed por- tion of loan.

Guarantee Provisions

§ 5001.450 General ...... B&I: § 4279.72 Conditions of guarantee. REAP: § 4280.131 Credit quality. CF: § 3575.3 Full faith and credit; § 3575.4 Conditions of guarantee. WWD: § 1779.3 Full faith and credit; § 1779.4 Conditions of guarantee. § 5001.451 Conditional Commitment ...... B&I: § 4279.173 Loan Approval and obligating funds. § 5001.452 Loan closing and conditions precedent to issuance of Loan B&I: § 4279.181 Conditions precedent to issuance of the Loan Note Note Guarantee. Guarantee; § 4279.281 Conditions precedent to issuance of Loan Note Guarantee. REAP: § 4280.142 Conditions precedent to issuance of loan note guar- antee. CF: § 3575.63 Conditions precedent to issuance of the Loan Note Guarantee. WWD: § 1779.63 Conditions precedent to issuance of the Loan Note Guarantee. § 5001.453 Issuance of the guarantee ...... B&I: § 4279.181 Conditions precedent to issuance of the Loan Note Guarantee; § 4279.281 Conditions precedent to issuance of Loan Note Guarantee. REAP: § 4280.142 Conditions precedent to issuance of loan note guar- antee. CF: § 3575.63 Conditions precedent to issuance of the Loan Note Guarantee; § 3575.64 Issuance of Lender’s Agreement, Loan Note Guarantee, and Assignment Guarantee Agreement. WWD: § 1779.63 Conditions precedent to issuance of the Loan Note Guarantee; § 1779.64 Issuance of Lender’s Agreement, Loan Note Guarantee, and Assignment Guarantee Agreement. § 5001.454 Guarantee fee ...... B&I: § 4279.120 Fees and charges; § 4279.231 Fees. REAP: § 4280.126 Guarantee/annual renewal fee. CF: § 3575.29 Fees and charges by lender. WWD: § 1779.29 Fees and charges by lender. § 5001.455 Periodic Guarantee Retention fee ...... B&I: § 4279.120 Fees and charges; § 4279.231 Fees. REAP: § 4280.126 Guarantee/annual renewal fee. § 5001.456 Other fees ...... B&I: § 4279.120 Fees and charges. § 5001.457 Changes prior to loan closing ...... B&I: § 4279.174 Transfer of lenders; § 4279.280 Changes in borrower. REAP: § 4279.174 Transfer of lenders; § 4279.280 Changes in bor- rower. § 5001.458 Other Federal, State, and local requirements ...... CF: § 3575.43 Other Federal, State, and local requirements. WWD: § 1779.43 Other Federal, State, and local requirements.

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TABLE 1—ONERD GUARANTEED LOAN PROGRAM CFR SECTIONS AND SUBPARTS—Continued

OneRD section No. and title Current section Nos. and titles

§ 5001.459 Replacement of Loan Note Guarantee and Assignment B&I: § 4279.84 Replacement of document; § 4279.226 Replacement of Guarantee Agreement. document; § 4279.84 Replacement of document; § 4279.226 Re- placement of document. REAP: § 4279.84 Replacement of document; § 4279.226 Replacement of document; § 4279.84 Replacement of document; § 4279.226 Re- placement of document. CF: § 3575.73 Replacement of loss, theft, destruction, mutilation, or de- facement of Loan Note Guarantee or Assignment Guarantee Agree- ment. WWD: § 1779.73 Replacement of loss, theft, destruction, mutilation, or defacement of Loan Note Guarantee or Assignment Guarantee Agreement.

Subpart F—Servicing Provisions

§ 5001.501 General ...... B&I: § 4287.107 Routine servicing. REAP: § 4287.107 Routine servicing. CF: § 3575.69 Loan servicing. WWD: § 1779.69 Loan servicing. § 5001.502 Oversight and monitoring ...... B&I: § 4279.217 Oversight and monitoring. REAP: § 4287.107 Routine servicing. § 5001.503 Project completion requirements ...... REAP: § 4280.143 Requirements after project construction. § 5001.504 Financial reports ...... B&I and REAP: § 4287.107(d) Borrower financial reports. CF: § 3575.69 Loan servicing. WWD: § 1779.69 Loan servicing. § 5001.505 Collateral inspection and release ...... B&I: § 4287.113 Release of Collateral. REAP: § 4287.113 Release of Collateral. CF: § 3575.12 Inspections; § 3575.69 Loan servicing. WWD: § 1779.12 Inspections; § 1779.69 Loan servicing. § 5001.506 Loan transfers and assumptions ...... B&I: § 4287.134 Transfer and Assumption. REAP: § 4287.134 Transfer and Assumption. CF: § 3575.88 Transfers and assumptions. WWD: § 1779.88 Transfers and assumptions. § 5001.507 Lender transfer ...... B&I: § 4279.174 Transfer of lenders; § 4279.279 Transfer of Lenders. § 5001.508 Mergers ...... CF: § 3575.89 Mergers. WWD: § 1779.89 Mergers. § 5001.509 Servicing fees ...... B&I: § 4279.120 Fees and charges. REAP: § 4287.334 Transfer and Assumption. § 5001.510 Subordination of lien position ...... B&I: § 4287.123 Subordination of lien position. REAP: § 4287.323 Subordination of lien position. § 5001.511 Repurchases from Holders ...... B&I: § 4279.78 Repurchase from holder; § 4279.225 Repurchase from Holder. REAP: § 4279.78 Repurchase from holder; § 4279.225 Repurchase from Holder. CF: § 3575.78 Repurchase of loan. WWD; § 1779.78 Repurchase of loan. § 5001.512 Additional expenditures and loans ...... CF: § 3575.84 Additional loans or advances. WWD: § 1779.84 Additional loans or advances. § 5001.513 Interest rate changes ...... B&I: § 4287.112 Interest rate changes. REAP: § 4287.112 Interest rate changes. CF: § 3575.80 Interest rate changes after loan closing. WWD: § 1779.80 Interest rate changes after loan closing. § 5001.514 Lender failure ...... B&I: § 4287.136 Lender failure. REAP: § 4287.136 Lender failure. § 5001.515 Default by Borrower ...... B&I: § 4287.145 Default by Borrower. REAP: § 4287.145 Default by borrower. WWD: § 1779.75 Defaults by borrower. § 5001.516 Protective Advances ...... B&I: § 4287.156 Protective Advances. REAP: § 4287.156 Protective advances. CF: § 3575.83 Protective advances. WWD: § 1779.83 Protective advances. § 5001.517 Liquidation ...... B&I: § 4287.157 Liquidation. REAP: § 4287.157 Liquidation. CF: § 3575.81 Liquidation. WWD: § 1779.81 Liquidation. § 5001.519 Bankruptcy ...... B&I: § 4287.170 Bankruptcy. REAP: § 4287.170 Bankruptcy. CF: § 3575.85 Bankruptcy. WWD: § 1779.85 Bankruptcy. § 5001.520 Litigation.

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TABLE 1—ONERD GUARANTEED LOAN PROGRAM CFR SECTIONS AND SUBPARTS—Continued

OneRD section No. and title Current section Nos. and titles

§ 5001.521 Loss calculations and payment ...... B&I: § 4287.158 Determination of loss and payment. REAP: § 4287.158 Determination of loss and payment. CF: § 3575.34 Terms of loan repayment; § 3575.81 Liquidation; § 3575.94 Determination and payment of loss. WWD: § 1779.34 Terms of loan repayment; § 1779.42 Design and con- struction requirements; § 1779.81 Liquidation; § 1779.94 Determina- tion and payment of loss. § 5001.522 Future recovery ...... B&I: § 4287.169 Future Recovery. REAP: § 4287.169 Future Recovery. CF: § 3575.95 Future recovery. WWD: § 1779.95 Future recovery. § 5001.523 Property acquired by the Lender ...... CF: § 3575.90 Disposition of acquired property. WWD: § 1779.90 Disposition of acquired property. § 5001.524 Termination of Loan Note Guarantee ...... B&I: § 4287.180 Termination of Guarantee. REAP: § 4287.180 Termination of Guarantee. CF: § 3575.96 Termination of Loan Note Guarantee. WWD: § 1779.96 Termination of Loan Note Guarantee.

As noted in table 1 above, this final Waste Disposal, Business and Industry, to the Agency’s customers has changed rule is divided into six major subparts: and REAP projects. to improve consistency, accountability (1) Subpart A contains general (5) Subpart E contains loan and and transparency. In delivering OneRD, provisions that are applicable to each guarantee provisions. Loan provisions the Agency will publish Federal guaranteed loan made under 7 CFR part cover interest rates, term length, loan Register notices annually containing 5001, except as may be otherwise schedule, repayment, lender fees, loan specific information associated with the indicated. Topics covered include amounts, percentage of guarantee, guaranteed loan programs, such as fee definitions; exception authority; appeal eligible and ineligible uses of loan amounts, or project priorities based on and review rights; general lender funds, and sale or assignment of a Agency initiatives. Additional programs responsibilities; special initiatives; guaranteed loan. Guarantee provisions that may become part of OneRD in the approvals, regulations, and forms; and cover the conditional commitment, loan future will also be announced via standards for financial information. closing and conditions precedent to Federal Register notice and this rule (2) Subpart B contains provisions for issuing the loan note guarantee (LNG), will be amended to incorporate those determining project, borrower, and the issuance of the LNG, periodic additional programs. lender eligibility. It also contains a list retention and other fees, replacement of The following paragraphs address of ineligible projects, both general and documents, reorganizations, and other OneRD by examining the delivery program specific, and a set of conditions legal requirements. mechanisms and include a discussion of that would make an otherwise eligible (6) Subpart F contains provisions for the Federal Register notices that will be borrower ineligible. This subpart servicing the loan guaranteed under this used as part of the implementation of addresses the lender’s agreement, along part, including oversight, monitoring, the unified platform. with provisions associated with a lender and reporting requirements, and project Eligibility. Under OneRD, four basic maintaining its approved lender status. completion requirements. Servicing types of eligibility are identified in This subpart also addresses specific topics covered include audits and subpart B: Project eligibility, eligible use project requirements for the Business financial reports, collateral, loan of loan funds, borrower eligibility, and and Industry, Community Facility, and transfer and assumption, lender transfer, lender eligibility. Water and Waste Disposal guaranteed mergers, servicing fees, subordination of • Project eligibility is based on the loan programs, and Renewable Energy lien position, repurchases, additional proposed project benefiting a rural area, System Projects, Energy Efficiency expenditures and loans, interest rate on the ability of the activity to be Improvement Projects and Energy changes, lender failure and borrower funded to meet the requirements of the Efficient Equipment and Systems default, protective advances, applicable program, on meeting a projects under REAP. liquidation, bankruptcy, litigation, loss minimum set of project criteria, and, (3) Subpart C contains provisions for calculations and payments, future when applicable, on the boundaries of origination requirements, credit recovery, property acquired by the the proposed service area meeting a evaluations and underwriting, lender, and termination of the LNG. nondiscrimination criterion. Projects appraisals, guarantees, monitoring Lastly, we included appendices with that do not meet these criteria would be requirements, compliance with other information about financial feasibility ineligible under OneRD. In addition, laws, environmental responsibilities, studies and reports and technical these criteria cannot be voided under and conflicts of interest. reports for Renewable Energy Systems the exception authority provided in this (4) Subpart D contains application and Energy Efficiency Improvement final rule. The applicable project provisions for a loan guarantee under projects under various project cost eligibility requirements, located in this part, including preliminary thresholds. §§ 5001.102 through 5001.108 of this eligibility reviews and applications, final rule, remain essentially unchanged application evaluation, and application B. Delivery of the OneRD Guaranteed for each of the four loan programs. award processes. This subpart also Loan Program However, some differences are includes more specific application While each of the four loan programs discussed in section III of this preamble. requirements and priority point systems remain substantially the same under One of the most important differences for Community Facility, Water and OneRD, the way they will be delivered discussed is that OneRD uses three

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minimum project financial conditions to are quasi-state agencies and not, in most will be collected from the lender, as reduce project risk by screening out cases, subject to credit examination. stated in § 5001.521. those projects less likely to achieve a State bond banks and state bond pools With OneRD, the Agency has level of success. These three financial have approached the Agency numerous standardized, to the extent possible, the conditions establish minimum times and have been declined due to the types of information to be included in requirements for debt-service coverage limiting language. the loan guarantee application, although ratio, cash equity or community A non-regulated lending entity that some additional information is required support, and loan-to-value ratio. While seeks to become an approved lender by some of the programs described in the four loan programs currently must submit a written request to the subpart B of this final rule. In general, address cash equity or community Agency. The request must address the the information associated with a loan support, separately, they do not have criteria listed at § 5001.130(c)(1) and (2). guarantee application under subpart D requirements associated with debt- To address the unique situation of of OneRD is not significantly different service coverage ratios and loan-to-value providing capital on tribal trust lands, from that originally required under the ratios. By specifying these project the Agency has added a category of existing regulations. financial conditions in this final rule, ‘‘non-regulated lending entities The main difference in the borrowers and lenders can determine a servicing tribal trust lands’’ at application for a loan guarantee under project’s eligibility for a loan guarantee § 5001.130(d). This designation provides OneRD is the amount of supporting early in the process. a modified set of criteria that must be documentation that is required to be In addition to identifying eligible met to become an approved lending submitted with or accompany the projects, this final rule identifies entity but restricts lending activity to application for certain projects. Project specific projects and purposes that are tribal trust lands only. Any lending risk will drive the amount of not eligible to receive a loan guarantee. activity proposed outside of tribal trust documentation required versus total The Agency assembled this list based on lands requires the lending entity to project cost thresholds, which were analyses of its current portfolio and apply and meet the requirements of utilized in previous regulations. historic loan defaults as well as the list § 5001.130(c)(1) and (2). The Agency will examine the lender’s of ineligible projects and purposes Approved lender status for all non- analysis of the project, the technical identified in the existing regulations for regulated lending entities will last for merit, any business plans or feasibility the four loan programs. not more than five years studies required, and environmental • Borrower eligibility is based on the Currently, each guarantee program information. If the Agency disapproves borrower meeting the common has a separate and distinct process of the application, the lender and borrower requirements outlined in § 5001.126(a) approving lenders so that a lender have the right to appeal the decision per as well as the program-specific approved to originate a B&I loan is not 7 CFR 1900, subpart B. requirements of § 5001.126(b) through approved to originate a CF loan and vice Servicing. Once RD approves a loan (e). This final rule also identifies versa. This creates confusion and adds guarantee, the lender is responsible for borrowers who would be categorically an additional burden to lenders wishing servicing the entire loan. The lender’s ineligible in § 5001.127. In terms of to participate in multiple guarantee servicing responsibilities under the eligible and ineligible entities, there is programs. The process described provisions of OneRD, including those little change under OneRD compared to streamlines the approval process for regarding negligent servicing, are the four current programs. lenders by providing one unified essentially the same as are currently • Lender eligibility is based on the approach that approves them for all four required under the four loan programs. criteria provided in § 5001.130. guarantee programs. The Agency This information is in subpart F. Requirements to be an approved lending believes this approach will expand Oversight and monitoring. Under participant vary for regulated and non- program usage by enabling lenders to OneRD, as under the four loan regulated lending entities. participate in programs they may not programs, the Agency conducts all Regulated lending entities, listed at have otherwise been participating in oversight and monitoring activities § 5001.130(b)(1) through (9), who are due to the additional cost and time of necessary to ensure that lenders are subject to supervision and credit being approved. originating, and servicing Agency examination by an applicable agency of Guaranteed loan approval. Under the guaranteed loans in a manner consistent the United States or a state, who meet four loan programs, the Agency views with lender and Agency standards. the requirements of § 5001.130(a), are proper loan origination as a These activities include, but are not eligible to receive a loan guarantee responsibility of the lender. OneRD limited to, conducting lender visits and without additional documentation being reinforces the concept of negligent loan meetings and requiring various reports sent to the Agency. The list of regulated origination throughout this Part to help and notifications as discussed lending entities as well as requirements lenders understand the importance of throughout subpart C. There are a few is essentially the same as that in the four conducting proper credit analysis and differences in these activities under existing regulations with one exception. sound loan origination. The policy OneRD compared to those previously The language, ‘‘. . . or were created regarding negligence in the origination required under the four loan programs. specifically by state statute and operated and servicing of loans is found in Sections II.1 through II.4 of this under the direct supervision of a state § 5001.521(d). The Agency anticipates preamble discuss each program in government authority’’ were added to that the clarification for negligent loan detail. allow the issuance of loan guarantees to origination will reduce loan defaults The Agency also uses this oversight state bond banks or state bond pools through improved loan origination. and monitoring to ensure that lenders better clarifying the status of these However, in the event of a default, this maintain the qualification criteria for entities. Previous language listed these regulation provides the Agency being an Agency-approved lender. entities; however, restricting eligibility remedies for negligent loan origination Managing Risks. As noted earlier in to lending entities to those ‘‘. . . subject and servicing, up to and including a this preamble, the Agency has to supervision and credit examination total reduction of the loss claim payable. incorporated into the provisions of by the applicable agency . . .’’ However, in the event of loan default, OneRD certain features to help manage effectively made them ineligible as they loss claims paid under the guarantee project, operational, and institutional

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risks, and loss exposure. Those various definition of rural and rural area in the a typical existing business and a capital provisions are discussed in detail in Consolidated Farm and Rural injection based on projected revenue for section III of this preamble. Development Act (Pub. L. 92–419) for new businesses. This change removes a Federal Register notices. To the CF and WWD guarantee programs to cumbersome calculation for lenders and implement OneRD, the Agency will align the population limit with B&I and aligns the Agency with current industry publish at least one Federal Register REAP. The definition of rural and rural practices. notice each year. Each annual notice area, which is unchanged for the B&I • New Markets Tax Credit (NMTC) will address the following items as and REAP programs, is any area of a provisions are included at § 5001.141. necessary: state not in a city or town that has a Currently, NMTC requirements are only Funding Availability. RD will issue population of more than 50,000 codified in the B&I regulation at notices each year specifying the amount inhabitants according to the latest § 4279.116 even though projects in other of funds available for OneRD decennial census of the United States programs may be eligible to participate. guarantees. Notices may also include and not in the urbanized area By incorporating NMTC requirements the following information, should there contiguous and adjacent to a city or into the OneRD regulation, the Agency be change from prior notices: town that has a population of more than ensures a standardized approach to » Maximum loan amounts. The 50,000 inhabitants; it is codified in this project, borrower and lender eligibility. Agency will identify in the Federal regulation at § 5001.3. This definition is • The Agency, recognizing that the Register notice the maximum loan subject to reservation requirements for lender is familiar with and understands amount per loan guarantee that will be the CF Program found at 7 U.S.C. the nature of the collateral being offered available under each of the four 1926(a)(24). for their guarantee loan request, and has guaranteed loan programs within To align the Agency’s guarantee removed the collateral discounting OneRD. programs purposes with its customer’s requirements currently found at » Percent of Loan Guarantee. The needs, the Agency will allow § 4279.131(b)(1)(i) through (iv) in favor maximum guarantee is 90 percent of refinancing as an eligible project of a lender driven process at eligible guaranteed loan loss pursuant to purpose. Included in the regulation is § 5001.202(b)(4)(ii). The lender will rely statutory authority. The Agency will set the ability to refinance lender, other on discounts that are consistent with annually a guarantee percentage by lender and federally guaranteed, sound loan-to-discounted value program that will apply to loans including Agency, debt. There are practices while ensuring that adequate guaranteed within each program. The specific thresholds that must be met for security exists for the guaranteed loan. Agency will announce annual guarantee debt to be considered for refinancing. Satisfactory justification of the percentages for each program by Refinancing may allow a lender to discounting factors used must be publishing a notice in the Federal improve an applicant’s cash flow provided to the Agency. The change Register in accordance with Section position or obtain a more favorable lien will simplify the discounting process 5001.10. The annual guarantee position, but the Agency does not and allow the lender to customize the percentage may be set at or below the anticipate frequent use of this provision. discount for each loan. Placing the maximum allowed authorized by For a request for refinancing to be collateral discounting responsibility on statute. The annual guarantee eligible for a loan guarantee, it must the lenders and requiring them to justify percentage will take current Federal meet the requirements of their discounting factor is a better credit policy into consideration and § 5001.102(d)(1) through (5) as well as alternative than a ‘strict’ standard as may be set at or below the maximum those in the applicable program sections currently in the B&I regulation. For allowed authorized by statute. §§ 5001.103 through 5001.108. This example, currently in the B&I program » Fees. The Agency will identify the change expands funding options for to meet our collateral requirements, fees, including but not limited to, the refinancing for some programs and equipment can be valued no greater initial guarantee fee rate and the creates a consistent approach for than 70% and real estate no greater than renewal fee that will be used for the guaranteeing loans for debt refinancing 80% of its value which is generally fiscal year for each program in an across all four programs. Additionally, considered standard discounting factors. annual notice published in the Federal as CF and WWD direct loans have a However, these stated factors may be too Register. statutory ‘‘graduation’’ requirement per low for some collateral and too high for » Priority Scoring. The Agency will 7 CFR 1942(b)(5) and 7 CFR 1780.1(c) others. Therefore, OneRD allows some identify in the Federal Register notice Refinancing provides a ‘‘stepping stone’’ subjectivity, as requested by the lenders, the scoring criteria (e.g., Agency for those direct borrowers that may wish and we will rely on the proper training priorities) that will be used, if to refinance their direct Agency debt but of our staff to recognize when collateral necessary, to allocate funds when funds may not meet all the requirements of a is not discounted on sound discounting are insufficient to cover all funding commercial lender without a guarantee. practices. • requests within a program. Recognizing that equity serves a The Agency currently allows the Additionally, if there are any changes valuable role in providing stability issuance of the loan note guarantee prior to the OneRD Guaranteed Loan Program, against unforeseen changes to cash flow to project completion in the B&I this rule will be amended accordingly. or profitability and is one of the five program only. OneRD, at factors in credit analysis, the OneRD § 5001.205(e)(2), expands this option to C. Changes of Note regulation at § 5001.105(d) removes the CF, WWD and REAP. There are The Agency has identified changes, B&I program’s requirement for tangible additional construction contract, including, but not limited to lender balance sheet equity and replaces it contractor performance and lender eligibility, and annual notice contents with a requirement for sufficient equity monitoring (§ 5001.205(e)(2)(i) through throughout section III and IV. for all businesses. The tangible balance (viii)), and reporting (§ 5001.205(f)) Additional items, considered major sheet equity requirement and requirements and fees (§ 5001.454(c)) changes, not addressed elsewhere calculation is not common in the associated with this opportunity; include: lending community and created however, when requested and approved, • The Agriculture Improvement Act confusion. The OneRD regulation issuing the LNG prior to construction of 2018 (Pub. L. 115–334) amended the provides a 10 percent equity position for completion allows the lender the

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flexibility to conduct one loan closing percentage may be set at or below the V. Public Participation and Discussion for a project involving both construction maximum allowed authorized by statute of Comments From Listening Sessions and long-term financing. This change provides consistency and • The Agency has worked to develop a Currently for CF and WWD certainty for lenders and gives the regulation that is customer driven and guarantee projects, preliminary Agency the flexibility necessary to simplifies the processes involved with architectural and engineering reports effectively manage its portfolio. loan guarantees. From the application to (PAR and PER respectively) or plans Although the guarantee percentage may servicing, the Agency critically must be approved by the lender and vary from program to program, the reviewed every process to draft this concurred on by the Agency. The guarantee percentage will be the same final rule. The Agency hosted listening Agency provides at § 5001.205(a) the for all loan guarantees within a program sessions throughout the West, South, removal of that requirement and allows Midwest, and Northeast regions with a the lender to provide engineering or for the year. The annual guarantee focus on improving customer architectural documentation that meets percentage will take current Federal experience with RD’s loan guarantee the level of detail the lender would credit policy into consideration and programs. In addition, RD held a typically require for a standard may be set at or below the maximum National listening session in commercial loan. The Agency will allowed authorized by statute. This will provide assistance to clarify any Agency provide certainty for program Washington, DC, and a virtual listening requirements; however, no technical participants and consistency across session for Tribal communities. From oversight or recommendations as to the program offices. those sessions, the Agency collected 314 comments and consistently heard that technical feasibility of the project will • To ensure lender responsibility and customers were looking for a more be provided. This change will reduce commitment throughout the life of the time and expenses incurred by the streamlined and refined process. The loan, the Agency has increased the Agency appreciates all comments and borrower to produce planning minimum retention percentage from 5 documents as well as reducing has considered suggestions from each percent to 7.5 percent of the processing time as the Agency will rely commenter. unguaranteed portion of the loan on the state’s regulatory agency’s review The following sections discuss each and permitting process rather than their amount at § 5001.408(a)(3)(i). comment and the Agency’s responses, own, duplicative, review. At § 5001.454, § 5001.455 and organized by subpart of the new • Currently each of the four programs § 5001.456 the Agency discusses and regulations with each section organized included in the OneRD regulation have provides guidance on the various fees by comment paragraph and then Agency separate term limit requirements with and charges that are currently in place response paragraph. Sections with multiple comments will continue the B&I having the most prescriptive. The or will be implemented with OneRD, at comment/response paragraph pairing Agency provides at § 5001.402 to allow § 5001.454 and § 5001.455 or that may the lender to establish and justify the format until all comments for that be implemented in the future, at section are addressed. Comments are as guaranteed loan term for each § 5001.456. The OneRD sections outline individual loan. The term will be based received from listening session the types of fees that may be charged participants. The Agency has done its on the justified useful economic life of and whether those fees may be passed the asset being financed, not to exceed best to interpret the context and on to the borrower; however, OneRD 40 years, or limitations imposed by state meaning of each comment or question. does not provide the fee amount. The statute, whichever is less. The Agency Subpart A—General Provisions must concur with the term proposal. Agency will establish actual fee This change provides consistency amounts and provide to the public in an Definitions between the programs and provides annual notice published in the Federal One commenter asked for a definition flexibility to the lender in proposing Register. The fee to be charged and the of affiliates for B&I loan documentation. and setting the term of the loan based fee rate may vary by program. The The commenter’s interpretation of the on their knowledge of the funding agency may establish higher fees for current regulations is to obtain financial request. larger loans. By defining the fees that statements for any affiliate of the • In order to reduce portfolio risk, the may be charged in the regulation, and borrower, regardless of the ownership OneRD regulation introduces, at including the specific fee amounts in an percentage. The commenter then said § 5001.406, maximum guaranteed loan annual Federal Register publication, the that there should be a threshold of 50 amounts to the CF and WWD programs. Agency is provided the flexibility to percent or more ownership to be The guaranteed loan limits for B&I and implement administration or considered an affiliate. REAP are statutory and remain congressionally mandated changes Agency’s Response: Per § 5001.3, this unchanged from previous regulations. quickly and better respond to changes in final rule defines an affiliate as a person Æ The four programs included in the its portfolio. or entity with control over the borrower, OneRD regulation currently have The Agency, at § 5001.454 adds with no specific ownership percentage separate maximum guarantee identified. percentages. The OneRD regulation, at maximum guarantee fee level for each of § 5001.407, sets the maximum guarantee the OneRD programs. The Agency feels Definition of Rural and Population at 90 percent of eligible guaranteed loan that setting a maximum fee, above Limits loss across the four programs. However, which a technical change to the rule is The Agency received comments the Agency will set annually a guarantee required, provides flexibility to raise asking to standardize rural population percentage by program that will apply to fees within a reasonable range without standards and definition across all loans guaranteed within each program creating a barrier to participation. As programs. for the fiscal year. The Agency will with the fee itself, the maximum fee Agency’s Response: The Agricultural announce annual guarantee percentages varies by program to account for Improvement Act of 2018 expanded the for each program by publishing a notice differences in risk by sector and population limit for the CF and WWD in the Federal Register in accordance business models of various project guarantee programs, in agreement with with § 5001.10. The annual guarantee types. this comment. The new population

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limits have been incorporated into One commenter asked if Alaska more clarity on meeting this eligibility OneRD, so all four guarantee programs Native Corporations are considered criterion has been provided. now have the same definition of rural Tribal governments. Loan Purposes and rural area. Agency’s Response: Under the OneRD Some comments received inquired Subpart B—Eligibility Provisions Guarantee regulation, applicant eligibility will vary from program to about refinancing Community Facility Program Specific Requirements and program based on the authority loans. One comment specifically Concerns provided by Congress. Based on the recommended the Agency allow definition of Indian tribe at 25 U.S.C. refinancing of over more than 50 One commenter asked if Risk percent on Community Facilities loans. Management Association (RMA) 5304(e), if the Alaska Native Corporation is defined in or established Agency’s Response: In the CF statements are required for the B&I program. guaranteed loan program. The pursuant to the Alaska Native Claims commenter added that lenders do not Settlement Act (43 U.S.C. 1601 et seq.) Maintenance of Approved Lender analyze RMA statements and questioned they would meet the definition of Status: Preferred Lenders Indian tribe and potentially be eligible. if RMA statements were necessary as a There were comments in the docket result. Lenders regarding a preferred lender program. Agency’s Response: The Agency uses The commenters suggested adding a Regarding the Community Facilities the RMA information as an industry preferred lending program to the OneRD and Water and Waste Disposal comparison to the borrower’s financial program. One commenter noted that programs, one commenter said that for statements. However, the Agency does under a preferred lender program non-regulated lenders, the Agency not require that lender submit RMA ‘‘banks that use USDA lending can be should ‘‘issue a statement of good statements as part of the application. put in SBA categories.’’ Another standing so new application is not The regulation states that spreadsheets commenter added that a preferred needed’’ and, ‘‘if no loss claim is made, and analysis of the financial statements lender program should contain process an automatic renewal.’’ Another are accepted in a credit evaluation if ‘‘uniform requirements across all commenter said that Rural Development they comply with industry standards. programs.’’ Standards for financial information are should consider using Aeris Ratings Agency’s Response: The Agency has also discussed in § 5001.9. (formerly the Community Development determined that it will not implement a Financial Institution Assessment and preferred lender program with this Eligibility Rating System) for outside credit regulation. As the regulation covers The Agency received several examination of non-regulated entities varying types of eligible projects, it comments with concerns about like the B&I Guaranteed Loan program. would be difficult to develop a common eligibility for OneRD guaranteed loans Agency’s Response: Under the OneRD preferred lender program. We want to programs. We divided the comments Guarantee regulation, the approval and encourage lenders of all sizes and into subcategories regarding eligibility renewal process for non-regulated capacities to utilize the program and for borrowers, lenders, loan purposes, entities will be the same across all ensure funds are available to all to the and projects, and respond point by programs. Currently, Rural Development extent possible, and a preferred lender point. does not allow an automatic renewal as program may affect our ability to fund suggested by the commenter, but the Borrowers projects with smaller lenders. The regulation does provide a streamlined OneRD regulation provides consistent Commenters discussing eligibility for renewal process for non-regulated lender eligibility criteria for the guaranteed loan borrowers lenders that meet certain thresholds. guaranteed loan programs. The Agency recommended the Agency revise or Regarding the suggestion from the also added a new provision for non- simplify its ‘‘credit elsewhere’’ second commenter, Rural Development regulated lenders providing loans to requirements. One commenter said that already considers Aeris to be an entities located on Tribal Trust lands. the Small Business Administration’s approved credit examination entity and Rural Development monitors lenders for version of credit elsewhere does accept the use of Aeris to evaluate liquidity and reviews their guaranteed requirements is better tailored to rural outside credit of non-regulated entities. loan quality and activity on a regular markets. Projects basis. Agency’s Response: In accordance with 7 U.S.C. 1983, the Agency has a Some comments suggested the Lender Participation statutory requirement for the CF and Agency eliminate, modify, or clarify The Agency received one comment WWD program to document that the how projects will ‘‘primarily serve rural regarding lender participation in applicant is unable to obtain the areas’’ in the Community Facilities OneRD. The commenter said that this required credit from private, program. final rule should not disadvantage small commercial, or cooperative sources at Agency’s Response: 7 U.S.C. lenders. Instead, the commenter said the reasonable rates and terms without the 1926(a)(1) under which the Community Agency should ensure the maximum RD loan guarantee. The lender also has Facilities guarantee program operates number of lenders use the programs so a responsibility to evaluate and certify authorizes assistance to entities that the maximum number of rural to the Agency that it would not make ‘‘primarily serving’’ rural businesses communities are served via these loan the loan without a guarantee and other rural residents. Therefore, in programs under OneRD. The commenter (Community Facilities and Water and addition to the location of the facility added that maximizing the number of Waste Disposal Programs only). The (i.e., rural area) we must also determine lenders using the program rather than Agency considered the commenters’ who is being served by the facility or promoting fewer, larger lenders will remarks in developing the regulation service in order to determine eligibility. result in a ‘‘broad base of support for the and accompanying guidance to address While we cannot eliminate this program from stakeholders.’’ the proper analysis and documentation provision due to statutory requirements, Agency’s Response: The Agency of this eligibility criterion. as was suggested by one commenter, wishes to maximize the number of

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lenders using the programs and create issues because the B-note is the time to complete environmental therefore, the OneRD final rule looks to usually longer than the A-note in NMTC reviews across all programs. A few increase application efficiency, which projects. programs have seen an increase in the will benefit all lenders regardless of Agency’s Response: The provision level of environmental review. size. referenced by the commenter requires Environmental site assessments that are that the maturity and related payment not part of compliance with NEPA are New Markets Tax Credit schedule of the lender’s guaranteed loan completed only when the Agency will A commenter expressed concern that to the borrower must be no longer than finance real estate and are a risk a 7-year foreclosure forbearance period the maturity and related payment management decision made on a case- makes it difficult to pair lender schedule of the sub-CDE’s loan to the by-case basis by the agency and offer programs with New Market Tax Credit Qualified Active Low Income protection to the lender, borrower, and (NMTC) benefits, particularly for Community Business (QALICB) funded agency. RD is continually evaluating community banks. Another commenter by the direct tracing method in a and implementing ways to improve said that banks would like to use the leveraged equity structure. This efficiency of all environmental review ‘‘B&I guarantee product on the leverage requirement allows a smooth transfer and will continue to do so. loan piece of the NMTC structure’’. and assumption of the leveraged Standards for Financial Information Agency’s Response: OneRD allows a lender’s loan, if necessary, and retains leveraged lender in the NMTC leveraged the guarantee. The regulation does not One commenter shared concern that equity structure of that transaction to require equal terms between the two onerous costs include environmental receive guaranteed loans. The 7-year loans from the CDE to the QALICB, see reports and account financials. forbearance agreement is protection for § 5001.141. Agency’s Response: Environmental the NMTC investor, typical of all NMTC compliance is statutory, and compliance transactions, and must be factored as a Subpart C—Origination Provisions has been improved through the credit risk by the lender in their Environmental Responsibilities expanded capability to provide a analysis. categorical exclusion for eligible Regarding another commenter’s The Agency received some comments projects. The list of categorical concern about recognizing forbearance regarding National Environmental exclusions can be found at 7 CFR limitations, we added a provision to Policy Act (NEPA) requirements to 1970.53 and 1970.54. The list of projects OneRD that the sub-Community apply for a OneRD loan guarantee. Most referenced in § 5001.102 ‘‘Project Development Entity (sub-CDE) must of the commenters suggested that eligibility—general’’ will often fall include in its operating agreement that environmental reporting slows down under §§ 1970.53 (which may require the investor fund entity has approval the process of application approval additional information) and 1970.54 rights to certain loan servicing actions because of its complexity. One (which will always require an by the sub-CDE lender. The intention of commenter noted that the Agency environmental report) list of categorical this addition is to allow the guaranteed provides sufficient guidance on exclusions. We encourage lenders and loan lender the ability to monitor any environmental reporting, but now borrowers to work with RD staff to forbearance or servicing actions by the lenders need to hire a consulting firm to ensure that any environmental reports sub-CDE lender and protect their get the loan approved, citing a $15,000 are focused on projects and impacts that interests in the project. fee that needs to be paid up front. need analysis and not pay for One commenter indicated that Another commenter added that the assessments related to projects and requiring a lender upfront to state its Agency’s environmental requirements impacts that are unnecessary. Standards plan to allow for debt forgiveness could for New Markets Tax Credits (NMTC) for financial information in § 5001.9 create NMTC compliance issues. ‘‘are more stringent and time intensive provide flexibility to provide financial Qualified Low-Income Community than the other financing entities, which information that is prepared and Investments must meet the ‘‘true debt’’ often include multiple banks.’’ A submitted in accordance with requirement under Internal Revenue commenter recommended the USDA accounting practices acceptable to the Service rules. Another commenter revert to completing this requirement Agency. They include, but are not wanted the Agency to address the in-house, which was supported by limited to, GAAP and the industry’s impact of unwinding the NMTC another commenter who said the standard accounting practices. structure at the end of the 7-year previous environmental regulations compliance period based on a reference were ‘‘much less costly and didn’t take Origination and Credit Evaluations in the regulations. The commenter as long to approve’’ and asked if a Two commenters suggested that the wanted clarification that the unwind National Office review of the project Agency should consider using tax plan could include the transfer of the would be possible if the State Office returns as a more consistent approach to guaranty between debt instruments. evaluation is delayed. A commenter analyze underwriting and as the basis of Agency’s Response: The Agency has said that it would be ‘‘more appropriate historical financial statement for B&I taken into consideration the two for the lender to have the flexibility to guaranteed loans. comments related to sub-CDE. With this run environmental lien searches and Agency’s Response: Standards for regulation, we have added a provision have questionnaires completed by the financial information as noted in that the sub-CDE must include in its borrowers to determine what § 5001.9 provides flexibility to provide operating agreement that the investor environmental risks are present.’’ financial information that is prepared fund entity has approval rights to Overall, the commenter did not believe and submitted in accordance with certain loan servicing actions by the a blanket Phase 1 requirement is the accounting practices acceptable to the sub-CDE lender. We have also best way to address environmental risks. Agency. Those include, but are not eliminated the requirement to provide Agency’s Response: The Agency’s limited to, GAAP and the industry’s an exit strategy for the NMTC investor. environmental policies and procedures standard accounting practices. Tax Another commenter said regulations regulation (7 CFR 1970) has decreased returns often include accelerated in 7 CFR 4279.126(a) that require that the number of Environmental depreciation and other tax treatments loan terms must be equal in length Assessments required and has reduced that impact a borrower’s balance sheet,

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or they are too generally summarized building marine transportation vessels Agency’s Response: Equity serves a and do not contain details about the that transport agricultural resources. valuable role in providing business description of assets (e.g., fixed assets Agency’s Response: OneRD will help stability against unforeseen changes to and liabilities). leverage Agency programs to suit the cash flow or profitability and is one of The Agency received some comments needs of the credit. Due to OneRD and the five factors of credit analysis. The about lender autonomy and tax credit program requirements, each OneRD regulation of the B&I program responsibilities during the application structure is reviewed independently to will require sufficient equity for an process. Some commenters said that ensure eligibility and compliance; existing business, stated as a 10-percent there are too many offices involved in therefore, the Agency cannot comment balance sheet equity position or capital the approval process, and that the on a specific project’s eligibility. investment into the project to at least 10 Agency must allow the lender to be the Appraisals percent of the project cost for a typical primary point of contact, especially business, with criteria for issuance of an regarding credit analysis and The Agency received three comments exception to the minimum equity underwriting. regarding appraisal process for OneRD requirement. Typical new businesses Agency’s Response: The Agency loans. One commenter suggested that will have the option of meeting equity respects the role of the lender and their appraisal reviews conducted by a requirements by contributing either 20 relationship to the borrower and has Certified General Appraiser should not percent balance sheet equity or injection established a process that is respectful require additional review by USDA. of capital equal to at least 25 percent of of that relationship. The Agency has Another commenter said that to use the project costs. streamlined and standardized its credit market value, appraisals would need to risk evaluation and continues to review be done ‘‘as-is,’’ and not as an ongoing USDA Partnerships its policies. concern value. A third commenter We received two comments about One commenter suggested methods recommended that the Agency should USDA partnerships. A commenter for lender responsibility and provide lenders with a list of approved requested the Agency continue to create commitment during the application appraisers so that two appraisals are Memorandums of Understanding with process for OneRD. The commenter said unnecessary. guaranteed loan programs across the Agency’s Response: We agree that that the application process should government. The commenter added that qualified and licensed appraisers clearly outline the responsibility of the these partnerships ‘‘will help create provide valuable insight to asset value. lender and timeline and review process greater flexibility for lenders, which The Agency requires appraisals to meet of the Agency. Not only should the ultimately helps their customers.’’ the Financial Institution Reform, lender be responsible for underwriting Agency’s Response: The Agency Recover, and Enforcement Act (FIRREA) the project, the lender should be agrees with this comment and has and Uniform Standards of Professional required to keep ‘‘skin in the game’’ for participated in an MOU with the Small Appraisal Practice (USPAP) the life of the project. The commenter Business Administration since 2018. requirements, and the lender to provide closed with suggesting that encouraging This is a focus of OneRD’s outreach an independent review of the a commitment to deep rural customer plans. However, the process for relationships has been a hallmark of appraisal—both of which are also engaging in a Memorandum of USDA programs, and should continue to required by banking regulators. The Understanding is separate from the be encouraged with a new lending regulation requires real estate appraisals rulemaking process. partner. when the value of the collateral exceeds Agency’s Response: The OneRD $500,000 or the current limitation under Subpart D—Guarantee Application regulation defines lender and Agency the Financial Institutions Reform, Provisions roles. The Agency will also be providing Recovery and Enforcement Act Public Application Evaluation training to lenders and field staff on Law 101–73, 103 Stat. 183 (1989). their individual roles and One commenter stated that the B&I responsibilities including time frames. Tangible Balance Sheet Equity application process is cumbersome and The Agency is developing an electronic Requirements recommended that the Agency use application intake system, which will The Agency received comments about bank-provided information to meet communicate with the lender as the current Tangible Balance Sheet Equity Rural Development application application progresses through each (TBSE) requirements for B&I guaranteed financial requirements instead. phase of processing. The desire is that loans. For B&I guaranteed loans, one Agency’s Response: The Agency must the electronic system will help provide commenter suggested the Agency allow obtain information to enable it to a consistent processing timeframe and NMTC Equity to serve as a TBSE for expeditiously complete its review enhance the lender’s relationship with easier leveraging of NMTC investment process and ensure compliance with the Agency. The minimum retention with Community Facilities and other statutory and regulatory requirements. percentage has been increased to 7.5 Rural Development project financing. While receipt of the information is percent of the unguaranteed portion of Other comments suggested simply required, the format for presenting that the loan amount from 5% at revising TBSE requirements or information to the Agency is not § 5001.408(a)(3)(i). By raising the providing additional options outside of specified and may include lender’s percentage to 7.5%, which is a nominal TBSE requirements, such as market- documents and forms. increase, we believe that this will help based financial statements ‘‘based on Reservation of Funds ensure lender responsibility and current appraised value’’ or using tax commitment throughout the life of the returns ‘‘with verifications for financial One commenter suggested the Agency loan. Other lender responsibilities are information.’’ One commenter said allow lenders to request reservation of outlined in § 5001.6 ‘‘General Lender eliminating the TBSE requirement funds for loans in progress to ensure responsibilities.’’ would benefit lenders because ‘‘[n]o they obtain the guarantees. A commenter asked if it was possible other lender uses this practice and it Agency’s Response: The Agency for a company working on a OneRD creates a huge distortion of market asset reviews the pipeline of applications on project to use tax credit programs for value.’’ a regular basis but is not authorized to

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hold funds for a specific project. Project the maximum amount of loan guarantee streamline the process for lenders. B&I awards will continue to be made with percentages established in the OneRD has provisions for loans of less than available funds only after credit Guarantee regulation. Consideration was $600,000 to provide a lower document approval by the Agency. The Agency given to statutory authority that limits application, if they meet certain criteria; reviews applications as they are some program’s options. The maximum however, there is not an overall ‘‘low received; however, depending on the guarantee is 90 percent of eligible loan doc’’ application process as loan size is completeness of the application or the loss. The annual guarantee percentage not necessarily an indicator of project complexity of the proposal, applications will take current Federal credit policy complexity or risk. The Agency is may not receive conditional into consideration and may be set at or developing an on-line application commitments in that same order. This is below the maximum allowed authorized process that they believe will streamline especially common near the end of a by statute. The Agency will announce, the process further. federal fiscal year when the value of annually, guarantee percentages for each One commenter expressed concern applications received exceeds the funds program by publishing a notice in the about the Agency’s need for due remaining. The Agency does not Federal Register. diligence to mitigate risk. propose a reservation of funds process Agency’s Response: The Agency relies Priority Scoring as that could potentially ‘‘tie up’’ on the lender’s due diligence and funding for a reserved application that The Agency received comments underwriting to mitigate credit risk and might or might not be ready to obligate suggesting changes to OneRD’s priority performs a secondary review of the loan to the detriment of an application that point system. One commenter suggested to assure credit quality and regulatory is complete and ready to move forward. priority points for loans of more than $1 adherence. The Agency also monitors million, and a second commenter the lender’s guaranteed loan portfolio to Feasibility Studies requested more guidance on priority evaluate the borrower’s loan Seven comments were received scoring. performance and timely lender pertaining to the Agency’s process in Agency’s Response: We have reporting. The Agency believes that conducting feasibility studies. All of the considered the commenter’s suggestion OneRD provides a balance between the comments had some type of to add priority points for loans of more lender’s and the Agency’s needs. recommendation on how to revise the than $1 million. Loan size, where larger feasibility study requirements, such as guarantee loan requests receive greater Application Award Process increasing the length of the validity priority over smaller guarantee loan One commenter asked the Agency to period, specifying requirements to the requests, is not a priority factor the not require System for Award intended industry or business, being Agency will use in any of its OneRD Management (SAM) registration for more flexible for third-party feasibility Guarantee programs. However, priority guaranteed loans based on the studies, requiring third-party feasibility factors may change. Any changes will be commenter’s understanding that other studies only on requests over $10 published in a Federal Register notice. Federal guarantee programs do not million and providing more resources Regarding the second commenter’s require SAM registration for guaranteed for compliance. concern, this final rule provides loans. Another commenter suggested Agency’s Response: This final rule consistent language as it relates to the eliminating the need for SAM provides consistency in the application purpose and use of assigning points in registration, specifically for Rural of the feasibility study requirements order to prioritize guarantee loan Energy for America Program (REAP). across all four programs. The Agency awards for funding. Priority points are The commenter said that SAM will rely upon the lender’s analysis of assigned to all applications and play an registration inhibits the number of small the five feasibility study components important role when funds requested by applications because the REAP program provided in the lender’s analysis, otherwise potentially successful is inaccessible for areas that do not have borrower’s business plan, or other applications and guarantee loan internet access. project information, to determine a basis requests exceed the lending authority of Agency’s Response: The Agency for successful repayment of the guarantee funds available. Due to the acknowledges this concern; however guaranteed loan. Projects not adequately varying purposes of each guarantee SAM requirements are outside the scope documented and that pose a higher risk program within OneRD Guarantee, there of this rulemaking. to the Agency will be subject to the are differences in each program’s Approval Authority requirements of a third-party feasibility priorities. For example, the B&I study. The requirements will vary Guarantee Program focuses on creating The Agency received comments about depending on items such as the nature jobs, while the Water and allowing more State, district, and of the project, the project’s impact to the Environmental Program focuses on county offices to approve loan borrower’s operation and financial providing safe reliable drinking water. applications. One commenter stability, size of guarantee loan request, recommended that the Agency allow Application Evaluation borrower history, market conditions, county, district, or State Offices to collateral, and other factors. One commenter suggested that, for approve all loans that are smaller in small loans under $100,000, the Agency size. Another commenter suggested Guarantee Thresholds should consider a less detailed having various levels within Rural The Agency received comments about application. Another commenter Development approve loans of certain the threshold for guarantees on an suggested the Agency provide a short dollar amounts and categories and eligible loan. The comments suggested application form for small loans under provided the example of Water and that all programs under OneRD should $1 million to $2 million in size. The Waste Disposal Loan Guarantee of less have a maximum guarantee of 90 commenter also said the Agency should than $5 million could be approved by percent of eligible loans like the have one ‘‘Master application’’ for the the local Rural Development office, Community Facilities guaranteed loan. overall single platform. while a loan of greater than $5 million Agency’s Response: The Agency has Agency’s Response: The Agency has would need to be approved by the considered various approaches to bring created a single application for all four National Office. A comment suggested uniformity across all four programs in programs, which we believe will that there could be an option for lenders

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to send loan approvals to the National accepted engineering practices, the loss program’’ and recommended Office if there have been approval issues claim may be reduced. ‘‘strengthening’’ the Community at the local office. The reasoning for this Facilities Guaranteed Loan Program to Subpart E—Loan and Guarantee option is that it would help to keep ‘‘increase the participation of the Provisions local projects locally controlled but banking industry in these types of allow for a lender to move projects up Underwriting loans.’’ Agency’s Response: The intent of the the chain if necessary. A commenter One commenter suggested the Agency OneRD Guarantee program is to increase suggested that the multiple levels of consider credit quality of borrowers loan review done between the state and the usage of the Agency’s guarantee applying to OneRD, adding that National Office are duplicative and programs and provide needed capital in borrowers in high default industries are time-consuming. Two more levels of rural areas. The new regulation and still being approved by the Agency. review are done after the state offices streamlined application process should Agency’s Response: The Agency have reviewed and approved the loans. encourage more lender participation. resolves these issues by reviewing each This is duplicative, time consuming, With respect to the Community application for credit quality and and prevents timely approval. Facilities Direct loan program, the Agency’s Response: The Agency’s monitoring its loan portfolio to mitigate Agency is required by statute to internal operations, such as loan industry concentrations. It is the intent consider the availability of commercial approval authority, are governed by a of OneRD to assist the lender in credit at reasonable rates and terms for separate regulation and not part of this preparing and the Agency in reviewing each direct loan applicant. We routinely regulatory process; however, the all applications based on sound lending review the ‘‘other credit’’ requirement comments will be taken under practices, even those in high default or with staff and train them on the proper advisement. risk industries. analysis and documentation to support Regarding automation and application the Agency’s decision. The Agency Preliminary Engineering Report (PERs) processing, one commenter suggested welcomes the participation of lenders to The Agency received comments that the Agency share underwriting finance community facility projects requesting a change to the PER (also expertise between States to reduce the either with or without a guarantee in referred to as engineering reports or learning curve for loan specialists in conjunction with a direct loan. engineering documentation) review understanding many different industries One commenter said that for B&I process. Some comments suggested the and business types. guaranteed loans, stoppage of interest at Agency allow expedited PER reviews for Agency’s Response: The commenter’s 90 days dissuades secondary markets guaranteed Water and Environmental suggestion describes an existing process. from working with lenders and causes Program loans, such as Water and Waste Throughout this final rule, we state the reluctance on the part of lenders to work Disposal. One commenter explained, responsibilities of State and National with borrowers on workout agreements; ‘‘The lender is making the loans and has Offices. Agency field staff can readily thus, increasing work for USDA. credit policies in place to make sound use the National Office for support and Agency’s Response: The Agency is, loans. Consulting engineers are analysis of industries unfamiliar to under certain circumstances, increasing licensed, and the projects are regulated them. OneRD lays out credit evaluation the 90-day interest termination date to by their state and local agencies so factors for the lender and staff 180-days (see § 5001.450(g)(1) for additional review by RD is not needed.’’ instructions and training will assist the specific criteria) to allow lenders time Another commenter said ‘‘that the processing staff in evaluating the credit for development of a restructuring plan. Agency should provide a waiver of factors and the risk of each credit factor. Lenders would retain the option to engineering or architectural reports for One commenter said that the Agency repurchase the loan guarantee from a small equipment type only projects like should establish regulatory thresholds Holder to allow for debt servicing, solar panel installation, waterflow for loan reviews based on the funding including restructuring of the loan. meters, and lift stations’’, while another amount requested, and that small One commenter suggested providing a commenter suggested the Agency not amounts should have less regulatory ‘‘separate section’’ in the regulation for require PER reviews for loans under $1 burden. loans that involve the capital markets or million in size. Some commenters Agency’s Response: The Agency has ‘‘underwritten’’ deals. The commenter added that PER reviews are a barrier to considered this comment. The Agency said that providing a separate section potential lenders who want to use is obligated to continue to review all would allow these loans to be made as USDA lending programs. loans for statutory and regulatory they always have been made but would Agency’s Response: The Agency compliance; however, we have also allow borrowers and lenders to requires project information as part of streamlined the application process and ‘‘take advantage of the lower rates and its application review process; however, believe that it will improve the process better terms in the capital markets’’ it has scaled back the specific for all applications, not just small ones. accordingly. information requested and leaves the Agency’s Response: This comment level of detail required for the planning Capital and Secondary Market Concerns appears to relate to the Biorefinery, documents to the lender. Section The Agency received many comments Renewable Chemical, and Biobased 5001.305(a) discusses the details that about how capital and secondary market Product Manufacturing Assistance must be included in a lender’s concerns affect the implementation of Program (Section 9003) that was engineering documentation. The Agency OneRD. Most comments expressed included in this regulation at the time will, if requested, provide assistance on concern about the Agency’s focus on its of the listening sessions. Due to Agency requirements and regulations Community Facilities Direct Loan significant differences between this but will not provide technical oversight Program. One commenter said the program and the CF, WWD, B&I and or recommendations. In the event of ‘‘current over-emphasis by USDA on the REAP programs, the Section 9003 default, the Agency may review the Community Facilities Direct Loan program was removed from planning documents as part of the loss program has become a very real threat consideration in this rule. The only claim process. If it is determined that to the continued viability of the other capital markets items in this the project was not designed utilizing Community Facilities Guaranteed Loan regulation are for investors in the New

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Markets Tax Credit program which has One commenter asked the Agency to collected during the seven year term, a separate section, § 5001.141, in the share additional information regarding and (2) such reserve funds or sinking OneRD regulation. the program’s subsidy rates. funds are applied to the guaranteed loan One commenter suggested the Agency Agency’s Response: The Federal as an additional payment of principal to allow an Assignment Guarantee Credit Reform Act of 1990 (FCRA) the guaranteed loan at the end of the Agreement to be assigned to a trustee for requires agencies to estimate the cost to interest-only term. the government of extending or the benefit of investors. The commenter Funding Availability said this would ‘‘increase participation guaranteeing credit. Agencies generally in guarantee programs and capital update—or re-estimate—subsidy costs The Agency received comments about markets.’’ annually to reflect both actual loan funding availability and managing performance and changes in expected community resources. Agency’s Response: The Agency future loan performance. More Some commenters expressed a lack of acknowledges this comment for information on this can be found in Part confidence in terms of program consideration. The Agency must ensure 5 of OMB Circular A–11, ‘‘Preparation, availability, which prevents lenders that the Lender or Holder retains Submission and Execution of the from committing resources. ownership of the loan. While Lenders Budget.’’ Agency’s Response: The Agency can assign all or part of the guaranteed A commenter recommended the receives funding through Congressional portion of the loan and Holders can Agency consider expressly allowing appropriations, and subsidy rates reassign the note in full, this final rule leverage loans to be made on an interest- establish the level of program funding does not allow for further subdivision of only basis for up to 7 years. The available. Program revenues, the loan. The OneRD regulation removes commenter’s reasoning is that ‘‘such delinquency rate, losses, anticipated the limit on the number of promissory loans could provide for a ‘balloon’ revenues and other factors affect these notes that may be assigned. The payment at the end of that period to subsidy rates. The use of Continuing regulation does not limit the number of make up for the amortization that would Resolutions instead of a full fiscal year holder transfers that can occur on the otherwise have occurred during that budget also affects when funds are maximum of the five notes, though the period.’’ The commenter said that available to the program areas. Agency must be notified when ‘‘assurance that the funds would be Another commenter suggested transferred. available when needed to make that increasing flexibility on the ability to One commenter recommended the balloon payment could be provided, at shift funding between Rural Agency rate the secondary market debt least in substantial part, by reserves Development loan programs. and include rating agencies in its established at the Project Loan level, or Agency’s Response: The ability to analysis discussions to create a global perhaps by other means.’’ The transfer funds within a program are market instead of a local market. commenter added that in some NMTC established by statute and moving funds Agency’s Response: The secondary transactions, ‘‘amortization of leverage from one guaranteed loan program to market has provided analysis of the loans is accomplished by having another program requires statutory commenter’s suggestion. The process of another (subordinate) Leverage Lender authorization and Congressional rating secondary market debt would be make advances to the Investment Fund approval. Therefore, the Agency cannot outside of USDA’s oversight as we work during the compliance period, which approve loan program transfers without directly with the Lender making the the Investment Fund uses to make the requisite authority and loan, who then choses to engage or not amortization payments on the primary congressional approval. engage the secondary market. (senior) leverage loan.’’ The commenter One commenter wanted the Agency to reasoned that, in these situations, ‘‘the allow the approval and issuance of Subsidy Rates total amount of debt of the Investment Conditional Commitments, which Fund remains constant—the junior would be subject to funding availability The Agency received comments about leverage loan balance just increases as to help when funding runs out at the balancing subsidy rates within the the senior leverage loan decreases.’’ The end of the fiscal year and projects are OneRD programs. One commenter commenter expressed uncertainty as to waiting for funding obligations. suggested the Agency balance higher whether the solution provided would be Agency’s Response: Issuing a subsidy rates versus lower level of reasonable in the case of USDA Conditional Commitment prior to funding, while another commenter said guaranteed loans, ‘‘partly due to the funding availability is not authorized that the subsidy rate factor ‘‘is low and complication of having subordinated under law. on the decline.’’ debt, and partly due to the fact that the A commenter suggested additional Agency’s Response: Sec. 6418 of the source of funds is not directly related to guidance for lenders from the Agency 2018 Farm Bill mandated the Secretary the underlying Project Loan or the regarding funding situations and the of Agriculture to use lender fees to performance of the underlying project,’’ scoring model. charge and collect various amounts to and added that, rather, ‘‘it would Agency’s Response: The availability of bring down the costs of subsidies for depend on the credit evaluation of the program funding is communicated to guaranteed loans under Section 333 of junior leverage lender.’’ field staff on a weekly basis. Priority the CONAct. However, the fees must not Agency’s Response: OneRD includes a scoring is essential to determine worthy act as a bar to participation, nor be provision allowing interest-only projects when programs have limited inconsistent with current practices in payments by a borrower pursuant to an funding, with projects being funded the marketplace. The Secretary was interest-only term not to exceed 7 years from the highest to lowest scores using directed to conduct a study of several on a loan made under a NMTC structure the amount of available funds. State guaranteed lending programs to if the lender requires: (1) A debt Offices are made aware of this process determine the appropriate fee structure, payment reserve fund or sinking fund in before enactment. as a result. Therefore, this final rule an amount equal to the guaranteed implements the 2018 Farm Bill’s loan’s principal amortization that would Loan Threshold requirements regarding guaranteed loan have otherwise applied to the loan if One commenter asked the Agency to fees. equally amortized payments were consider increasing the current cap of

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$25 million on REAP, as it is often too regulation to ensure it meets the out its responsibilities as a ‘‘Lender’’ low for larger projects. requirements set out by Congress. under the Guaranty Program, despite the Agency’s Response: The $25 million A commenter asked if this new rule limitations described above. However, cap on REAP is statutory; therefore, the will look at one overall guarantee fee or the commenter added that, for any such cap cannot be increased by the OneRD if it will still be based on the specific approach to work, the regulations would final rule. program. Another commenter asked if need to recognize that responsibilities of the Agency puts the model in the Subpart F—Servicing Provisions the ‘‘Lender’’ regarding its ‘‘loan’’ can calculation, could the public see how only be carried out indirectly through Loan Note Guarantee Construction these fees are calculated so they can also the sub-CDE. The Agency received comments comment on those calculations. Agency’s Response: Subsidies will Agency’s Response: This final rule discussing the effects of OneRD on LNG still be set individually for each includes a provision that the sub-CDE construction projects. program and are internal operations operating agreement allows the investor Some commenters suggested that, for decisions. Therefore, we are not adding fund entity approval rights with respect the Community Facilities and Water and a one-size-fits-all fee structure to this to certain loan servicing actions Environmental Programs, the Agency final rule. Federal credit polices undertaken by the sub-CDE in their loan follow the B&I guaranteed loan system stipulate that fees should be set at levels to the QALICB. by issuing the LNG at the closing and that minimize default and other subsidy The same commenter as above said signing process or during construction costs of the loan guarantee, while that, consistent with the ‘‘look-through’’ instead of at the end of construction. supporting achievement of the provisions in 7 CFR 4279.126(a), the One commenter said that this would program’s policy objectives. Agency should base the determination create a ‘‘clearer path for holders if of loss on (1) the amount realized from default occurs’’ and another commenter LNG Validity foreclosure and collection at the Project said this change would ‘‘help smaller One comment suggested providing Loan level and (2) a hypothetical lenders mitigate construction risk.’’ registration or official Government distribution of the proceeds to the Other commenters supported the approval on the LNG to evidence the upfront guarantee for some of OneRD’s Investment Fund and then the leverage validity of the document. lender. The commenter suggested that programs. Agency’s Response: The Agency has a Agency’s Response: The Agency will the guaranty payment would be made to form to address certification of the Leverage Lender based on that provide a consistent approach across all approval—currently Form RD 4279–7, programs under OneRD Guarantee to determination. The commenter said if ‘‘Certificate of Incumbency and this approach is acceptable to USDA, allow for the issuance of the LNG during Signature.’’ This form can be requested construction. As this poses more risk to the Agency should clarify the by the lender or secondary market regulations to reflect this. the Agency, it will be mitigated with holder. additional lender documentation and Agency’s Response: A determination enhanced lender oversight along with a Servicing Requirements of loss is made after liquidation of all lower guarantee percent and additional One commenter suggested assets. The lender must identify the lender fee. streamlining servicing requirements for borrower’s assets in a liquidation plan, Of the comments the Agency received loans that are performing. and then account for all liquidation specifically about LNG fees, most of the Agency’s Response: OneRD has proceeds when requesting payment of a commenters asked to lower the fees, or streamlined servicing requirements to guaranteed loan loss. The asset of an to remove them altogether. One include lender discretion regarding investor fund entity is its ownership commenter said that the current 3- submitting annual financial statements interest in the sub-CDE; thus, any percent fee is too high and asked the for loans totaling $600,000 or less. proceeds paid to the sub-CDE, including Agency to consider reverting to a 1- Furthermore, frequency of borrower and liquidation of the QALICB assets in percent fee that ‘‘resulted in great visits is not mandated, but this final rule a default situation, become assets of the impact and turned the economy states ‘‘periodic borrower visits’’ are sub-CDE, and should be used to reduce around.’’ A commenter suggested that required. any investment balance owed to the continuing servicing fees will negatively One commenter asked that the investor fund entity. impact borrowers. Other Agency provide in the sub-CDE The same commenter then said that recommendations included raising fees operating agreement that, in all there is nothing in the regulations that on the largest RD loans while lowering decisions and actions with respect to recognizes the forbearance limitations, fees on the smaller sized loans; the servicing and enforcement of the to which leverage loans are almost providing fee waivers for loan Project Loan, the sub-CDE will do so in universally subject. guarantees in excess of $5 million that compliance with the requirements promote fresh fruits and vegetables; and imposed upon a ‘‘lender’’ under the Agency’s Response: The forbearance reducing initial and annual fees to regulations. The commenter reasoned agreement is typical of a NMTC match the REAP program, which has an that the leverage lender might also be transaction and must be considered as a initial fee of 1 percent and annual fees engaged as the servicing agent for the credit factor by the lender. A provision of 0.25 percent, while the B&I program Project Loan, so that it could be has been added to OneRD that the sub- has fees of 3 percent initially and 0.50 involved in the servicing and CDE must include in its operating percent annually. enforcement of the Project Loan agreement that the investor fund entity Agency’s Response: The 2018 Farm (although due to limitations under the has approval rights to certain loan Bill requires the Agency to ‘‘charge and NMTC program, it would not be servicing actions by the sub-CDE lender. collect from the lender fees in such permitted to control such matters). The intention of this addition is to allow amounts as to bring down the costs of According to the commenter, such the guaranteed loan lender the ability to subsidies . . .’’ The Agency is contractual rights and obligations could monitor any forbearance or servicing reviewing its fee structure for all the provide the basis on which a Leverage actions by the sub-CDE lender and programs included in the proposed Lender could be treated as able to carry protect their interests in the project.

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Collateral Requirements exposure on the unguaranteed portion maintaining the necessary security and The Agency received comments of the guaranteed loan. integrity of the system. The new online application system regarding collateral requirement General OneRD Comments will have a system that automates the concerns. One commenter said that application process, including the while Community Facilities loans are New Online System ability to upload supporting application the most flexible, B&I’s loans are the Many commenters suggested the documents into a secure shared system, most restrictive. Another commenter Agency create more online application acknowledging commenters who suggested that the Agency adopt FDIC resources and recommended that Rural suggested a cloud-based system. The supervisory requirements on collateral Development keep up with the online platform will have a secure and value (primarily on real estate) for technological advances and industry accessible storage system that will be consistent collateral measurement, software that is available on the market used by all lenders and Rural while another commenter recommended for the financial service industry. One Development processing offices. a similar approach instead of maximum commenter specified using ‘‘a program Application forms will be designed to requirements set in B&I regulation, similar to Farmer Mac’s online work across all four programs associated adding that lenders can be more application process, the Mortgagebot with the OneRD Guarantee Loan conservative if necessary (i.e., if program, software solutions used by program and will be generated through ‘‘specialized equipment’’ is involved.). Moody Analytics and Wolters Kluwer, the online system. This method should Agency’s Response: The Agency took the Finastra program.’’ Furthermore, address the commenter’s request for a the comment under consideration and commenters said there should be an format that is flexible and specific to the has changed its collateral discounting online application system that would project. Only information relevant for procedures. Lenders will discount ‘‘streamline loan making process, the application will be entered by the collateral consistent with sound loan-to- reduce approval time, and save time and lender. discounted value practices as long as money for lenders and RD.’’ Some Rural Development will accept adequate security still exists for the commenters requested the Agency use a electronic signatures when a wet guaranteed loan. Satisfactory secure, encrypted, cloud-based system signature is not required. At any time justification of the discounts being used to upload documents for the during the online application process, must be provided as part of the application. One commenter, a lender, the lender will have access to a Rural application package. This change will asked for ‘‘electronic signatures’’ to add Development local representative to allow the lender to customize the to security. assist them. It is not the intent of the discount for each loan, which will Agency’s Response: We agree that our online application system to replace enhance the customer experience of application process should be one-on-one contact between Rural both the lender and applicant. modernized, and that this Development and its customers, but for One commenter suggested that if the modernization will save time and that contact to be about more non-guaranteed portion of the loan is money for both the lender and the substantive issues. more than the required 5-percent Lender Agency. With this final rule, the Agency Regarding communication with of Record hold, that portion should have is developing an online application applicants, one commenter suggested additional or separate credit system—one system for all four the Agency provide a verbal enhancements, such as a Letter of programs included in the OneRD confirmation of eligibility. Another Credit, another guarantee, or collateral. Guaranteed Loan regulation. The system commenter inquired about a notice of The commenter added that this would will automate the application, interest determination letter. allow smaller and more rural bank obligation, loan closing, and servicing of Agency’s Response: The Agency’s lenders to participate in larger loans in the guarantee process. The system is new online application system will their communities and the non- being designed to improve the Lender allow the lender to view applications in guaranteed portion of the loan can be experience by addressing concerns process and track their status. The more easily be sold, traded, or held in related to efficiency, transparency, and system will automatically notify the the secondary capital markets. consistency that exist in the guarantee lender when the Agency reaches a key Agency’s Response: The Agency programs today. The new online decision point (i.e., application is partially agrees. Currently, lenders can platform will be used by all Rural complete, application is approved, etc.). assign the loan guarantee to other Development offices that process The system will also generate parties and may participate the guarantee loan applications under this correspondence documents to the unguaranteed portion of the loan to final rule establishing the OneRD lender including an interest other lenders or entities, so long as the Guaranteed Loan program. This will determination letter, also known as a lender of record retains a minimum of save time and money for both the lender preliminary review letter. 5 percent of the loan amount. This will and the Agency as noted in the Three commenters discussed the need continue under the OneRD regulation commenter’s remarks. to improve information on the USDA except that the minimum amount Additionally, the Agency is engaged website regarding guaranteed loan retained by the lender is raised to 7.5 in evaluating online platforms to programs under OneRD. Two percent of the loan amount. To the address the needs of the guarantee commenters suggested revising, commenter’s request that separate credit program requirements. The Agency updating, and streamlining the USDA enhancement be allowed on non- acknowledges remarks regarding ease of website to improve information about guaranteed loan portions over the uploading, network support, and lending requirements across all minimum retention amount, the Agency bandwidth. These factors are being programs. The third comment specifically prohibits separate collateral considered in the online solution. recommended adding a ‘‘chat’’ feature for the guaranteed and unguaranteed We acknowledge the request to allow to quickly assist site visitors. portions of the guaranteed loan or the online system to be accessible to Agency’s Response: The OneRD requiring compensating balances or multiple people within the lender’s project includes development of a new certificates of deposit as that reduces or organization. The system will be online portal for lenders to input loan possibly eliminates the lender’s designed with this feature while still application information and service

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their guaranteed loans. In addition, whether to pursue a loan guarantee or Uniformity of New System and borrowers may use the website to a direct loan. One commenter added Streamlined Processes research available programs, but they that the decision tree should require The Agency received comments will not be allowed to upload an RUS to ‘‘encourage private or regarding concerns about transparency application because the lenders are the cooperative lenders to finance rural and and complications and inconsistencies Rural Development customer for waste disposal facilities’’ based on the during loan processing and approval. purposes of Guarantee programs. The Consolidated Farm and Rural Some of the commenters expressed application process will guide lenders Development Act (CONAct) requirement concern that ease and speed of to what information is required for their from the 2014 Farm Bill. processing differs between State Offices specific project, allow them to upload Agency’s Response: The Agency and when applicants use more than one information, and information will also understands the commenters’ concern to RD loan program. One commenter be uploaded to the Rural Development provide the applicant with program suggested the Agency develop a legacy systems to ensure consistency of eligibility criteria early in the standardized closing process checklist the information. application stage. The Agency At this time, we are not considering to outline all requirements to issue an understands the second commenter’s adding a ‘‘chat’’ feature due to the LNG and solve this issue. concern to adhere to the CONAct implementation and operating costs of Agency’s Response: In addition to that feature. However, phone numbers requirements as well. While we support addressing concerns related to for offices in the project state will be the development of a decision tree as efficiency, transparency, and readily available to the user. The suggested, this tool would be better consistency that exist in the guarantee application portal will also have a link utilized in an online application format programs today, Rural Development has to the guaranteed loan regulations for the Community Facilities and Water established common processing located in 7 CFR part 5001. and Environmental direct loan timeframes. Staff training will be a Some comments were directed toward programs. significant part of the OneRD roll out the current RDApply online application The Agency received comments that process and consistency will be a system for the Water and Environmental suggested we follow the Small Business common message. The Agency will program. Some suggestions included Administration’s (SBA) ‘‘10-tab system’’ create and provide checklists to field improving the online application to process loans more efficiently. staff to ensure a consistent process process to remove the burden of Generally, commenters wanted faster across states. The implementation of an paperwork and uploading documents. decisions on loans and clear and timely on-line application portal will also Others recommended posting USDA communication. improve consistency between offices. deadlines and status updates for Rural Development acknowledges the Agency’s Response: As stated earlier, third commenter’s concern that the application processing within RDApply the Agency engaged the services of a and offering direct contact with a Agency not re-underwrite the lender’s contractor to assist in evaluating online package. It is the intent of OneRD representative. platforms to address the needs of the Agency’s Response: These comments Guarantee that the Agency apply a guarantee program requirements. The referring to the current RDApply online consistent approach to the review of the Agency’s new online application system application system currently used by lender’s guarantee request to determine will improve the lender experience by the Water and Environmental Programs the funding recommendation made by were considered as the Agency addressing concerns related to the lender is acceptable and meets the identifies system requirements for the efficiency, transparency, and regulations based on the lender’s credit OneRD Guarantee online application consistency that exist in the guarantee evaluation. The Agency will further system. The OneRD Guarantee online programs today. The Agency evaluated train staff to address this issue. application system will be developed the SBA system in the development of The Agency acknowledges remarks specifically for lenders making the new online system. about general inconsistencies as well application for a OneRD guarantee loan Some commenters expressed concern and will consider what internal request. This new online application about rural access to high-speed, communication methods it should use system will allow the lender to view broadband internet, which may hinder in the future to support the OneRD applications in process and track their access to OneRD’s new online Guarantee program, so all processing status. In addition, the system will application system. offices hear a consistent message from automatically notify the lender when Agency’s Response: While the each OneRD Guarantee program area. the Agency reaches a key decision point regulation requires the use of an online One commenter suggested the Agency (i.e., application is complete, application system, the Agency is aware streamline or simplify the draw process, application is approved, etc.). The that not all lenders will have the which appears to be a comment on the online system is accessible to multiple capacity to use an online application Water and Waste Disposal direct loan people within the lender’s organization system and will allow, on a case-by-case program. but maintains the necessary security basis, the submission of paper Agency Response: For guarantee and integrity of the system. application packages. loans, the Agency should be minimally As stated earlier, at any time during involved with construction draws. the online application process, the One commenter said that not all There are additional requirements for lender will have access to an RD local States accept electronic forms, which draws during the construction phase if representative to assist them. Again, we would be an issue when uploading the loan note guarantee is issued prior note that it is not the intent of the online documents for the OneRD online to the completion of construction and if application system to replace one-on- application. a project combines Agency direct and one contact between RD and its Agency’s Response: The Agency’s guarantee funding, the more stringent customers. proposed online application system will direct requirements will prevail. The Agency received comments be used by all Rural Development The Agency received additional asking the Agency to develop a decision offices that process guarantee loan comments asking to streamline the tree to assist customers to determine applications under this final rule. application process so that it is easier

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and faster to close loans. Some that information can be passed to warranted, will result in modifications commenters cited removing the PER borrowers. Another commenter wanted to this final rule prior to its effective requirement again, while others asked the Agency to increase transparency date. This method of publishing a final for a more ‘‘clear and concise’’ during the approval process. A third rule with comments will help realize application. One commenter suggested commenter suggested improving the the benefits of a consolidated regulation that a ‘‘brief project description and speed of the approval process across all quicker than would be achieved by first budget should be sufficient for programs to enhance transparency. publishing a proposed rule. In addition, guaranteed program.’’ Another Agency’s Response: The Agency this final rule followed the Agency’s commenter added that ‘‘additional items agrees. Staff training will emphasize clearance process, which included OGC needed for individual States should be continuing lender communication. The review. included as part of the Conditional proposed electronic application process Commitment items needed prior to will improve communication with the OneRD Marketing and Training issuing the Loan Note Guarantee lender and navigation of the Agency’s The Agency received comments (LNG).’’ One comment said that the ‘‘10- approval process. requesting training programs regarding day response time for application OneRD’s Scope—Inclusion of Other loan guarantees and additional guidance process should be shortened.’’ Programs for offices and lenders for the various Agency’s Response: As part of the programs under OneRD. initial rollout of the proposed One commenter suggested the Agency Most commenters asked for lender include telecom (Telecommunications regulation, the Agency is implementing training and coordination with State Infrastructure Loan Program) and a completely new application intake Offices. The commenters also suggested electric (Electric Infrastructure Loan system. The new system will allow us that the Agency should continue to Program) as ‘‘rural utilities.’’ to monitor closely application strengthen the RD programs under submission and processing times and Agency’s Response: RD chose the programs included in this rule based on OneRD. provide consistent application package Agency’s Response: The Agency content across offices and programs. the commonalities in their current statutory authorization and regulatory agrees and has addressed these concerns The proposed intake system will also along with this final rule. The Agency provide full service for lenders, negating implementation. The Agency may add other programs in the future. will be holding training sessions with the requirement to log into different RD staff prior to the effective date. systems for different aspects of the Rulemaking Process Training needs will continue to be guarantee. See Agency response on assessed after the OneRD Guarantee PERs under subpart D. In addition, the The Agency received comments about its rulemaking process. Most of the final rule is in effect. The regulation proposed regulation has pared down the process includes training of not only the requirements of an application package commenters were concerned about the public’s ability to provide input Agency’s area and State Offices but also to program determined essentials. lenders. Implementing an online Ultimately, the proposed changes will regarding this final rule, suggesting that the Agency publish a proposed or application and processing system streamline the application process. should help alleviate inconsistencies One commenter recommended that interim rule instead of this final rule. that exist in the program today. We are the Agency use Regional Coordinators to Others suggested providing more confident that, with the publication of handle concerns with processing and opportunities for the public, specifically this final rule, new coordination help lenders navigate the process to lenders, to engage with the Agency amongst programs will occur as well. ensure a quick turnaround. The before publishing this final rule. One commenter’s concern stems from commenter was concerned that the Program Launch and Delivery Office of General Counsel (OGC) had not projects in some states that ‘‘are not Some comments discussed the processed quickly’’ and ‘‘if regional yet approved the OneRD program and this final rule. accessibility and rollout of the OneRD coordinators could serve as mediators program. Most commenters suggested for lenders, the process would flow Agency’s Response: The Agency decided to publish OneRD Guarantee as that the Agency avoid creating a more more smoothly.’’ centralized regional office model. Agency’s Response: The Agency has a final rule with comment. The Agency Commenters added that, while it may be considered this comment. published a notice in the Federal cost effective to regionalize offices, Unfortunately, this is an internal Register on September 5, 2018 (83 FR keeping State Offices in place helps to operations item and cannot be 45091) announcing five listening maintain efficiency. One commenter addressed through regulatory means. sessions to be held with stakeholders in One commenter asked if the OneRD month of September 2018. The purpose suggested support for state-level staff Guaranteed Loan processing time will of the listening session was to gather involvement. Other commenters be as lengthy as it has been in the past. public input on how to simplify, suggested that the Agency add more Agency’s Response: OneRD’s goal is to improve, and enhance the delivery of staff and training in certain industries to streamline the application, processing, our guarantee programs. The Agency assist staff in other states who have and servicing requirements for all loan recorded all listening session comments. never processed certain types of loans. programs within OneRD, and ultimately Stakeholders were also given the However, two commenters did provide consistency among Rural opportunity to submit comments to an recommend decentralizing offices. Development guaranteed loan programs. email box. All comments have been Agency’s Response: The Agency is The electronic system the Agency is reviewed and were taken into looking at all possible options on how developing will increase efficiencies for consideration as this final rule was best to deliver all programs. We note customers as well as Agency staff. being drafted. This final rule is being that the regulation process includes published in the Federal Register with training of not only the Agency’s area Transparency a 60-day comment period. During this and State Offices but also lenders. One commenter recommended the period, the public can view the entire One commenter said that a lack of Agency improve communication final rule and provide comment. All responsiveness is burdensome to the throughout the application process so comments will be addressed and, if Agency’s current processes, resulting in

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a lack of a uniform interpretation of loan programs, such as the possibility of VI. Regulatory Impact Analysis OneRD. a graduation or income requirement for Agency’s Response: The Agency direct loans. A. Executive Orders 12866 and 13563 appreciates the comment provided. Agency’s Response: Direct loan Executive Orders 12866 and 13563 While the new regulation will outline programs, graduation requirements, and direct agencies to assess all costs and items to be reviewed, the level of risk income data sources for determining benefits of available regulatory associated with individual loans will loan/grant eligibility of the direct loan alternatives and, if regulation is always vary to the point that some program are not within the scope of this necessary, to select regulatory require much more review than others final rule. approaches to maximize net benefits do. The Agency will be providing One commenter inquired about a (including potential economic, training to the staff administering the separate bank account requirement. environmental, public health and safety programs and will emphasize the Agency’s Response: The comment is effects, distributive impacts, and importance of thorough review of the related to the Community Facilities equity). Executive Order 13563 lender’s underwriting. Direct loan program and is not within One commenter supported the emphasizes the importance of the scope of this final rule. quantifying both costs and benefits, of concept of repackaging current Water A commenter suggested that the and Waste Disposal Direct Loans and reducing costs, of harmonizing rules, Agency does not need a loan program. and of promoting flexibility. converting those loans to guaranteed Instead, banks should issue the loans loans. operated by USDA. This rule has been determined to be Agency’s Response: This final rule Agency’s Response: The OneRD significant and was reviewed by the will provide one platform across the Guarantee Loan program addresses bank Office of Management and Budget under main Rural Development guarantee loans guaranteed by USDA and does not Executive Order 12866. In accordance programs. We expect that this will change how loans are distributed. with Executive Order 12866, the Agency increase usage of all the programs by Finally, a commenter asked about conducted a Regulatory Impact providing a common application and OneRD’s impact on lenders. Analysis, outlining the costs and processing base. The Agency cannot Agency’s Response: At the time of benefits of implementing this program repackage existing direct WWD loans comment, the regulation had not been in rural America. The complete analysis and convert them to guaranteed loans at released, so no ‘‘unintended is available in Docket No. RUS–19– this time; however, direct loan consequences’’ had been identified. Agency–0030. This analysis consists of borrowers are required to pursue While the Agency does not believe there a statement of need for a unified Rural ‘‘graduation’’ to commercial credit when will be any unintended consequences, Development (RD) guaranteed loan it appears they are able. Refinancing we do believe there will be many program, a baseline description of the direct Agency WWD loans is an eligible benefits for lenders to having a current status of the four guaranteed loan purpose under the guarantee consolidated regulation. This rule will loan programs administered by RD that program and borrowers are encouraged provide a ‘‘one stop’’ shop for are being consolidated under the unified to take advantage of that provision. everything from eligibility to loss claims RD guaranteed loan program, a Mission in any of the four programs. OneRD will summary of the provisions of the provide clarity on what are the common There were two comments regarding unified guaranteed loan program and requirements and what is needed for OneRD’s mission. One commenter said alternative approaches that were only a specific program, this should that the mission should be to provide considered, a list of the affected parties, make it easier to apply for a guarantee. capital to rural America. and an analysis of the benefits and Agency’s Response: Under this final While the four guaranteed programs will costs. remain independent, since they will rule, OneRD works to provide easier, Much of the analysis is necessarily share a common platform, it will allow customer-friendly access and increase descriptive of the anticipated effects of lenders to move more easily from lender participation, which will lead to this final rule. Benefits are described program to program and expand their greater access to capital in rural qualitatively, with some indication of lending into other programs. America. the relative potential size. Most of the While the rule provides guidance, it costs are quantified. Consequently, the Difference Between Statutory vs. moves, in many areas, from dictating Regulatory Requirements form and lender procedures to relying analysis does not provide the exact on lender specific and industry standard magnitude of the resulting benefits and One commenter asked for costs. Despite this, RD expects this final clarifications as to the difference lending policies and practices, which allows the lender to spend less time on rule will provide cost savings and net between what is considered statutory benefits compared to the current and what is considered regulatory. form and more time on the details of loan making. The regulation clarifies situation by improved program and Agency’s Response: Statutory Agency management of the risks requirements are those passed by Agency requirements, such as when appraisals or feasibility studies are associated with the guaranteed loans Congress for each program, while the that will be made under the unified Agency writes regulations to interpret required, which reduces the time guaranteed loan program. statutes and provide additional details lenders must spend determining for program delivery. applicability or worse, revising or B. Unfunded Mandates Reform Act completely redoing a document that was Out of Scope completed incorrectly. This final rule contains no Federal The Agency received some comments Most of all, the rule provides, where mandates (under the regulatory that we cannot address with this final allowable, consistency between the four provisions of Title II of the UMRA) for rule because they are outside the scope programs. This allows the Agency to State, local, and tribal governments or of this final rule, but we have provide a more consistent experience the private sector. Thus, this rule is not considered them. Some commenters for lenders and borrower saving subject to the requirements of sections asked questions regarding the direct everyone time and frustration. 202 and 205 of the UMRA.

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C. Environmental Impact Statement H. Executive Order 13175, Consultation Catalog of Federal Domestic Assistance and Coordination With Indian Tribal from GPO, call the Superintendent of This final rule has been reviewed in Governments Documents at 202–512–1800 or toll free accordance with 7 CFR part 1970 at 866–512–1800, or access GPO’s ‘‘Environmental Program.’’ Rural This rule has been reviewed in accordance with the requirements of online bookstore at http:// Development has determined that this bookstore.gpo.gov. action was analyzed and meets the Executive Order 13175, Consultation criteria established in 7 CFR 1970.53(f) and Coordination with Indian Tribal K. Paperwork Reduction Act and and does not have any extraordinary Government. Executive Order 13175 Recordkeeping Requirements circumstances and the action does not requires Federal agencies to consult and In accordance with the Paperwork have a significant effect on the human coordinate with tribes on a government- Reduction Act of 1995 (44 U.S.C. environment, and therefore neither an to-government basis on policies that Chapter 35, as amended), RD invites Environmental Assessment nor an have tribal implications, including comments on this information Environmental Impact Statement is regulations, legislative comments or collection for which approval from the required. proposed legislation, and other policy Office of Management and Budget statements or actions that have (OMB) will be requested. These D. Executive Order 12988, Civil Justice substantial direct effects on one or more requirements have been approved by Reform Indian tribes, on the relationship emergency clearance under OMB between the Federal Government and Control Number 0572–0155. Upon This final rule has been reviewed Indian tribes or on the distribution of approval of this new final rule under Executive Order 12988 (Civil power and responsibilities between the information collection package, RD will Justice Reform). The Agency has Federal Government and Indian tribes. discontinue the following information determined that this rule meets the The USDA’s Office of Tribal Relations collection packages: Community applicable standards provided in (OTR) has assessed the impact of this Facility Program (OMB No. 0570–0137), section 3 of the Executive order. In rule on Indian tribes and concluded that Water and Waste Disposal Program addition, all State and local laws and this rule does not have substantial direct (OMB No. 0570–0122), Business and regulations that conflict with this rule effects on one or more Indian tribes, on Industry Program, (OMB No. 0570– will be preempted. No retroactive effect the relationship between the Federal 0069), and Renewable Energy Systems will be given to this rule. Government and Indian tribes or on the and Energy Efficiency Improvements E. Executive Order 13132, Federalism distribution of power and Program, (OMB No. 0570–0067). responsibilities between the Federal Comments must be received by The policies contained in this final Government and Indian tribes. OTR has September 14, 2020. rule do not have a substantial direct determined that tribal consultation Comments are invited on (a) whether effect on States, on the relationship under E.O. 13175 is not required at this the collection of information is between the national government and time. necessary for the proper performance of the States, or on the distribution of If consultation is requested, OTR will the functions of the Agency, including power and responsibilities among the work with the RD to ensure quality whether the information will have various levels of government. Nor does consultation is provided. practical utility; (b) the accuracy of the Agency’s estimate of burden including this rule impose substantial direct I. Programs Affected compliance costs on state and local the validity of the methodology and governments. Therefore, consultation The Catalog of Federal Domestic assumption used; (c) ways to enhance with the states is not required. Assistance (CFDA) numbers assigned to the quality, utility and clarity of the this program are CFDA 10.760, Water information to be collected; and (d) F. Regulatory Flexibility Act and Waste Disposal Systems for Rural ways to minimize the burden of the Certification Communities; CFDA 10.766, collection of information on those who Community Facilities Loans and Grants; are to respond, including through the The Regulatory Flexibility Act (5 10.768, Business and Industry Loans; use of appropriate automated, U.S.C. 601–602) (RFA) generally and CFDA 10.775, Renewable Energy electronic, mechanical, or other requires an agency to prepare a Systems and Energy Efficiency technological collection techniques on regulatory flexibility analysis of any rule Improvements Program. other forms of information technology. subject to notice and comment Title: 7 CFR 5001, OneRD Guarantee rulemaking requirements under the J. Catalog of Federal Domestic Assistance Loan Program. Administrative Procedure Act (‘‘APA’’) OMB Control Number: 0572–0155. or any other statute. This rule, however, The CFDA numbers assigned to the 4 Abstract: Rural Development is is not subject to the APA under 5 U.S.C. programs within this rule are: 10.766 for implementing a new consolidated 553(a)(2) and 5 U.S.C. 553(b)(3)(A) nor Community Facility Programs, 10.760 guaranteed loan platform. The new any other statue. for Water and Waste Disposal Programs, guaranteed loan platform would G. Executive Order 12372, 10.768 for Business and Industry combine the following four existing Intergovernmental Consultation Programs and 10.868 for Rural Energy guaranteed loan regulations into a for America Program. The Catalog is consolidated rule: (1) The Community This final rule is excluded from the available on the internet at https:// Facility Program, (2) the Water and scope of Executive Order 12372 beta.sam.gov. The SAM.gov website also Waste Disposal Program, (3) the (Intergovernmental Consultation), contains a PDF file version of the Business and Industry Program, and (4) which may require a consultation with Catalog that, when printed, has the same the Renewable Energy Systems and State and local officials. See the final layout as the printed document that the Energy Efficiency Improvements rule related notice entitled, Government Publishing Office (GPO) Program under Title IX, Section 9006 of ‘‘Department Programs and Activities provides. GPO prints and sells the the Farm Security and Rural Investment Excluded from Executive Order 12372’’ CFDA to interested buyers. For Act of 2002 (FSRIA 2002). These (50 FR 47034). information about purchasing the programs provide loan guarantees for a

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variety of projects intended to improve The following estimates are based on List of Subjects the economies of rural America. the average over the first 3 years the 7 CFR Part 1779 The information required under this program is in place. final rule is similar to much of the Estimate of Burden: Public reporting Loan programs, Waste treatment and information currently being required burden for this collection of information disposal, Water supply. under the four separate regulations. is estimated to average 3.42 hours per 7 CFR Part 3575 Under those four separate regulations, response. Loan programs-agriculture. the current information being collected Respondents: Rural developers, is approved under OMB control farmers and ranchers, rural businesses, 7 CFR Part 4279 numbers 0570–0067, 0570–0069, 0572– public bodies, local governments, Loan programs-business, Reporting 0122, and 0575–0137. The final rule, lenders. however, requests some new and recordkeeping requirements, Rural information from lenders. The two Estimated Number of Respondents: areas. 740. primary examples are: (1) Lenders are 7 CFR Part 4287 required to supply information to Rural Estimated Number of Responses per Development to be approved for Respondent: 17. Loan programs-business, Reporting participation in the program, and (2) Estimated Number of Responses: and recordkeeping requirements, Rural lenders are required to more frequently 12,380. areas. report loans that are in default. On the Estimated Total Annual Burden 7 CFR Part 5001 other hand, the final rule does not (hours) on Respondents: 50,242. include certain information previously Business and industry, Community requested. This is most evident for the Copies of this information collection facility, Energy efficiency improvement, Renewable Energy Systems and Energy may be obtained from Thomas P. Loan programs, Renewable energy, Efficiency Improvements guaranteed Dickson, Regulatory Division Team 2, Rural areas, Rural development, Water loan program, where, under the final Rural Development Innovation Center, and waste disposal. U.S. Department of Agriculture, 1400 rule, technical reports are required only For the reasons set forth in the for higher cost renewable energy Independence Ave. SW, Stop 1522, Washington, DC 20250; telephone, 202– preamble, under the authority at 5 systems projects. This is because U.S.C. 301 and 7 U.S.C. 1989, Chapters renewable energy projects of less than 690–4492; email, Thomas.dickson@ usda.gov. XVII, XXXV, and XLII of title 7 of the $200,000 are less complex, so the Code of Federal Regulations are technical reports for these projects have All responses to this information amended and Chapter L is established only marginal value, and the energy collection and recordkeeping notice will as follows: audit requirements from energy be summarized and included in the efficiency improvement projects are request for OMB approval. All Chapter XVII—Rural Utilities Service, Department of Agriculture sufficient so that separate technical comments will also become a matter of reports also have only marginal value. public record. PART 1779—[REMOVED AND The final rule creates a single set of L. E-Government Act Compliance RESERVED] common forms that lenders can use across all four programs, thereby Rural Development is committed to ■ 1. Under the authority of 5 U.S.C. 301 creating efficiencies in reporting. On complying with the E-Government Act and 7 U.S.C. 1989, remove and reserve balance, the information requested to of 2002, which requires Government part 1779, consisting of §§ 1779.1 support the consolidated program is agencies in general to provide the public through 1779.100. estimated to reduce burden and cost to the option of submitting information or lenders and borrowers compared to the transacting business electronically to Chapter XXXV—Rural Housing Service, Department of Agriculture information requested to support all the maximum extent possible. four individual guaranteed loan M. Civil Rights Impact Analysis PART 3575—[REMOVED AND programs combined. RESERVED] As noted in the preceding paragraph, Rural Development has reviewed this the information requirements contained final rule in accordance with USDA ■ 2. Under the authority of 5 U.S.C. 301 in this final rule require information Regulation 4300–4, Civil Rights Impact and 7 U.S.C. 1989, remove and reserve from lenders and borrowers. Rural Analysis,’’ to identify any major civil part 3575, consisting of §§ 3575.1 Development requires this information rights impacts this final rule might have through 3575.100. to make prudent lending decisions on program participants on the basis of CHAPTER XLII—Rural Business— regarding the eligibility of projects, age, race, color, national origin, sex or Cooperative Service and Rural Utilities borrowers, and lenders, to reduce the disability. After review and analysis of Service, Department of Agriculture risks associated with making loan this final rule and available data, it has guarantees, to ensure compliance with been determined that based on the PART 4279—GUARANTEED the final rule and relevant statutory analysis of the program purpose, LOANMAKING requirements, to ensure that the funds application submission and eligibility obtained from the Federal Government criteria, issuance of this final rule will ■ 3. The authority citation for part 4279 are used appropriately, and to not likely adversely nor continues to read as follows: effectively monitor the borrowers and disproportionately impact very low, low Authority: 5 U.S.C. 301; 7 U.S.C. 1989. lenders to protect the financial interests and moderate-income populations, of the Federal Government. In minority populations, women, Indian Subpart A—[Removed and Reserved] summation, this collection of tribes, or persons with disability, by information is necessary to implement virtue of their race, color, national ■ 4. Remove and reserve subpart A, the consolidated guaranteed loan origin, sex, age, disability, or marital or consisting of §§ 4279.1 through provisions in this final rule. familial status. 4279.100.

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Subpart B—[Removed and Reserved] 5001.127 Borrower ineligibility conditions. 5001.404–5001.405 [Reserved] 5001.128–5001.129 [Reserved] 5001.406 Guaranteed loan amounts. ■ 5. Remove and reserve subpart B, 5001.130 Lender eligibility requirements. 5001.407 Percent of guarantee. consisting of §§ 4279.101 through 5001.131 Lender’s agreement. 5001.408 Participation or assignment of 4279.200. 5001.132 Maintenance of approved lender guaranteed loan. status. 5001.409–5001.449 [Reserved] 5001.133–5001.139 [Reserved] PART 4287—SERVICING Guarantee Provisions 5001.140 Cooperative stock/cooperative 5001.450 General. ■ 6. The authority citation for part 4287 equity. 5001.141 New Markets Tax Credit. 5001.451 Conditional commitment. continues to read as follows: 5001.142–5001.200 [Reserved] 5001.452 Loan closing and conditions Authority: 5 U.S.C. 301; 7 U.S.C. 1932(a); precedent to issuance of loan note Subpart C—Origination Provisions 7 U.S.C. 1989. guarantee. 5001.201 General origination requirements. 5001.453 Issuance of the loan note Subpart B—[Removed and Reserved] 5001.202 Lender’s credit evaluation. guarantee. 5001.203 Appraisals. 5001.454 Guarantee fee. ■ 7. Remove and reserve subpart B, 5001.204 Personal, partnership, and 5001.455 Periodic guarantee retention fee. corporate guarantees. 5001.456 Other fees. consisting of §§ 4287.101 through 5001.457 Changes prior to loan closing. 4287.200. 5001.205 General project monitoring requirements. 5001.458 Other Federal, State, and local requirements. PART 5001—GUARANTEED LOANS 5001.206 Compliance with USDA Departmental Regulations, Policies, and 5001.459 Replacement of loan note guarantee and assignment guarantee ■ 8. Add chapter L, consisting of part other Federal laws. 5001.207 Environmental responsibilities. agreement. 5001 to subtitle B, to read as follows: 5001.208 Conflicts of interest. 5001.460–5001.500 [Reserved] Chapter L—Rural Business—Cooperative 5001.209–5001.300 [Reserved] Subpart F—Servicing Provisions Service, Rural Housing Service, and Rural Subpart D—Guarantee Application 5001.501 General. Utilities Service, Department of Agriculture Provisions 5001.502 Oversight and monitoring. PART 5001—GUARANTEED LOANS 5001.301 Beginning the application 5001.503 REAP RES or EEI project process. completion requirements. Subpart A—General Provisions 5001.302 Preliminary eligibility review. 5001.504 Financial reports. 5001.303 Applications for loan guarantee. 5001.505 Collateral inspection and release. Sec. 5001.304 Specific application requirements 5001.506 Loan transfers and assumptions. 5001.1 General. for CF projects. 5001.507 Lender Transfer. 5001.2 Structure. 5001.305 Specific application requirements 5001.508 Mergers. 5001.3 Definitions. for WWD projects. 5001.509 Servicing fees. 5001.4 Exception authority. 5001.306 Specific application requirements 5001.510 Subordination of lien position. 5001.5 Appeal and review rights. for B&I projects. 5001.511 Repurchases from holders. 5001.6 General Lender responsibilities. 5001.307 Specific application requirements 5001.512 Additional expenditures and 5001.7 Agency’s special initiatives. for REAP projects. loans. 5001.8 Approvals, regulations, and forms. 5001.308–5001.314 [Reserved] 5001.513 Interest rate changes. 5001.9 Standards for financial information. 5001.315 Application evaluation and award 5001.514 Lender failure. 5001.10 Federal Register notices and provisions. 5001.515 Default by borrower. amendments. 5001.316 CF project priority point system 5001.516 Protective advances. 5001.11–5001.99 [Reserved] and reservation of funds. 5001.517 Liquidation. 5001.100 OMB control number. 5001.317 WWD project priority points 5001.118 [Reserved] Subpart B—Eligibility Provisions system. 5001.519 Bankruptcy. 5001.318 B&I project priority points system. 5001.520 Litigation. 5001.101 Introduction. 5001.319 REAP project priority points 5001.521 Loss calculations and payment. 5001.102 Project eligibility—general. system. 5001.522 Future recovery. 5001.103 Eligible CF projects and 5001.320–5001.400 [Reserved] 5001.523 Property acquired by the lender. requirements. Appendix A to Subpart D of Part 5001— 5001.524 Termination of loan note 5001.104 Eligible WWD projects and Feasibility Study Components guarantee. requirements. Appendix B to Subpart D of Part 5001– 5001.525–5001.600 [Reserved] 5001.105 Eligible B&I projects and Financial Feasibility Reports requirements. Authority: 5 U.S.C. 301; 7 U.S.C. 1926(a); Appendix C to Subpart D of Part 5001— 5001.106 Eligible REAP—Renewable 7 U.S.C. 1932(a); and 7 U.S.C. 8107. Technical Reports for Energy Efficiency Energy System (RES) projects and Improvement (EEI) Projects with Total requirements. Subpart A—General Provisions Project Costs of more than $80,000 5001.107 Eligible REAP—Energy Efficiency Appendix D to Subpart D of Part 5001— § 5001.1 General. Improvement (EEI) projects and Technical Reports for Renewable Energy requirements. (a) This part contains the regulations System (RES) Projects with Total Project 5001.108 Eligible REAP—Energy Efficient for Community Facilities, Water and Costs of Less Than $200,000 but More Equipment and Systems (EEE) projects Waste Disposal, Business and Industry, Than $80,000 and requirements. and Rural Energy for America Program Appendix E to Subpart D of Part 5001— 5001.109–5001.114 [Reserved] Technical Reports for Renewable Energy loans guaranteed by the Agency and 5001.115 Ineligible projects—general. System (RES) Projects with Total Project applies to lenders, holders, borrowers, 5001.116 Ineligible CF projects. Costs of $200,000 and Greater and other parties involved in making, 5001.117 Ineligible WWD projects. guaranteeing, holding, servicing, and 5001.118 Ineligible B&I projects. Subpart E—Loan and Guarantee Provisions 5001.119 Ineligible REAP projects. liquidating such loans. The loan 5001.120 [Reserved] Loan Provisions guarantee programs covered by this 5001.121 Eligible uses of loan funds. 5001.401 Interest rate provisions. regulation are more fully described as: 5001.122 Ineligible uses of loan funds. 5001.402 Term length, loan schedule, (1) Community Programs Guaranteed 5001.123–5001.125 [Reserved] repayment. Loans (5 U.S.C. 301 and 7 U.S.C. 1989) 5001.126 Borrower eligibility. 5001.403 Lender fees. as authorized by Section 306(a)(1) of the

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Consolidated Farm and Rural rights; general lender responsibilities; acquired by the lender; and termination Development Act, 7 U.S.C. 1926(a)(1), as special initiatives; approvals, of the loan note guarantee. administered by the Rural Housing regulations, and forms; and standards (g) Appendices. These appendices Service (RHS), herein after referred to as for financial information. provide specific information on various CF. (b) Subpart B. This subpart contains reports associated with applying for a (2) Water and Waste Disposal Program provisions for determining project, loan guarantee under this part. Guaranteed Loans (5 U.S.C. 301, 7 borrower, and lender eligibility that are U.S.C. 1989, and 16 U.S.C. 1005) as applicable to each guaranteed loan § 5001.3 Definitions. authorized by Section 306(a)(1) of the made under this part. It also contains a The following definitions are Consolidated Farm and Rural list of eligible and ineligible uses of loan applicable to the capitalized terms used Development Act, 7 U.S.C. 1926(a)(1), as funds, ineligible Projects and conditions in this part. administered by the Rural Utilities that would make an otherwise eligible Administrator means the Service (RUS), herein after referred to as borrower ineligible. The lender’s Administrator of the Rural Housing WWD. agreement is addressed as well as Service, the Rural Utilities Service, or (3) Business and Industry Guaranteed maintenance of approved lender status. the Rural Business-Cooperative Service Loans (7 U.S.C. 1932) as authorized by (c) Subpart C. This subpart contains (or the applicable Service’s successor), Section 310B, Business and Industry provisions for general origination as applicable, within the Rural Direct and Guaranteed Loans, of the requirements, credit evaluation, Development mission area of the U.S. Consolidated Farm and Rural appraisals, various types of guarantees, Department of Agriculture (USDA). Development Act, 7 U.S.C. 1932, as monitoring requirements, compliance Affiliates means persons who control administered by the Rural Business- with other laws, environmental or have the power to control another Cooperative Service (RBCS), herein after responsibilities, and conflicts of interest entity, or a third party or parties that referred to as B&I. that are applicable to each guaranteed control or have the power to control (4) Rural Energy for America Program loan made under this part. both. Guaranteed Loans (5 U.S.C. 301, and 7 (d) Subpart D. This subpart contains Agency means USDA Rural U.S.C. 8107) as authorized by Section provisions relating to applications for a Development, which includes the Rural 9007, Title IX of the Food, Conservation, Loan Guarantee under this part, Housing Service; the Rural Utilities and Energy Act of 2008, as administered including preliminary eligibility Service; and the Rural Business- by the Rural Business-Cooperative reviews, the application process, Cooperative Service or their successors. Service (RBCS), herein after referred to Application evaluation, and the Agricultural producer means a as REAP. application award processes that are person, including non-profits, directly (b) The applicability of the provision applicable to each Guaranteed Loan engaged in the production of of this part for processing and approving made under this part. agricultural products through labor applications and for servicing management and operations, including guaranteed loans depend on when a (e) Subpart E. This subpart contains the cultivating, growing, and harvesting complete application is received. The loan and guarantee provisions that are plants and crops (including farming); Agency will process and approve applicable to each guaranteed loan breeding, raising, feeding, or housing of applications, and service guaranteed made under this part. Loan provisions livestock (including ranching); forestry loans according to the provisions of this cover interest rates, term length, loan products; hydroponics; nursery stock; or part for all complete guaranteed loan schedule, repayment, lender fees, loan aquaculture, whereby 50 percent or applications that it receives on or after amounts, percentage of guarantee, and greater of their gross income is derived October 1, 2020, including guaranteed sale or assignment of a guaranteed loan. from the operations. The percentage is loan applications submitted under any Guarantee provisions cover the calculated as the average of gross of the programs whose authorization is conditional commitment, conditions agricultural operations income of the identified in this section. All complete precedent to issuing the loan note concern divided by the gross non-farm Applications received before October 1, guarantee, the issuance of the loan note income of the concern for the five most 2020 will be processed and awarded guarantee, guarantee and other fees, recent years. If the concern has been and guaranteed loans serviced in replacement of documents, borrower operation for less than 60 months but accordance with the existing regulatory reorganizations, and other legal for at least 12 months, use average gross provisions in effect at the complete requirements. agricultural operations income and application date for the program under (f) Subpart F. This subpart applies to gross non-farm income for as long as the which the Application was submitted. provisions for servicing the loans guaranteed under this part, including concern has been in operation. § 5001.2 Structure. oversight, monitoring and reporting Agricultural production means the This part is divided into six subparts requirements and project completion cultivation, growing, or harvesting of as described in paragraphs (a) through requirements that are applicable to each plants and crops (including farming) (f) of this section. The provisions are guaranteed loan made under this part, breeding, raising, feeding, or housing of applicable to each guaranteed loan except as may be otherwise indicated. livestock (including ranching); forestry made under this part, except as may be Servicing topics covered include audits products, hydroponics, or nursery stock; otherwise indicated. This part also and financial reports; collateral; loan or aquaculture. contains several appendices as transfers and assumptions; lender Anaerobic digester means a renewable identified in paragraph (g) of this transfers; mergers; servicing fees; energy system that uses animal waste or section. subordinations of lien position; other renewable biomass and may (a) Subpart A. Subpart A contains repurchases; additional expenditures include other organic substrates to provisions that are applicable to each and loans; interest rate changes; lender produce biogas that is sold in a gaseous guaranteed loan made under this part, failures; borrower defaults; protective or compressed liquid state or used to except as may be otherwise indicated. advances; liquidation; bankruptcy; produce thermal or electrical energy. Topics covered include definitions; litigation; loss calculations and Applicant lender debt means an exception authority; appeal and review payments; future recovery; property existing debt owed by a borrower to the

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same lender that is applying for or has proposed Project that can be reasonably (1) A person acting as a compensated received the Agency guarantee. measured and monitored. agent of the borrower and the lender on Appraisal surplus means the excess Certificate of incumbency means an the same guaranteed loan, between the market value of an asset Agency-approved form used to validate (2) Distribution or payment of and its cost or depreciated book value authenticity of Agency representatives’ guaranteed loan funds to an individual when the market value is higher. signature and title. owner, partner, stockholder, or member Architectural report means a report, Collateral means the asset(s) pledged of the borrower, or to a beneficiary or prepared by a professional, licensed by the borrower to the lender as security immediate family member of the architect, or other qualified party that for the guaranteed loan. borrower; describes the existing situation, Commercially available means a (3) Refinancing debt that is owned by analyzes alternatives and proposes a system that meets the requirements of a loan packager, broker, or referral agent specific course of action from an either paragraph (1) or (2) of this or its affiliates. architectural perspective. definition. Cooperative means an entity that is Arm’s length transaction means a (1) A domestic or foreign system that: legally chartered by the State in which transaction in which the buyer and (i) Has both a proven and reliable it operates as a cooperatively-operated seller act independently and have no operating history and proven business, or an entity that is not legally relationship to each other. The concept performance data for at least one year chartered as a cooperative but is owned of an arm’s length transaction allows the specific to the use and operation to the and operated for the benefit of its market to ensure that both parties in the proposed application; members, with returns of residual deal are acting in their own self-interest earnings paid to such members on the (ii) Is based on established design and and are not subject to any pressure or basis of patronage. installation procedures and practices duress from the other party. Credit evaluation means the analysis and is replicable; Assignment guarantee agreement and evaluation by the lender of the (iii) Has professional service means a signed, Agency-approved credit factors associated with each providers, trades, large construction agreement between the Agency, the application to ensure loan repayment equipment providers, and labor who are lender, and the holder setting forth the through the use of credit documentation familiar with installation procedures terms and conditions of an assignment procedures and an underwriting process and practices; of a guaranteed portion of a loan. that is consistent with industry Biofuel means a fuel derived from (iv) Has proprietary and balance of standards and the lender’s written renewable biomass. system equipment and spare parts that policy and procedures. Biogas means a gaseous fuel are readily available; Debt Collection Improvement Act (including landfill and sewage waste (v) Has service that is readily means the Debt Collection Improvement treatment gas) derived from the available to properly maintain and Act of 1996, 31 U.S.C. 3701 et seq. degradation and decomposition of operate the system; and Debt service coverage ratio means the renewable biomass. (vi) Has an existing established ratio obtained when taking earnings Bond means a form of debt security in warranty that is valid in the United before interest, taxes, depreciation, and which the authorized issuer (borrower) States for major parts and labor; or amortization less reasonably expected owes the bond holder (lender) a debt (2) A domestic or foreign system that replacement capital expenditures and is obligated to repay the principal has been certified by a recognized divided by the annual debt service and interest (coupon) at a later date(s) industry organization whose (principal and interest payments) of the (maturity). An explanation of the type of certification standards are acceptable to borrower. bond and other bond stipulations must the Agency. Default means the condition that be attached to the bond issuance. Complete application means an exists when a borrower is in non- Borrower means the person that application that contains all parts compliance under the terms of any of borrows, or seeks to borrow, money necessary for the Agency to determine the promissory notes, the loan from the lender (including any party or borrower and project eligibility, the agreements, security documents, parties liable for the guaranteed loan financial feasibility and technical merit program regulations, or other except guarantors) through a loan of the project, and contains sufficient documents evidencing or collateralizing guaranteed under this part. information to determine a priority the loan. Default can be a monetary or Business plan means a comprehensive score for the application, if applicable. non-monetary default. document that clearly describes the Conditional commitment means an Deficiency judgment means a borrower’s ownership structure and Agency-approved form in which the monetary judgment rendered by a court management experience including, if Agency agrees that, in accordance with of competent jurisdiction after applicable, discussion of a parent applicable provisions of the program foreclosure and liquidation of all company, any subsidiaries and affiliates regulations contained in this part and collateral securing the loan. of the borrower and discussion of how related forms, it will execute the loan Delinquency means a situation that the borrower will operate the proposed note guarantee, subject to the conditions exists when a scheduled loan payment project. If a business or industry is in and requirements specified in on a guaranteed loan made under this decline or financial distress, the applicable provisions of the program part is more than 30 calendar days past business plan must describe in detail regulations contained in this part and in due and cannot be cured within the next how the project differs from the current the conditional commitment itself. 30 calendar days. industry trends or improves the Conflict of interest means a situation Departmental regulations means the borrower’s financial position. in which a person has personal, regulations of the Agency’s Office of Byproduct means an incidental or professional, or financial interests that Chief Financial Officer (or successor secondary product, regardless of prevent, or appears to prevent the office) as codified in 2 CFR chapter IV. whether it has a readily identifiable person from acting impartially. For Eligible project costs means those commercial use or value, generated purposes of this part, conflict of interest expenses approved by the Agency for under normal operations of the also includes, but is not limited to: the project as eligible uses of funds.

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Energy assessment means an Agency- of this definition apply to the EEE Federal debt means debt owed to the approved report assessing energy use, proposed, then the Secretary shall Federal Government that is subject to cost, and efficiency by analyzing energy require such equipment or system to collection under the Debt Collection bills and surveying the target building meet the same efficiency measurement Improvement Act. and/or equipment sufficiently to as the most efficient available Federal fiscal year means the 12- provide an Agency-approved energy equipment or system in the market and month period beginning October 1 of assessment. the Secretary shall not provide such a each year and ends on September 30 of Energy assessor means a qualified loan guarantee for the purchase and the following year; it is designated by consultant who has at least 3 years of installation of any energy efficient the calendar year in which it ends. experience and completed at least five equipment or system unless more than Final loss claim means the Agency’s energy assessments or energy audits on one type of such equipment or system payment of a final settlement amount similar type projects and who adheres to is available in the market. with the lender after the collateral is generally recognized engineering Engineering documentation means a liquidated or after settlement and principles and practices. document, normally prepared by the compromise actions have been Energy audit means a comprehensive borrower’s consulting engineer or other completed and as further set forth in report that meets an Agency-approved qualified party, that describes the § 5001.521(d)(3)(e). standard prepared by an energy auditor existing system, analyzes alternatives, Financial feasibility means the ability or an individual supervised by an and proposes a specific course of action of a project to achieve sufficient income, energy auditor that documents current from an engineering perspective. credit, and cash flow to financially energy usage; recommended potential Essential community facility means a sustain the project over the long term improvements (typically called energy public improvement, operated on a non- and meet all debt obligations. conservation measures) and their costs; profit basis, needed for the orderly Future recovery means funds to be energy savings from these development of a rural community collected by the lender after a final loss improvements; dollars saved per year; where the rural community is a city or claim is processed as set forth in and simple payback. The methodology town, or its equivalent county or multi- § 5001.522. of the energy audit must meet county area. The term ‘‘facility’’ refers to Geothermal direct generation means a professional and industry standards. both the physical structure financed, system that uses thermal energy directly The final energy audit must be validated and the resulting service provided to from a geothermal source. and signed off by the energy auditor rural residents or rural businesses. Geothermal electric generation means who conducted the audit or by the Facilities may include, but are not be a system that uses thermal energy from supervising energy auditor of the limited to, courthouses, community a geothermal source to produce individual who conducted the audit, as centers, libraries, firehouses, health electricity. Guaranteed loan means a loan made applicable. care, education, transportation, and and serviced by a lender for which the Energy auditor means a qualified industrial parks. An industrial park Agency and lender have entered into a consultant that meets one of the consists of land and the necessary lender’s agreement and for which the following criteria: access ways and utilities to the site, but Agency has issued a loan note (1) A certified energy auditor certified not improvements erected on such site. guarantee. Unless otherwise specified, by the Association of Energy Engineers; Existing business means a business (2) A certified energy manager guaranteed loan refers to a loan that the that has been in operation for at least certified by the Association of Energy Agency has guaranteed under this Part. one full year. The following will be Engineers; Guarantor means a person giving treated as existing businesses provided (3) A licensed professional engineer assurance to the Agency under an there is not a significant change in in the State in which the audit is Agency-approved written agreement operations of the existing business: conducted with at least 1 year of that the borrower’s obligations will be Mergers by an existing business with a experience and who has completed at fulfilled and promising repayment of a new or existing businesses, a change in least two similar type energy audits; or guaranteed loan if the borrower should (4) An individual with a 4-year the business name, or a new business default. engineering or architectural degree with and an existing business applying as co- Holder means a person, other than the at least three years of experience and borrowers, lender, who owns all or part of the who has completed at least five similar Farmer or rancher cooperative means guaranteed portion of the guaranteed type energy audits. an entity that is owned and controlled loan with no servicing responsibilities. Energy efficiency improvement (EEI) by agricultural producers and that is Hospital. (1) For the purpose of means improvements to or replacement incorporated, or otherwise recognized refinancing rural hospital debt in of an existing building or systems, or by the State in which it operates as a accordance with § 5001.102(d)(5), equipment that reduces measurable cooperatively-operated business or an hospital means the following types of energy consumption on an annual basis. entity that is not legally chartered as a facilities defined in the Social Security Energy efficient equipment and cooperative but is owned and operated Act, Section 1861 (42 U.S.C. 1395x): systems (EEE) means equipment or for the benefit of its members, with (i) Hospital (section 1861(e)). systems for agricultural production or returns of residual earnings paid to such (ii) Psychiatric hospital (section processing that exceed any of the members on the basis of patronage. 1861(f)). following standards: Feasibility study means a report (iii) Long-term care hospital (section (1) Energy efficiency building codes, including an opinion or finding 1861(ccc)); and shall also include the if available; conducted by an independent qualified following other provider types defined (2) Federal or State energy efficiency consultant(s) evaluating the economic, in the Social Security Act, Section 1861 standards, if available; market, technical, financial, and (42 U.S.C. 1395x): (3) Energy efficiency standards management feasibility of the proposed (A) Critical access hospital (section determined appropriate by the project or operation in terms of its 1861(mm)(1)). Secretary. If no codes or standards expectation for success as outlined in (B) Religious nonmedical health care described in paragraphs (1) through (3) appendix A to subpart D of this part. institution (section 1861(ss)(1)).

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(2) The Agency will use the applicant Interconnection agreement means a Loan documents mean the loan provider’s CMS Certification Number contract containing the terms and agreement, promissory note, mortgage/ (CCN) to verify the applicant provider is conditions governing the deed of trust, and other security listed as a ‘‘Hospital’’ for the ‘‘Provider interconnection and parallel operation documents entered into by the borrower or Supplier Type’’ category on the of the borrower’s electric generation and the lender in connection with the Centers for Medicare and Medicaid equipment and the utility’s electric guaranteed loan. Services’ Quality Certification and power system or a borrower’s biogas Loan note guarantee means the Oversight Reports (QCOR) website production system and a gas pipeline. Agency-approved form containing the https://qcor.cms.gov/index_new.jsp. Interest means an amount paid by a terms and conditions of the guarantee of Hybrid means a combination of two or borrower to a lender as a form of an identified guaranteed loan. more renewable energy technologies compensation for the use of money. Loan packager means a person, that are incorporated into a unified When money is borrowed, interest is including a loan referral agent, broker, system to support a single project. typically paid over a certain period of or an agent other than the borrower or Hydroelectric source means a time (typically months or years) to the lender that prepares a guaranteed loan renewable energy system producing lender as percentage of the principal application on behalf of the borrower or electricity using various types of moving amount owed. The term interest does lender. water including, but not limited to, not include default charges, penalty Local government means a county, diverted run-of-river water, in-stream interest, or late payment fees. municipality, town, township, village, run-of-river water, and in-conduit water. Interest termination date means the or other unit of general government Hydrogen project means a system that date on which no further interest will be below the State level. The term also produces hydrogen derived from payable by the Agency under the loan includes Tribal governments when renewable biomass or water using wind, note guarantee. tribal lands are within the service area. solar, ocean (including tidal, wave, Interim financing means a temporary Local owner means an individual who current, and thermal), geothermal, or or short-term loan made with the clear owns any portion of an entity that is the hydroelectric sources; or that uses intent when the loan is made that it will eligible borrower and whose primary hydrogen derived from renewable be repaid through another loan that residence is located within the normal biomass or water using wind, solar, provides permanent financing. Interim commuting area of the guaranteed loan ocean (including tidal, wave, current, financing is frequently used to pay project. and thermal), geothermal or construction and other costs associated Locally or regionally produced hydroelectric sources as an energy with the proposed project, with agricultural food product means any transport medium in the production of permanent financing to be obtained after agricultural food product that is raised, mechanical or electric power or thermal project completion. produced, and distributed in the locality energy. Lender means a lending entity that the or region in which the final product is Immediate family(ies) means Agency has approved to originate, marketed, so that the distance the individuals who live in the same service, and collect payments on loans product is transported is less than 400 household or who are closely related by guaranteed under this part. miles from the origin of the product, or blood, marriage, or adoption, such as a Lender’s agreement means the within the State in which the product is spouse, domestic partner, parent, child, Agency-approved form of contract produced. Food products could be raw, sibling, aunt, uncle, grandparent, between the Agency and the lender cooked, or a processed edible substance, grandchild, niece, nephew, or first setting forth the lender’s guaranteed beverage, or ingredient used or intended cousin. loan responsibilities. for use or for sale in whole or in part Indian tribe means the term as Liquidation expenses means costs for human consumption. defined in 25 U.S.C. 5304(e). directly associated with the liquidation Market value means the most In-house expenses means expenses of collateral, including, without probable price that an asset should bring associated with activities that are limitation, costs associated with in a competitive and open market under routinely the responsibility of a lender’s preparing collateral for sale (e.g., repairs all conditions requisite to a fair sale, the internal staff, including in-house and transport), the sale (e.g., advertising, buyer and seller, each acting prudently, lawyers, or its agents and that are public notices, auctioneer expenses, and knowledgeably, and assuming the price normally incurred for administration of foreclosure fees), and conducting is not affected by undue stimulus. the loan. In-house expenses include, but appraisals. Legal fees are considered Implicit in this definition is the are not limited to, employees’ salaries, liquidation expenses provided that the consummation of a sale as of a specified staff lawyers, travel, and overhead. fees are reasonable as determined by the date and the passing of title from seller Inspector means a qualified Agency and cover legal issues to buyer under conditions whereby— consultant who has at least 3 years of pertaining to the liquidation that could (1) Buyer and seller are typically experience and has completed at least not be properly handled by the lender motivated; five inspections on similar type projects. and its in-house legal staff. Liquidation (2) Both parties are well informed or Insurance means a means of expenses do not include in-house well advised, and each acting in what protection from financial loss by which expenses. he or she considers his or her own best a company provides a guarantee of Loan agreement means the agreement interest; compensation for a specified loss, between the borrower and lender (3) A reasonable time is allowed for damage, illness, or death in return for containing the specified terms and exposure in the open market; payment of a premium. conditions of the guaranteed loan and (4) Payment is made in terms of cash Intangible assets means an asset that the responsibilities of the borrower and in U.S. dollars or in terms of financial lacks physical substance. This includes, lender. arrangements comparable thereto; and but is not limited to, copyrights, patents, Loan classification means the process (5) The price represents the normal capitalized franchise fees, goodwill, by which loans are examined and consideration for the property sold customer lists, software, organizational categorized by the probability of default unaffected by special or creative expenses, loan closing expenses, social and degree of potential loss in the event financing or sales concessions granted media assets, and bond fees. of default. by anyone associated with the sale.

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Matching funds means those project requirements of the loan documents, Person means an individual or entity funds required by 7 U.S.C. 8107 to be program requirements or loan. organized under the laws of a State or eligible to receive the guaranteed loan. Non-regulated lending entity means a a Tribe. Funds provided by the borrower in lending entity that is not subject to Power purchase agreement means the excess of matching funds are not supervision and examination by an terms and conditions governing the sale matching funds. agency of the United States or a State; and transportation of electricity Material adverse change means any or a lending entity created specifically produced by the borrower to another change in circumstances associated with by State statute and operating under the party. a guaranteed loan, including, without direct supervision of a State government Professional service means services limitation, any change in the purpose of authority. used by the borrower for planning and the loan, the borrower’s financial Ocean energy means energy created developing a project, including, but not condition or collateral that, individually by use of various types of moving water limited to, appraisals, architectural or in the aggregate, have jeopardized, or in the ocean and other large bodies of services, surveys, environmental impact could be reasonably expected to water (e.g., Great Lakes) including, but analyses, implementing mitigation jeopardize, the borrower’s repayment of not limited to, tidal, wave, current, and measures, and establishing or acquiring the guaranteed loan. thermal changes. property rights. Such services are generally rendered by persons licensed Monetary default means a failure to Off-take agreement means the terms or certified by States or accreditation make a scheduled or required payment and conditions governing the sale and associations, such as architects, on a guaranteed loan. transportation of products produced by engineers, accountants, attorneys, or Multi-note system means an option for the borrower and sold to another party. the lender to provide one promissory appraisers, and those rendered by loan Otherwise improve means, but is not packagers, but not including loan note for the unguaranteed portion and a limited to, the following: separate promissory note(s) for the finders. (1) The purchase of necessary guaranteed portion of the loan. All Project means the activity identified equipment that will itself provide an promissory notes must reflect the same by a lender in its application for a loan essential service to the rural payment terms. guarantee for which the guaranteed loan community, such as vehicles, funds will be used. National Appeals Division (NAD) emergency and medical equipment, means the division of the United States Promissory note means the legal telecommunication equipment, instrument evidencing debt executed by Department of Agriculture pursuant to 7 computers, water meters and pumps; CFR part 11. the borrower to a lender with stipulated (2) The purchase of equipment repayment terms. The term promissory Natural resource value-added product necessary to maintain, protect, operate, note includes bonds and other related means a product derived from any or use the eligible facility or service; debt instruments issued by the lender to naturally occurring resource, including a borrower. agricultural resources, that is further (3) The purchase of existing eligible Protective advance means an advance processed to add value or used to facilities, when necessary, to either made by the lender for the purpose of generate energy or renewable energy. improve or prevent a loss of service provided the price paid for the facility preserving and protecting the collateral Negligent loan origination means the where the borrower has failed to, and failure of a lender to perform those is fair and reasonable and not directly related to the dollar amount of any debt will not or cannot, meet its obligations services or actions that a reasonably to protect or preserve collateral. prudent lender would perform in to be retired by the seller; and (4) Payment of tap fees and other Protective advances include, but are not originating its own portfolio of loans limited to, advances for property taxes, that are not guaranteed. The term utility connection charges as provided in utility purchase contracts. rent, hazard and flood insurance includes the concepts of failure to act, premiums, emergency repairs and not acting in a timely manner, and Parity means a lien position whereby two or more separate lending entities or annual assessments that protect the acting in a manner contrary to the collateral. Legal and accounting fees are manner in which a reasonably prudent separate loans share a security interest of equal priority in collateral. not a protective advance. lender would act. Public body means a state, county, Negligent loan servicing means the Participation means the sale of an city, township, incorporated town or failure of a lender to perform those interest in a loan by the lead lender to village, borough, authority, district, or services that a reasonably prudent one or more participating lenders other political subdivision of a State, or lender would perform in servicing wherein the lead lender retains the note, Indian tribe. (including liquidation of) its own collateral securing the note, and all Qualified consultant(s) means an portfolio of loans that are not responsibility for managing and independent third-party person guaranteed. The term includes the servicing the loan. Participants have possessing the knowledge, expertise, concepts of failure to act, not acting in credit risk and are dependent upon the and experience to perform the specific a timely manner, and acting in a manner lead lender for protection of their task required. contrary to the manner in which a interests in the loan. The relationship is Rated power means the maximum reasonably prudent lender would act. typically formalized by a participation amount of energy that can be created at New business means a business that agreement between the lenders. The any given time. has been in operation for less than one participant lender(s) and the borrower Refurbished means a piece of full year, including a new enterprise or have no rights or obligations to one equipment or renewable energy system new affiliate of an existing business another. that has been brought into a commercial moving or expanding into a new Passive investor means an equity facility, thoroughly inspected, and worn location involving new market or labor investor who does not actively parts replaced and has a warranty that areas. participate in management and is approved by the Agency or its Non-monetary default means a operation decisions of the borrower or designee. situation where a borrower is not in any affiliate of the borrower as Regulated lending entity means a compliance with the covenants or evidenced by a contractual agreement. lending entity that is subject to

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supervision and examination by an energy from a Renewable Energy source State Director for recommendation to agency of the United States or a State; and may include: the Administrator on behalf of the or a lending entity created specifically (1) Distribution components necessary Under Secretary. The petition shall by State statute and operating under the to move energy produced by such document how the area meets the direct supervision of a State government system to the initial point of sale; and requirements of paragraph (1)(i)(A) or authority. (2) Other components and ancillary (B) of this definition and discuss why Renewable biomass means— infrastructure of such system, such as a the petitioner believes the area is ‘‘rural (1) Materials, pre-commercial storage system; however, such system in character,’’ including, but not limited thinning, or invasive species from may not include a mechanism for to, the area’s population density, National Forest System land or public dispensing energy at retail. demographics, and topography and how lands (as defined in Section 103 of the Report of loss means an Agency- the local economy is tied to a rural Federal Land Policy and Management approved form used by lenders when economic base. Upon receiving a Act of 1976 (43 U.S.C. 1702)) that— reporting a financial loss under a petition, the Under Secretary will (i) Are by-products of preventive guaranteed loan. consult with the applicable governor or treatments that are removed to reduce Retrofitting means a modification to leader in a similar position and request hazardous fuels; to reduce or contain an existing building or installed comments to be submitted within 5 disease or insect infestation; or to equipment that incorporates a function business days, unless such comments restore ecosystem health; or feature(s) not included in the original were submitted with the petition. The (ii) Would not otherwise be used for design when built or for the Under Secretary will release to the higher-value products; and replacement of existing components public a notice of a petition filed by a (iii) Are harvested in accordance with with components that improve the unit of local government not later than applicable law and land management original design and does not affect 30 days after receipt of the petition by plans and the requirements for old- original warranty if the warranty is still way of publication in a local newspaper growth maintenance, restoration, and in existence. and posting on the Agency’s website at Rural and rural area means any area management direction of paragraphs (2), https://www.rd.usda.gov/ of a State not in a city or town that has (3), and (4) of subsection (e) of section onerdguarantee, and the Under a population of more than 50,000 102 of the Healthy Forests Restoration Secretary will make a determination not inhabitants, and which excludes certain Act of 2003 (16 U.S.C. 6512) and large- less than 15 days, but no more than 60 populations pursuant to 7 U.S.C. tree retention of subsection (f) of section days, after the release of the notice. 1991(a)(13)(H), according to the latest 102; or Upon a negative determination, the decennial census of the United States (2) Any organic matter that is Under Secretary will provide to the and not in the urbanized area available on a renewable or recurring petitioner an opportunity to appeal a contiguous and adjacent to a city or basis from non-Federal land or land determination to the Under Secretary, town that has a population of more than belonging to an Indian or Indian tribe and the petitioner will have 10 business 50,000 inhabitants. In making this that is held in trust by the United States days to appeal the determination and determination, the Agency will use the or subject to a restriction against provide further information for latest decennial census of the United alienation imposed by the United States, consideration. The Under Secretary will States. The following exclusions apply: make a determination of the appeal in including the following items: (1) Any area in the urbanized area not less than 15 days, but no more than (i) Renewable plant material contiguous and adjacent to a city or 30 days. (including feed grains, other agricultural town that has a population of more than commodities, other plants and trees, 50,000 inhabitants that has been (iii) Rural Development State and algae); and determined to be ‘‘rural in character’’ as Directors may also initiate a request to (ii) Waste material (including crop follows: the Under Secretary to determine if an residue, other vegetative waste material (i) The determination that an area is area is ‘‘rural in character.’’ A written (including wood waste and wood ‘‘rural in character’’ will be made by the recommendation should be sent to the residues), animal waste and byproducts Under Secretary of Rural Development. Administrator, on behalf of the Under (including fats, oils, greases, and The process to request a determination Secretary, that documents how the area manure), and food and yard waste). under this provision is outlined in meets the statutory requirements of Renewable energy means energy paragraph (1)(ii) of this definition. The paragraph (1)(i)(B) of this definition and derived from— determination that an area is ‘‘rural in discusses why the State Director (1) A wind, solar, renewable biomass, character’’ under this definition will believes the area is ‘‘rural in character,’’ ocean (including tidal, wave, current, apply to areas that are within: including, but not limited to, the area’s and thermal), geothermal or (A) An urbanized area that has two population density, demographics, hydroelectric source; or points on its boundary that are at least topography, and how the local economy (2) Hydrogen derived from renewable 40 miles apart, which is not contiguous is tied to a rural economic base. Upon biomass or water using an energy source or adjacent to a city or town that has a receipt of such a request, the described in paragraph (1) of this population of greater than 150,000 Administrator will review the request definition. inhabitants or the urbanized area of for compliance with the ‘‘rural in Renewable energy site assessment such a city or town; or character’’ provisions and make a means a report providing information (B) An urbanized area contiguous and recommendation to the Under Secretary. regarding and recommendations for the adjacent to a city or town of greater than Provided a favorable determination is use of commercially available renewable 50,000 inhabitants that is within 1⁄4 mile made, the Under Secretary will consult energy technologies in the borrower’s of a rural area. with the applicable Governor and operation. The report must be prepared (ii) Units of local government may request comments within 10 business by a qualified consultant for the specific petition the Under Secretary of Rural days, unless gubernatorial comments energy system and project proposed. Development for a ‘‘rural in character’’ were submitted with the request. A Renewable energy system (RES) designation by submitting a petition to public notice will be published by the means a system that produces usable the appropriate Rural Development State Office in accordance with

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paragraph (1)(ii) of this definition. There paragraph (1), (2), or (3), as applicable, (iv) Value of byproducts produced by is no appeal process for requests made of this definition. and used in the project or related on the initiative of the State Director. (1) Energy efficiency improvement enterprises should be documented at the (2) An area that is attached to the projects simple payback = (Total Project fair market value to be received for the urbanized area of a city or town with Costs) ÷ (Dollar value of energy saved). byproducts in a typical year. more than 50,000 inhabitants by a (i) Energy saved will be determined (v) Renewable energy systems projects contiguous area of urbanized census by subtracting the projected energy simple payback does not include any blocks that is not more than two census (determined by the method in paragraph one-time benefits such as but not blocks wide. Applicants from such an (1)(i)(B) of this definition) to be limited to construction and investment- area should work with their Rural consumed from the historical energy related benefits, nor credits which do Development State Office to request a consumed (determined by the method not provide annual income to the determination of whether their project is in paragraph (1)(i)(A) of this definition), project, such as tax credits. located in a rural area under this and converting the result to a monetary (3) Energy efficiency equipment and provision. value using a constant value or price of systems projects simple payback = (total ÷ (3) For the Commonwealth of Puerto energy (determined by the method in project costs) (dollar value of Rico, the island is considered Rural and paragraph (1)(i)(C) of this definition). efficiency savings). Efficiency savings eligible except for the San Juan Census (A) Actual energy used in the original will be determined by subtracting the Designated Place (CDP) and any other building and/or equipment, as annual value of energy to be consumed CDP with greater than 50,000 applicable, prior to the EEI project, must by the proposed energy efficient inhabitants. Areas within CDPs with be based on the actual average annual equipment from the annual value of greater than 50,000 inhabitants, other total energy used in British thermal energy that a conventional equipment than the San Juan CDP, may be units (BTU) over the most recent 12, 24, alternative would have consumed. determined to be Rural if they are ‘‘not 36, 48, or 60 consecutive months of Adequate documentation must be urban in character.’’ operation. provided for all consumption estimates (4) For the State of Hawaii, all areas (B) Projected energy use if the and values utilized in the calculation. within the State are considered rural proposed EEI project had been in place Small business means: (1) An entity or utility, as applicable, and eligible except for the Honolulu for the original building and/or as further defined in paragraphs (1)(i) CDP within the County of Honolulu and equipment, as applicable, for the same through (iv) and meeting the any other CDP with greater than 50,000 time period used to determine that requirements in paragraph (2) of this inhabitants. Areas within CDPs with actual energy use under paragraph definition. With the exception of the greater than 50,000 inhabitants, other (1)(i)(A) of this definition. entities identified in this paragraph, all than the Honolulu CDP, may be (C) Value or price of energy must be other non-profit entities are not small determined to be Rural if they are ‘‘not the actual average price paid over the businesses for the purposes of REAP urban in character.’’ same time period used to calculate the program eligibility: (5) For the purpose of defining a rural actual energy used under paragraph (i) A private for-profit entity, area in the Republic of Palau, the (1)(i)(A) of this definition. including a sole proprietorship, Federated States of Micronesia, and the (ii) Energy efficiency improvement partnership, or corporation; Republic of the Marshall Islands, the projects simple payback does not allow (ii) A cooperative (including a Agency shall determine what EEI to monetize benefits other than the cooperative qualified under section constitutes rural and rural Area based dollar amount of the energy savings the 501(c)(12) of the Internal Revenue on available population data. agricultural producer or rural small Code); Rural small business means a small business realizes as a result of the (iii) An electric utility (including a business that is located in a rural area improvement. Tribal or governmental electric utility) or that can demonstrate the proposed (2) Renewable energy systems projects that provides service to rural consumers project for which assistance is being simple payback = (total project costs) ÷ and operates independent of direct applied for under this part is located in (dollar value of energy units replaced, government control; or a rural area. credited, sold, or used and fair market (iv) A Tribal corporation or other Service area means the area identified value of byproducts as applicable in a Tribal business entities that are to be served. typical year). chartered under Section 17 of the Indian Significant ties means, as determined (i) Value of energy replaced will be Reorganization Act (25 U.S.C. 477) or by the agency, a facility under private calculated based on the borrower have similar structures and control will carry out a public purpose entity’s historical energy consumption relationships with their Tribal and continue to primarily serve rural with actual average price paid for the governments and are acceptable to the areas for CF projects (not applicable to energy replaced, following the Agency. The Agency will determine the public bodies and Federally Recognized methodology outlined in paragraph small business status of such Tribal Tribes) as evidenced by the following: (1)(i) of this definition. entity without regard to the resources of Association with or control by a public (ii) Value of energy credited or sold the Tribal government; and body or bodies; or Broadly based will be calculated based on the amount (2) An entity that meets Small membership and controlled primarily of energy units to be sold at the Business Administration (SBA) size by members residing in the project proposed rate per unit, as documented standards in accordance with 13 CFR service area. Membership must be open in utility net metering or crediting part 121 and criteria of 13 CFR 121.301 without regard to race, color, religion, policies and/or a purchase agreement. as applicable to financial assistance national origin, sex, age, disability, (iii) If proposed energy will be used programs, including paragraph (2)(i) or sexual orientation, or marital or familial in a new facility, value of energy used (ii) of this section. The size of the status. will be calculated based on the amount concern alone and the size of the Simple payback means the estimated of energy units to be used at the concern combined with other entity(ies) simple payback of a project funded documented price per unit of it controls or entity(ies) it is controlled under this part as calculated using conventional fuel alternative. by, must not exceed the size standard

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thresholds designated for the industry position junior to, or on parity with, the § 5001.5 Appeal and review rights. in which the concern alone or the lien position of another loan. Borrowers, lenders, and holders may concern and its controlling entity(ies), Total eligible project costs means the have appeal or review rights for Agency whichever is higher, is primarily sum of all eligible project costs. decisions made under this part. Agency engaged. Total project costs means the sum of decisions that are adverse to the (i) The concern’s tangible net worth is all costs associated with a completed individual participant are appealable, not in excess of $15 million and average project. while matters of general applicability net income (excluding carry-over losses) Transfer and assumption means the are not subject to appeal; however, such for the preceding two completed fiscal Agency-approved conveyance by a decisions are reviewable for years is not in excess of $5.0 million; or borrower to an assuming borrower of the appealability by the National Appeals (ii) The size of the concern does not assets, collateral, and liabilities of the Division (NAD). All appeals will be exceed the SBA size standard thresholds borrower in return for the assuming conducted by NAD and will be handled designated for the industry in which it borrower’s binding promise to pay the in accordance with 7 CFR part 11. is primarily engaged, as measured by outstanding debt. (a) The borrower, lender, and holder number of employees or annual can appeal any Agency decision that Underserved communities mean receipts. Industry size standard directly and adversely affects them. communities (including urban or rural designations to be utilized are listed in (1) For an adverse decision that affects communities and Indian tribal the SBA’s table of size standards found the borrower, the lender and borrower communities) that have limited access in 13 CFR 121.201. Number of must jointly execute a written request to affordable, healthy foods, including employees and annuals receipts are for appeal of an adverse decision made fresh fruits and vegetables, in grocery calculated as follows: by the Agency. retail stores or farmer-to-consumer (2) An adverse decision that affects (A) Number of employees is direct markets and that have either a calculated as the average number of all only the lender can be appealed by the high rate of hunger or food insecurity or lender only. individuals employed by a concern on a high poverty rate as reflected in the a full-time, part-time, or other basis, (3) An adverse decision that affects most recent decennial census or other only the holder can be appealed by the based upon numbers of employees for Agency-approved census. each of the pay periods for the holder only. preceding completed 12 calendar Uniform Standards of Professional (b) In cases where the Agency has months. If a concern has not been in Appraisal Practice (USPAP) means the denied or reduced the amount of final business for 12 months, the average appraisal standards promulgated by the loss payment to the lender, the adverse number of employees is used for each of Appraisal Standards Board of the decision can be appealed only by the the pay periods during which it has Appraisal Foundation. lender. been in business. Used equipment means any (c) A decision by a lender adverse to (B) Annual receipts are calculated as equipment that has been used and is the interest of the borrower is not a average total income plus cost of goods provided in an ‘‘as is’’ condition. decision by the Agency, even if it was sold for the five most recent years. If a Useful life means estimated durations concurred in by the Agency, and concern has been in operation for less of utility placed on a variety of assets, therefore cannot be reviewed for than 60 months, average annual receipts including buildings, machinery, appealability or appealed to NAD. for as long as the concern has been in equipment, vehicles, electronics, and § 5001.6 General lender responsibilities. furniture. Useful life estimations operation are used. (a) Lenders are responsible for State means any of the 50 States of the terminate at the point when assets are expected to become obsolete, require originating and servicing loans United States, the Commonwealth of guaranteed by the Agency under this Puerto Rico, the District of Columbia, major repairs, or cease to deliver economical results. part in accordance with the provisions the U.S. Virgin Islands, Guam, of this part and, for those guaranteed Veteran means a person who served American Samoa, the Commonwealth of loans issued under one of the in the active military, naval, or air the Northern Mariana Islands, the guaranteed loan programs identified in service and was discharged or released Republic of Palau, the Federated States § 5001.1(a)(1) through (4), with the therefrom under conditions other than of Micronesia, and the Republic of the provisions of the applicable guaranteed dishonorable as defined in 38 U.S.C. Marshall Islands. loan program. Any action or inaction on 101(2). State bond banks and State bond the part of the Agency does not relieve pools mean an entity authorized by the Waste disposal means sanitary sewer the lender of its responsibilities. State to issue State debt instruments and (treatment and collection), solid waste, (b) Lenders can contract for services, use the funds received to finance or storm drainage facilities. but such contracting does not relieve a eligible projects under this part. Working Capital means current assets Lender from its responsibilities as Steady state operating level means available to support a business’ identified in this part or, where that there is an adequate and consistent operations and growth. Working capital applicable, in the applicable guaranteed supply of the applicable renewable is calculated as current assets less loan program identified in § 5001.1. energy resource(s) for the project, both current liabilities. (c) If a lender fails to comply with the on a short-term (current) and long-term § 5001.4 Exception authority. requirements of this part, the Agency basis, and the renewable energy system may reduce any loss payment in and process(es) are operating at The Administrator may, on a case-by- accordance with the lender’s agreement projected capacity, consistently yielding case basis, grant an exception to any and loan note guarantee. an adequate quantity and quality of requirement or provision of this subpart renewable energy. provided that such an exception is in § 5001.7 Agency’s special initiatives. Subordination means the reduction of the best financial interests of the Federal Applicants submitting applications the lender’s lien priority on certain Government. Exercise of this authority that support the implementation of assets pledged by the borrower to secure cannot be in conflict with applicable strategic or special initiatives are payment of the guaranteed loan to a law. encouraged to review the Agency’s

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annual notice to determine if their Management and Budget and have been § 5001.102 Project eligibility—general. projects are eligible for receiving assigned OMB control number 0572– To be eligible for a loan guarantee priority for projects. These projects may 0155. under this part, a project must meet the also support the implementation of requirements specified in this section strategic economic development and Subpart B—Eligibility Provisions and those in the applicable section in community development plans on a § 5001.101 Introduction §§ 5001.103 through 5001.108. multi-jurisdictional and multi-sectoral (a) Service area. For projects with a This subpart addresses the eligibility basis in accordance with section 6401 of defined service area, the boundaries for provisions for projects, borrowers, and the Agricultural Improvement Act of the proposed service area must be lenders. This subpart also includes 2018 (Pub. L. 115–334). chosen in such a way that no user or provisions for projects involving the area will be excluded because of race, § 5001.8 Approvals, regulations, and purchase of cooperative stock or color, religion, sex, marital status, age, forms. cooperative equity, the conversion of disability, or national origin. This does (a) When Agency approval or businesses to cooperatives or Employee not preclude financing or constructing: concurrence is required, it must be in Stock Ownership Plans (ESOP), and (1) Projects in phases (each phase writing and must be obtained prior to New Markets Tax Credits (NMTC). must be financially sustainable without the action for which approval or (a) Project eligibility. Sections consideration of future phases) when it concurrence is required is taken. 5001.102 through 5001.108 identify is not practical to finance or construct (b) All references to statutes and requirements for projects to be eligible the entire project at one time; and regulations include any and all to receive a loan guarantee under this (2) Projects where it is not successor statutes and regulations. part. Section 5001.115 identifies types economically feasible to serve the entire (c) All references to forms include any of projects that are not eligible for a loan service area, provided the economic and all predecessor and successor forms guarantee under this part. The Agency feasibility is determined on the basis of as specified by the Agency. will not issue a loan guarantee under the entire system or facility and not by (d) Copies of all regulations and forms this part for any project that does not considering the cost of separate referenced in this part can be obtained meet the applicable eligibility criteria as extensions to, or parts thereof. through the Agency and from the specified. (b) Location. A project must be Agency’s website at https:// (b) Borrower eligibility. Section located in a State and meet the rural or www.rd.usda.gov/onerdguaranteed. 5001.126 identifies the types of rural area requirements of the applicable borrowers that are eligible to receive a section in §§ 5001.103 through § 5001.9 Standards for financial loan guarantee for their projects under information. 5001.108. this part. The types of borrowers eligible (c) Tax-exempt financing. The agency (a) All financial information (e.g., to receive loan guarantees for their is prohibited from guaranteeing a financial statements, balance sheets, Projects vary based on the guaranteed project funded with tax-exempt financial projections, and income loan program they are applying under financing. In cases where a project statements) must be prepared and and that guaranteed loan program’s involves both tax-exempt and taxable submitted in accordance with authorizing statute as set forth in financing, the portion of the project that accounting practices acceptable to the § 5001.1. Section 5001.127 identifies involves taxable financing is eligible to Agency. Such practices can include, but conditions that would make an receive a loan guarantee if that portion are not limited to, Generally Accepted otherwise eligible borrower ineligible of the project is separate and distinct Accounting Principles (GAAP) and the for receiving a loan guarantee for its from the part that is financed by the tax- industry’s standard accounting practice. project under this part. exempt obligation, and the guaranteed (b) For sole proprietorships and other (c) Lender eligibility. Section 5001.130 loan is not essential to issuance of the situations where business assets are identifies the requirements for a lending tax-exempt obligation. held personally, financial statements entity to be an eligible lender under this (d) Debt refinancing. The Agency can must be prepared using only the assets part. Section 5001.131 addresses the guarantee loans for debt refinancing as and liabilities directly attributable to the lender’s agreement, which each described in paragraphs (d)(1) through applicant’s project. Assets, plus any approved lender must execute with the (5) of this section. An eligible debt improvements, must be valued at the Agency in order to originate and service refinancing project is: lower of cost or market value. guaranteed loans under this part. (1) Refinancing of debt on one or more § 5001.10 Federal Register notices and Section 5001.132 addresses provisions loans owed to another creditor; amendments. necessary for a lender to maintain its (2) Refinancing of debt owed to the approved lender status. applicant lender or any part thereof Rural Development will issue annual (d) Cooperative stock/cooperative provided that the applicant lender debt Federal Register notices each year equity/conversions. Section 5001.140 being refinanced does not exceed 50 specifying the amount of funds available identifies requirements associated with percent of the total use of funds in the under this part for OneRD guarantees. issuing loan guarantees in connection new aggregated federally-guaranteed Notices may also include the following with the purchase of cooperative stock, debt, the applicant lender debt being information applicable to projects transferable stock shares, and refinanced is in a current status for the specifically funded under a particular cooperative equity and for the past six months and the new guaranteed notice: Maximum loan amounts, fees, conversions of businesses to either loan is providing better rates or and priority scoring for discretionary cooperatives or Employee Stock repayment terms. The current status points. Ownership Plans (ESOP). cannot be achieved by the lender §§ 5001.11–5001.99 [Reserved] (e) New Markets Tax Credits. Section forgiving the borrower’s debt or by 5001.141 identifies the requirements servicing actions that impact the § 5001.100 OMB control number. specific to guaranteed loans involving borrower’s repayment schedule; or The report and recordkeeping projects that include NMTC available (3) Refinancing of debt owed directly requirements contained in this part have under the NMTC program authorized by to the Federal Government or that is been approved by the Office of the U.S. Department of the Treasury. federally-guaranteed, including any

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guaranteed debt owed to the applicant (a) Type of project. The project must (9) Land acquisition and necessary lender, when a refinance of this debt is be for the construction, enlargement, site preparation including access ways consistent with sections 333 and extension, or to otherwise improve an and utility extensions to and throughout 306(a)(24)(C) of the Consolidated Farm essential community facility. Essential an industrial park site; and and Rural Development Act (as community facilities include, but are (10) Community parks, community amended by the Agricultural Act of not limited to: activity centers, and similar types of 2018, Pub. L. 115–334). Such (1) Health care facilities and services, facilities that are an integral part of the guaranteed debt shall not be included in including but not limited to hospitals; orderly development of a community the amount of applicant lender debt (2) Fire, rescue, and public safety (meaning a development that is when calculating the maximum facilities and services; addressing a need in the community). percentage of the total use of funds in (3) Community, public, social, Recreational components including, but the new guaranteed loan as stated in educational, or cultural facilities or not limited to, playground equipment of paragraph (d)(2) of this section. services; an otherwise non-recreational eligible (4) When the refinancing is in (4) Transportation facilities such as community facility such as childcare, accordance with paragraphs (d)(1) streets, bridges, roads, ports, and educational, or health care facilities are through (3) of this section, the following airports; also eligible. requirements must be met: (5) Utility projects such as (b) Public use. All facilities financed hydroelectric generating facilities and (i) The Agency has determined that under the provisions of this section will related connecting systems and the project is viable and debt be for public use. appurtenances; supplemental and refinancing is necessary to improve cash (1) To demonstrate availability for supporting structures for other rural flow; public use, the borrower may not electrification or telephone systems restrict use of or membership to its (ii) The debt is reflected on the including facilities such as borrower’s balance sheet and the facility or service based on race, color, headquarters, office buildings, storage religion, sex, national origin, age, original loan funds were used for facilities, and maintenance shops when project-eligible purposes. Refinancing of disability, sexual orientation, or marital not eligible for RUS financing; natural or familial status. existing of lines of credit is considered gas distribution systems; and recycling an eligible purpose for debt refinancing (i) However, 7 CFR 15a.215(b) or transfer centers or stations. provides that the membership practices in the B&I program; (6) Telecommunications end-user of the Young Men’s Christian (iii) For loans where debt refinancing equipment as it relates to public safety, Association (YMCA), the Young is a majority purpose of the guaranteed medical, or educational Women’s Christian Association loan, the borrower must demonstrate telecommunications links when not (YWCA), the Girl Scouts, the Boy historical actual cash available to eligible for RUS financing; provide a total debt service coverage (7) Water infrastructure facilities such Scouts, and Camp Fire Girls are exempt ratio of not less than 1.1 times its new as levees, dams, reservoirs, inland from open membership practices on the debt service requirements or that the waterways, canals, and irrigation basis of sex. borrower’s current financial systems; (ii) If membership or admission is performance demonstrates it has (8) The purchase and installation of customarily required to access and use corrected or recovered from impacts or renewable energy systems for use by an the facility or service, any individual issues adversely effecting its past essential community facility when: who applies for membership or financial performance. (i) The renewable energy system will admission must be given membership, (5) Refinancing of debt incurred by a help defray the cost of facility operation admitted, or be placed on a waiting list rural hospital to preserve access to a over the life of the system; to join as space becomes available on a health service when the refinancing will (ii) The renewable energy system will first-come, first-served basis. This does meaningfully improve the financial improve the borrower’s ability to not preclude an essential community position of the hospital. The debt can be provide the underlying essential facility from having a threshold existing Agency direct loan debt, community service, such as providing admission requirement, such as a Agency guaranteed debt, or another backup facilities or extending fuel college or university requiring their lender’s debt. Loan requests to refinance supplies of backup facilities; applicants to have a certain grade point rural hospital debt must demonstrate (iii) The borrower does not, and will average before they are considered for that the new amount of annual debt not, have any contract to sell power admission. The standard must be repayment on the debt being refinanced generated by the renewable energy applied consistently to all applicants will be less than the existing amount of system; however, receiving credit for and be common to the industry. annual debt repayment and provide a excess production is permitted; (c) Project location. The project must total debt service coverage ratio of 1.1 to (iv) The borrower does not anticipate, be located in a rural area as defined in 1.0 based on historical cash flow. To and has no plan for, generation of more § 5001.3 of this part, except that utility calculate the ratio, the new debt service energy than it will use in a consecutive projects serving both rural and non-rural amount will include annual capital 12-month period. The borrower may areas are eligible for a loan guarantee expense reserve and annual debt receive credits from a utility for energy regardless of project location. For such repayment reserve requirements. production that happens to exceed utility projects, the Agency will facility usage during a particular month; guarantee the rural area portion of the § 5001.103 Eligible CF projects and (v) The renewable energy system is project and only the portion of the requirements. commercially available with proven project necessary to provide the For a CF projects to be eligible for a operating history specific to the essential services to rural areas. The part loan guarantee under this part, it must proposed application; and of the facility located in a non-rural area meet the criteria specified in § 5001.102 (vi) The borrower provides a technical must be necessary to provide the and this section and be for a borrower report as part of the financial feasibility essential services to rural areas. The eligible to submit an application for the study in accordance with § 5001.307(e) availability of funds for CF projects is project in accordance with § 5001.126. (1) and (2), as applicable of subpart D. contingent on its rural area population

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and the reservation of funds outlined in resources through development and (C) The growing or harvesting of § 5001.316(e). construction of solar energy and other mushrooms; renewable energy systems. (D) The growing of hydroponics; § 5001.104 Eligible WWD projects and (b) Type of project. The project must (E) The boarding and/or training of requirements. be for one or more of the uses described animals; For a WWD project to be eligible for in paragraphs (b)(1) through (22) of this (F) Commercial fishing; and a loan guarantee under this part, it must section. (G) Production of algae and meet the criteria specified in § 5001.102 (1) Purchase and development of aquaculture, including conservation, and this section and be for a borrower land, buildings, and associated development, and utilization of water eligible to submit an application for the infrastructure for commercial or for aquaculture. project in accordance with § 5001.120. industrial properties, including (8) Tourist and recreation facilities, (a) Type of project. The project must expansion or modernization. including hotels, motels, bed and be for one or more of the following: (2) Business acquisitions, start-ups, breakfast establishments, and resort (1) To construct, enlarge, extend, or and expansions if jobs will be created or trailer parks and campgrounds. otherwise improve the following types saved. A business acquisition is (9) Educational or training facilities. of facilities: considered the acquisition of an entire (10) CF projects consistent with (i) Drinking water facilities; business, not a partial stock acquisition § 5001.103 when not eligible for financing through Rural Housing (ii) Sanitary sewage facilities; in a business. However, acquisition or Service or Community Facilities (iii) Solid waste disposal facilities; or change of ownership between existing programs. (iv) Storm wastewater disposal owners is an eligible project when the facilities. (11) Industries undergoing adjustment remaining owner(s) held their from terminated Federal agricultural (2) Purchase of equipment to operate, ownership and actively participated in maintain, or protect facilities. price and income support programs or the business operation for at least the increased competition from foreign (b) Public use. The project must be for past 24 months and the selling owner a public purpose. trade. will not retain any ownership interest in (12) Constructing or equipping (c) Project location. The project must the business directly or indirectly be located in a rural area as defined in facilities for lease to private businesses including through other entities or engaged in commercial or industrial § 5001.3 of this part. For utility service trusts or property rights. operations. projects serving both rural and non-rural (3) Purchase and installation of (13) Financing for mixed-use areas the Agency will guarantee only the machinery and equipment. properties involving both commercial portion of the project necessary to (4) Startup costs, working capital, business and residential space is provide the essential services to rural inventory, and supplies in the form of authorized, provided that not less than areas. a permanent working capital term loan. 50 percent of the business’s projected (d) Service area. (1) The project must (5) Pollution control and abatement. revenue will be generated from business be installed to serve any user within the (6) Purchase of membership, stocks, use. Service Area who desires service and bonds, or debentures necessary to obtain (14) Leasehold improvements when can be feasibly and legally served. a loan from a member owned lending the lease contains no reverter clauses or (2) The lender must determine that, institution provided the purchase is restrictive clauses that would impair the when feasible and legally possible, required for all their borrowers and is use or value of the property as security inequities within the project’s service the minimum amount required. for the loan. The term of the lease must area for the same type service proposed (7) Agricultural production, when not be equal to or greater than the term of will be remedied by the borrower on, or eligible for Farm Service Agency (FSA) the loan, unless otherwise mitigated by before, completion of the project. farm loan programs assistance and when the lender and approved by the Agency. Inequities are defined as unjustified it is part of an integrated business also (15) Projects that process, distribute, variations in availability, adequacy, or involved in the processing of aggregate, store, and/or market locally or quality of service. User rate schedules agricultural products. Any agricultural regionally produced agricultural food for portions of existing systems or production considered for guaranteed products to support community facilities that were developed under loan financing must be owned, development and farm and ranch different financing, rates, terms, or operated, and maintained by the income. conditions do not necessarily constitute business receiving the guaranteed loan. (i) Subject to each of the following, inequities. (i) The agricultural production projects may be located in non-rural portion of any loan must not exceed 50 areas as well as in rural areas if the § 5001.105 Eligible B&I projects and percent of the total loan or $5 million, project: requirements. whichever is less. (A) Expands or preserves the For a B&I project to be eligible for a (ii) This paragraph does not preclude availability of staple food in loan guarantee under this part, it must financing the following types of underserved areas with moderate and meet the criteria specified in § 5001.102 businesses: low-income populations by maintaining and this section and be for a borrower (A) Commercial nurseries engaged in or increasing the number of retail or eligible to submit an application for the the production of ornamental plants, institutional outlets that offer an project in accordance with § 5001.126. trees, and other nursery products, such assortment of healthy perishable foods (a) Purpose. The purpose of the as bulbs, flowers, shrubbery, flower and and staple food items; project must be to improve, develop, or vegetable seeds, sod, and the growing of (B) The project will create or retain finance business, industry, and plants from seed to the transplant stage; quality jobs for low-income residents of employment and improve the economic (B) Forestry, which includes the community; and environmental climate in rural businesses primarily engaged in the (C) A significant amount of the food communities; the conservation, operation of timber tracts, tree farms, is locally or regionally produced and development, and use of water for forest nurseries, harvesting of forest sold; and aquaculture purposes; and reducing products, and related activities, such as (D) Includes an appropriate agreement reliance on nonrenewable energy reforestation; with retail and institutional clients to

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inform consumers that they are purpose in this part, and the lender as (i) Qualifications of the project team; purchasing or consuming locally or bond holder retains the percent of the (ii) Agreements and permits; regionally produced agricultural food bond in accordance with (iii) Resource assessment; products. § 5001.408(3)(i) of this part. The bonds (iv) Design and engineering; (ii) The Agency will give funding must be fully secured with collateral in (v) Project development; priority to projects that provide a benefit accordance with § 5001.202(b)(4) of this (vi) Equipment procurement and to underserved communities in part. The bonds must only provide for installation; and accordance with § 5001.318(d)(5) of this a trustee when the trustee is totally (vii) Operations and maintenance. part. under the control of the lender. The (c) Facility location. The project must (16) The purchase of cooperative bonds must provide no rights to bond be located in a rural area, except for stock by individual farmers or ranchers holders other than the right to receive loans to cooperative in accordance with in a farmer or rancher cooperative or the the payments due under the bond. For paragraph (b)(18)(ii) of this section and purchase of transferable cooperative instance, the bonds must not provide for for loans to local foods projects in stock in accordance with § 5001.140(a) bond holders replacing the trustee or accordance with paragraph (b)(15)(i) of and (b); or the purchase of stock in a directing the trustee to take servicing this section where such projects may business by employees forming an ESOP actions, such as accelerating the bonds. also be located in non-rural areas. For or worker cooperative in accordance In accordance with § 5001.127(f), an eligible project that located in both with § 5001.140(d). convertible bonds are not eligible under rural and non-rural areas, the Agency (17) The purchase of preferred stock this paragraph due to the potential will guarantee only the amount or similar equity issued by a cooperative conflict of interest of a lender having an necessary to finance that portion of the or a loan to a fund that invests primarily ownership interest in the borrower. An project located in the eligible rural area. in cooperatives in accordance with explanation of the type of bond and (d) Capital and equity. Borrowers are § 5001.140(c). other bond stipulations must be required to have sufficient capital or (18) Loans to cooperatives: attached to the bond. equity to mitigate the ongoing financial (i) Guaranteed loans to eligible (i) The bond issuer must obtain the and operational risks of the business. cooperative may be made in principal services and opinion of an experienced Balance sheet equity will be determined amounts up to $40 million if the project bond counsel, who must present a legal based upon current and projected is located in a rural area, the cooperative opinion stating that the bonds are legal, borrower financial statements. The facility being financed provides for the valid, and binding obligations of the following capital and equity value-added processing of agricultural issuer and that the issuer has adhered to requirements must be met at the time of commodities, and the total amount of all applicable laws. lender’s closing of the guaranteed loan. guaranteed loans exceeding $25 million (ii) The bond holder (lender) must (1) Existing businesses must meet one does not exceed 10 percent of the funds purchase all the bonds issued pursuant of the following requirements: available for the fiscal year. Guaranteed to the guaranteed and comply with all (i) A minimum of 10 percent balance loans in excess of $25 million in Agency regulations. There must be a sheet equity (including subordinated accordance with this provision may bond purchase agreement between the debt when subject to a standstill only be approved by the Secretary, issuer and the bond holder. The bond agreement), or a maximum debt-to- whose authority may not be redelegated. purchase agreement must contain (ii) Guaranteed loans to eligible similar language to that required in a balance sheet equity ratio of 9 to 1, at cooperative may also be made in non- loan agreement and must not conflict loan closing; rural Areas provided: with this part. The bond holder is (ii) A 10 percent or more of total (A) The primary purpose of the responsible for all servicing of the eligible project costs, borrower guaranteed loan is for a facility to guaranteed loan evidenced by the bond, investment of equity or other funds into provide value-added processing for although the bond holder may contract the project including grants or agricultural producers that are located for servicing assistance, including subordinated debt when subject to a within 80 miles of the facility; contracting with a trustee who remains standstill agreement; (B) The borrower satisfactorily under the lender’s total control. (iii) Balance sheet equity includes demonstrates that the primary benefit of (20) Nursing homes and assisted owner-contributed capital of ten percent the guaranteed loan will be to provide living facilities where constant medical or more of total fixed assets (net total employment for rural residents; care is provided and available onsite to fixed assets plus depreciation.) (C) The principal amount of the the residents. Independent living (2) New businesses with sales guaranteed loan does not exceed $25 facilities are not eligible in accordance contract(s) with proceeds in an amount million; and with § 5001.118(a). adequate to meet debt service and the (D) The total amount of guaranteed (21) Development and construction of term of the sales contract(s) are at least loans guaranteed under this paragraph RES, including modification of existing equal to the term of the guaranteed loan, does not exceed 10 percent of the funds systems that are commercially available and subject to Agency acceptance of the available for the fiscal year. and that are not otherwise eligible under credit worthiness of the counterparty, (iii) An eligible cooperative may REAP, or if funding is and not available the borrower must meet one of the refinance an existing B&I guaranteed in the eligible REAP. following requirements: loan if the existing loan is current and (22) Integrated processing equipment (i) A minimum of 10 percent balance performing, the existing loan is not and and systems, such as biorefineries, sheet equity (including subordinated has not been in monetary default or the renewable energy systems, and chemical debt when subject to a standstill collateral has not been converted, and manufacturing facilities, must utilize agreement), or a maximum debt-to- there is adequate security and collateral commercially available technology, balance sheet equity ratio of 9 to 1 at for the new guaranteed loan. equipment, and systems and loan closing; or (19) Taxable corporate bonds when demonstrate technical merit. The (ii) Borrower investment of equity or the bonds are fully amortizing and Agency will evaluate the following areas other funds (including subordinated comply with all provisions of this part, in making the technical merit debt when subject to a standstill bond proceeds were used for an eligible determination: agreement and grants) into the project in

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an amount of 10 percent or more of total (i) Increases. The Agency may requirement for an existing business eligible project cost; increase the capital or equity when personal or corporate guarantees (3) New businesses with a project requirement specified under paragraphs are obtained in accordance with involving construction and when the (d)(1) through (4) of this section for § 5001.204 of this part; and all pro forma lender will request the loan note guaranteed loans the Agency determines and historical financial statements guarantee prior to completion of carry a higher risk. In determining indicate the business to be financed construction must meet one of the whether a project or guaranteed loan meets or exceeds the median quartile (as following requirements: carries a higher risk, the Agency will identified in the Risk Management (i) A minimum of 25 percent balance consider the current status of the Association’s Annual Statement Studies sheet equity at guaranteed loan closing; industry, concentration of the industry or similar publication) for the current or in the Agency’s portfolio, collateral ratio, quick ratio, debt-to-worth ratio, (ii) Borrower investment of equity or coverage, value of personal or corporate and debt service coverage ratio. other funds into the project in an guarantees, cash flow, and contractual (6) Certification: The lender must amount of 25 percent or more of total relationships with suppliers and buyers; eligible project cost; certify that, as of the date the guaranteed credit rating of the borrower; and the Loan was closed, its credit analysis (4) All other borrowers that are new strength of the feasibility study and businesses must meet one of the indicated that the borrower had experience of management. The Agency sufficient capital or equity to mitigate following requirements: may also increase the capital or equity (i) A minimum of 20 percent balance the financial and operational risks of the requirement for new businesses using sheet equity, or a maximum debt-to- business, and that the borrower met the integrated processing equipment and equity ratio of 4 to 1, at guaranteed loan minimum equity required by the systems such as biorefineries, renewable closing, or; Agency in its conditional commitment, (ii) Borrower investment of equity or energy systems, chemical manufacturing or that the minimum borrower capital other funds into the project in an facilities, and businesses producing new contribution toward project costs, as amount of 25 percent or more of total products to sell into new and emerging applicable and required by the Agency, eligible project cost; markets. was met. A copy of the borrower’s loan (5) Variances in capital and equity (ii) Reductions. The Agency may closing balance sheet must be included requirements: reduce the minimum equity with the lender’s certification.

TABLE 1 TO § 5001.105(d)—CAPITAL EQUITY REQUIREMENTS SUMMARY

Borrower must meet one of the following at the time of the closing of the guaranteed loan: Balance sheet equity Borrower Borrower investment includes owner Percent balance sheet as percent of total contributed capital as equity: eligible project cost: percentage of total fixed assets:

Existing Business ...... ≥10 ≥10 ≥10 Borrowers that are new businesses with sales 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...... ≥10 ≥10 N/A Borrowers that are new businesses for a project involving construction and the lender will request the loan note guarantee prior to comple- tion of construction...... ≥25 ≥25 N/A All other borrowers that are new businesses ...... ≥20 ≥25 N/A

§ 5001.106 Eligible REAP—Renewable (4) For the purposes of this section, (d) Where a residence is closely Energy System (RES) projects and only those hydroelectric sources with a associated with an agricultural requirements. rated power of 30 megawatts or less are operation or rural small business to be For a REAP RES Project to be eligible an eligible RES. served by the RES project, 50 percent or for a loan guarantee under this part, it (b) The RES project must use more of the energy to be generated by must meet the criteria specified in commercially available technology. the RES project must be used by the § 5001.102(a) through (c) and in (c) The RES project must be located in agricultural operation or rural small paragraphs (a) through (e) of this section a rural area unless the borrower is an business. This provision must be and be for a borrower eligible to submit agricultural producer and the documented with the application and an application for the project in application supports the production, can be demonstrated using either of the accordance with § 5001.126. If taxable processing, vertical integration, or methods identified in paragraphs (d)(1) bonds are utilized as debt instruments marketing of agricultural products. If the and (2) of this section. the provisions of § 5001.105(b)(19) must agricultural producer’s operation is in a (1) Provide a renewable energy site be met. non-rural area, then the application can assessment or other documentation and (a) The project must be for— only be for RES components that are: calculations that demonstrate based on (1) Directly related to, and their use historical energy use that 50 percent or (1) The purchase of a new or existing and purpose is limited to the more of the energy to be produced by RES; agricultural production operation, such the RES project will be used in the (2) The purchase of a refurbished RES; as vertically integrated operations; and agricultural operation or rural small or (2) Part of and co-located with the business. This includes documentation (3) The retrofitting of an existing RES. agricultural production operation. on historical residential energy use. The

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Agency may request additional data to (G) Operations and maintenance. (1) If the project’s total project cost is determine residential versus business or (2) Pass/pass with conditions/fail greater than $80,000, the energy agricultural operation usage. The actual assignments. The Agency will assign assessment must be conducted by an percentage of energy determined to each area of the technical report, as energy auditor, an energy assessor, or an benefit the rural small business or specified in paragraph (e)(1) of this individual supervised by either an agricultural operation will be the basis section, a ‘‘pass,’’ ‘‘pass with energy assessor or energy auditor. The to determine eligible project costs. conditions,’’ or ‘‘fail.’’ An area will final energy assessment must be (2) The borrower may install or elect receive a ‘‘pass’’ if the information validated and signed by the energy to conditionalize funding upon the provided for the area has no weaknesses assessor, the energy auditor who installation of a device (such as a and meets or exceeds any requirements conducted the energy assessment, or by second meter) that results in 100 specified for the area. An area will the supervising energy assessor or percent of the energy generated by the receive a ‘‘pass with conditions’’ if the energy auditor of the individual who RES Project to be used only by the information provided for the area has conducted the assessment, as agricultural operation or rural small minor weaknesses which could be applicable. business. conditioned and reasonably resolved by (2) If the project’s total project cost is (e) The RES project must have the borrower. Otherwise, if the $80,000 or less, the energy assessment technical merit. The Agency will use the information provided for the area is may be conducted in accordance with information provided in the technical conclusively deemed to be a major paragraph (a)(1) of this section or by a report submitted with the application weakness, the area will receive a fail. person that has at least 3 years of (see § 5001.307(e) of this part) to (3) Determination. The Agency will experience and completed at least five determine if the project has technical compile the results for each area of the energy assessments or energy audits on merit. In making this determination, the technical report to determine if the similar type projects. Eligible EEI Agency may engage the services of other Project has technical merit. include, but are not limited to: Government agencies or other (i) A project whose technical report (1) Efficiency improvements to recognized industry experts in the receives a ‘‘pass’’ in each of the existing RES; and applicable technology field, at its applicable areas will be considered to (2) Construction of a new building discretion, to evaluate the technical have ‘‘technical merit.’’ only when the new building is used for report. (ii) A project whose technical report the same purpose as the existing (1) Technical report areas. When receives a ‘‘pass with conditions’’ in one building and if, based on an energy making its technical merit or more the applicable areas will be assessment or energy audit, as determination, the Agency will evaluate considered to have ‘‘conditional applicable, it is more cost effective to the technical report using the areas technical merit.’’ construct a new building that will use specified in paragraphs (e)(1)(i) through (iii) A project whose technical report less energy on annual basis than to (iii) of this section as applicable. receives a ‘‘fail’’ in any one area will be improve the energy efficiency of the (i) RES projects with total project considered to be ‘‘without technical existing building. costs of $80,000 or less. For these merit.’’ (b) The EEI project must be for a projects, the Agency will evaluate the (4) Further processing of applications. commercially available technology. following areas in making the technical A project that is determined to have (c) The EEI project must be located in merit determination: ‘‘technical merit’’ or ‘‘conditional a rural area unless the borrower is an (A) Project description; technical merit’’ is eligible for further agricultural producer and the (B) Resource assessment; consideration for funding. Projects with Application supports the production, (C) Project economic assessment; and ‘‘conditional technical merit’’ would be processing, vertical integration, or (D) Qualifications of key service subject to funding conditions that marketing of agricultural products. If the providers. would need to be met to ensure full agricultural producer’s operation is in a (ii) RES projects with total project technical merit prior to completion of non-rural area, then the application can costs of less than $200,000, but more the project. A project that is determined be for only EEI components that are: than $80,000. For these projects, the to be ‘‘without technical merit’’ is not (1) Directly related to and have a use Agency will evaluate the following areas eligible to compete for funding. and purpose limited to an agricultural in making the technical merit production operation such as vertically determination: § 5001.107 REAP—Energy Efficiency integrated operations; and (A) Project description; Improvement (EEI) projects and requirements. (B) Resource assessment; (2) Part of and co-located within the (C) Project economic assessment; For a REAP EEI project to be eligible agricultural production operation. (D) Project construction and for a loan guarantee under this part, it (d) The EEI project must have equipment; and must meet the criteria specified in technical merit. The Agency will use the (E) Qualifications of key service § 5001.102(a) through (c) and also information provided in the technical providers. specified in paragraphs (a) through (d) report submitted with the application (iii) RES projects with total project of this section and be for a borrower (see § 5001.307(e)) to determine whether costs of $200,000 and greater. For these eligible to submit an application for the the project has technical merit. In projects, the Agency will evaluate the project in accordance with § 5001.126. If making this determination, the Agency following areas in making the technical taxable bonds are utilized as debt may, at its discretion, engage the merit determination: instruments the provisions of services of other Government agencies (A) Qualifications of the project team; § 5001.105(b)(19) must be met. or other recognized industry experts in (B) Agreements and permits; (a) The EEI project must use less the applicable technology field to (C) Resource assessment; energy on an annual basis than the evaluate and rate the technical report. (D) Design and engineering; original building and/or equipment that (1) Technical report areas. When (E) Project development; it will improve or replace as making its technical merit (F) Equipment procurement and demonstrated in an energy Assessment determination, the Agency will evaluate installation; and or energy Audit as applicable. the technical report using the areas

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specified in paragraphs (d)(1)(i) and (ii) be purchased or installed pursuant to statutes or Executive Orders regarding of this section as applicable. such subparagraph, the Secretary shall environmental requirements. (i) EEI project with total project costs require, to the maximum extent (j) Projects used primarily for the of $80,000 or less. For these projects, the practicable, such equipment or systems purpose of housing Federal, State, or Agency will evaluate the following areas to meet the same efficiency quasi-Federal agencies, unless it is to determine the technical merit: measurements as the most efficient typical of the area for communities to (A) Project description; available equipment or system in the provide this space. (B) Qualifications of EEI provider(s); market; and (k) Community antenna television and and (ii) The Secretary shall not provide radio services or facilities. (C) Energy assessment (or energy such a loan guarantee for the purchase (l) Telephone systems. audit if applicable). or installation of any energy efficient (m) New combined sanitary and storm (ii) EEI projects with total project equipment or system unless more than water sewer facilities. costs of greater than $80,000. For these one type of such equipment or system (n) Owner-occupied housing or self- projects, the Agency will evaluate the is available in the market. storage facilities. following areas to determine the (b) The EEE project must be for (o) Loans on which the interest is technical merit: commercially available technology. excludable from income under current (A) Project information; (c) The EEE project must have or a successor statute of the Internal (B) Energy assessment (or energy technical merit as certified by the Revenue Code. Funds generated through audit as applicable); and vendor/installer. An application that the issuance of tax-exempt obligations (C) Qualifications of the contractor or does not include said certification will cannot be used to purchase the installers. be deemed incomplete and therefore is guaranteed portion of any Agency (2) Pass/pass with conditions/fail not eligible to compete for funding. guaranteed loan and an Agency guaranteed loan cannot serve as assignments. The Agency will assign §§ 5001.109–5001.114 [Reserved] each area of the technical report, as collateral for a tax-exempt issue. specified in paragraph (d)(1) of this § 5001.115 Ineligible projects—general. (p) Residential EEI projects. section, a ‘‘pass,’’ ‘‘pass with The Agency will not issue a loan (q) Except as provided in conditions,’’ or ‘‘fail’’ according to guarantee under this part for any of the § 5001.106(d), residential RES projects. provisions of § 5001.106(e)(2). projects identified in this section, unless (r) Loans supporting inherently (3) Determination. The Agency will otherwise noted. The following are religious activities, such as worship, compile the results for each area of the ineligible projects for the CF, WWD, B&I religious instruction, proselytization, or technical report to determine if the and REAP programs: to pay costs associated with acquisition, project has technical merit in (a) Any investment or arbitrage, or construction, or rehabilitation of accordance with provisions of any speculative real estate investment structures for inherently religious § 5001.106(e)(3). other than cooperative stock, activities, including the financing of (4) Further processing of applications. transferable stock, cooperative equity in multi-purpose facilities where religious Projects will be further processed in accordance with § 5001.140 and NMTC activities will be among the activities accordance with provisions of projects in accordance with § 5001.141. conducted. However, religious § 5001.106(e)(4). (b) Golf courses and golf course organizations may participate in infrastructure, including par-3 and projects eligible for funding under § 5001.108 Eligible REAP—Energy executive golf courses; racetracks or section 306(a)(24) of the Consolidated Efficient Equipment and Systems (EEE) Farm and Rural Development Act, 7 projects and requirements. facilities for the conduct of races by animals, professional or amateur drivers U.S.C. 1926(a)(24), provided they do not For a REAP EEE project to be eligible or jockeys; for-profit zoos or safaris; and use Agency assistance for inherently for a loan guarantee under this part, it publicly-owned or non-profit religious activities in accordance with 7 must meet the criteria specified in amusement parks, water parks, and CFR part 16, ‘‘Equal Opportunity for § 5001.102(a) through (c) and in similar recreational type facilities Religious Organizations.’’ paragraphs (a) through (d) of this section inherently commercial in nature and and be for a borrower that is an § 5001.116 Ineligible CF projects. primarily used for recreational agricultural producer eligible to submit The following are ineligible projects purposes. an application for the project in (c) Motion pictures and theatrical for the CF program only: accordance with § 5001.126. If the productions. (a) For industrial park sites, the borrower plans to use taxable bonds as (d) Funding of political or lobbying financing of on-site utility systems or debt instruments the provision activities. business and industrial buildings. § 5001.105(b)(19) must be met. (e) Guaranteeing loans made by other (b) Inherently commercial enterprises: (a) The project must be for the Federal agencies, lines of credit, or lease This type of project is typically operated purchase and installation of energy payments. by a private enterprise with an essential efficient equipment or systems for (f) Projects that the Agency characteristic to produce profits. This agricultural production or processing determines create, directly or indirectly, term does not include projects operated that exceed the following standards: a conflict of interest. by private enterprises on a not-for-profit (1) Energy efficiency building codes, (g) Properties to be used for primarily basis that provide education, childcare, if available; commercial rental when the borrower geriatric care, or health care to rural (2) Federal or State energy efficiency has no control over tenants and services communities. Inherently commercial standards, if available; and offered, except for industrial-site enterprises include but are not limited (3) Other energy efficiency standards infrastructure development. to grocery stores; television and radio determined appropriate by the (h) Projects that utilize technology, services or facilities; that portion of a Secretary. equipment, or systems that are not water and/or waste disposal facility (i) If no codes or standards described commercially available. normally provided by a business or in such subparagraph apply to the (i) Projects that will violate the industrial user; and telecommunication energy efficient equipment or system to requirements of 7 CFR part 1970, or any facilities or services, including

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broadband or fiber network services that not to be construed to prohibit utilities, and other private do not meet the requirements of assistance for the expansion of an improvements. § 5001.103(a)(6); existing business entity through the (2) To pay the cost of conduit, such (c) Projects where construction is establishment of a new branch, affiliate, as pipe, tube, or tile for protecting completed prior to filing an application or subsidiary of such entity if the electric wires or cables, and its with the Agency. This restriction establishment of such branch, affiliate, installation in conjunction with applies to construction completed by or or subsidiary will not result in an financing facilities authorized in for the borrower and does not preclude increase in unemployment in the area of § 5001.103, subpart B, when the cost of the purchase or acquisition of a building original location or in any other area the conduit is less than 25 percent of the constructed by an independent third where such entity conducts business total project cost. The Borrower must be party or refinancing of debt in operations. An exception is when there the owner of the conduit. The conduit accordance with § 5001.102(d). is reason to believe that such branch, must be installed at the time of project (d) Projects where the borrower acts to affiliate, or subsidiary is being construction and must be for public use. circumvent the regulations provided in established with the intention of closing (3) When necessary as part of a this subpart, causing the borrower or down the operations of the existing guaranteed loan to finance a project: project being eligible when, previously, business entity in the area or its original (i) Guarantee fees, as determined the borrower or project was ineligible. location or in any other area where it under § 5001.454; (e) Projects involving the purchase of conducts such operations; or (ii) Lender fees, as provided in existing facilities in which the (2) Increase direct employment by § 5001.403; transaction’s purpose is to primarily more than 50 employees, which is (iii) Professional service fees and retire the debt of the seller in order for calculated to or likely to result in an charges provided the Agency agrees that the seller to continue to use the facility increase in the production of goods, the amounts are reasonable and at a lower cost. materials, commodities, or the customary in the area; availability of services or facilities in the § 5001.117 Ineligible WWD projects (iv) Interest on guaranteed loans until area when there is not sufficient the facility is self-supporting, but not for The following are ineligible projects demand for such goods, materials, more than three years; interest on for the WWD programs only: commodities, services, or facilities to guaranteed loans secured by general (a) That portion of a project normally employ the efficient capacity of existing obligation bonds until tax revenues are provided by a business or industrial competitive commercial or industrial available for payment, but not for more user, such as wastewater pretreatment. enterprises, unless such financial or than two years; and interest on interim (b) Provided the existing borrower has other assistance will not have an financing; the capacity to provide adequate service adverse effect upon existing competitive (v) Costs of acquiring interests in to their service territory, guaranteed enterprises in the area. loan funds may not be used to take away land, rights (e.g., water rights, leases, (3) The financing of timeshares, and permits), rights-of-way, and other customers or service areas of existing residential trailer parks, apartments, USDA WWD Program direct or evidence of land or water control duplexes, or other residential housing necessary for development of the guaranteed loan borrowers. The where the primary purpose is requirements and limitations of 7 U.S.C. project; independent housing except as (vi) Costs of purchasing or renting 1926(b) only apply to this section. authorized in § 5001.105(b)(8), or (c) Projects where the borrower acts to equipment necessary to install, housing development sites except as maintain, extend, protect, operate, or circumvent the regulations provided in authorized in § 5001.105(b)(1). this subpart, causing the borrower or utilize facilities; project being eligible when, previously, § 5001.119 Ineligible REAP projects. (vii) Obligations for construction worked performed prior to filing an the borrower or project was ineligible. Owner occupied bed and breakfasts (d) Projects involving the purchase of Application with the Agency. are ineligible projects in the REAP Construction work must not be started existing facilities in which the program. transaction’s purpose is to primarily (and obligations for such work or retire the debt of the seller in order for § 5001.120 [Reserved] materials must not be incurred) before the seller to continue to use the facility the conditional commitment is issued. If § 5001.121 Eligible uses of loan funds. at a lower cost. there are compelling reasons for Guaranteed loan funds can only be proceeding with construction before the § 5001.118 Ineligible B&I projects used for the items specified in this conditional commitment is issued, The following are ineligible projects section. lenders may request Agency approval to for the B&I program only: (a) CF projects. Guaranteed loan funds pay such obligations and not jeopardize (a) The financing of timeshares, for an essential CF project receiving a receipt of a loan guarantee from the residential trailer parks, apartments, loan guarantee under § 5001.1 may be Agency. Such request must comply with duplexes, or other residential housing used to pay the expenses identified in the following conditions: where the primary purpose is paragraphs (a)(1) through (3) of this (A) Provide conclusive evidence that independent housing except as section. the contract was entered into without authorized in § 5001.105(b)(8), or (1) When necessary to ensure the intent to circumvent the Agency housing development sites except as successful operation or protection of the regulations, including but not limited to authorized in § 5001.105(b)(1). project authorized in § 5001.103, 7 CFR part 1970; (b) Projects eligible for funding under subpart B: (B) Modify the outstanding contract to B&I that are in excess of $1 million that (i) Costs for the construction or conform to the provisions of this part. would either: relocation of public buildings, roads, When this is not possible, modifications (1) Likely result in the transfer of jobs bridges, fences, utilities, or to make will be made to the extent practicable from one area to another and increase other public improvements; and and, at a minimum, the contract must direct employment by more than 50 (ii) Costs for the relocation of private comply with all State and local laws employees. However, this limitation is buildings, roads, bridges, fences, or and regulations as well as statutory

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requirements and Executive Orders business acquisition is considered the (2) Purchase and installation of energy related to the Agency guarantee. acquisition of an entire business, not a efficient equipment and systems by (C) When construction is complete partial stock acquisition in a business. eligible agricultural producers. and it is impracticable to modify the However, acquisition or change of (3) Construction, retrofitting, contract, the borrower and lender must ownership between existing owners is replacement, and improvements. provide a certification by an engineer or an eligible use of loan funds when the (4) Energy efficiency improvements architect that any construction remaining owner(s) held their (EEI) identified by vendor/installer performed complies fully with the plans ownership and actively participated in certification or in the applicable energy and specifications; and the business operation for at least the assessment or energy audit. (D) The borrower and the contractor past 24 months and the selling owner (5) Fees for construction permits and must have complied with all statutory will not retain any ownership interest in licenses, including fees required by an and Executive Order requirements the business directly or indirectly interconnection agreement. related to the Agency guarantee for including through other entities or (6) Guarantee fees, as determined construction already performed even trusts or property rights. under § 5001.454. (7) Professional service fees and though the requirements may not have (3) Purchase of machinery and charges related to the project, which been included in the contract equipment. may include non-deferred developer documents. (4) Startup costs, working capital, (b) WWD projects. Guaranteed loan fees, provided the Agency approves the inventory, and supplies in the form of amounts as reasonable and customary in funds for a WWD project receiving a a permanent working capital term loan. loan guarantee may be used to pay the the area. (5) Pollution control and abatement. (8) Lender fees, as provided in expenses identified in paragraphs (b)(1) (6) Takeout of interim financing: § 5001.403. through (10) of this section when they Guaranteeing a loan that provides for (9) Working capital, which may are a necessary part of the WWD project. permanent, long-term financing after include interest on interim financing, (1) Guarantee fees, as determined project completion to pay off a lender’s debt reserves, rent payments, insurance, under § 5001.454. interim loan will not be treated as debt and packaging and origination fees. (2) Lender fees, as provided in refinancing provided that the lender (10) Land acquisition. § 5001.403. submits a complete preapplication or (11) Energy assessments, energy (3) Professional service fees and application that proposes such interim audits, technical reports, business plans, charges provided the Agency approves financing prior to closing the interim and feasibility studies completed and the amounts as reasonable and loan. The borrower must take no action acceptable to the Agency, provided no customary in the area. until the conclusion of the portion was financed by any other (4) Costs of acquiring interests in environmental review process prior to Federal or State grant or payment land, rights (e.g., water rights, leases, any action that would have an adverse assistance, including, but not limited to, permits, rights-of-way), and other effect on the environment or limit the a REAP energy audit or renewable evidence of land or water control or choices of any reasonable alternatives to energy development assistance grant. protection necessary for development of be considered by the Agency. (12) For an eligible RES project in the project. (7) Guarantee fees, as determined which a residence is closely associated (5) Purchasing or renting equipment under § 5001.454. with the rural small business or necessary to install, maintain, extend, (8) Lender fees, as determined under agricultural operation, the installation of protect, or operate the project. a second meter to separate the residence (6) Cost of additional borrower labor § 5001.403. from the portion of the project that and other expenses necessary to install (9) Professional service fees and benefits the rural small business or and extend service. charges, provided the Agency approves agricultural operation, as applicable. (7) Interest incurred during the amounts as reasonable and (13) Land, building, and equipment construction in conjunction with customary in the area and fees for construction permits and licenses. for an existing RES. interim financing. (14) Refinancing outstanding debt (8) Initial operating expenses, (10) Feasibility studies and business plans. when— including interest, for a period (i) The original purpose of the debt ordinarily not exceeding one year when (11) Interest (including interest on interim financing) during the period being refinanced meets the eligible the borrower is unable to pay such project requirements of § 5001.106, expenses. before the first principal payment becomes due or when the facility § 5001.107 or § 5001.108, as applicable, (9) The purchase of existing facilities of this part; when it is necessary either to improve becomes income producing, whichever is earlier. (ii) Debt being refinanced does not service or prevent the loss of service. exceed 50 percent of the total use of (d) REAP projects. Guaranteed loan (10) Purchase of equipment to funds in the new REAP guaranteed loan; funds for a Project receiving a loan operate, maintain, or protect facilities. (iii) Refinancing is necessary to guarantee under REAP may be used to (c) B&I projects. Guaranteed loan improve cash flow and viability of the pay the expenses associated with the funds for a project receiving a loan project; guarantee under § 5001.1 may be used to items identified in paragraphs (d)(1) (iv) At the time of application, the pay the expenses identified in through (14) of this section, provided loan being refinanced has been current paragraphs (c)(1) through (12) of this such items are directly related to and for at least the past 6 months (unless section. their use and purpose are limited to the such status is achieved by the lender (1) Purchase and development of RES, EEI, or EEE project. The expenses forgiving the borrower’s debt); and land, buildings, and associated associated with the items specified in (v) The lender is providing better rates infrastructure for commercial or paragraphs (d)(8) through (11) of this or terms for the loan being refinanced. industrial properties, including section cannot exceed more than ten expansion or modernization. percent of the loan amount. § 5001.122 Ineligible uses of loan funds. (2) Business acquisitions provided (1) Purchase and installation of new Projects that receive a loan guarantee that jobs will be created or saved. A or refurbished RES. under this part cannot use the

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guaranteed loan funds for those (m) For loans as specified under CF, (b) CF loan guarantees. To be eligible expenses or purposes identified in initial operating expenses, short-term, for a loan guarantee under CF, a paragraphs (a) through (m) of this working capital or operating loans; or borrower must meet the requirements section and for any other item the annual recurring costs, including identified in paragraphs (b)(1) through Agency identifies in accordance with purchases or rentals that are generally (4) of this section. § 5001.10. considered to be operating and (1) Borrower type. Be a public body, (a) Payment in excess of actual costs maintenance expenses. including Indian tribes on Federal and (e.g., profit, overhead, indirect costs, State reservations and other federally and wages to owners) incurred by the §§ 5001.123–125 [Reserved] recognized Indian tribes, or non-profit contractor or other service provider on § 5001.126 Borrower eligibility. organization. a contract or agreement that has been (i) Borrowers organized under the To be eligible for a loan guarantee entered into at less than an arm’s length applicable State or Tribal for-profit under this part, a Borrower must meet transaction or has a potential for a corporation laws may be eligible if they the requirements specified in this conflict of interest. In situations where will be operated on a not-for-profit basis section at the time of each guaranteed there is common ownership or an for the duration of the guaranteed loan; loan’s approval and through issuance of otherwise closely-related company is (ii) Single member not-for-profit the loan note guarantee. A borrower being paid to do construction or corporations or not-for-profit must meet the eligibility requirements installation work for a borrower, only corporations owned or substantially specified in paragraph (a) of this section documented costs associated with the controlled by other corporations or and in paragraphs (b) through (e), as construction or installation can be paid associations are eligible if the member applicable, of this section. with guaranteed loan funds and cannot organization has significant ties with the include any profit or wages to such (a) Legal authority and responsibility. project service area and provides a related Person. The borrower must have, or obtain payment guarantee. (b) Notwithstanding § 5001.102(d), before issuance of the loan note (2) Significant ties. Have significant payment on any other Federal loan or guarantee, the legal authority necessary ties with the project service area (not debt. to construct, operate, and maintain the applicable to public bodies and (c) Payment of a Federal judgment, proposed Project and services and to federally recognized Tribes) as State or Federal tax lien, or other debt obtain, give security for, and repay the evidenced by the following: owed to the United States. proposed loan. (i) Association with or control by a (d) Loan finder or broker fees. (1) Operating, maintaining, and public body or bodies; or (e) Refinancing debt that is owned by managing the facility. The borrower is (ii) Broadly based membership and a loan packager or broker or their responsible for operating, maintaining, controlled primarily by members respective affiliates. and managing the facility and providing (f) For loans as specified under CF residing in the project service area. for its continued availability and use. Membership must be open without and WWD, costs normally provided by The borrower will retain this a business or industrial user (e.g., regard to race, color, religion, national responsibility even though the facility origin, sex, age, disability, sexual wastewater pretreatment). may be operated, maintained, or (g) For loans as specified under CF orientation, or marital or familial status. managed by a third party under and WWD, any portion of the cost of a (3) Credit elsewhere. In accordance contract, management agreement, or project that does not serve a rural area. with 7 U.S.C. 1983, certify in writing, (h) Rental for the use of equipment or written lease. Leases may be used for subject to Agency verification, that the machinery owned by the borrower. certain projects when they are the only borrower is unable to finance the (i) For purposes not directly related to feasible way to provide the service or proposed project from their own operating and maintaining the project. facility, are the customary practice to resources or through commercial credit (j) Any EEI not identified in the provide such service or facility within without a guarantee, at reasonable rates applicable energy assessment or energy the industry or in the State, and provide and terms. A loan guarantee will not be audit. for the borrower’s management control provided to borrowers who are able to (k) Agricultural tillage equipment, of the Project. Contracts, management obtain sufficient credit elsewhere to used equipment, and vehicles are agreements, or written leases must not finance project costs at reasonable rates ineligible for loans as specified under contain options or other provisions for and terms, taking into consideration REAP. transfer of ownership unless approved prevailing private and cooperative rates (l) Guaranteed loan funds cannot be by the Agency. and terms in the community in or near used for the distribution or payment to (2) Co-borrowers. Except for CF where the borrower resides, for loans for a member of the immediate family of an guaranteed loans in situations where similar purposes and periods of time, or owner, partner, stockholder, or member any business or affiliate is dependent to borrowers who are able to finance of the borrower except for a change in upon another’s operations and are project costs from their own resources. ownership of the business where the effectively one business or rely upon (4) Evidence of significant community selling person does not retain an one another for loan repayment, they support. In accordance with 7 U.S.C. ownership interest and the Agency must be co-borrowers, unless waived by 2009h, the evidence shall be in the form determines in writing the price paid to the Agency in writing when the Agency of a certification of support for the be reasonable based upon an determines that adequate justification project from each affected local independent appraisal. This prohibition exists to not require the entities to be co- government. The certification of support does not apply to transfers of ownership borrowers. Both co-borrowers must meet should include sufficient information to for ESOPs or worker cooperatives, to all requirements in this part. If the determine that the essential community cooperatives where the cooperative pays operating entity is truly independent facility will provide needed services to the member for product or services, or and not reliant on another operation to the community or communities and will where member stock is transferred remain viable or repay the debt, the have no adverse impact on other among members of the cooperative in Agency will allow one entity to be the community facilities providing similar accordance with § 5001.140 of this part. sole borrower. services.

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(c) WWD loan guarantees. To be (4) A borrower must demonstrate, to (b) An entity is ineligible if it derives eligible for a loan guarantee under the Agency’s satisfaction, that more than 15 percent of its annual gross WWD, a borrower must meet the guaranteed loan funds will remain in revenue (including any lease income requirements identified in paragraphs the United States and the Project being from space or machines) from gambling (c)(1) through (3) of this section. financed will primarily create new or activity, excluding State-authorized (1) Borrower type. Be a public body, save existing jobs for rural U.S. lottery proceeds or Tribal-authorized including Indian tribes on Federal and residents. gaming proceeds, as approved by the State reservations and other Federally (e) REAP loan guarantees. To be Agency, conducted for the purpose of recognized Indian tribes, or non-profit eligible for a loan guarantee under raising funds for the approved project. organization. REAP, a borrower must meet the (c) An entity is ineligible if it derives (2) Credit elsewhere. In accordance requirements specified in paragraphs income from activities of a prurient with 7 U.S.C. 1983, certify in writing, (e)(1) through (4) of this section. sexual nature. subject to Agency verification, that the (1) Type of borrower. The borrower (d) An entity is ineligible if it derives borrower is unable to finance the must be either an agricultural producer income from illegal drugs, drug proposed project from their own or a rural small business. paraphernalia, or any other illegal resources or through commercial credit (2) Ownership. The borrower must: product or activity as defined under without a guarantee, at reasonable rates (i) Own the project; and Federal statute. and terms. A loan guarantee will not be (ii) Own or control the site for the (e) An entity is ineligible under B&I provided to borrowers who are able to project at the time of application and for projects if it is a charitable or fraternal obtain sufficient credit elsewhere to the term of the guaranteed loan. organization. For purposes of this finance project costs at reasonable rates (3) Revenues and expenses. The section, an organization that derives and terms, taking into consideration borrower must have available or be able more than 10 percent of its annual gross prevailing private and cooperative rates to demonstrate, at the time of revenue from tax deductible charitable and terms in the community in or near application, satisfactory sources of donations, based on historical financial where the borrower resides, for loans for revenue in an amount sufficient to statements, is considered a charitable similar purposes and periods of time, or provide for the operation, management, organization. Fees for services rendered to borrowers who are able to finance maintenance, and any debt service of or that are otherwise ineligible for project costs from their own resources. the project for the term of the loan. In deduction under the Internal Revenue (3) Evidence of significant community addition, the borrower must control the Code are not considered tax deductible support. In accordance with 7 U.S.C. revenues and expenses of the project, charitable donations. 2009h, the evidence shall be in the form including its operation and (f) An entity is ineligible if its lender of a certification of support for the maintenance. The borrower may employ or any of the lender’s officers has an project from each affected local a qualified consultant under contract to ownership interest in the borrower or is government. manage revenues and expenses of the an officer or director of the borrower (d) B&I loan guarantees. To be eligible project and its operation and/or with management control or where the for a loan guarantee under B&I, a maintenance. borrower or any of its officers, directors, borrower must meet the requirements (4) Matching funds. The borrower stockholders, or other owners have more specified in paragraphs (d)(1) through must demonstrate evidence of injection than a five percent ownership Interest in (4), as applicable, of this section. of matching funds in the project of not the lender. Any of the lender’s directors, (1) The borrower must be: less than 25 percent of total eligible stockholders, or other owners that are (i) A cooperative, corporation, project costs. Passive third-party officers, directors, stockholders, or other partnership, or other legal entity contributions are acceptable as owners of the borrower must be recused organized and operated on a profit or matching funds for RES projects, from any decision-making process nonprofit basis; including those raised from the sale of associated with the guaranteed loan. (ii) An Indian Tribe Federal tax credits. (g) A borrower is ineligible if it is a (iii) A Public Body; or lending institution, investment (iv) An individual. § 5001.127 Borrower ineligibility conditions. institution, or insurance company with (2) The borrower must be engaged in exception of REAP or projects for a fund or proposing to engage in a business. A A potential borrower is ineligible for that invests primarily in cooperatives in business may include manufacturing, a guaranteed loan under this part as accordance with § 5001.140, and NMTC wholesaling, retailing, providing identified in paragraphs (a) through (g) projects in accordance with § 5001.141. services, or other activities that will of this section. The borrower remains provide employment or improve the ineligible until the condition causing §§ 5001.128–5001.129 [Reserved] economic or environmental climate in ineligibility is resolved. rural communities. (a) An entity is ineligible if any of the § 5001.130 Lender eligibility requirements. (3) A borrower who is an individual conditions identified in paragraphs To become a lender under this part, must: (a)(1) through (4) of this section applies the lending entity must meet the (i) Be a citizen of the United States; to the borrower, any owner with more requirements specified in paragraphs (a) (ii) Reside in the United States after than 20 percent ownership interest in through (d) of this section, as being legally admitted for permanent the borrower, or any owner with control applicable, and become an approved residence and must provide a of the borrower. participant in the Agency’s electronic permanent green card as evidence of (1) There is an outstanding judgment system. Paragraph (e) of this section eligibility; or obtained by the U.S. in a Federal Court contains provisions associated with (iii) Be a citizen or resident of the (other than U.S. Tax Court). lenders that have already been approved Republic of Palau, the Federated States (2) Delinquency on the payment of by the Agency under one of the of Micronesia, American Samoa, Guam, Federal income taxes. guaranteed loan programs identified in the Commonwealth of the Northern (3) Delinquency on a Federal Debt. § 5001.1of this part. If not yet an Mariana Islands, and the Republic of the (4) Debarment or suspension from Agency-approved lender, the lending Marshall Islands. receiving Federal assistance. entity must include with the application

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a request for lender approval in originating at least five commercial (v) An interim financial statement accordance with this section. loans annually totaling at least $1 dated within 90 days of the written (a) General. The lending entity must: million for each of the last three years, request, if applicable; (1) Be domiciled in a State; with the lending entity’s commercial (vi) A copy of any license, charter, (2) Not be debarred or suspended by loan portfolio in last five years not State statute, or other third-party the Federal Government or be an exceeding: evidence of authority to engage in the affiliated person of such entity that was (A) Six percent average delinquency proposed guaranteed loan making and suspended or debarred; of all commercial loans, and servicing activities. If licensing by the (3) Inform the Agency if it is under a (B) Three percent in commercial loan State is not required, an attorney’s consent order, or similar constraint, opinion stating that licensing is not from a Federal or State agency. The losses (based on the original principal loan amount); required and that the lending entity has Agency will evaluate the lending the legal authority to engage in the entity’s eligibility on a case-by-case (iii) Have and agree to maintain balance sheet equity in accordance with proposed guaranteed loan making and basis, and assess the risk of loss posed servicing activities must be submitted; by the consent order or similar Section 5001.105(d) of this part of at least 10 percent of assets and sufficient (vii) The lender’s loan classification constraint, as applicable; scale including their loan classification (4) Maintain written standards of funds available to disburse the guaranteed loans it proposes to approve criteria; conduct covering conflicts of interest; (viii) Information on lending within the first six months of being and experience, including— approved as a Lender; (5) Maintain internal audit and (A) Length of time in the lending management control systems to evaluate (iv) Have and agree to maintain a line business; and monitor the overall quality of its of credit issued by a regulated lending (B) Range and volume of lending and loan origination and servicing activities. entity that is acceptable to the Agency; servicing activities for the last five (b) Regulated lending entities. (v) Agree to establish and maintain an years, including a list of the industries Regulated lending entities identified in Agency-approved loan loss reserve for which it has provided financing; paragraphs (b)(1) through (9) of this equal to one percent reserve of the (C) Status of its loan portfolio, section are eligible to receive a loan unguaranteed portion of all guaranteed including a summary of loans in the guarantee under this part without loans plus an amount equal to the portfolio by current loan classification documentation to the Agency provided identified anticipated losses. code, a list of any loans restructured or they are subject to supervision and (vi) Have written policies and charged off in the previous five years, credit examination by the applicable procedures to ensure that internal credit and the calculated delinquency and loss agency of the United States or a State, controls provide adequate loan making rates as outlined in paragraph (c)(1)(ii) or were created specifically by State and servicing guidance that adheres to of this section; statute and operate under the direct Federal and State fair lending practices; (D) Lending experience of supervision of a State government (vii) Document and assure to the management and loan officers, authority. Agency that the lending entity has the including staff organizational chart, (1) Federal and State chartered banks. including names and titles for senior (2) Farm Credit Bank of the Federal capacity to fulfill the lender functions staff; Land Bank and other Farm Credit and responsibilities identified in this (E) Largest sources of funds for the System institutions with direct lending part, including, but not limited to last five years and source of funds for authority to make loans of the type §§ 5001.201, 5001.202, 5001.207, and 5001.501. the proposed guaranteed loans; guaranteed under this part. (F) Office location(s) and proposed (3) Bank for Cooperatives. (2) Written request. A non-regulated (4) Savings and Loan Associations. lending entity that seeks to become a lending area(s); (5) Savings banks. lender must submit a written request to (G) An estimate of the number, size, (6) Mortgage companies that are part the Agency including the following and type of applications the lending of a bank-holding company. information: entity will develop over the next six months; and (7) The National Rural Utilities (i) The request must clearly define the (H) Proposed Interest rate structure Cooperative Finance Corporation. multiple-entity organizational and and loan fees, including any loan (8) Credit unions. control structure with a listing of each origination, loan preparation, and (9) State Bond Banks or State Bond entity under its control, including any servicing fees. Pools. Community Development Entity (CDE) (c) Non-regulated lending entities. (ix) Description of programs, that may request guaranteed loans under The Agency may approve a lending financial, and non-financial products § 5001.141. In addition, the non- entity that does not meet the criteria of and services. regulated lending entity must include paragraph (b) of this section to become (x) Its lending policies including each such sub-entity in their audited a lender for a period up to five years. underwriting standards, credit analysis financial statements, commercial loan Non-regulated lending entity eligibility policies and procedures, and its portfolio, and commercial loan will expire on January 31 of the fifth problem credit management policies performance statistics; year after the date of Agency approval. and procedures. (1) Conditions. When the lending (ii) Bylaws; (xi) A third-party external loan entity is a multi-tiered entity, the (iii) Audited financial statements for origination, lending portfolio, and Agency will consider the lending entity the most recent fiscal year that management review acceptable to the in its entirety. In order to be approved evidences the required balance sheet Agency conducted in the previous two as a lender, a non-regulated lending equity and that the lending entity has years, or a copy of a credit examination entity must: available resources to successfully meet less than two years old conducted under (i) Have the legal authority to operate its responsibilities; an approved credit examination a lending program; (iv) Auditor’s most recent criterion such as CAMELS. (ii) Be a financially sound institution management letter and management’s (3) Approval or disapproval. The that has a record of successfully response; Agency will notify the non-regulated

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lending entity whether its request to liquidity, management capabilities, required by paragraph (c)(2) of this become a lender is approved or rejected. repayment ability, credit underwriting, section. If the Agency rejects the request, the balance sheet equity and other financial (e) Previously approved lenders. Agency will include in the notification factors as determined appropriate. On a Lenders that have been previously the reason(s) for the rejection. case-by-case basis, the Agency may approved by the Agency under one of (4) Renewals. To maintain its status as reduce the loan origination the guaranteed loan programs identified an approved lender, the non-regulated requirements of paragraph (c)(1)(ii) of in § 5001.1(b)(1) through (4) of this part lending entity must submit a request to this section for lenders serving only cannot originate new guaranteed loans the Agency for renewal of its approved projects located on tribal trust lands. after the effective date of this rule unless lender status at least 60 calendar days (2) Written request. A non-regulated the lender is approved under the prior to the expiration of the existing lending entity serving tribal trust lands applicable conditions of paragraphs (a) lender’s agreement to be assured of a must submit a written request to the through (d), as applicable, of this timely renewal. The lender must Agency that includes the following section. provide in this written request the information: information specified in paragraphs (i) Documentation required by § 5001.131 Lender’s agreement. (c)(2)(i) and (iii) through (v) of this paragraph (c)(2) of this section; When approved to participate as a section; and (ii) Written certification that the lender under this part, the Lender must (i) A written update of any change in lender intends to only originate execute a lender’s agreement before the the persons designated to process and guaranteed loans under the regulation Agency will issue a loan note guarantee. service Agency guaranteed loans or for projects located in certain (or A new lender’s agreement must be change in the operating methods used in specified) tribal lands held in trust for executed with any existing lender the processing and servicing of loans tribes and for tribal members not in making new loans on or after October 1, since the original or last renewal date of such tribal lands but are in their service 2020. lender status. area; (ii) A description of how the lender is (iii) Bylaws; and § 5001.132 Maintenance of approved complying with each of the required (iv) Lending experience of lender status. criteria described in (c)(1) of this section management and loan officers, Continuation of approved lender and § 5001.501. including staff organizational chart, status under this part is not automatic. (iii) A new executed lender’s including names and titles for senior Lenders may lose their approved lender agreement. staff. status as described in paragraph (a) of (iv) The Agency may require lenders (3) Approval or disapproval. The this section. The Agency may also with limited guaranteed loan activity Agency will notify the non-regulated revoke a lender’s status as an approved over the previous five years, or a lender lending entity servicing tribal trust land lender or debar the approved lender, as that has originated guaranteed loans whether its request to become a lender described in paragraph (b) of this with servicing issues or a loss to the is approved or rejected. If the Agency section. Agency, to resubmit all the information rejects the request, the Agency will (a) Loss of approved lender status. A required by paragraph (c)(2) of this include in the notification the reason(s) lender will lose its approved status if section. for the rejection. it— (d) Non-regulated lending entities (4) Renewals. To maintain its status as (1) Fails to conform with the serving tribal trust lands. The Agency an approved lender, the non-regulated provisions of this part or the applicable may approve a lending entity serving lending entity serving tribal trust land guaranteed loan program identified in tribal trust lands that does not meet the must submit a request to the Agency for § 5001.1 of this part; criteria of paragraph (b) or (c) of this renewal of its approved lender status at (2) Has no outstanding guaranteed section to become a lender for a five- least 60 calendar days prior to the loans with the Agency for five year period. A non-regulated lending expiration of the existing lender’s consecutive years; entity approved to originate and service agreement to be assured of a timely (3) A regulated lending entity fails to guaranteed loans for projects located renewal. The lender must provide in remain in good standing with its only on tribal trust lands is restricted to this written request the information regulator; such areas. To make and service specified in paragraphs (c)(2)(i) and (iii) (4) A non-regulated lending entity guaranteed loans not on tribal trust through (v) of this section; and fails to renew its approval status 5 years lands, the lending entity must meet the (i) A written update of any change in from the date the Agency executes the criteria of paragraph (b) or (c) of this the persons designated to process and lender’s agreement. section. When the lending entity is a service Agency guaranteed loans or (b) Revocation of approved status and multi-tiered entity, the Agency will change in the operating methods used in debarment of lender. The Agency can consider the lending entity in its the processing and servicing of loans revoke a lender’s status as an approved entirety for approval. since the original or last renewal date of lender at any time for cause as specified (1) Conditions. To be approved as a lender status. in the lender’s agreement. A decision to lender, a non-regulated lending entity (ii) A description of how the lender is revoke a lender’s approved status will serving only tribal trust lands must— complying with each of the required be made by the Agency and the lender (i) Have the legal authority necessary criteria described in (c)(1) of this section will be notified in writing. Cause for to operate a lending program to and § 5001.501. revoking lender status includes, but is borrowers located on tribal trust lands. (iii) A new executed lender’s not necessarily limited to, the (ii) Meet the requirements of agreement. circumstances identified in paragraphs paragraph (c)(1) of this section, and (iv) The Agency may require lenders (b)(1) through (14) of this section. prove to be a financially sound with limited guaranteed loan activity (1) Guaranteed loans originated by the institution, as determined by the over the previous five years, or a lender lender cause substantial financial loss to Agency, on a case by case basis, based that has originated guaranteed loans the Agency. on the Agency’s risk assessment of the with servicing issues or a loss to the (2) Failure to maintain status as an lending entity’s capital, adequate Agency, to resubmit all information approved lender under the applicable

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regulations in effect when the lender addition, such lenders cannot submit is generally required by commercial obtained approved lender status. For requests for new loan guarantees. agricultural lenders. lenders approved under this part, this (7) A feasibility study of the means maintaining compliance with the §§ 5001.133–5001.139 [Reserved] cooperative is required for startup requirements set forth in § 5001.130. § 5001.140 Cooperative stock/cooperative cooperatives and may be required by the (3) Conviction of the lender or any of equity. Agency for existing cooperatives when its officers for criminal acts in Loan guarantees described in the cooperative’s operations will be connection with any loan transaction, paragraphs (a) through (d) of this section significantly affected by the proceeds whether or not the loan was guaranteed are only available under B&I guaranteed that were generated from the stock sale. by the Agency. loans. (8) The Agency will conduct an (4) Violation of usury laws in (a) Cooperative stock purchase appropriate environmental review on connection with any loan transaction program. The Agency may guarantee the processing facility and will not whether or not the loan was guaranteed loans for the purchase of cooperative process individual applications for the by the Agency. stock by individual farmers or ranchers purchase of stock until the (5) Negligent loan origination. in a farmer or rancher cooperative environmental review on the (6) Knowingly submitting false established for the purpose of cooperative processing facility is information when requesting a loan processing an agricultural commodity. completed. guarantee or basing a loan guarantee The cooperative may contract for (b) Purchase of transferable stock request on information known to be services to process agricultural shares. The Agency may also guarantee false or which the lender should have commodities or otherwise process loans for the purchase of transferable known to be false. value-added agricultural products stock shares of any type of existing (7) Failure to correct any Agency-cited during the five-year period beginning on cooperative, which would primarily deficiency in loan documents in a the operation startup date of the involve new or incoming members. timely manner. cooperative in order to provide adequate Such stock may provide delivery or (8) Failure to provide for adequate time for the planning and construction some form of participation rights and construction planning and monitoring of the processing facility of the may only be traded among cooperative in connection with any guaranteed loan cooperative. members. to ensure that the project will be (1) The proceeds from the stock sale (1) The maximum loan amount is completed with the available funds. may be used to recapitalize, to develop $600,000 and all applications will be (9) Negligent loan servicing. a new processing facility or product processed in accordance with (10) Failure to obtain and maintain line, or to expand an existing §§ 5001.301 through 5001.303, the required collateral for any production facility. Guaranteed loan 5001.306, 5001.315, and 5001.318 of guaranteed loan. funds must remain in the cooperative this part, as applicable. (11) Using guaranteed loan funds for from which stock was purchased, and (2) The maximum term of the loan is purposes other than those specifically the cooperative must not reinvest those seven years. approved by the Agency in the funds into another entity. (3) The lender will, at a minimum, conditional commitment or amendment (2) The maximum guaranteed loan obtain a valid lien on the stock, an thereof. amount is $600,000 and all applications assignment of any patronage refund, and (12) Violation of any term of the will be processed in accordance with the ability to transfer the stock to lender’s agreement. §§ 5001.301 through 5001.303, another party, or any other right or (13) Failure to submit reports required 5001.306, 5001.315, and 5001.318 of ability necessary to liquidate and by the Agency in a timely manner. this part, as applicable. dispose of the collateral in the event of (14) Violation of applicable (3) The maximum term of the a default by the borrower. nondiscrimination laws, including, but guaranteed loan is seven years when the (4) The lender must complete a not limited to, statutes, regulations, proceeds from the stock sale are used by written credit evaluation of each stock USDA Departmental Regulations, the the cooperative to recapitalize or are purchase loan and a complete credit USDA Non-Discrimination Statement, used for working capital. The maximum evaluation of the cooperative prior to and the Equal Credit Opportunity Act. term allowable for final guaranteed loan making its first stock purchase loan. USDA’s Non-Discrimination Statement maturity is limited to the justified useful (c) Cooperative equity security is located on the Agency’s website, see life of the assets the cooperative guarantees. The Agency may guarantee https://www.usda.gov/non- purchases with the proceeds of the stock loans for the purchase of preferred stock discrimination-statement. In addition to sale not to exceed 40 years or applicable or similar equity issued by a cooperative revoking the Lender’s status, the Agency State statutory limitations, whichever is or may guarantee loans to a fund that may debar a Lender in compliance with less. invests primarily in cooperatives. In 2 CFR part 180. (4) The lender will, at a minimum, either case, the project must (c) Servicing of outstanding loans. obtain a valid lien on the stock, an significantly benefit one or more entities Any lender who loses its status as an assignment of any patronage refund, and eligible for assistance under B&I approved Lender under any of the the ability to transfer the stock to guaranteed loans. conditions identified in paragraph (a) or another party, or any other right or (1) ‘‘Similar equity’’ is any special (b) of this section must reapply under ability necessary to liquidate and class of equity stock that is available for the provisions of § 5001.130 to be dispose of the collateral in the event of purchase by non-members and/or reinstated as an approved lender. A a default by the borrower. members and lacks voting and other lender who loses its approved lender (5) The lender must complete a governance rights. status must continue to service any written credit evaluation of each stock (2) A fund that invests ‘‘primarily’’ in outstanding guaranteed loans in purchase loan and a complete credit cooperatives is determined by its conformance with the lender’s evaluation of the cooperative prior to percentage share of investments in and agreement last in effect and the making its first stock purchase loan. loans to cooperatives. A fund portfolio applicable regulation under which the (6) The borrower may provide must have at least 50 percent of its loans lender became an approved lender. In financial information in the manner that and investments in cooperatives to be

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considered eligible for loan guarantees redemption. If the cooperative enters individual NMTC projects. Lenders and for the purchase of preferred stock or into bankruptcy, to the extent the their borrowers with guaranteed loan similar equity. cooperative can redeem the preferred Projects that include NMTC investments (3) The principal amount of the stock, the Borrower is required to repay must comply with the provisions in this guaranteed loan cannot exceed $10 the guaranteed loan from the section. To be a lender for a guaranteed million. redemption of the stock. loan project that involves financing (4) The maximum term of the (d) Employee ownership succession. under the NMTC provisions, the lending guaranteed loan is seven years when the The Agency may guarantee loans for entity must meet the applicable proceeds are used by the cooperative for conversions of businesses to either eligibility criteria in § 5001.130. The working capital and; cooperatives or ESOP within five years Agency will not waive its servicing (i) In all other cases the maximum from the date of initial transfer of stock. rights to a guaranteed loan or be a party term of the guaranteed loan is equal to (1) The maximum loan amount is to any forbearance agreement in the lesser of the following but not $600,000 and all applications will be conjunction with a NMTC project. exceeding 40 years: processed in accordance with (a) Guaranteed Loans Directly to (ii) The justified useful life of the §§ 5001.301 through 5001.303, Qualified Active Low-Income funded project assets, 5001.306, 5001.315, and 5001.318 of Community Businesses (QALICB). (1) A (iii) The maximum term under any this part, as applicable. lender that is CDE or sub-CDE under the applicable State statute; or (2) The maximum term is 10 years. direct control of a regulated lender or an (iv) The specified holding period for (3) The lender must, at a minimum, approved non-regulated lender does not redemption as stated by the stock obtain a valid lien on the stock, an need to separately meet the offering. assignment of any patronage refund, and requirements of § 5001.130 to make a (5) All borrowers purchasing the ability to transfer the stock to guaranteed loan directly to a qualified preferred stock or similar equity must another party, or otherwise liquidate active low-income community business provide documentation of the terms of and dispose of the collateral in the event (QALICB). the offering that includes compliance of a default by a borrower. (2) The provisions of § 5001.121(c)(2) with State and Federal securities laws (4) The lender must complete a notwithstanding, a lender that is a CDE and financial information about the written credit evaluation of each stock or sub-CDE may have an ownership issuer of the preferred stock to both the purchase loan and a complete credit interest in the borrower provided that lender and the Agency. evaluation of the cooperative or ESOP each condition specified in paragraphs (6) Issuer(s) of preferred stock must be prior to making its first stock purchase (a)(2)(i) through (iii) of this section is a cooperative organization and must be loan. met. able to issue preferred stock to the (5) If a cooperative is organized, each (i) The lender does not have an public that, if required, complies with selling owner becomes a member with ownership interest in the borrower prior State and Federal securities laws. special control rights to protect their to the application. (7) The lender will, at a minimum, stake in the business while a succession (ii) The lender does not take a obtain a valid lien on the preferred plan is implemented. At the completion controlling interest in the borrower. stock, an assignment of any patronage of the stock transfer, selling owners may (iii) The lender does not provide refund, and the ability to transfer the retain their membership in the equity or take an ownership interest in stock to another party, or otherwise cooperative provided that their control a borrower at a level that would result liquidate and dispose of the collateral in rights are the same as all other members. in the lender owning 20 percent or more the event of a default by a borrower. For Any special covenants that selling interest in the borrower. the purpose of recovering losses from owners may have held must be (3) Notwithstanding § 5001.115(f), a guaranteed loan defaults, lenders may extinguished upon completion of the lender that is a CDE or sub-CDE taking take ownership of all equities purchased transfer. an ownership interest in the borrower with such loans, including additional (6) If an ESOP is organized for does not constitute a conflict of interest. shares derived from reinvestment of transferring ownership to employees, The Agency will mitigate the potential dividends. selling owner(s) may not retain for a conflict of interest by requiring (8) Shares of preferred stock that are ownership in the business after five appropriate loan covenants establishing, purchased with guaranteed loan funds years from the date of the initial transfer at a minimum, limitations on dividends cannot be converted to common or of stock. and distributions of earnings in the loan voting stock. agreement between the lender and (9) In the absence of adequate § 5001.141 New markets tax credits. borrower. The Agency will also ensure provisions for investors’ rights to early The New Markets Tax Credit (NMTC) that the lender limits any waivers of redemption of preferred stock or similar program is administered by the U.S. loan covenants and future modifications equity, a borrower must request from a Department of the Treasury’s (Treasury) of loan documents in compliance with cooperative or fund issuing such Community Development Financial this part. equities a contingent waiver of the Institutions (CDFI) Fund with NMTC (4) Guaranteed loans made by a lender holding or redemption period in credits allocated to Treasury-certified directly to a QALICB must meet all advance of share purchases. This Community Development Entities other program and project eligibility contingent waiver provides that in the (CDEs) across the United States to make requirements as specified in this part. event a default by a borrower on a B&I Qualified Equity Investments (QEIs) in (5) For purposes of calculating guaranteed loan, the borrower waives low-income communities. NMTC borrower equity in compliance with any ownership rights in the stock, and related definitions and terms in this § 5001.105(d)(1), the CDE (or sub-CDE’s) the lender and Agency will then have section are governed by section 45(D) of amount of the principal balance of the the right to redeem the stock. the Internal Revenue Code (26 U.S.C. loan from NMTC investor funds that is (10) Guaranteed loans for the 45D), and applicable Treasury subordinated to the guaranteed loan purchase of preferred stock must be regulations (26 CFR 1.45D–1). A CDE may be considered as equity. prepaid in the event a cooperative that will generally establish a new (b) Guaranteed loans to a NMTC issued the stock exercises an early subsidiary of a CDE (sub-CDE) for leveraged equity structure. Tax benefits

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to a NMTC investor are based on the substantial loan servicing actions that Guaranteed loans made directly to an total amount of funds utilized in the may be taken by the sub-CDE regarding investor fund entity as the borrower do project. The tax benefit calculation the collateral or repayment terms of not require a personal, partnership, or includes the sum of the investor’s cash their QLICI loans to the QALICB. corporate guarantee from the investor investment plus loan proceeds from a (2) The guaranteed loan amount and fund entity’s owner, who is the NMTC leveraged lender into a NMTC investor percentage of guarantee provisions tax credit investor and considered a fund entity. The investor fund entity is found in §§ 5001.406 and 5001.407 of passive investor. The Agency shall generally a new entity established to this part, respectively, apply to the obtain the personal, partnership or make a qualified equity investment QALICB and not to the investor fund corporate guarantee from the QALICB (QEI) into one or more CDEs or sub- entity or leveraged lender entity, who ownership for a guaranteed loan to an CDEs to support a qualified low-income would actually be the borrower as investor fund entity in compliance with community investment (QLICI) to a defined under this part. § 5001.204, subject to the eligibility QALICB. The investor fund entity, (3) For purposes of calculating requirements of the NMTC program. through its investment, has ownership borrower equity in compliance with The Agency may require additional rights in the sub-CDE that will be § 5001.105(d)(1), the leveraged lender personal, partnership or corporate making secured QLICI loans to the entity’s note from the investor fund may guarantees if warranted by an Agency QALICB. The provisions of be considered a tangible asset and when evaluation of potential financial risk. § 5001.127(g) notwithstanding, either a the lien associated with the sub-CDE’s (7) The insurance provisions of leveraged lender entity lending to an loan is subordinated, the principal § 5001.205(d) of this part apply only to investor fund entity, or an investor fund balance of the sub-CDE’s loan made to the QALICB and the sub-CDE’s secured entity such as an investor partnership or the QALICB from NMTC investor funds loan to the QALICB. investor limited liability corporation, may be considered as equity. may be an eligible borrower for a (4) The loan terms found in (8) The financial report provisions of specific NMTC project as specified in § 5001.402 of this part apply to both the Section 5001.504 of this part apply to paragraph (b)(1) of this section. For borrower and the QALICB. The maturity both the borrower and the QALICB. purposes of this section only, the stated and related payment schedule of the (9) The application requirements term ‘‘borrower’’ in paragraphs (b)(1) lender’s guaranteed loan to the borrower found in subpart D to this part, as through (13) of this section applies to must be no longer than the maturity and applicable, apply to both the borrower both a leveraged lender entity or an related payment schedule of the sub- and the QALICB, including the investor fund entity as the guaranteed CDE’s loan to the QALICB. An Agency application analysis and evaluation loan borrower in the NMTC project. approved unequal or escalating components of § 5001.303. The Agency Paragraphs (b)(2) through (13) of this schedule of principal and interest also requires submission of the loan section identify modifications to this payments can be used for a NMTC loan. terms and documents between the sub- part that apply when the eligible The lender may require additional CDE and QALICB. As part of the borrower is a leveraged lender entity or principal repayment by a co-borrower, application completed by the lender, the investor fund entity in a NMTC project. such as an owner or principal documentation must include (1) To be an eligible borrower using participant of the QALICB. The comparable industry information and a the leveraged equity structure of a provisions of § 5001.402(b)(3) summary of the NMTC project’s funding NMTC project each condition identified notwithstanding, the Agency may path and an explanation of the in paragraphs (b)(1)(i) through (v) of this consider interest-only payments by a relationships between all parties in the section must be met. borrower pursuant to an interest-only NMTC transaction (an accompanying (i) The investor fund entity must be term not to exceed seven years on a loan schematic is encouraged for established for a single specific NMTC made under an NMTC structure if the complicated transactions). investment. lender requires: (ii) The lender is not an affiliate of the (i) A debt repayment reserve fund or (10) The environmental borrower. sinking fund in an amount at least equal responsibilities specified in § 5001.207 (iii) When the borrower is a leveraged to the guaranteed loan’s principal of this part apply to the NMTC project. lender entity it must relend one amortization that would have otherwise (11) For any application that the hundred percent of the guaranteed loan applied to the loan if equally amortized Agency assigns a priority score, when funds to an investor fund entity. In all payments were collected during the assigning the priority score to a NMTC cases one hundred percent of the seven year term; and loan application, the Agency will score guaranteed loan funds are or will be (ii) Such reserve funds or sinking the project based on the entire NMTC invested by the investment fund entity funds are applied to the guaranteed loan structure and the QALICB’s project as in one or more sub-CDEs that will then as an additional payment of principal at the ultimate use of guaranteed loan be loaned directly to a QALICB through the end of such interest-only term. funds. a direct tracing method, and such (5) Except for the collateral (12) The lender is responsible for guaranteed loan funds are, or will be, provisions, § 5001.202(b)(4), ensuring that the NMTC project used by the QALICB in accordance with § 5001.202(b) of this part applies to both complies with the planning, performing, the eligibility requirements in subpart B the lender’s guaranteed loan to the development and project monitoring of this part. The QALICB’s project must borrower and the sub-CDE’s loan to the provisions in § 5001.205 of this part and be the ultimate use of one hundred QALICB. The collateral provisions the lender is also responsible for percent of the guaranteed loan funds. found in § 5001.202(b)(4) of this part (iv) The QALICB must meet the apply only to the sub-CDE’s loan to the ensuring the NMTC project complies requirements of an eligible borrower as QALICB. with all applicable Treasury NMTC found in § 5001.126. (6) The personal, partnership and requirements. (v) The sub-CDE operating agreement corporate guarantee provisions of (13) Sections 5001.401 through with the QALICB must include a § 5001.204 of this part apply when the 5001.408 of this part apply to both the provision that the guaranteed lender has guaranteed loan borrower is a leveraged borrower and the QALICB in a NMTC approval rights with respect to any lender entity in a NMTC project. transaction.

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§§ 5001.142–5001.200 [Reserved] not necessarily limited to, those areas the project and demonstrate the ability identified and defined in paragraphs to generate and maintain sufficient cash Subpart C—Orgination Provisions (b)(1) through (5) of this section. flow for its operations. The extent to § 5001.201 General origination (1) Character. Those qualities that which project costs are funded by the requirements. generally impel the borrower to meet its borrower in relation to project costs obligations as demonstrated by its credit funded by the guaranteed loan or other The lender is responsible for history, including project and borrower Federal and non-Federal governmental originating a guaranteed loan in debt structure and debt repayment assistance such as grants, tax credits, or accordance with the requirements of ability. When applicable, an evaluation other loans must be analyzed. this part and in accordance with its may include the character of persons (4) Collateral. This criterion refers to internal origination policies and with management control or a 20 the security pledged for the guaranteed procedures to the extent they do not percent or more ownership interest in loan. The lender is responsible for conflict with the requirements of this the borrower. When the borrower’s obtaining and maintaining proper and part. For each application, the lender credit history or character is negative, adequate collateral for the guaranteed must prepare a credit evaluation that is the lender will provide satisfactory loan. All collateral must secure the consistent with Agency standards found explanations to indicate that any entire guaranteed loan. The lender is in this part. The Agency reserves the problems are unlikely to recur. The prohibited from taking separate right to review the lender’s credit ownership or membership structure of collateral for the guaranteed and evaluation and request additional the project and borrower (including unguaranteed portions of the guaranteed information. Lender approval does not membership, sponsors, other equity loan or requiring compensating balances constitute Agency approval. investors), and the historical or certificates of deposit as a means of § 5001.202 Lender’s credit evaluation performance and experience of eliminating the lender’s exposure on the ownership and management specific to unguaranteed portion of the guaranteed For each application, the lender must the project and industry. The historical loan. Collateral can include, but is not prepare a credit evaluation that is performance and experience of any limited to: General obligation bonds; consistent with Agency standards found entities providing management or revenue bonds; pledges of taxes or in this part. administrative services pursuant to assessments; assignments of facility (a) Lender’s evaluation guidelines. contract should also be evaluated. For revenue and byproduct revenue, as well The lender must conduct a credit CF projects the commitment of the rural as other assets such as land, easements, evaluation using credit documentation community or rural area to be served by rights-of-way, water rights, buildings, procedures and underwriting processes the project should be evaluated. machinery, equipment, inventory; that are consistent with generally Borrower’s management, and its for- accounts receivable, other accounts, accepted prudent lending practices for profit, non-profit or governing board, as contracts, cash, assignments of leases commercial, public and project applicable, will be evaluated to ensure and leasehold interests. Intangible assets financing and also consistent with the key management personnel are may serve as collateral, provided they lender’s own policies, procedures, and adequately trained and experienced. do not serve as primary collateral. For lending practices. The underwriting (2) Capacity. A borrower’s ability to purposes of determining compliance process must include a review of each produce sufficient cash to repay the with this requirement, leasehold loan for which a loan guarantee is being guaranteed loan as agreed, including the improvements such as buildings and sought under this part. Applications feasibility and likelihood of the project other structures on leased property are involving affiliated entities must and borrower to produce sufficient considered tangible assets and can serve include a global credit evaluation and if revenues to service the project’s debt as primary collateral. It is the lender’s applicable a global historical and obligations over the life of the responsibility to obtain, document, file, projected debt service coverage analysis. guaranteed loan and, when applicable, record and take all actions necessary to Applications involving guarantor(s) result in sufficient returns to investors properly perfect and maintain adequate must also include a global debt service to ensure successful repayment of the collateral to protect the interests of the coverage analysis of the guarantor(s) guaranteed loan. The lender shall lender and the Agency. including the cash flow of the address any economic safeguards of the (i) The lender must determine the guarantor(s). In addition, the lender project, including capital expenditure market value of collateral as established must review all applicable contracts, budgeting or reserve funds and other by an appraisal in accordance with management agreements, and leases to contingency reserve funds such as § 5001.203. determine they will not adversely affect maintenance reserve funds or debt (ii) The lender should discount either the borrower’s repayment ability service reserve funds, intended to collateral consistent with sound loan-to- or the value of the collateral securing protect and safeguard the Agency and discounted value practices which must the guaranteed loan. The lender’s lender in the event of default. The be adequate to secure the guaranteed evaluation must address any financial or lender must make all efforts to: loan in accordance with this section. To other credit weaknesses of the borrower (i) Ensure that the borrower has assess collateral adequacy and and project and discuss risk mitigation adequate working capital, operating appropriate levels of discounting, the requirements imposed by the lender. capital and reserves for capital lender should give consideration to the (b) Credit factors. In performing its expenditures, debt service, and type, quality, location, marketability, credit evaluation, the lender must maintenance as applicable; and and alternative uses of the collateral and analyze all credit factors associated with (ii) Structure or restructure debt so the the basis for the valuation of the each proposed guaranteed loan and borrower has adequate debt coverage, collateral, e.g. collateral valued on a cost apply its professional judgment to documenting as applicable the necessity or replacement valuation or market or determine that the credit factors and of any debt refinancing. The evaluation comparable sales valuation may require guaranteed loan terms and conditions, will be supported by a cash flow variance of discount factors. The lender considered in combination, ensure analysis. must provide satisfactory justification of guaranteed loan repayment. Credit (3) Capital. The borrower must have the discounts being used. Only under factors to be analyzed include, but are the resources to adequately capitalize exceptional circumstances for WWD

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projects with a loan guarantee under the Association). The spreadsheets should (d) Appraisal standards. (1) Each real provisions of § 5001.126(c) will the enable a reviewer to easily scan the estate appraisal must be conducted by Agency guarantee a loan where the data, spot trends, and make an independent qualified appraiser in guaranteed loan amount is greater than comparisons. accordance with the USPAP or the market value of the collateral. (iv) Financial projections deviating successor standards. All real estate (5) Conditions. This factor refers to from historical financial performance appraisals must meet the requirements the general business environment, must be substantiated and documented. contained in the FIRREA, and the including the regulatory environment (v) Projected operational cash flow appropriate guidelines contained in affecting the business or industry, and analysis on a quarterly basis for Standards 1 and 2 of the USPAP and be status of the Borrower’s industry. borrowers with seasonal cyclical cash performed by a State Certified General Consideration will be given to items flow. Appraiser licensed in the state in which listed below and, when applicable, the (vi) Operational cash flow analysis on the real estate is located. lender should submit supporting a quarterly basis from the current (2) Chattel appraisals must be documentation (e.g., feasibility study, financial statements through start-up or conducted by an independent qualified market study, preliminary architectural occupancy for projects involving appraiser and must be based on industry or engineering reports, etc.): construction when lenders are recognized standards and reflect the age, (i) Availability and depth of resource/ requesting the loan note guarantee prior condition, and remaining useful life of feedstock market, strength and duration to completion of construction. the equipment. of purchase agreements and availability § 5001.203 Appraisals. (e) Interagency appraisal and of substitutes; evaluations guidelines. Notwithstanding (ii) Analysis of current and future Appraisals of collateral are required as set forth in this section. The lender any exemption that may exist for market potential and off-take transactions guaranteed by a Federal agreements, competition, type of project is responsible for ensuring that appraisal values adequately reflect the Government agency, all appraisals (service, product, or commodity based), obtained by the lender under this part (iii) Energy infrastructure, availability actual value of the collateral based on an arm’s length transaction. Completed must conform to the interagency and dependability, transportation and appraisal and evaluations guidelines other infrastructure, and environmental appraisals should be submitted when the application is filed. If the appraisal established by the lender’s primary considerations; Federal or State regulator, if applicable. (iv) Technical feasibility including has not been completed when the (f) Environmental considerations. demonstrated performance of the application is filed, the lender must When the Agency will take a lien on technology and integrated processing submit an estimated appraised value. real property, the real estate appraisals equipment and systems, developer Prior to the issuance of the loan note must include consideration of the system performance guarantees, or guarantee, the estimated value must be potential effects from a release of technology insurance; supported with an appraisal acceptable (v) Complexity of construction and to the agency. hazardous substances or petroleum completion, terms of construction (a) Newly-acquired chattel. A bill of products or other environmental contracts, experience and financial sale may be submitted to support the hazards on the market value of the strength of the construction contractor value of newly-acquired chattel. collateral, as determined in accordance or engineering, procurement, and (b) Existing chattel. The lender must with the appropriate ASTM construction (EPC) contractor; obtain appraisal(s) for existing chattel International Real Estate Assessment (vi) Contracts and intellectual collateral when its value exceeds and Management environmental property rights, licenses, permits, and $250,000. standards. state and local regulations; (c) Real estate. The lender must (g) Appraisal review report. The (vii) Creditworthiness of any obtain appraisals for real estate lender must submit its complete counterparties, as applicable; collateral when the value of the technical review of the appraisal in an (viii) Industry-related public policy collateral exceeds $500,000 or the appraisal review report prepared in issues; and current limitation established under the compliance with USPAP Standards 3 (ix) Other criteria that the lender or Financial Institutions Reform, Recovery, and 4 to the Agency before guaranteed Agency deems relevant to the project. and Enforcement Act (FIRREA) Public loan closing. (6) Content. The credit evaluation Law 101–73, 103 Stat. 183 (1989). Real (1) Appraisals must not be more than must be sufficiently detailed to describe estate and chattels with a value below one year old. However, the Agency may the proposed loan, business and project these thresholds must be evaluated in request a more recent appraisal in order scenario and document that the accordance with the lender’s primary to reflect more current market proposed loan is sound. The credit regulator’s policies relating to appraisals conditions. evaluation must include: and evaluations or, if the lender is not (2) The lender must provide (i) A written evaluation of each credit regulated, in accordance with normal documentation that, in addition to the factor listed in paragraphs (b)(1) through banking practices and generally other requirements of this section (5) of this section and any additional accepted methods of determining value. pertaining to appraisers, the appraiser factors as appropriate; and (1) For construction projects, the has the necessary experience and (ii) A written evaluation of the lender must: competency to appraise collateral. feasibility study, business plan, (i) Obtain the ‘‘As Is’’ market value (h) Appraisal fees. Unless otherwise technical report, and engineering and and the ‘‘prospective’’ market value as stated in this part, appraisal fees or any architectural reports, as applicable; and of the date of construction completion other associated costs will not be paid (iii) Spreadsheets and analysis of the to determine the value of the real estate by the Agency. financial statements provided in property, or accordance with § 5001.303, with (ii) Obtain an income-based appraisal § 5001.204 Personal, partnership, and appropriate ratios and comparisons with as of the date of completion to corporate guarantees. industry standards (such as Dun & determine the value of revenues to be The provisions of this section do not Bradstreet or the Risk Management generated by the real estate. apply to passive investors.

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(a) Except as provided in paragraph (2) Designed in conformance to (2) Issuance of loan note guarantee (c) of this section, Agency-approved, applicable Federal, Tribal, State, and prior to completion of the project. unsecured personal, partnership, and local codes and requirements; and Except for projects utilizing non-proven corporate guarantees for the full term of (3) Constructed to support operations technologies, the lender may request the guaranteed loan and at least equal to at the level and quality contemplated by that the loan note guarantee be issued the guarantor’s percent interest or the borrower using accepted prior to construction or completion of a membership in the borrower times the architectural and engineering practices. project. If the lender chooses to close guaranteed loan amount are required (b) Rights-of-ways, easements, and the construction loan prior to from any person or entity owning a 20- property rights. The lender is completion of the project or project percent or greater interest or responsible for ensuring that the acquisition, the loan can only be sold on membership in the borrower. In the borrower has: the secondary market after all funds event a portion of the borrower’s (1) Obtained valid, continuous, and have been disbursed for eligible project ownership interest stock is sold or adequate rights-of-way and easements costs which have previously been transferred, the Agency reserves the needed for the construction, operation, incurred by the borrower. The lender’s right to require personal or corporate and maintenance of a project; and request will be considered by the guarantees from the new owners of a 20- (2) Obtained and recorded such Agency, who may require credit risk percent or more interest in the borrower. releases, consents, or subordinations to mitigation. An additional fee for (b) When warranted by an Agency such property rights from holders of issuance of the loan note guarantee prior assessment of potential financial risk to outstanding liens or other instruments to completion of the project will be the Government in accordance with the as may be necessary for the assessed in accordance with Federal Credit Reform Act of 1990 construction, operation, and § 5001.454(c) in subpart E. The lender (FCRA), the Agency may require the maintenance of the project and to must verify and include evidence of the following: provide the required security. following in its request: (1) Guarantees to be secured; (c) Permits, agreements, and licenses. (i) The promissory note specifying the (2) Guarantees from any person or It is the lender’s responsibility to ensure full term of the note and containing the entity owning less than a 20-percent the borrower obtains all permits, terms and conditions of each draw period; Interest or membership in the borrower; agreements, and licenses that are (ii) The borrower and lender have and applicable to the project. (3) Guarantees from persons whose entered into a contract with an (d) Insurance. It is the lender’s independent disbursement and ownership Interest in the borrower is responsibility to ensure the borrower held indirectly through intermediate or monitoring firm with a construction obtains and maintains borrower and monitoring plan acceptable to and affiliated entities. project insurance in substance and (c) Exceptions to the requirement for approved by the Agency; amount similar to that ordinarily (iii) The borrower and lender have personal, partnership or corporate required by lenders in the industry. guarantees may be requested by the agreed to a detailed timetable for the (e) Construction monitoring project with a corresponding budget of lender. The lender must document, to requirements. The lender, or its the Agency’s satisfaction, that collateral, costs setting forth the parties designated agent, will monitor the responsible for payment. The timetable equity, cash flow, and profitability progress of construction of the project indicate an above-average ability of the and budget will be confirmed as and undertake the reviews and adequate for the planned development borrower to repay the loan. The Agency inspections necessary to ensure that will evaluate these requests on a case- by a qualified independent consultant construction conforms to applicable (e.g., the project architect or engineer) by-case basis. Federal, Tribal, State, and local code (d) Each guarantor must execute an with demonstrated experience relating requirements and that construction Agency-approved guarantee form in to the project’s industry. proceeds in accordance with the plans, addition to any guarantee form required (iv) The borrower has entered into a specifications, and contract documents. by the lender. firm, fixed-price construction contract (1) Construction inspections. The (e) Any amounts paid by the Agency with an independent general contractor lender must notify the Agency of any pursuant to a claim by a guaranteed with costs outlined in detail and terms scheduled field inspections during program lender will constitute a Federal specifying change order approvals, the construction. The Agency may attend debt owed to the Agency by a guarantor agreed retainage percentage, and the any field inspections the lender may of the loan, to the extent of the amount disbursement schedule; conduct. Any Agency inspection, of the guarantor’s guarantee. (v) Evidence the lender has properly including those with the lender, are for vetted the financial feasibility and past § 5001.205 General project monitoring the benefit of the Agency only (and not performance of the contractor to show requirements. for the benefit of other parties in they are able to complete the project or In complying with the requirements interest) and do not relieve any parties that the lender has mitigated risk in the of this section, the lender may rely on of interest of their responsibilities to event the project is never completed, written materials and other reports conduct necessary inspections. such as requiring a 100-percent provided by an independent engineer (i) On a case-by-case basis in the event performance/payment bond on the and other qualified consultants. that the Agency determines that there is borrower’s contractor to be maintained (a) Design requirements. The lender additional risk to the government, the until the contractor is released from its must ensure that all facilities Agency may require the use of a obligation. The bonding agent must be constructed with guaranteed loan funds qualified, independent inspector to listed on Treasury Circular 570; are: inspect construction to ensure the (vi) Evidence, which the Agency at its (1) Designed using accepted project is being adequately built to meet sole discretion determines is architectural, engineering, and design the borrower’s requirements of the satisfactory, that the lender has practices, taking into consideration any borrower’s approved project and comply completed the due diligence necessary Agency comments when the facility is with all applicable codes and legal to confirm that the contractor is able to being designed; requirements. complete the project based on

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information including but not limited to plans, specifications, and contract appropriate level of environmental the financial statements and past documents; and review in accordance with 7 CFR part performance of the contractor; (3) The project will be completed 1970, ‘‘Environmental Policies and (vii) When applicable, the borrower within the approved budget. Procedures.’’ has entered into a contract with an (h) Project completion. Once (a) Borrower and lender independent technology development construction of the project is completed, responsibilities. Both the borrower and firm guaranteeing the following: the lender must obtain and have on file lender must take into consideration the Completion of the project with the all mechanics lien waivers or releases potential environmental impacts of the necessary technology to successfully from all contractors and materialmen. project at the earliest planning stages. run the project and system performance The lender will provide to the Agency: The Agency recommends that the lender for projects that utilize integrated (1) A copy of the notice of completion contact the Agency to determine processing equipment and systems, or similar document issued by the environmental requirements as soon as such as biorefineries, renewable energy relevant jurisdiction; practicable after deciding to apply for a systems, and chemical manufacturing (2) Certification that all funds were guarantee under this part. plants. The credit underwriting of the used for authorized purposes; and independent technology development (3) A written certification that the (1) Lender. The lender is responsible firm must be satisfactory to and project will be used for its intended for becoming familiar and ensuring approved by the Agency; and; purpose and will meet the borrower’s compliance with Federal environmental (viii) Evidence, in form and substance needs and guaranteed loan purposes in requirements. The lender must alert the satisfactory to the Agency, that there is accordance with the application Agency to any environmental issues sufficient contingency funding in place approved by the Agency. related to a project or items that may to handle unforeseen cost overruns (4) RES or EEI projects and projects require extensive environmental review. without seeking additional guaranteed that utilize integrated processing Proposals that minimize the potential of assistance. systems and equipment, such as any project to adversely impact the (f) Reporting during construction. biorefineries, renewable energy systems, environment must be developed and Regardless of when the loan note and chemical manufacturing facilities, provided upon request by the Agency. guarantee is issued, all lenders must unless utilizing the provisions of (2) The lender must ensure that the report any problems in project paragraph (e)(2) of this section, must be borrower has— development to the Agency within 15 constructed, installed, and operated as (i) Provided the necessary calendar days of identifying the described in the technical report or on environmental information to enable the problem. If the loan note guarantee has the vendor certification prior to Agency to undertake its environmental been issued prior to construction or disbursement of guaranteed loan funds. review process in accordance with 7 completion of the project, the lender For RES, the system must be operating CFR part 1970, including the provision must provide monthly construction at the steady state operating level of all required Federal, State, and local reports that contain: described in the technical report or on permits; (1) Certifications for each draw the vendor certification for a period of (ii) Not taken any actions or incurred request as follows: not less than 30 calendar days, unless any obligations with respect to the (i) Certification by the independent this requirement is modified by the project that would either limit the range engineer or qualified consultant to the Agency, prior to disbursement of funds. of alternatives to be considered during Lender that the work referred to in the the Agency’s environmental review draw has been successfully completed; § 5001.206 Compliance with USDA process or which would have an adverse and Departmental Regulations, Policies, and (ii) Certification by the borrower and other Federal laws. impact on the environment, such as the independent engineer or qualified (a) Departmental regulations. All initiation of construction. Taking any consultant that the guaranteed loan projects receiving a loan guarantee such actions or incurring any such funds of the prior draw have been under this part are subject to the obligations could result in project applied to eligible project costs in provisions of USDA’s Departmental ineligibility; and accordance with the draw request and Regulations, as applicable. (iii) Complied with any that the contractors have delivered (b) Other Federal laws. Lenders and environmental mitigation measures mechanics lien waivers in connection borrowers must comply with other required by the Agency. with such draw; applicable Federal laws including, but (b) Environmental reviews. The (2) List of invoices; not limited to, Equal Employment Agency must complete all required (3) Details regarding the borrower’s Opportunities, Americans with environmental reviews, identifying and equity, other funds, and guaranteed loan Disabilities Act, Equal Credit addressing, as appropriate, funds disbursed to date; Opportunity Act, and the Fair Housing disproportionately high and adverse (4) Status of construction and Act. human health or environmental effects inspection reports; § 5001.207 Environmental responsibilities. on minority populations and low- (5) Inspection reports; and income populations, in accordance with Actions taken under this part must (6) Concerns, potential problems, cost 7 CFR part 1970. overruns, etc. comply with 7 CFR part 1970. The (g) Use of guaranteed loan funds. The Agency is responsible for ensuring that (1) The Agency may schedule a site lender must ensure that: the requirements of the National visit if the Agency determines one is (1) All borrower funds are utilized Environmental Policy Act of 1969 necessary in order to determine the prior to guaranteed loan funds; (under 40 CFR part 1500) and related scope of the environmental review. (2) Guaranteed loan funds are only compliance actions, such as Section 106 (2) The Lender must assist in the used for eligible project costs in of the National Historic Preservation Act collection of additional data when the accordance with the purposes approved (under 36 CFR part 800) and section 7 Agency needs such data to complete its by the Agency in the conditional of the Endangered Species Act, are met. environmental review of the project and commitment and in accordance with the The Agency will complete the mitigation of environmental issues.

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§ 5001.208 Conflicts of interest. audits, relationships and identity of any documentation to support the funding The lender must report all conflicts of affiliates; and copies of organizational request. All complete applications must interests, in writing, to the Agency. documents, organizational charts, and contain at a minimum: existing debt instruments. (1) Agency-approved application form §§ 5001.209–5001.300 [Reserved] (3) For REAP projects: or system that includes all items noted (i) Borrower information as outlined Subpart D—Guarantee Application in this section; in § 5001.307(a) and (b), and project Provisions (2) Credit evaluation (conforming to information as outlined in § 5001.307(c). § 5001.202). § 5001.301 Beginning the application (ii) For REAP RES projects where a (3) Environmental information process. residence is located at or is closely required by the Agency to conduct its (a) The lender must file applications associated with and shares an energy environmental reviews (as specified in and related documents through the metering devise with a rural small § 5001.207(a)(2)(i)). Agency online application system business or agricultural operation, (4) Required financial statements located at https://www.rd.usda.gov/ demonstration that 50 percent or greater including: onerdguaranteed. of the energy to be generated by the RES (i) Current Agency-acceptable balance (b) The lender may complete either a will benefit the rural small business or sheet and year-to-date income request for preliminary eligibility agricultural operation. statements of the borrower, and any review in accordance with § 5001.302 or (b) Assessment. Based on the guarantor(s) dated within 90 days of a full application in accordance with information submitted for the submission of the complete application; §§ 5001.303 through 5001.307, as preliminary eligibility review, the (ii) Agency-acceptable historical applicable, to begin the process for Agency will make an informal balance sheet, income statements, and obtaining a guaranteed loan. The assessment of the types of guarantee cash flow statements of the borrower, Agency encourages, but does not funding applicable to the request, and and any guarantor(s) for the lesser of the require, lenders to file requests for the eligibility of the borrower, project, last three fiscal years or all years of preliminary eligibility reviews in order and lender. The Agency will provide operation; and to obtain Agency comments before written informal comments. The (iii) Projected balance sheets, income submitting a full Application. assessment may change based on statements, and cash flow statements or subsequently submitted information, is § 5001.302 Preliminary eligibility review. a financial model starting from the solely advisory in nature, does not current financial statements through a (a) Contents. Except as otherwise obligate the Agency to approve a minimum of two years of the project indicated, each request for a preliminary guarantee request, and is not considered performing at full operational capacity eligibility review must contain the a favorable or adverse decision by the or stable operations. Based on the type material identified in paragraphs (a)(1) Agency. of project or at the discretion of the through (3) of this section. This Agency, financial projections or models information may be submitted in a § 5001.303 Applications for loan guarantee. may be required from current financial narrative format or utilizing the lender’s statements up to the end of the term of preliminary lender’s analysis or The Agency will accept applications on a continuous basis. For each loan the guaranteed loan. Financial preliminary credit memo. projections must be supported by a list (1) Regardless of format, the lenders guarantee request, the lender must of assumptions showing the basis for the must provide the following information: submit to the Agency a complete (i) Name of the proposed borrower application that is in conformance with projections. Projected financial and co-borrower(s) as applicable, this section, and §§ 5001.304 through statements must include a pro forma organization type, address, contact 5001.307, as applicable. balance sheet projected for guaranteed person, email address, and telephone (a) Complete applications. Lenders loan closing. number; must submit complete applications in (iv) The Agency may request (ii) Name of the proposed lender, order to be considered for loan additional financial statements, address, telephone number, contact guarantees. Lenders are encouraged to financial models, cash flow information, person, email address; submit a complete application in a updated financial statements, and other (iii) Amount of the guaranteed loan single package; however, the Agency related financial information to request; and if known, the percentage of may accept the environmental determine the financial feasibility of a guarantee requested; the proposed rates information required by the Agency and project and evaluate the credit and terms of the guaranteed loan; and initiate and complete its environmental underwriting of borrower, its affiliates, the source(s) of other funding; reviews in advance of receiving a and any guarantors. (iv) If known, a description of complete application. If an application (5) For all applications of $600,000 or collateral to be offered with estimated is incomplete, the Agency will notify greater, a draft loan agreement for the value(s), identity of guarantors, and the the lender in writing of the items guaranteed loan that addresses the amount and source of equity, other necessary to address the incomplete following: capital, and matching funds to be application. Upon receipt of a complete (i) Repayment term and amortization contributed to the project; and application, the Agency will complete provisions of the guaranteed loan; (v) A brief description of the project, its evaluation. (ii) Description of real property its location, products or services (b) Content. Lenders must provide an collateral, list of other collateral and provided, service area, and, as analysis of the scope of the project in identification of the lender’s lien applicable, availability of raw materials relation to the borrower’s overall priority in the collateral; and supplies. operations. The application and lender’s (iii) A list of persons and entities (2) Sufficient information and analysis should be supported by guaranteeing payment of the guaranteed documentation to enable the Agency to adequate documentation as applicable loan and their percentage of guarantee; assess borrower, lender, and project to the project and as listed in paragraph (iv) Type and frequency of borrower eligibility, including summaries or (c) of this section. The Agency reserves and guarantor financial statements to be spreadsheets of financial statements or the right to request additional required for the duration of the

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guaranteed loan (guarantor statements applications for guaranteed loans in the (d) Application modification. Once a must be updated at least annually); amount of $200,000 or more. For complete application is accepted by the (v) Prohibition against borrower lenders that are submitting smaller Agency and prior to Agency award of a assuming liabilities or obligations of requests, the lender must keep the credit loan note guarantee, any modification to others; report on file with the lender’s the application will be treated as a new (vi) Limitations on borrower dividend application. Application and the Agency will payments and compensation of officers, (3) Feasibility study: If the Agency is process the information accordingly. owners and members of borrower; unable to determine a basis for The submission date of record for a (vii) Limitations on the purchase and successful repayment of a guaranteed modified application is the date the sale of equipment and other fixed assets; loan based on the documentation and Agency receives the modified (viii) Restrictions concerning mergers, analysis of the five feasibility study application information. consolidations, or other circumstances components provided in the lender’s including significant management § 5001.304 Specific application analysis, borrower’s business plan, or requirements for CF projects. changes and a limitation on selling the other project information, or if the business, project, or guarantee loan proposed project will have significant In addition to the requirements specified in § 5001.303 as applicable, a collateral without the concurrence of impacts on existing operations, the lender seeking a loan guarantee for a CF the lender; Agency may require an independent project must submit a financial (ix) Maximum debt-to-net worth ratio, feasibility study. The elements of an feasibility report prepared by a qualified when required by the lender or by this acceptable feasibility study may vary by firm or individual acceptable to the part; project scope and should be prepared by Agency. All projects financed under this (x) Minimum debt service coverage a qualified, independent third party section must meet the financial ratio, when required by the lender or by using applicable elements of the project, feasibility requirements of this section this part; including but not limited to those and must be based on projected taxes, (xi) A reserved section for any outlined in appendix A to subpart D of assessments, revenues, fees, or other requirements imposed by the Agency in this part. sources of revenues in an amount its conditional commitment; (4) Intergovernmental consultation sufficient to provide for project (xii) A reserved section for any comments in accordance with 2 CFR operation and maintenance, debt Agency environmental requirements; part 415, subpart C, or successor payments, and compliance with lender and regulation, unless exemptions have been reserve requirements, when applicable. (xiii) A provision for the lender and granted by the State’s single point of Other sources of revenue or existence of the Agency to have reasonable access to contact. payment guarantors are particularly the project and its performance (5) Engineering documentation. information during the term of the (6) Architectural reports. important in considering the feasibility guaranteed loan including the periodic (7) Energy audits or energy of eligible recreation projects. The inspection of the project by a assessments in accordance with financial feasibility report must take representative of the lender or the § 5001.107. into consideration any interest rate Agency. (8) Energy efficient equipment and adjustment that may be instituted under (6) Identify whether or not the systems data in accordance with the terms of the promissory note. borrower has a known relationship or § 5001.108. Financial projections for projects that association with an Agency employee. If (9) Business plan: Unless the are assisted living facilities, skilled there is a known relationship, identify information is contained in the nursing facilities, or similar types of each Agency employee with whom the feasibility study or in the credit eligible residential facilities must be borrower has a known relationship. evaluation, a business plan should be based on no more than 90 percent (7) At the time of the loan application, submitted to show how the project will occupancy. Utility projects dependent the lender must submit its loan operate and remain viable. This on user fees for debt repayment shall classification and credit risk rating requirement may be omitted when base their income and expense forecast classification scale. guaranteed loan funds are used on user estimates supported by either a (c) Provisional content. The following exclusively for debt refinancing. state statute or local ordinance requiring items may also be required based on the (10) If the application is for five or mandatory hookup or signed and type of project being financed or if more residential units, including enforceable user agreements. If the deficiencies exist in the credit nursing homes and assisted-living primary use of the essential community evaluation and more information is centers, an Affirmative Fair Housing facility is by a business and the success needed to adequately determine risk: Marketing Plan that is in conformance or failure of the facility is dependent on (1) Appraisals in accordance with with 7 CFR 1901.203(c)(3). that business, then the economic § 5001.203. (11) If the application is for financing viability of that business must also be (2) Current credit reports or the of health care facilities, a certificate of assessed. For projects that include the equivalent on the borrower, any need, if required by Federal or State purchase and installation of RES that payment guarantors and any person or law. meet the eligibility requirements of entity owning greater than a 20 percent (12) Department of Labor form as § 5001.103(a)(8), a technical report on or more interest in the borrower or noted in § 5001.306(a)(1). the RES as outlined in § 5001.307(e)(1) controls the borrower, except for passive (13) Pro-forma balance sheet for and (2), as applicable, will be included investors and those corporations listed closing as noted in § 5001.306(a)(2). with the applicable financial feasibility on a major stock exchange. A credit (14) SEC Form 10–K as noted in report. The type of financial feasibility report or its equivalent are not required § 5001.306(a)(4). report required will depend upon the for elected and appointed officials when (15) Technical reports in accordance size of the guaranteed loan, the the borrower is a public body, or Indian with § 5001.307(e). collateral o securing the guaranteed Tribe, or for members of a non-profit (16) Certification regarding credit loan, and the financial history of the organization. Credit reports must be elsewhere in accordance with borrower. The two types of financial submitted to the Agency for all § 5001.126(b)(3) and (c). feasibility report and when they are

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required are described in paragraphs (a) architectural and engineering practices completion of a Department of Labor and (b) of this section. and conforms to applicable Federal review. (a) Financial feasibility analysis. The requirements (e.g. the seismic (2) A pro forma balance sheet financial feasibility analysis will be requirements of Executive Order 12699 projected for loan closing. prepared by a qualified firm or (55 FR 835, 3 CFR, 1990 Comp., p. 269), (3) The Agency may require a individual who may be the lender. the debarment requirements of 2 CFR Feasibility Study when the lender’s Financial feasibility analysis part 417, American Iron and Steel analysis, borrower’s business plan, or requirements are outlined in appendix B (Section 746 of Title VII of the project information is not sufficient to to subpart D of this part. The lender’s Consolidated Appropriations Act of determine the technical feasibility, credit evaluation may serve as the 2017), and the Copeland Anti-Kickback market feasibility, or economic viability financial feasibility analysis provided it Act (18 U.S.C. 874)); State, local and of the project. includes the items outlined in appendix Tribal codes and requirements; and (i) For guaranteed loans greater than B to subpart D of this part. A financial facility plans or plans and specifications $1,000,000.00 to a new business, a feasibility analysis will be required if reviewed and approved by the feasibility study prepared by an any of the following circumstances applicable State, local and/or Tribal independent qualified consultant exist: regulatory agency. The lender must also acceptable to the Agency is required. (1) Guaranteed loans of $5 million or ensure that the planned project will be The scope of the feasibility study will be less; completed within the available funds determined by the Agency and is (2) Guaranteed loans secured by a and, once completed, will be suitable dependent on the complexity of the general obligation bond, or other tax for the borrower’s needs. Upon project and the borrower. (ii) For loans of $1,000,000.00 or less supported income sufficient to pay the completion of the project, the lender to new and existing businesses, the debt service for the life of the loan; or must certify that all applicable Federal Agency may require a feasibility study (3) Borrowers with audited financial requirements were met. when the lender’s analysis or other statements, if the last three years (b) Feasibility considerations. All indicate the ability to pay all existing borrower information is not sufficient to projects financed under this part must determine the technical feasibility or and new debt service. be based on projected taxes, (b) Financial feasibility study with economic viability of the project, or if assessments, revenues, fees, or other the project will significantly affect the examination opinion. The report must sources of revenues in an amount be prepared in accordance with the operations of a borrower who is an sufficient to provide for project existing business and its historic cash standards of attestation of the American operation and maintenance, any Institute of Certified Public flow. reserves required by the lender, and (iii) A technical report is required for Accountants, and the preparer must debt payment. The lender’s financial have the requisite professional liability RES identified in § 5001.307(e) and for credit analysis must take into projects utilizing other integrated insurance in place. A financial consideration any interest rate feasibility study with examination processing equipment and systems. The adjustment that may be instituted under contents of the technical report must be opinion will be required for all the terms of the loan note guarantee. guaranteed loans that do not meet the consistent with the requirements of requirements for a financial feasibility (c) Credit analysis requirements. In § 5001.307(e)(1) and must provide analysis outlined in paragraph (a) of this addition to the requirements of sufficient detail to enable the Agency to section. The financial feasibility study § 5001.202, if the majority user of the determine technical merit. The report with examination opinion will typically system is a business and the financial can be provided in the technical include the items outlined in appendix success of the system is dependent on feasibility section of a feasibility study B to subpart D of this part. that business, then the economic or in a separate technical report. viability of that business must be (4) For companies listed on a major § 5001.305 Specific application assessed. stock exchange or subject to the requirements for WWD projects. Securities and Exchange Commission § 5001.306 Specific application In addition to the requirements requirements for B&I projects. (SEC) regulations, a copy of their most specified in § 5001.303, a lender seeking recent SEC Form 10–K, ‘‘Annual Report a loan guarantee for a WWD project In addition to the requirements Pursuant to section 13 or 15(d) of the must submit the documents specified in specified in § 5001.303, as applicable, a Securities Exchange Act of 1934.’’ paragraphs (a) through (c) of this lender requesting a B&I loan guarantee (5) Current financial statements of section. must submit the information specified affiliates. (a) Engineering documentation. (1) in paragraph (a) of this section if the (b) Applications requesting a Engineering documentation must meet guaranteed loan amount is more than guaranteed loan in an amount of the level of detail the lender would $600,000, or in (b) of this section if the $600,000 or less. Guaranteed loan typically require for a standard guaranteed loan amount is $600,000 or applications may be processed under commercial loan, and include, at a less. this paragraph (b) if the amount of the minimum, a description of the proposed (a) Applications requesting a guaranteed loan does not exceed project, a cost estimate, the number of guaranteed loan in an amount greater $600,000, provided the Agency residential and non-residential than $600,000. (1) The Agency is determines that the lender’s analysis, connections, and the population served. required to submit project information borrower’s business plan, or other The lender may request assistance to to the United States Department of project or borrower information clarify the Agency’s requirements and Labor for their concurrence if the submitted by the lender is sufficient to regulations; however, the Agency does proposed guaranteed loan is in excess of determine the technical feasibility, not provide technical oversight or $1,000,000.00 and will increase direct market feasibility, and economic recommendations as to the technical employment by more than 50 viability of the project. If any of the feasibility of the project. employees. The lender must provide items in paragraphs (a)(1) through (4) of (2) The lender must ensure that the sufficient project and demographic this section apply, the lender must project is designed utilizing accepted information to the Agency for collect the information and maintain it

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in their file. A Lender may need to (b) Borrower description. Describe the in conformance with the definition of resubmit or modify an application if the ownership of the Borrower, including feasibility study found in § 5001.3 and application does not contain sufficient the information specified in paragraphs with applicable content in appendix A information for the Agency to make an (b)(1) through (3) of this section, as to subpart D of this part. informed loan approval decision. applicable. Include a description of the (e) Technical report. All eligible (1) Lenders submitting applications Borrower’s existing farm, ranch, or projects must have technical merit and under this paragraph (b) must include business operation, including how long provide information as identified in the following information: the borrower has been in operation. § 5001.106(e), § 5001.107(d), or (i) Narrative description of the project (1) Describe how the borrower meets § 5001.108(d) and (e)(1) through (3) of including the history of the borrower the ownership and control requirements this section. and adequacy of cash flow and borrower as identified in § 5001.126(e)(2). (1) Level of detail. Information equity; (2) For each entity(ies) the borrower provided must be in sufficient detail to (ii) Required financial statements controls or entity(ies) it is controlled by, enable the Agency to determine the including a current Agency-acceptable provide a list of the individual owners technical merit of the project. Design balance sheet and year-to-date income with their contact information. Describe drawings and process flowcharts are statements; the relationship between the borrower encouraged as exhibits. The technical (iii) Security available for the and the other entity(ies), including report requirements can be provided in guaranteed loan including collateral and percentage of ownership and control, the technical feasibility section of a payment guarantees; management, passive investor feasibility study, instead of completing (iv) Strengths and weaknesses of the ownership, and any products a separate technical report. guaranteed loan and the Lender’s need exchanged. Organizational charts to (i) Sufficient information to enable the for the loan guarantee to mitigate demonstrate the structure of the calculation of simple payback as specific risks. borrower should be submitted when defined in § 5001.3; (2) The lender may elect to not submit available. (ii) For RES Projects, sufficient the following application (3) Identify the ethnicity, race, and information to enable the calculation of documentation to the Agency, but must gender of the borrower. Identify if the the percentage of historical use of have the information available in its file borrower is a veteran. This information energy compared to the amount of for review: is optional and is not required for a renewable energy that will be generated (i) Narrative description of complete application but may be used once the project is operating at its management capabilities and corporate by the Agency to award priority points. steady state operating level. If the structure of the borrower; (c) Project information. Provide project is closely associated with a (ii) Environmental information for the residence, satisfactory demonstration project and any environmental reviews; information concerning the project as a whole and its relationship to the must be made that 50 percent or more (iii) Agency-acceptable historical of the projected renewable energy will balance sheets and income statements of borrower’s operations, including: (1) Identification as to whether the benefit the agricultural operation or the borrower and its affiliates; rural small business; and (iv) Financial statements of any project is an RES, EEI, or EEE project. Include a description and the location of (iii) Demonstrate that the RES, EEI, or personal, partnership, or corporate EEE project will operate or perform over guarantors. the project; (2) Description of how the project will the project’s useful life in a reliable, § 5001.307 Specific application have a positive effect on resource safe, and a cost-effective manner, which requirements for REAP projects. conservation, public health, and the may include but is not limited to In addition to the requirements environment; addressing project design, installation, specified in § 5001.303, a lender seeking (3) Identification of the amount of operation, maintenance, and warranties. a loan guarantee for a REAP project funds and the source(s) of funds the (iv) In addition, the following must submit the information identified borrower is proposing to use for the technologies, must provide a technical below based on total project costs. project. Provide written commitments report in accordance with paragraphs (a) Borrower eligibility information. for funds at the time the application is (e)(1)(v) through (viii) of this section, as (1) Eligible borrowers must meet the submitted to receive points under this applicable: definition of agricultural producer or scoring criterion. (A) Hydrogen; rural small business as defined in (i) For project funding provided by (B) Ocean energy; § 5001.3. Agricultural producers seeking the borrower, documentation may (C) Geothermal electric generation; (D) Anaerobic digesters and biogas; funding for a RES or EEI project may include bank statements that (E) Biomass; apply as either a rural small business or demonstrates availability of funds. (F) Hybrid applications; as an agricultural producer, provided (ii) For project funding that comes (G) Renewable energy systems with they meet the applicable eligibility from a third party, a commitment letter storage components; and requirements. Agricultural producers signed by an authorized official of the (H) Energy efficiency improvements seeking funding for an EEE project must third party. The letter must be specific (v) For total project costs in the be eligible and apply as an Agricultural to the project and must identify the amount of $80,000 or less, a technical Producer. dollar amount of any loan or other report, as identified in § 5001.303(c)(15), (2) The Borrower must provide the funding and any applicable rates and prepared in accordance with the primary NAICS code applicable to the terms. If the third-party commitment is following paragraphs, as applicable: borrower’s business concern and certify for a loan, the commitment must be (A) EEI technical reports. Each EEI on the Agency approved application firm; a letter-of-intent or pre- technical report submitted under this form or system that it meets the qualification letter subject to section must provide: definition of agricultural producer or underwriting requirements or (1) A description of the proposed EEI, rural small business. The Agency contingencies is not acceptable. including its intended purpose; reserves the right to request supporting (d) Feasibility study. For RES projects (2) Vendor/Installer certification that documentation to verify borrower only, when deemed necessary by the the EEI project uses commercially eligibility. lender or Agency, an analysis conducted available technology;

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(3) Vendor/Installer certified quantity and price per unit of the energy (2) Loans to borrowers engaged in projections on the quantity of energy to efficiency equipment to be installed; industries where the lender has little or be saved; (4) Certification by vendor/installer no origination and/or servicing (4) Certification by vendor/installer that they are qualified to complete the experience. that they are qualified to complete the project as intended; (b) Evaluation and eligibility project as intended; (5) Vendor/installer certification that determinations. The Agency will review (5) Vendor/installer certification that the EEE system will operate and each application to make a formal the EEI system will operate and perform perform over the project’s useful life in determination as to: The eligibility of over the project’s useful life in a reliable a reliable and cost-effective manner; and the borrower, lender, project, and and cost-effective manner; and (6) An estimate of simple payback, guaranteed loan purpose and proposed (6) An estimate of simple payback, including all calculations, use of funds; if there is a reasonable including all calculations, documentation, and any assumptions. assurance of repayment ability; if (vi) For EEI guaranteed loan projects documentation, and any assumptions. sufficient collateral and equity exists; if with total project costs greater than (B) RES technical reports. Each RES the proposed guaranteed loan complies $80,000, the technical report identified technical report submitted under this with all applicable statutes and in paragraph (e)(1)(v)(A) of this section section must provide: regulations; and if the environmental applies, except that appendix C to review is complete. (1) A description of the proposed RES subpart D of this part is to be followed project, including its intended purpose; (1) If the Agency’s evaluation and to prepare the report. determination in accordance with this (2) Vendor/installer certified (vii) For RES guaranteed loan projects projections on energy to be replaced paragraph (b) is favorable, the Agency with total project costs greater than will proceed in accordance with and/or generated, including the quality $80,000 and up to but not including paragraph (c) of this section. and availability of the renewable $200,000, the technical report identified (2) If the Agency’s evaluation and resource to the project; if there is a in paragraph (e)(1)(v)(B) of this section determination in accordance with this residence closely associated with the applies, except that appendix D to paragraph (b) is unfavorable, the Agency RES project, the historical amount of subpart D of this part is to be followed will notify the lender, in writing, as energy used by the residence and the to prepare the report. applicable, identifying the reason(s) for historical amount of energy used by the (viii) For RES guaranteed loan determining ineligibility and any agricultural operation or rural small projects with estimated total project applicable appeal or review rights. No business, as applicable, to satisfactorily costs of $200,000 or greater, the further processing of the application demonstrate 50 percent or more of technical report identified in paragraph will occur. proposed generation will benefit the (e)(1)(v)(B) of this section applies, (c) Priority score. The Agency will agricultural operation or rural small except that appendix E to subpart D of score each eligible application based on business; this part is to be followed to prepare the the point system for the respective (3) Vendor/installer certification that report. program identified in §§ 5001.316 the RES project uses commercially (2) Modifications. If the technical through 5001.319. available technology; report is prepared prior to the (1) Lenders must provide necessary (4) Certification that the vendor/ borrower’s selection of a final design, information related to determining the installer is qualified to complete the equipment vendor, or contractor, or score, if requested by the Agency. To the project as intended; other significant decision, the borrower extent possible, lenders should consider (5) Certification that the project will may modify the report and resubmit it the established priorities of the Agency perform over its useful life in a reliable to the Agency, provided that the overall when submitting projects for a loan and cost-effective manner; and scope of the project is not materially guarantee. Higher scoring applications (6) The projected financial changed as determined by the Agency. will receive first consideration for performance of the project. The Changes in the technical report may funding. description must address total project require additional environmental (2) The Agency may establish a costs, revenues accrued from the sale or documentation in accordance with 7 minimum priority score for each crediting of energy, quantity and value CFR part 1970. guarantee program. The Agency will, if of energy offset, and revenue from (3) Hybrid projects. If the application established, publish the minimum score byproducts. Include applicable is for a hybrid project, technical reports in a document in the Federal Register. investment and other production must be prepared for each technology Applications that do not meet the incentives and indicate if they are one that comprises the hybrid project. applicable minimum score will compete time or reoccurring incentives. Provide §§ 5001.308–5001.314 [Reserved] with all other guaranteed loan an estimate of simple payback, applications for each specific program including all calculations, § 5001.315 Application evaluation and in a competition on the first business documentation, and any assumptions. award provisions. day of September of the Federal fiscal (C) EEE technical reports. Each EEE (a) General. The Agency will evaluate year in which the application is ready technical report submitted under this all Applications according to the for funding. section, regardless of total project costs, provisions of this part and may require (d) Funding selected applications. must provide: the lender to obtain additional Each program identified in § 5001.1 will (1) A description of the proposed EEE assistance in those areas where the consider applications for funding in the and its intended purpose, including lender does not have the necessary order they are received by the Agency. baseline data, specifications, and expertise to originate or service the If the Agency approves the application efficiency data; guaranteed loan. For the purposes of and guaranteed funds are available, the (2) Vendor/Installer certification that this paragraph (a), ‘‘those areas’’ mean: Agency will issue a conditional the EEE project uses commercially (1) The type and complexity of the commitment to the lender in accordance available technology; financing (e.g., asset-based financing, with § 5001.451 of subpart E. In the (3) Vendor/Installer certification of cash flow financing, and bond event total loan requests exceed the the proposed energy consumption financing); and amount of funding available the

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applications will be ranked for priority (f) Commencement of the project. The (i) 100 percent of the first by each program. As applications are borrower assumes all risks if the $200,000,000 so made available; funded, the remaining guaranteed loan borrower purchases real property or (ii) 50 percent of the next funding authority may be insufficient to equipment or starts construction of the $200,000,000 so made available; and fund the next highest scoring project to be financed by a guaranteed (iii) 25 percent of all amounts application or applications (where two loan after the complete application has exceeding $400,000,000 so made or more applications receive the same been received by the Agency, but prior available. priority score). The Agency will use the to the Agency’s issuance of the (2) On July 1 of each year, the Agency procedures described in paragraphs conditional commitment and the lender will evaluate the dollar amount of (d)(1) and (2) of this section as often as and borrower’s acceptance of the complete applications on hand for necessary to consider all applications as conditional commitment. projects in rural areas with a population appropriate. (g) Application withdrawal. During of not more than 20,000 inhabitants. (1) If the remaining funds are the period between the submission of an The dollar amount of the complete insufficient to fund the next highest application and prior to issuance of the applications will be subtracted from the scoring application completely, the conditional commitment, the lender reserved allocation identified in this Agency will notify the lender and offer must notify the Agency, in writing, if paragraph (e) and the remaining amount the lender the opportunity to accept the the project is no longer viable or the will be made available through the end remaining funds. If the lender does not borrower no longer is requesting of the Federal Fiscal Year for projects in accept the offer, the Agency will process financial assistance for the project. rural areas with a population of not the next highest scoring application. When the lender notifies the Agency, more than 50,000 inhabitants. (2) If the remaining funds are the Agency will rescind the selection insufficient to fund each application § 5001.317 WWD project priority points and withdraw the application, as system. that receives the same priority score, the applicable. Agency will notify each lender and offer This section applies to WWD projects the lenders the opportunity to accept a § 5001.316 CF project priority point system seeking a loan guarantee. The highest prorated share of the remaining funds. and reservation of funds. possible priority point score is 150. (3) Any lender offered less than the This section applies to CF projects (a) Population priority. If the project full amount requested under either seeking a loan guarantee. Paragraphs (a) will primarily serve a rural area having paragraph (d)(1) or (2) of this section through (d) of this section outline the a population under 10,000, 20 points can either accept the funds available or criteria and amount of priority points will be awarded. request to compete in the next funding that may be awarded to an application. (b) Health priorities. If the proposed cycle. There is no assurance that the The highest possible priority score is 55. project is: application(s) will be funded in a Paragraph (e) of this section outlines the (1) Needed to alleviate an emergency subsequent funding cycle. reservation of funds for projects located situation, correct unanticipated (4) If a lender agrees to the lower loan in rural areas of 20,000 population or diminution or deterioration of a water guarantee amount offered by the Agency less. supply, or to meet Safe Drinking Water under either paragraph (d)(1) or (2) of (a) Population priority. If the project Act requirements which pertain to a this section, the lender must certify that will be located in a rural community water system, 25 points will be the purpose(s) of the project can still be having a population of less than awarded; met at the lower funding level and must 20,000—15 points. (2) Required to correct inadequacies provide documentation that the (b) Project priority. If the project will of a wastewater disposal system, or to borrower has obtained the remaining construct, enlarge, extend or otherwise meet health standards which pertain to funds needed to complete the Project as improve a public safety, health clinic, a wastewater disposal system, 25 points originally proposed. early education, primary or secondary will be awarded; or (e) Handling of ranked applications (3) Required to meet administrative education facility—10 points. not funded. The Agency will withdraw orders issued to correct local, State, or (c) Leveraging priority. If the applicant from consideration ranked applications Federal solid waste violations, 15 points commits other funds to the project in that have not received funding as will be awarded. the following percentages: follows: (c) Service area priorities. An (1) If an unfunded application has a (1) 50 percent or more–15 points application is eligible to receive points priority score equal to or greater than (2) 20% up to 49%–10 points under each of the categories identified any applicable minimum score, the (3) 5% up to 19%–5 points in paragraphs (c)(1) through (3) of this Agency will retain the application for (d) Administrator priority. When section if the service area includes: consideration in subsequent funding guaranteed loan funds are requested (1) An eligible area of long-term cycles. If the unfunded application is from a National Office reserve, the population decline according to the last not selected for funding after 12 months, Administrator may assign up to 15 three decennial censuses, 5 points will including the first month in which the points to address: awarded. application was considered, the Agency (1) Geographic distribution of funds; (2) A rural county that has had 20 will withdraw the application from (2) Emergency conditions caused by percent or more of its population living further funding consideration. economic problems or natural disasters; in poverty, as defined by the United (2) If an unfunded application has a or States Census Bureau, for the last 30 priority score less than any applicable (3) Initiatives that support the years, 5 points will be awarded. minimum score, and remains unfunded Agency’s strategic plan. (3) For a city or county with a current after the competition held on the first (e)(1) Of the funds available each unemployment rate, as determined by business day of September of the fiscal Federal fiscal year, as published on the the Department of Labor, that is 125 year in which the application is ready Agency’s website, the following percent of the State-wide rate or greater, for funding, the Agency will withdraw amounts shall be reserved for projects in 5 points will be awarded. For projects the application from further funding rural areas with a population of not located in certain territories that may consideration. more than 20,000 inhabitants: not have unemployment rates by

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localities, if the applicant’s proposed priority score, the Agency will give the categories identified in paragraphs service area has an unemployment rate preference to applications involving (d)(1) through (7) of this section below: exceeding 125 percent of the national guaranteed loans from veterans. A (1) If the industry is not already unemployment rate, 5 points will be maximum of 105 points can be awarded. present in the local community, 5 points awarded. (a) Population priority. If the project will be awarded. (d) Other priorities. Applications are is located in an unincorporated area or (2) If the business has 20 percent or eligible for points under each of the in a city with a population under more of its sales in international following priorities: 25,000, 5 points will be awarded. markets, 5 points will be awarded. (1) If the proposed project will merge (b) Location priority. An application is (3) If the business is locally owned ownership, management, and operation eligible to receive points under each of and managed, 5 points will be awarded. of smaller facilities providing for more the categories identified in paragraphs (4) If the business will produce a efficient management and economical (b)(1) through (3) of this section if the natural resource value-added product, 5 service, 10 points will be awarded. Project is located within: points will be awarded. (2) If the proposed project will (1) A distressed community in (5) If the business processes, enlarge, extend, or otherwise modify accordance with the Economic distributes, aggregates, stores, and/or existing facilities to provide service to Innovation Group distressed community markets locally or regionally produced additional rural areas, 10 points will be index. The list can be found on the agricultural food products to awarded. Agency’s website at: https:// underserved communities in accordance (3) If the applicant is a public body or www.rd.usda.gov/onerdguarantee, 5 with § 5001.105(b)(15)(ii), 5 points will Indian tribe, 5 points will be awarded; points will be awarded. be awarded. (4) If the amount funds committed to (2) A rural county that has had 20 (6) If the business creates or saves a the project from sources other than percent or more of its population living minimum of five jobs with an average Rural Development is: in poverty, as defined by the United wage exceeding 150 percent of the (i) 50 percent or more, 15 points will States Census Bureau, for the last 30 Federal minimum wage, 5 points will be be awarded; years, 5 points will be awarded. awarded. (ii) 20 percent to 49 percent, 10 points (3) For a city or county with a current (7) If the business offers a healthcare will be awarded; unemployment rate, as determined by benefits package to all employees and (iii) 5 percent to 19 percent, 5 points the Department of Labor, 125 percent of pays at least 50 percent of the healthcare will be awarded; the State-wide rate or greater, 5 points premium, 5 points will be awarded. (5) If the project will serve Agency will be awarded. For projects located in (e) Administrative points. An identified target areas, 5 points will be certain territories that may not have application is eligible to receive points awarded; unemployment rates by localities, if the under paragraphs (e)(1) through (3) of (6) If the project primarily recycles applicant’s proposed service area has an this section. solid waste products thereby limiting unemployment rate exceeding 125 (1) For projects awarded under State the need for solid waste disposal, 5 percent of the national unemployment allocations the State Director may assign points will be awarded; and rate, 5 points will be awarded. up to 10 additional points to an (7) If the project will serve an area (4) The boundaries of a federally application to account for state-wide that has an unreliable quality or supply recognized Indian Tribe’s reservation, distribution of funds for natural of drinking water, 10 points will be within Tribal trust lands, or within land disasters, local economic emergency awarded. owned by an Alaska Native Regional or conditions, community economic (e) In certain cases, the approval Village Corporation as defined by the development strategies, State strategic official may award up to 15 points to a Alaska Native Claims Settlement Act, 5 plans, fundamental structural changes project. The points may be awarded to points will be awarded. in a community’s economic base, or projects in order to improve (c) Guaranteed Loan features. An projects that will fulfill an Agency compatibility and coordination between application is eligible to receive points special initiative. WWD and other agencies’ selection under each of the categories identified (2) For projects requesting funds from systems, to ensure effective RUS fund in paragraphs (c)(1) through (4) of this the national reserve account, the State utilization, and to assist those projects section as follows: Director may request up to 10 that are the most cost effective. A (1) If the lender will price the administrative points from the written justification must be prepared guaranteed loan at an interest rate equal Administrator. and placed in the project file each time to or less than the equivalent of the Wall (3) If an application is for a loan in these points are assigned. Street Journal published Prime Rate excess of 10 million dollars, the (f) National office priorities. The plus 1.5 percent, 5 points will be Administrator may assign up to an Administrator may assign up to 15 awarded. additional 10 points to account for the additional points to account for items (2) If the guaranteed loan is less than nationwide geographic distribution of such as geographic distribution of 60 percent of the total project cost, 5 funds, or projects that will fulfill an funds, the highest priority projects points will be awarded. Agency special initiative. within a state, and emergency (3) For guaranteed loans not conditions caused by economic requesting an exception under § 5001.319 REAP project priority point system. problems or natural disasters. The § 5001.456(c)(2), if the percentage of Administrator may delegate the guarantee is 10 or more percentage This section applies to REAP projects authority to assign the 15 points to points less than the maximum seeking a loan guarantee. On a periodic appropriate National Office staff. allowable, 5 points will be awarded. basis, the Agency will compete each (4) If the business is owned by a complete and eligible RES, EEI, and EEE § 5001.318 B&I project priority point qualified veteran, 5 points will be application that is ready to be funded system. awarded. and whose priority score, as determined This section applies to B&I projects (d) High impact business development in this section, meets or exceeds the seeking a loan guarantee. When investment priorities. An application is minimum priority score. Applications applications on hand have the same eligible to receive points under each of that do not meet the applicable

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minimum score will be considered as (B) Less than 50,000 BTUs annual qualify as energy replacement, the provided in § 5001.315(c)(2). A energy generated or replaced per dollar borrower must provide documentation maximum score of 90 points is possible. of guaranteed loan amount requested, in its application on prior energy use (a) Environmental benefits. The points will be awarded according to the incurred by the borrower. Proposed Agency will award up to 5 points under result of taking the energy generated or energy use, such as that attributed to an this criterion based on documentation replaced per guaranteed loan dollar expansion, is not considered in the in the application that the project will requested ÷ 50,000 × 10 points. The replacement calculation. For a RES have a positive effect on resource points awarded are rounded to the project involving new construction and conservation, public health, and the nearest hundredth of a point. being installed to serve the new facility, environment. If the project will have a (ii) Energy efficiency improvements. the project can be classified as energy positive impact on: The Agency will award up to 10 points replacement only if the borrower can (1) All three impact areas, 5 points under this sub-criterion based on the document prior energy use from a will be awarded; average annual energy saved per dollar facility that is within plus or minus 10 (2) Any two of the three impact areas, of guaranteed loan amount requested for percent of the size of the facility it is 3 points will be awarded; or the EEI project. The Agency will award replacing. The estimated quantities of (3) Any one of the three impact areas, up to 10 points as determined under energy must be converted to either 1 point will be awarded. paragraph (b)(1)(ii)(A) and (B) of this BTUs, watts, or similar energy (b) Energy generated, replaced, saved, section. equivalents to facilitate scoring. or percent efficiency. The Agency will (A) 50,000 BTUs or higher average (B) Calculation. Energy replacement is award up to 25 points under this annual energy saved per dollar of determined by dividing the quantity of criterion. Each application is eligible for guaranteed loan amount requested, 10 renewable energy that the RES project is points under both paragraphs (b)(1) and points will be awarded; or estimated would have been generated if (2) of this section. (B) Less than 50,000 BTUs average it were in place over the most recent 12- (1) Quantity of energy generated or annual energy saved per dollar of month period by the quantity of energy saved per RES/EEI loan amount guaranteed loan amount requested, actually consumed over the same period requested, or percent efficiency of EEE points will be awarded according to the by the applicable energy process(es) that result of taking the energy generated per project. The Agency will award up to 10 ÷ × is(are) consuming energy. points under this sub-criterion. Points loan dollar requested 50,000 10 (C) Awarding of points. Using the will be awarded for either the amount points. The points awarded are rounded results from paragraph (b)(2)(ii)(B) of of renewable energy generation per to the nearest hundredth of a point. this section, if the percentage of energy (iii) Energy efficient equipment and dollar of loan amount requested, which replacement is— systems. If the increased energy includes those projects that are efficiency of the proposed equipment (1) Greater than 50 percent, 15 points replacing energy usage with a renewable and systems is— will be awarded; source; or the actual annual average (A) 75 percent or greater, award 10 (2) Greater than 25 percent, but equal energy savings over the most recent 12, points; to or less than 50 percent, 10 points will 24, 36, 48, or 60 consecutive months of (B) Less than 75 percent but equal to be awarded; or operation per dollar of guaranteed loan or greater than 50 percent, award 5 (3) Equal to or less than 25 percent, amount requested; or the percent points; 5 points will be awarded. efficiency of the EEE project. The (C) Less than 50 percent but equal to (ii) Energy generation. If the RES Agency will not award points for more or greater than 25 percent, award 2.5 project is intended for production of than one category. points; or energy or is a proposed retrofitting of an (i) Renewable energy systems. The (D) Less than 25 percent, award 0 existing RES which increases the quantity of energy generated or replaced points. amount of energy generated, the Agency per guaranteed loan dollar requested (2) Quantity of energy replaced, will award 10 points. will be determined by dividing the generated, or saved, or percentage of (iii) Energy saved. The Agency will projected total annual energy generated energy efficiency. The Agency will award up to 15 points under this sub- or replaced by the RES or RES retrofit award up to 15 points under this sub- criterion for an EEI project based on the (minus energy for residential use), criterion. Points will be awarded based percentage of estimated energy saved by which will be converted to BTUs, by the on whether the project is for energy the installation of the project as guaranteed loan dollars requested. replacement, energy generation, or determined by the projections in the Points will be awarded under this sub- energy savings, or percentage of energy applicable energy assessment or energy criterion based on the annual amount of efficiency; points will not be awarded audit. If the estimated energy expected energy generated or replaced (minus for more than one category. to be saved over the same period used energy for residential use) per dollar of (i) Energy replacement. The Agency in the energy assessment or energy guaranteed loan amount requested for will award points under this sub- audit, as applicable, will be— the RES project. The Agency will award criterion for an RES project based on the (A) 50 percent or greater, 15 points up to 10 points as determined under amount of energy replaced by the will be awarded; paragraph (b)(1)(i)(A) and (B) of this project compared to the amount of section below. If the annual amount of energy used by the applicable (B) 35 percent up to, but not including energy generated per dollar of process(es) over a 12-month period. If 50 percent, 10 points will be awarded; guaranteed loan amount requested the estimated energy produced is more (C) 20 percent up to, but not including calculated under paragraph (b)(1)(ii) of than 150 percent of the energy used by 35 percent, 5 points will be awarded; or this section is: the applicable process(es), the project (D) Less than 20 percent, no points (A) 50,000 BTUs or higher average will be scored as an energy generation will be awarded. annual energy generated or replaced per project under paragraph (b)(2)(ii) of this (iv) Energy efficiency. If the dollar of guaranteed loan amount section. percentage of energy efficiency is— requested or higher, 10 points will be (A) Documentation for energy (A) Greater than 50 percent, 15 points awarded; or replacement. For a RES project to will be awarded;

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(B) Greater than 25 percent, but equal Federal fiscal years, 10 points will be receive more than 10 points under this to or less than 50 percent, 10 points will awarded. criterion. be awarded; or (3) If the borrower has received and (1) The application is for an under- (C) Equal to or less than 25 percent, accepted a grant award under 7 CFR represented technology. 5 points will be awarded. part 4280 or a guaranteed loan (2) Selecting the application helps (c) Commitment of funds. The Agency commitment under either this part or 7 achieve geographic diversity. will award up to 15 points under this CFR part 4280 within the previous two (3) The borrower is a member of an criterion based on the percentage of Federal fiscal years, no points will be unserved or under-served population. acceptable written commitment a awarded. (i) The borrower is a veteran or borrower has from its other funding (e) Existing businesses. A maximum veterans own 20 percent or more in sources that are documented with a of 5 points will be awarded for an interest in the borrower. In order to complete application. existing agricultural producer business receive points, the borrower must sign (1) Calculation. The percentage of or rural small business that meets the a certification in its application to written commitment is calculated as definition of existing business in indicate that the borrower has veteran follows: Percentage of written § 5001.3. status; or commitment = total amount of funds for (f) Simple payback. A maximum of 15 (ii) The borrower is a member of a which written commitments have been points will be awarded for this criterion socially disadvantaged group or submitted with the application ÷ Total based on the simple payback of the members of socially disadvantaged amount of matching funds and other project as defined in § 5001.3. Points group(s) own 20 percent or more in funds required. will be awarded for either RES, EEI, or interest in the borrower socially (2) Awarding of points. Using the EEE; points will not be awarded for disadvantaged groups are groups whose result from paragraph (c)(1) of this more than one category. members have been subjected to racial, section, the Agency will award points as (1) Renewable energy systems. If the ethnic, or gender prejudice because of shown in paragraphs (c)(2)(i) through simple payback of the project is— their identity as members of a group (iii) of this section. (i) Less than 10 years, 15 points will without regard to their individual (i) If the percentage of written be awarded; qualities. In order to receive points, the commitments is 100 percent of the (ii) 10 years up to but not including application must include a statement to matching funds, 15 points will be 15 years, 10 points will be awarded; indicate that borrower is a member of a (iii) 15 years up to and including 25 awarded. socially disadvantaged group. years, 5 points will be awarded; or (ii) If the percentage of written (4) Selecting the application helps (iv) Longer than 25 years, no points commitments is less than 100 percent, further a Presidential initiative or a will be awarded. but more than 50 percent, points will be Secretary of Agriculture priority. (2) Energy efficiency improvements. If (5) The proposed project is located in awarded as follows: ((Percentage of the simple payback of the project is: written commitments ¥ 50 percent) ÷ a federally declared disaster area. × (i) Less than 4 years, 15 points will be Declarations must be within the last 3 (50 percent)) 15 points, where points awarded; awarded are rounded to the nearest calendar years. (ii) 4 years up to but not including 8 (6) The project is located in an area hundredth of a point. years, 10 points will be awarded; (iii) If the percentage of written where 20 percent or more of its (iii) 8 years up to and including 12 population is living in poverty, as commitments is 50 percent or less, no years, 5 points will be awarded; or points will be awarded. defined by the United States Census (iv) Longer than 12 years, no points Bureau; an underserved community; or (d) Previous grantees or borrowers. will be awarded. The Agency will award up to 15 points an area which has experienced long- (3) Energy efficient equipment and term population decline, or loss of under this criterion based on whether systems. If the simple payback of the the borrower has received and accepted employment. project is— (h) Unused funding. After each a REAP grant award under 7 CFR part (i) Less than 4 years, 15 points will be 4280 or a guaranteed loan commitment periodic competition, the Agency will awarded; roll any remaining guaranteed loan under either this part or 7 CFR part (ii) 4 years up to but not including 8 4280. funding authority into the next years, 10 points will be awarded; competition. At the end of each Federal (1) If the borrower has never received (iii) 8 years up to and including 12 fiscal year, the Agency may elect at its and accepted a grant award under 7 CFR years, 5 points will be awarded; or discretion to allow any remaining multi- part 4280 or a guaranteed loan (iv) Longer than 12 years, no points year funds to be carried over to the next commitment under either this part or 7 will be awarded. Federal fiscal year rather than selecting CFR part 4280, 15 points will be (g) Administrator priority points. a lower scoring application. awarded. Under this criterion, the Administrator (2) If the borrower has not received may award up to 10 points to an §§ 5001.320–5001.400 [Reserved] and accepted a grant award under 7 CFR application based on the conditions part 4280 or a guaranteed loan specified in paragraphs (g)(1) through Appendix A to Subpart D of Part commitment under either this part or 7 (5) of this section. Under no 5001—Feasibility Study Components CFR part 4280 within the previous two circumstances will an application BILLING CODE 3410–15–P

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Appendix B to Subpart D of Part 5001— Financial Feasibility Reports

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BILLING CODE 3410–15–C information regarding component warranties (ii) Calculate all direct and attendant Appendix C to Subpart D of Part 5001— and the availability of spare parts. indirect costs of each improvement; (iii) Rank potential improvements Technical Reports for Energy Efficiency Section B. Energy Audit measures by cost-effectiveness; and Improvement (EEI) Projects With Total If conducting an EA, provide the following (iv) Provide an estimate of Simple Payback, Project Costs of More Than $80,000 information. including all calculations, documentation, Technical Reports for Energy Efficiency (1) Situation Report. Provide a narrative and any assumptions. (4) Qualifications of the Auditor. Provide Improvement (EEI) Projects With Total description of the existing building and/or the qualifications of the individual or entity Project Costs of More Than $80,000 equipment, its energy system(s) and usage, and activity profile. Also include average which completed the Energy Audit. For all EEI projects with Total Project Costs price per unit of energy (electricity, natural Section C. Energy Assessment of more than $80,000, provide the gas, propane, fuel oil, renewable energy, etc.) information specified in Sections A and D paid by the customer for the most recent 12 If conducting an Energy Assessment, and in Section B or Section C, as applicable. months, or an average of 2, 3, 4, or 5 years, provide the following information. If the application is for an EEI project with for the building and equipment being (1) Situation Report. Provide a narrative Total Project Costs of $80,000 or less, please audited. Any energy conversion should be description of the existing building and/or see § 5001.307 (e) for the technical report based on use rather than source. equipment, its energy system(s) and usage, information to be submitted with your and activity profile. Also include average (2) Potential Improvement Description. application. price per unit of energy (electricity, natural Provide a narrative summary of the potential If the application is for an EEI project with gas, propane, fuel oil, renewable energy, etc.) improvement and its ability to reduce energy Total Project Costs of $200,000 and greater, paid by the customer for the most recent 12 consumption or improve energy efficiency, you must conduct an Energy Audit (EA). months, or an average of 2, 3, 4, or 5 years, However, if the application is for an EEI including a discussion of reliability and for the building and equipment being project with a Total Project Costs of less than durability of the improvements. evaluated. Any energy conversion shall be $200,000, you may conduct either an Energy (i) Provide preliminary specifications for based on use rather than source. Assessment or an Energy Audit. Energy critical components. (2) Potential Improvement Description. Audits that meet the American Society of (ii) Provide preliminary drawings of project Provide a narrative summary of the potential Heating, Refrigeration and Air-Conditioning layout, including any related structural improvement and its ability to reduce energy Engineers (ASHREA) Level II Energy Survey; changes. consumption or improve energy efficiency. Analysis and American National Standards (iii) Identify significant changes in future (3) Technical Analysis. Giving Institute (ANSI); or American Society of related operations and maintenance costs. consideration to the interactions among the Agricultural and Biological Engineers (iv) Describe explicitly how outcomes will potential improvements and the current (ASABE)_S162 Standard for performing on be measured. energy system(s), provide the information farm Energy Audits will be considered by the (3) Technical Analysis. Give consideration specified in paragraphs (3)(i) through (iii) of Agency to be acceptable audits. to the interactions among the potential this appendix. improvements and the current energy (i) For the most recent 12 months, or an Section A. Project Information system(s). average of 2, 3, 4, or 5 years, prior to the date Describe how all the improvements to or (i) For the most recent 12 months, or an the application is submitted, provide both replacement of an existing building and/or average of 2, 3, 4, or 5 years, prior to the date the total amount and the total cost of energy equipment meet the requirements of being the application is submitted, provide both used for the original building and/or Commercially Available. Describe how the the total amount and the total cost of energy equipment, as applicable, for each design, engineering, testing, and monitoring used for the original building and/or improvement identified in the potential are sufficient to demonstrate that the equipment, as applicable, for each project. In addition, provide for each proposed project will meet its intended improvement identified in the potential improvement identified in the potential purpose, ensure public safety, and comply project. In addition, provide for each project an estimate of the total amount of with applicable laws, regulations, improvement identified in the potential energy that would have been used and the agreements, permits, codes, and standards. project an estimate of the total amount of total cost that would have been incurred if Describe how all equipment required for the energy that would have been used and the the proposed project were in operation for EEI(s) is available and able to be procured total cost that would have been incurred if this same time period. and delivered within the proposed project the proposed project were in operation for (ii) Document baseline data compared to development schedule. In addition, present this same time period. projected consumption, together with any

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explanatory notes on source of the projected lands cannot be used as a higher value wood- Purchase Agreements are necessary for all consumption data. When appropriate, show based product. Renewable Energy projects electrically before-and-after data in terms of interconnected to the utility grid. consumption per unit of production, time, or Section C. Project Economic Assessment area. Describe the projected financial Section C. Resource Assessment (iii) Provide an estimate of Simple performance of the proposed project. The Describe the quality and availability of the Payback, including all calculations, description must address Total Project Costs, renewable resource and the amount of documentation, and any assumptions. energy savings, and revenues, including Renewable Energy generated through the (4) Qualifications of the Assessor. Provide applicable investment and other production deployment of the proposed system. For all the qualifications of the individual or entity incentives accruing from Government Bioenergy Projects, except Anaerobic that completed the assessment. If the Energy entities. Revenues to be considered shall Digesters Projects, complete Section C.3 of Assessment for a project with Total Project accrue from the sale of energy, offset or this appendix. For Anaerobic Digester Costs of $80,000 or less is not conducted by savings in energy costs, byproducts, and Projects, complete Section C.6 of this Energy Auditor or Energy Assessor, then the green tags. Provide an estimate of Simple appendix. individual or entity must have at least 3 years Payback, including all calculations, (1) Wind. Provide adequate and of experience and completed at least five documentation, and any assumptions. appropriate data to demonstrate the amount Energy Assessments or Energy Audits on of renewable resource available. Indicate the Section D. Project Construction and similar type projects. source of the wind data and the conditions Equipment Information Section D. Qualifications of the wind monitoring when collected at the Describe how the design, engineering, site or assumptions made when applying Provide a resume or other evidence of the testing, and monitoring are sufficient to nearby wind data to the site. contractor or installer’s qualifications and demonstrate that the proposed project will (2) Solar. Provide adequate and experience with the proposed EEI meet its intended purpose, ensure public appropriate data to demonstrate the amount technology. Any contractor or installer with safety, and comply with applicable laws, of renewable resource available. Indicate the less than 2 years of experience may be regulations, agreements, permits, codes, and source of the solar data and assumptions. required to provide additional information in standards. Describe how all equipment (3) Bioenergy/Biomass Project. Provide order for the Agency to determine if they are required for the RES is available and able to adequate and appropriate data to qualified installer/contractor. be procured and delivered within the demonstrate the amount of renewable proposed project development schedule. In resource available. Indicate the type, Appendix D to Subpart D of Part 5001— addition, present information regarding Technical Reports for Renewable quantity, quality, and seasonality of the component warranties and the availability of Renewable Biomass resource, including Energy System (RES) Projects With spare parts. harvest and storage, where applicable. Where Total Project Costs of Less Than Section E. Qualifications of Key Service applicable, also indicate shipping or $200,000 but More Than $80,000 Providers receiving method and required infrastructure for shipping. For proposed projects with an Technical Reports for Renewable Energy Describe the key service providers, established resource, provide a summary of System (RES) Projects With Total Project including the number of similar systems the resource. Document that any and all Costs of Less Than $200,000 but More Than installed and/or manufactured, professional woody biomass feedstock from National $80,000 credentials, licenses, and relevant Forest System land or public lands cannot be experience. When specific numbers are not Provide the information specified in used as a higher value wood-based product. available for similar systems, estimations will Sections A through D for each technical (4) Geothermal Electric Generation. be acceptable. report prepared under this appendix. A Provide adequate and appropriate data to Renewable Energy Site Assessment may be demonstrate the amount of renewable used in lieu of Sections A through C if the Appendix E to Subpart D of Part 5001— Technical Reports for Renewable resource available. Indicate the quality of the Renewable Energy Site Assessment contains geothermal resource, including temperature, the information requested in Sections A Energy System (RES) Projects With flow, and sustainability and what conversion through C. In such instances, the technical Total Project Costs of $200,000 and system is to be installed. Describe any special report would consist of Section D and the Greater handling of cooled geothermal waters that Renewable Energy Site Assessment. may be necessary. Describe the process for Note: If the Total Project Cost for the RES Technical Reports for Renewable Energy determining the geothermal resource, project is $80,000 or less, this appendix does System (RES) Projects With Total Project including measurement setup for the not apply. Instead, for such projects, please Costs of $200,000 and Greater collection of the geothermal resource data. provide the information specified in Provide the information specified in For proposed projects with an established § 5001.307(e). Sections A through G for each technical resource, provide a summary of the resource report prepared under this appendix. Provide Section A. Project Description the resource assessment under Section C that and the specifications of the measurement Provide a description of the project, is applicable to the project. For hybrid setup. including its intended purpose and a projects, technical reports must be prepared (5) Geothermal Direct Generation. Provide summary of how the project will be for each technology that comprises the adequate and appropriate data to constructed and installed. Describe how the hybrid project. demonstrate the amount of renewable system meets the definition of Commercially resource available. Indicate the quality of the Available. Identify the project’s location and Section A. Qualifications of the Project Team geothermal resource, including temperature, describe the project site. Describe the project team, their flow, and sustainability and what direct use professional credentials, and relevant system is to be installed. Describe any special Section B. Resource Assessment experience. The description shall support handling of cooled geothermal waters that Describe the quality and availability of the that the project team key service providers may be necessary. Describe the process for renewable resource to the project. Identify have the necessary professional credentials, determining the geothermal resource, the amount of Renewable Energy generated licenses, certifications, and relevant including measurement setup for the that will be generated once the proposed experience to develop the proposed project. collection of the geothermal resource data. project is operating at its steady state For proposed projects with an established operating level. If applicable, also identify Section B. Agreements and Permits resource, provide a summary of the resource the percentage of energy being replaced by Describe the necessary agreements and and the specifications of the measurement the system. permits (including any for local zoning setup. If the application is for a Bioenergy Project, requirements) required for the project and the (6) Anaerobic Digester Project/Biogas. provide documentation that demonstrates anticipated schedule for securing those Provide adequate and appropriate data to that any and all woody biomass feedstock agreements and permits. For example, demonstrate the amount of renewable from National Forest System land or public Interconnection Agreements and Power resource available. Indicate the substrates

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used as digester inputs, including animal project. The description shall support that long as it is a legal rate. Interest rates wastes or other Renewable Biomass in terms the system will be designed, engineered, cannot be more than those rates the of type, quantity, seasonality, and frequency tested, and monitored so as to meet its lender customarily charges its borrowers of collection. Describe any special handling intended purpose, ensure public safety, and for non-guaranteed loans in similar of feedstock that may be necessary. Describe comply with applicable laws, regulations, the process for determining the feedstock agreements, permits, codes, and standards. In circumstances in the ordinary course of resource. Provide either tabular values or addition, identify that all major equipment is business. The Agency encourages each laboratory analysis of representative samples Commercially Available, including lender to use the secondary market and that include biodegradability studies to proprietary equipment, and justify how this pass interest-rate savings on to the produce gas production estimates for the unique equipment is needed to meet the borrower. project on daily, monthly, and seasonal basis. requirements of the proposed design. In (a) Different rates on guaranteed and If an anerobic digester project, identify the addition, information regarding component unguaranteed portion of the guaranteed type of operation (e.g., dairy, swine, layer, warranties and the availability of spare parts loan. It is permissible to have different must be presented. etc.), along with breed, herd population size interest rates on the guaranteed and and demographics, and the type of waste Section E. Project Development collection method and frequency information unguaranteed portions of the loan. available. For the biogas produced, identify Describe the overall project development (b) Variable interest rates. A variable the type of digester (e.g., mixed, plug-flow, method, including the key project interest rate must be an interest rate that attached film, covered lagoon, etc.), if development activities and the proposed is tied to a published base rate, as applicable, or the method of capture (landfill, schedule, including proposed dates for each published in a national or regional sewage waste treatment, etc.) and treatment. activity. The description shall identify each financial publication, and is agreed to Identify the system designer and determine significant historical and projected activity, by the Agency. the digester design assumptions such as the its beginning and end, and its relationship to (1) The variable interest base rate number and type of animals, the bedding the time needed to initiate and carry the activity through to successful project must be specified in the promissory type and estimated annual quantity used, the note along with any interest factors (e.g., manure and wastewater volumes, and the completion. The description shall address treatment of digester effluent (e.g., none, Applicant project development cash flow National Prime plus 1.0 percent). solids separation by screening, etc. with requirements. Details for equipment (2) The lender may adjust the variable details including use or method of disposal). procurement and installation shall be interest rate at different intervals during (7) Hydrogen Project. Provide adequate and addressed in Section F of this Appendix. the term of the loan, but not more often appropriate data to demonstrate the amount Applications should include a concise than quarterly. of renewable resource available. Indicate the development schedule with timelines for (3) The lender must incorporate, type, quantity, quality, and seasonality of the activities. within the variable rate promissory Renewable Biomass resource. For solar, Section F. Equipment Procurement and note, a provision for adjustment of wind, or geothermal sources of energy used Installation payment installments to fully amortize to generate hydrogen, indicate the renewable Describe the availability of the equipment the loan by its maturity date. resource where the hydrogen system is to be required by the system. The description shall (c) Multi-rates. When multi-rates are installed. Local resource maps may be used support that the required equipment is as an acceptable preliminary source of used, the lender must provide the available and can be procured and delivered renewable resource data. For proposed Agency with the overall effective within the proposed project development projects with an established renewable Interest rate for the entire loan. schedule. Describe the plan for site (d) Interest rate changes. Any change resource, provide a summary of the resource. development and system installation, (8) Hydroelectric/Ocean Energy Projects. including any special equipment in the base rate or fixed interest rate Provide adequate and appropriate data to requirements. In all cases, the system or between issuance of the conditional demonstrate the amount of renewable improvement shall be installed in commitment and the issuance of the resource available. Indicate the quality of the conformance with manufacturer’s loan note guarantee must be approved resource, including temperature (if specifications and design requirements, and by the Agency. Approval of such a applicable), flow, and sustainability of the comply with applicable laws, regulations, change must be shown as an resource, including a summary of the agreements, permits, codes, and standards. resource evaluation process and the amendment to the conditional specifications of the measurement setup and Section G. Operations and Maintenance commitment and must be reflected on the date and duration of the evaluation Describe the operations and maintenance the guaranteed loan closing report form. process and proximity to the proposed site. requirements of the system, including major If less than 1 year of data is used, a Qualified § 5001.402 Term length, loan schedule, rebuilds and component replacements and repayment. Consultant must provide a detailed analysis necessary for the system to operate as of the correlation between the site data and designed over its useful life. The warranty (a) Term length. The lender, with a nearby, long-term measurement site. must cover and provide protection against Agency concurrence, will establish and (9) Renewable Energy Systems with Storage both breakdown and a degradation of justify the guaranteed loan term based Components. Provide adequate and performance. The performance of the RES or on the use of guaranteed loan funds, the appropriate data to demonstrate the amount EEI shall be monitored and recorded as useful economic life of the assets being of renewable resource available. Indicate the appropriate to the specific technology. financed and those used as collateral, type, quantity, quality, and seasonality of the Renewable Energy resource, where and the borrower’s repayment ability. Subpart E—Loan and Guarantee The maximum term allowable for final applicable. Indicate the storage system Provisions specifications and the integrity of the system guaranteed loan maturity is limited to in conjunction with the renewable energy Loan Provisions the justified useful life of the project or system it is integrated with, including assets used as collateral but may not application, size, lifetime, response time, § 5001.401 Interest rate provisions. exceed 40 years or limitations in the capital and maintenance costs associated Interest rates, interest rate caps, and applicable State statute, whichever is with the operation as well as the distribution incremental interest rate adjustment less. of the stored resource(s). limitations on a guaranteed loan are (b) Guaranteed loan schedule and Section D. Design and Engineering negotiated between the Lender and the repayment. The lender must structure Describe the intended purpose of the borrower. The interest rate for a repayment in consideration of the project and the design, engineering, testing, guaranteed loan can be either fixed or borrower’s cash flow and in accordance and monitoring needed for the proposed variable, or a combination thereof, as with the provisions of this section and

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the loan agreement. Scheduled balance of any existing CF guaranteed annual guarantee percentages each fiscal guaranteed loan payments shall be made loans, and any new CF guaranteed loan year by publishing a document in the no less frequently than annually. In that is the subject of an application must Federal Register in accordance with addition: not exceed $100 million. § 5001.10. (1) Both the guaranteed and (b) WWD projects. The maximum unguaranteed portions of the loan must amount of a WWD guaranteed loan that § 5001.408 Participation or assignment of guaranteed loan. be amortized over the same term. may be made to a borrower, including (2) Guaranteed loans must require a the guaranteed and unguaranteed (a) General. The lender may periodic payment schedule that will portions of any WWD guaranteed loans, participate or assign all or part of the retire the debt over the term of the loan the outstanding principal and interest guaranteed portion of the guaranteed without a balloon payment. balance of any existing WWD loan on the secondary market subject to (3) If the promissory note provides for guaranteed loans, and any new WWD the conditions specified in paragraphs an interest-only period, interest must be guaranteed loan that is the subject of an (a)(1) through (5) of this section or retain paid at least annually starting on a date application must not exceed $50 the entire guaranteed loan. that is no more than one year from the million. (1) Participation. The lender may date of the promissory note. The first (c) B&I projects. The maximum total obtain participation in the loan under full payment on the guaranteed loan amount of B&I guaranteed loans its normal operating procedures; including principal and interest must be (including the guaranteed and however, the lender must retain title to due and payable within three years from unguaranteed portions of any B&I and possession of the promissory note(s) the date of the promissory note or as guaranteed loans, the outstanding and retain the lender’s interest in the soon as the project is operational and principal and interest balance of any collateral. has begun to generate income, existing B&I guaranteed loans, and any (2) Assignment. Any sale or whichever occurs first. new B&I guaranteed loan that is the assignment by the lender of the (4) There must be no ‘‘due-on- subject of an application) that may be guaranteed portion of the loan must be demand’’ clauses without cause. made to a borrower is limited to a accomplished in accordance with the Regardless of any ‘‘due-on-demand’’ maximum amount of $25 million. The conditions in the lender’s agreement with cause provision in a lender’s Secretary, whose authority may not be and the provisions of this section. The promissory note, the Agency must redelegated, may approve, at the holders and the borrower have no rights concur in any acceleration of the Secretary’s discretion, guaranteed loans or obligations to one another. (3) Minimum retention by the lender. guaranteed loan unless the basis for in excess of $25 million and up to $40 Minimum retention at all times must be acceleration is monetary default. million for rural cooperatives that process value-added agricultural from the unguaranteed portion of the § 5001.403 Lender fees. commodities in accordance with loan and cannot be participated to (a) The lender may charge the § 5001.105(b)(18)(i). another person. borrower reasonable, routine, and (d) REAP projects. The amount of a (i) The lender must hold a minimum customary charges and fees for the guaranteed loan that will be made of 7.5 percent of the total loan amount. guaranteed loan provided they are available to an eligible project and (ii) The lender must retain its security similar to those charges the lender borrower under this part will be at least interest in the collateral and retain the assesses other borrowers for the same $5,000 not to exceed 75 percent of servicing responsibilities for the type of loan not subject to a loan eligible project costs. guaranteed loan. guarantee. The lender must document (1) The maximum total amount of (iii) The Agency can approve a such fees in the application. The lender REAP guaranteed loans made to a reduction of the minimum retention may also charge routine and customary borrower, including the guaranteed and requirement below the applicable prepayment penalties and late payment unguaranteed portions of all REAP percentage on a case-by-case basis when fees for the guaranteed loan, which must guaranteed loans, the outstanding the lender establishes to the Agency’s be stated in the guaranteed loan principal and interest balance of any satisfaction that reduction of the documents. existing REAP guaranteed loans and the minimum retention percentage is (b) Default charges, penalty interest, new REAP guaranteed loan that is the necessary to meet compliance with the late payment fees, and additional subject of an application, must not lender’s regulatory authority. (4) Prohibition. The lender must not interest expenses are not covered by the exceed $25 million. sell or participate any amount of the loan note guarantee and cannot be (2) The total amount of funds guaranteed or non-guaranteed portion of added to the principal or Interest due available to agricultural producers for the loan to the borrower, to members of under any loan note guarantee in the energy efficient equipment and systems the borrower’s immediate families, the event of a loss claim as prescribed in will not exceed 15 percent of annual borrower’s officers, directors, § 5001.521or a repurchase as prescribed funds available to the program. stockholders, other owners, or to a in § 5001.511. § 5001.407 Percentage of loan guarantee. parent company, an affiliate, or a §§ 5001.404–5001.405 [Reserved] The percent of loan guaranteed may subsidiary of the borrower. vary from program to program. The (5) Secondary market. The lender § 5001.406 Guaranteed loan amounts. maximum guarantee is 90 percent of must properly close their loan and fully Applicable guaranteed loan amounts eligible guaranteed loan loss The disburse loan funds for the purposes depend on the type of project and the Agency will set annually a guarantee intended prior to sale of the promissory source of its funding. percentage by program that will apply to note(s) or loan note guarantee on the (a) CF projects. The maximum amount loans guaranteed within each program. secondary market. The lender can sell of a CF guaranteed loan that may be The annual guarantee percentage will all or part of the guaranteed portion of made to a borrower, including the take current Federal credit policy into the loan only if the loan is not in guaranteed and unguaranteed portions consideration and may be set at or default. of any CF guaranteed loans, the below the maximum allowed authorized (b) Lender’s servicing fee to holder. outstanding principal and interest by statute. The Agency will announce The assignment guarantee agreement

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must clearly state the guarantee portion (6) The Agency will not reissue a collateral may be considered on a case- of loan as a percentage and duplicate assignment guarantee by-case basis and must be approved by corresponding dollar amount of the agreement unless: the Agency. The minimum security guaranteed portion of the guaranteed (i) The original was lost, stolen, taken for the purchase of cooperative loan it represents and the lender’s destroyed, mutilated, or defaced; and stock includes a lien on the stock servicing fee. The lender must maintain (ii) The reissue is made in accordance acquired with loan funds, an assignment a minimum servicing fee of 50 basis with § 5001.459. of any patronage refund and personal or points from any holder. The lender (e) Rights and liabilities. When a corporate guarantees. cannot charge the Agency a servicing fee guaranteed portion of a loan is sold to (2) The lender must remain mortgagee and servicing fees are not eligible a holder using an assignment guarantee and secured party of record expenses for loss claim. agreement, the holder succeeds to all notwithstanding the fact that another (c) Distribution of proceeds. The rights of the lender under the loan note party may hold a portion of the lender must apply all loan payments guarantee to the extent of the portion guaranteed loan. and collateral proceeds received to the purchased. The full, legal interest in the (3) The lender will receive all guaranteed and unguaranteed portions promissory note must remain with the payments of principal and interest on of the loan on a pro rata basis. If lender, and the lender remains bound to account of the entire guaranteed loan multiple types of Agency guaranteed all obligations under the loan note and must promptly remit to each holder loans exist for the same project, these guarantee, lender’s agreement, and and participant, if any, its pro rata share will also be paid on a pro rata basis. Agency regulations applicable to the of any payment within 30 days of the (d) Promissory note(s). A loan note guarantee. lender’s receipt thereof from the guarantee is issued to the lender for a (1) A guarantee and right to require borrower. Holder or participant specific promissory note(s) executed purchase in accordance with § 5001.511 payments are determined according to between the lender and the borrower. will be directly enforceable by a Holder their respective interest in the The lender must retain title to and notwithstanding any fraud or guaranteed loan, less only the lender’s possession of the guaranteed promissory misrepresentation by the lender or any servicing fee. note(s), retain the lender’s interest in the unenforceability of the loan guarantee (4) Any claim against a loan note collateral, and retain the servicing by the lender, except for fraud or guarantee or assignment guarantee responsibilities for the guaranteed loan. misrepresentation of which the holder agreement that is attached to, or relating The lender is prohibited from issuing had actual knowledge at the time it to, a promissory note that provides for any additional promissory notes at a became the holder or in which the payment of interest-on-interest, default later date for the same guaranteed loan. holder participates or condones. charges, penalty interest, or late (1) The lender may assign all or part (2) The lender must not represent a payment fees will be reduced to remove of the guaranteed portion of the loan, conditional commitment of guarantee as such interest, fees and charges. including interest strips, to one or more a loan guarantee. (5) The loan note guarantee is holders by using an assignment (3) The lender must reimburse the unenforceable by the lender to the guarantee agreement for each holder. Agency for any payments the Agency extent that any loss is occasioned by: The lender must complete and execute makes to a holder on the lender’s behalf (i) The violation of usury laws; the assignment guarantee agreement and under the loan note guarantee, given the (ii) Use of guaranteed loan funds for return it to the Agency for execution lender would not be entitled to the unauthorized loan purposes in prior to holder execution. payments had they retained the entire accordance with § 5001.122 or to the (2) The lender or holder may request interest in the loan. extent that those funds are used for a certificate of incumbency and purposes other than those specifically signature from the Agency. §§ 5001.409–5001.449 [Reserved] approved by the Agency in its (3) A holder, upon written notice to Guarantee Provisions conditional commitment or amendment the lender and the Agency, may reassign thereof; the unpaid guaranteed portion of the § 5001.450 General. (iii) Failure to obtain, perfect, loan, in full, sold under the assignment (a) Full faith and credit. A loan note document, and or maintain the required guarantee agreement. Holders can only guarantee issued under this part collateral or security position regardless reassign the complete block they have constitutes an obligation supported by of the time at which the Agency received and cannot subdivide or the full faith and credit of the United acquires knowledge thereof; and further split their interest in the States and is incontestable except for (iv) Negligent loan origination or guaranteed portion of a loan or retain an fraud or misrepresentation of which a negligent loan servicing as determined interest strip. lender or holder has actual knowledge and documented by the Agency. (4) Upon notification and completion at the time it becomes such lender or (6) The Agency will guarantee of the assignment through the use of the holder, or which a lender or holder payment as follows: assignment guarantee agreement, the participates in or condones. (i) To any holder, 100 percent of any assignee succeeds to all rights and (b) Conditions of guarantee. A loss sustained by the holder on the obligations of the holder thereunder. guaranteed loan under this part will be guaranteed portion of the guaranteed Subsequent assignments require notice evidenced by a loan note guarantee loan it owns and on interest due (as to the lender and Agency using any issued by the Agency. determined under paragraph (g) of this format, including that used by the (1) The entire loan must be secured by section) on such portion less any Securities Industry and Financial the same collateral with equal lien outstanding servicing fee. Markets Association (formerly known as priority for the guaranteed and (ii) To the lender: Any loss sustained the Bond Market Association), together unguaranteed portions of the loan. The by the lender on the guaranteed portion with the transfer of the original unguaranteed portion of the guaranteed of the guaranteed loan, including assignment guarantee agreement. loan will neither be paid first nor given principal and interest (as determined (5) The Agency will not execute a new any preference or priority over the under paragraph (c) of this section) assignment guarantee agreement to guaranteed portion. A parity or junior evidenced by the promissory note(s) or affect a subsequent reassignment. lien position in the guaranteed loan assumption agreements entered into in

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connection with an Agency approved Agency written concurrence in of the conditional commitment. If a transfer and assumption, and secured accordance with paragraph (c) of this conditional commitment expires, the advances for protection and section. Agency will notify the lender in writing preservation of collateral made with the (2) If the lender decides at any time and may de-obligate the funds. Any Agency’s authorization if applicable. after receiving a conditional additions or modifications to conditions (c) Accrued interest payments. If a commitment that it no longer wants a stated in the original conditional loan has been guaranteed by the Agency loan guarantee, the lender must commitment must be agreed upon prior to October 1, 2020, the Agency immediately advise the Agency of the between the lender, the borrower, and will guarantee the lender and any cancellation in writing. Upon written the Agency. holders accrued interest in accordance notification from the lender, the Agency with the applicable regulations in effect will de-obligate the funds associated § 5001.452 Loan closing and conditions for the respective program at the time with the conditional commitment. precedent to issuance of loan note guarantee. the loan was guaranteed. For all (b) Content. The conditional guaranteed loans closed on or after commitment will address information (a) The lender must not close the October 1, 2020, the Agency will required for issuing a loan note guaranteed loan until all conditions of guarantee accrued interest in guarantee, including but not limited to: the conditional commitment are met. accordance with paragraph (c)(1) or (2), (1) Approved use of guaranteed loan (b) Simultaneously with or as applicable, of this section. funds (source and use of funds); immediately after the guaranteed loan (1) If the lender owns all or a portion (2) Rates and terms of the loan; closing, the lender must provide to the of the guaranteed portion of the (3) Loan agreement requirements; Agency the guarantee fee, any secondary guaranteed loan or makes a protective (4) Loan closing requirements; market sale documents, and the advance, the Agency, in its sole (5) Lender and borrower following forms and documents: discretion, may cover interest on the certifications; (1) An Agency-approved, ‘‘Guaranteed guaranteed portion for the 90 days from (6) Collateral and lien position Loan Closing Report’’; the most recent delinquency effective requirements; and (2) A copy of each executed (7) Other requirements necessary to date, and up to a total of 180 days, only promissory note and collateral security protect the Agency. if: documents; (i) The lender, and not the Agency, (c) Change requests. The lender can (3) A copy of the executed final loan has repurchased all holder interests in request, in writing, changes to the agreement, which must include any the guaranteed loan in accordance with conditional commitment with additional requirements imposed by the § 5001.511; justification. The Agency can deny, Agency in the conditional commitment; (ii) The lender is actively engaged in solely at its discretion, changes to the (4) The original, executed Agency- a credit resolution with the borrower to conditional commitment even if the approved guarantee form(s) for any bring the account current or fully changes are otherwise in compliance required personal, partnership or liquidate the collateral under the terms with this part. All changes to the corporate guarantees; of a liquidation plan approved by the conditional commitment must be (5) The borrower’s loan closing Agency; and documented by written amendment to balance sheet, if required; (iii) Concurrence for inclusion of the the conditional commitment executed (6) For loans to public bodies, an extended period of interest to the lender by all parties. opinion from recognized bond counsel is received from the Agency. (d) Acceptance or withdrawal of regarding the adequacy of the (2) If the guaranteed loan has one or conditional commitment. The lender preparation, issuance, and more holders, the lender will issue an and borrower must complete and sign enforceability of the debt instruments; interest termination letter to each holder the conditional commitment and return (7) Any other documents required to establishing the termination date for a copy to the Agency within 60 days. If comply with applicable law or required interest accrual. The loan note guarantee the conditional commitment is not by this part, the conditional will not cover interest to any holder accepted by both the lender and commitment or the Agency; and accruing after 90 days from the date of borrower within 60 days, the (8) When requesting issuance of a the interest termination letter. The conditional commitment becomes null loan note guarantee, the lender must Agency at its sole discretion may notify and void and the Agency will withdraw certify to each condition identified in each holder of the interest termination the conditional commitment and de- paragraphs (b)(8)(iii)(A) through (V) of provisions if it is determined that lender obligate the associated funds. this section, as applicable. correspondence to holders is in- (e) Modification, and expiration of (i) In making its certification, the adequate. conditional commitment. The lender can rely on certain written conditional commitment issued by the materials (e.g., certifications, § 5001.451 Conditional commitment. Agency will be effective for a period of evaluations, appraisals, financial (a) Issuance. Upon selection of an 1 year or sufficient time to complete the statements, and other reports) provided application in accordance with guaranteed loan project prior to loan by the borrower or other qualified third § 5001.315 in subpart D, the Agency will closing. The lender must submit a parties (e.g., independent engineers, issue a conditional commitment to the written request to the Agency to extend appraisers, accountants, attorneys, lender, to be accepted by the lender and the conditional commitment at least 30 consultants, or other experts). the borrower, containing conditions days prior to its expiration date and (ii) If the lender is unable to provide under which the Agency will issue a obtain Agency approval for the any of the certifications required under loan note guarantee. extension. The Agency will consider this section, the lender must provide an (1) Upon acceptance of the this request only if no major changes explanation satisfactory to the Agency. conditional commitment, the lender have been made in the lender’s loan (iii) The lender may request the loan agrees not to modify the scope of the conditions and requirements and no note guarantee prior to construction in project, overall facility concept, project material adverse changes in the accordance with this part; however, the purpose, use of guaranteed loan funds, borrower or the borrower’s financial lender must still certify to all applicable or other terms and conditions without condition have occurred since issuance conditions of this paragraph (b)(8)(iii).

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(A) All requirements of the exceeded the amount approved by the interest in the borrower or is an officer conditional commitment have been met. lender and the Agency. or director of the borrower, and neither (B) The financial criteria specified in (H) The proposed project complies the borrower nor its officers, directors, § 5001.303(b)(4) of this part and any with all current Federal, State, and local stockholders, or other owners have more financial criteria contained in the laws and regulatory rules that affect the than a 5 percent ownership interest in conditional commitment were: project, the borrower, and lender the lender. (1) Determined in accordance with activities, including, but not limited to, (R) The loan agreement includes all any applicable requirements in § 5001.9 equal opportunity and Fair Housing Act borrower compliance measures of this part, and requirements and design and identified in the Agency’s (2) Have been maintained through the construction requirements. environmental review for avoiding or issuance of the loan note guarantee. (I) Lender-required insurances are in reducing adverse environmental Failure to maintain or attain the effect. impacts of the project’s construction or minimum financial criteria will result in (J) All truth-in-lending and equal operation. the Agency not issuing a loan note credit opportunity requirements have (S) The lender will comply with the guarantee. been met. requirements of the Debt Collection (C) No major changes have been made (K) The borrower has marketable title Improvement Act. in the applicant, project or lender’s loan to the collateral then owned by the (T) The lender has executed and conditions and requirements since the borrower, subject to the rights of the delivered the lender’s agreement, issuance of the conditional guaranteed loan and to any other completed registration in the Agency’s commitment, unless such changes have exceptions approved in writing by the electronic reporting system, and been approved by the Agency. Agency. electronically submitted the closing (D) There has been neither any (L) Where required, necessary or report for the guaranteed loan along material adverse change in the prudent, the borrower has obtained— with the appropriate guarantee fee. borrower’s financial condition nor any (1) A legal opinion relative to the title (U) For all RES and EEI projects, the other material adverse change in the and accessibility to any rights-of-way lender must provide certification that borrower during the period of time from and easements; and the project has been performing at a the Agency’s issuance of the conditional (2) A title opinion or title insurance steady state operating level in commitment to issuance of the loan note showing the borrower has good and accordance with the technical guarantee regardless of the cause or marketable title to real property and requirements, plans, and specifications. causes of the change and whether or not other collateral and all mortgages or Any modification to the 30-day steady the change or causes of the change were other lien defects, restrictions, or state operating level requirement will be within the lender’s or borrower’s encumbrances, if any. based on the Agency’s review of the control. (M) All project funds have been or technical report or vendor certification (1) The borrower is a legal entity in will be disbursed for purposes and in and will be incorporated into the good standing with its regulator (as amounts consistent with the conditional conditional commitment. applicable) and operating in accordance commitment (or Agency-approved (V) For CF and WWD projects, the with the laws of the State(s) or Tribe amendment thereof) and the application lender must also certify that the lender where the borrower was organized or submitted to the Agency. Appropriate would not make the loan without an has a place of business. lender controls were used to ensure that Agency loan guarantee. (2) The borrower meets the eligibility all funds were properly disbursed, (c) For RES projects where applicable, requirements as outlined in including funds for working capital. A the lender must provide to the Agency § 5001.126(a) and (b) through (e), as copy of a settlement statement by the a copy of the executed power purchase applicable. lender detailing the use of loan and agreement. (E) There is a reasonable prospect that matching/equity funds must be attached (d)(1) For all CF projects before the the guaranteed loan and other project to support this certification. Agency will issue a loan note guarantee debt will be repaid on time and in full (N) When applicable, the entire on a guaranteed loan to a borrower other (including interest) from project cash amount of the loan for working capital than a public body, the articles of flow according to the terms proposed in or initial operating expenses have been incorporation or other organizing the application. disbursed to the borrower, except in documents of the borrower or the loan (F) The guaranteed loan has been cases where the Agency has approved agreement must include a condition properly closed, and the required disbursement over an extended period similar to the following: security instruments have been properly of time and funds are escrowed so that (2) If the corporation dissolves or executed and all security interests the settlement statement reflects the full ceases to perform the community obtained by the lender have been or will amount to be disbursed. facility objectives and functions, the be properly perfected in accordance (O) When required, personal and/or board of directors shall distribute all with applicable law. corporate guarantees have been obtained business property and assets to one or (G) All planned property acquisition in accordance with § 5001.204 of this more nonprofit corporations or public has been or will be completed; all part. bodies. This distribution must be development has been or will be (P) Lien priorities are consistent with approved by 75 percent of the users or substantially completed in accordance the requirements of the conditional members and must serve the public with plans and specifications and commitment. No claims or liens of welfare of the community. The assets conforms to applicable Federal, State, laborers, subcontractors, suppliers of may not be distributed to any members, and local codes; all equipment required machinery and equipment, directors, stockholders, or others having for the project is available, can be materialmen, or other parties have been a financial or managerial interest in the procured and delivered within the filed against the collateral and no suits corporation. Nothing herein shall project development schedule, and will are pending or threatened that would prohibit the corporation from paying its be installed in conformance with adversely affect the collateral. debts. manufacturer’s specifications and (Q) Neither the lender nor any of the (e) For all B&I projects a borrower design requirements; and costs have not lender’s officers has an ownership whose project involves locally or

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regionally produced agricultural food the Agency for a partial cancellation. (iii) Is in a persistent poverty county. products and is not located in a rural The lender must include in this request A persistent poverty county is any area must include in an appropriate the reason for the partial cancellation, county that has had 20 percent or more agreement with retail and institutional the effective date, and the portion to be of its population living in poverty over facilities to which the borrower sells canceled. If the Agency conditions for the past 30 years, as measured by the locally or regionally produced issuance of the loan note guarantee are 1990 and 2000 decennial census and agricultural food products a requirement rejected, cannot be met or funds are, in 2007–2011 American Community to inform consumers of the retail or whole or in part, no longer needed, the Survey 5-year average, or any territory institutional facilities that the Agency will cancel the obligation. or possession of the United States; consumers are purchasing or consuming (iv) Is in a presidentially declared locally or regionally produced § 5001.454 Guarantee fee. disaster area, declared within the 24 agricultural food products. The guarantee fee is a one-time, non- months preceding the date of the refundable fee paid by the lender to the application, and is experiencing trauma § 5001.453 Issuance of the loan note Agency at or before loan closing and is as a result of natural disaster; guarantee. required to be paid before the Agency (v) Is located in a city, county, or state The Agency, at its sole discretion, will will issue the loan note guarantee. The with an unemployment rate, as determine if the conditions specified in lender may pass the guarantee fee on to determined by the Department of Labor, the conditional commitment have been the borrower. 125 percent or greater of the current met and whether to issue the loan note (a) Guarantee fee calculation. The national rate; or guarantee. one-time guarantee fee is calculated by (vi) Is located within the boundaries (a) Issuance. When the Agency is multiplying the total loan amount by the of a federally recognized Indian tribe’s satisfied that all of the conditions percentage of guarantee by the guarantee reservation or within Tribal trust lands specified in the conditional fee rate, which may vary by program. or within land owned by an Alaska commitment have been met and it (b) Guarantee fee rates. The guarantee Native Regional or Village Corporation receives all the required fees plus the fee rate is established by the Agency in as defined by the Alaska Native Claims executed lender’s agreement from the an annual document published in the Settlement Act. lender, the Agency will issue the Federal Register. While the fee rate may (2) Processes, distributes, aggregates, documents identified in paragraphs vary annually, they will not exceed the stores, and/or markets locally or (a)(1) through (3) of this section, as limits in table 1: regionally produced agricultural food appropriate. products and promotes access to healthy (1) Loan note guarantee. The Agency TABLE 1 TO § 5001.454(b)— foods; will provide the lender the original loan GUARANTEE FEE (3) Is locally owned and managed, note guarantee document which the and either lender must attach to the promissory Maximum (i) Supports value-added agriculture note. If the lender elected to use the guarantee fee and provides a market for locally or multi-note system, the Agency will (percent) regionally produced agricultural food issue an original loan note guarantee for product; or each promissory note. Community Facilities ...... 4 (ii) Produces a natural resource value- (2) Assignment guarantee agreement. Water and Waste Disposal ... 3 Business and Industry ...... 5 added product/manufactures a product If the lender assigns any guaranteed from a natural resource. portion of a guaranteed loan to a holder, Rural Energy for America Program ...... 3 (4) Is part of a strategic economic the lender, holder, and the Agency will development and community execute an assignment guarantee (c) Loan note guarantee prior to development plan on a multi- agreement for each assignment. completion. If the loan note guarantee is jurisdictional and multi-sectoral basis in (3) Certificate of incumbency and accordance with Section 6401 of the signature. The Agency will provide the issued prior to completion of the project’s construction under Agricultural Improvement Act of 2018 lender an executed certificate of (Pub. L. 115–334); or incumbency form to verify the signature § 5001.205(e)(2), an additional guarantee fee of 0.50 percent will be added. This (5) Provides an additional market for and title of the Agency official who existing local businesses by purchasing signs the loan note guarantee, lender’s additional 0.50 percent fee may not be passed on to the borrower. substantial amounts of products or agreement, and assignment guarantee services from, selling product to, or agreement. (d) Reduced fee. Subject to annual limits set by the Agency and published providing services to existing local and (b) Agency review of closing. The regional businesses. Agency will review the closing in an annual Federal Register documents submitted by the lender for document, the Agency may charge a § 5001.455 Periodic guarantee retention completeness and if all conditions have reduced guarantee fee if requested by fee. been met and all documents have been the lender when the borrower’s project The Agency will collect a periodic provided, the Agency will issue the loan meets any one of the following criteria: guarantee retention fee from the lender note guarantee. If the Agency (1) Is located in a rural community for as long as the loan note guarantee is determines that it cannot issue the loan that— outstanding in accordance with the note guarantee, the Agency will notify (i) Is a distressed community in annual notice published in the Federal the lender, in writing, of the reasons and accordance with the Economic Register in accordance with § 5001.10. give the lender a reasonable period Innovation Group distressed community Payment of the periodic guarantee within which to satisfy the objections. If index. The list can be found on the retention fee is required to maintain the the lender satisfies the objections within Agency’s website at: https:// validity of the loan note guarantee. The the time allowed, the Agency will issue www.rd.usda.gov/onerdguarantee; lender may pass the fee on to the the loan note guarantee. (ii) Is experiencing long-term borrower but may not delay payment of (c) Cancellation of obligation. A population decline according to the last the fee to the Agency while collecting lender can submit a written request to three decennial censuses; the payment from the borrower. The fee

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rates may differ by program as the conditional commitment specific to § 5001.458 Other Federal, State, and local published annually in a document in the project as issued to the lender at the requirements. the Federal Register in accordance with time approval. Beginning on the date of issuance of § 5001.10. The annual Federal Register (a) Until the loan note guarantee is the loan note guarantee, lenders and notification will include the frequency canceled by the Agency, any delinquent borrowers must— of payment for the fees. fees will bear interest at the promissory (a) Coordinate with all appropriate (a) Calculation. The guarantee note rate. Federal, State, local and Tribal agencies retention fee is calculated by that may have jurisdiction or multiplying the full outstanding (b) Lenders are prohibited from involvement in each project; and principal guaranteed loan balance as of selling any portion of the guaranteed (b) Comply with all current Federal, a date(s) as published in the annual loan on the secondary market if there State, local, and Tribal laws and rules, Federal Register notification, by the are unpaid fees. as well as applicable regulatory percentage of guarantee, by the fee rate commission rules, that affect the project, § 5001.457 Changes prior to loan closing. as noted in the guaranteed loan the borrower, or lender. Compliance conditional commitment. (a) Change in borrower prior to activities include, but are not limited (b) Effective fee rate. The effective closing. Any change in borrower to— guarantee retention fee rate that is ownership or organization prior to the (1) Organization and borrower’s published in a Federal Register issuance of the loan note guarantee must authority to design, construct, develop, document in accordance with § 5001.10 meet the applicable guaranteed operate, and maintain the proposed at the time the guaranteed loan is program’s eligibility requirements and facilities; obligated will be noted in the guarantee must be approved by the Agency. (2) Borrowing money, giving security, loan conditional commitment and the (b) Transfer to new lender prior to and raising revenues for repayment; fee will remain in effect for the life of (3) Land use zoning; issuance of the loan note guarantee. the loan note guarantee. (4) Health, safety, and sanitation Prior to issuance of the loan note (c) Payments. The guarantee retention standards as well as design and guarantee, a lender can request a fee payment frequency and related due installation standards; and date provisions will be published in the transfer of an outstanding conditional (5) Protection of the environment and annual Federal Register notification. commitment to a new lender by consumer affairs. (1) Guarantee retention fee payments providing the Agency with a letter from not received within 60 days after their the lender, the borrower, and the § 5001.459 Replacement of loan note due date are considered delinquent and, proposed new lender. The request must guarantee and assignment guarantee agreement. at the Agency’s discretion, may result in include the reason(s) the current lender cancellation of the loan note guarantee no longer desires to be the lender for the If a loan note guarantee or assignment to the lender. The Agency will provide project. guarantee agreement has been lost, the lender 30 calendar days’ written (1) The Agency may approve the stolen, destroyed, mutilated, or defaced notice that the fee is delinquent before transfer from the current lender to the while in the custody of the lender or canceling the loan note guarantee. proposed new lender provided the new holder, the Agency may issue a Holders’ rights will continue in effect as proposed lender is an eligible lender replacement to the lender or holder, as specified in the loan note guarantee and (see paragraph (b)(2) of this section) and applicable under the conditions assignment guarantee agreement, unless no material adverse changes have described in paragraphs (a) through (c) of this section. The lender is prohibited the holder took possession of an interest occurred in the: in the loan note guarantee knowing from altering or modifying or approving (i) Ownership, control or legal any alterations to or modifications of guarantee retention fees had not been structure of the borrower; and paid. any loan documents without the prior (2) Until the loan note guarantee is (ii) Borrower’s written plan, scope of written approval of the Agency. canceled by the Agency, any delinquent work, or the purpose or intent of the (a) Replacement requirements. The periodic guarantee retention fee will Project. lender must coordinate the activities of the party who seeks the replacement bear interest at the promissory note rate. (2) The Agency will determine if the documents and must submit the (3) When the Agency repurchases 100 proposed new lender is eligible in required documents to the Agency for percent of the guaranteed portion of the accordance with § 5001.130 of this part processing. The requirements for guaranteed loan as prescribed in prior to approving the transfer of lender. replacement are as follows: § 5001.511(c), the Agency will The new lender must execute a new (1) A written statement of loss which discontinue collection of the periodic application form and a lender’s includes: guarantee retention fee. agreement (unless the new lender (d) Secondary market prohibition. (i) Legal name and present address of already has a valid lender’s agreement either the lender or the holder who is Lenders are prohibited from selling any with the Agency) and must complete a portion of the guaranteed loan on the requesting the replacement forms; new credit evaluation in accordance (ii) Legal name and address of the secondary market if there are unpaid with § 5001.202 of this part. The Agency periodic guarantee retention fees. lender of record; may require the new lender to provide (iii) Capacity of person certifying; § 5001.456 Other fees. other updated application items as (iv) Full identification of the loan note The Agency has the authority and specified by the Agency. guarantee or assignment guarantee may at its discretion charge additional (3) If the Agency approves the transfer agreement including the name of the fees in order to maintain adequate levels to the new lender, the Agency will issue borrower, the Agency’s case number, of program funding. Prior to the Agency a letter of amendment to the original date of the loan note guarantee or charging any additional fees, the Agency conditional commitment reflecting the assignment guarantee agreement, face will publish a notice of those fees in the new lender who must acknowledge amount of the promissory note in which Federal Register in accordance with acceptance of the amended conditional an interest was purchased, date of the § 5001.10. All fees will be disclosed in commitment in writing. promissory note, present balance of the

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guaranteed loan, percentage of terms cannot be changed. If the servicing responsibilities, the Agency guarantee, and, if an assignment promissory note has been lost, stolen, reserves the right to take any action the guarantee agreement, the original named destroyed, mutilated or defaced, such Agency determines necessary to protect holder and the percentage of the promissory note must be replaced before the Agency’s interests with respect to guaranteed portion of the guaranteed the Agency will replace any the guaranteed loan. If the Agency loan assigned to that holder. Any instruments. exercises this right, the lender must existing parts of the document to be cooperate with the Agency to rectify the replaced must be attached to the §§ 5001.460–5001.500 [Reserved] situation. certificate; Subpart F—Servicing Provisions (v) A full statement of circumstances § 5001.502 Oversight and monitoring. of the loss, theft, destruction, § 5001.501 General. The Agency will employ various defacement, or mutilation of the loan The lender is responsible for servicing oversight and monitoring activities in note guarantee or assignment guarantee the entire loan and taking all servicing order to ensure compliance with this agreement; and actions that a reasonably prudent lender part. All lenders involved in any (vi) For the holder, evidence would perform in servicing its own manner with any loan note guarantee demonstrating current ownership of the portfolio of loans that are not issued under this part or under a loan assignment guarantee agreement. If the guaranteed. The lender must certify that note guaranteed previously issued present holder is not the same as the it will service the guaranteed loan in under a guaranteed loan program original holder, the lender must include accordance with this part, its loan identified in § 5001.1 of this part must a copy of the endorsement of each servicing policies and procedures, and cooperate fully with the Agency in its successive holder in the chain of the lender’s agreement. Where a lender’s oversight and monitoring efforts, transfer from the initial holder to loan servicing policies and procedures including, but not necessarily limited present holder. If copies of the address a corresponding requirement in to, those identified in paragraphs (a) endorsement cannot be obtained, the this part or in the lender’s agreement, through (c) of this section. (a) Reports and notifications. Lenders lender must submit the best available the lender must comply the must submit to the Agency reports and records of transfer (e.g., order corresponding requirement in this part, notifications as required by this part. To confirmation, canceled checks, etc.). unless otherwise approved by the (b) Indemnity bond. An indemnity facilitate the Agency’s oversight and Agency. bond acceptable to the Agency must (a) A lender’s servicing monitoring including, but not accompany the request for replacement responsibilities include, but are not necessarily limited to, those identified except when the holder is the United limited to, in paragraphs (a)(1) through (4), as States, a Federal Reserve Bank, a (1) Periodic borrower visits; applicable, of this section. Federal Government corporation, a State (2) Distribution of guaranteed loan (1) Status reports. No less than semi- or territory, the District of Columbia or funds; annual status reports as of June 30 and a federally recognized tribal entity. The (3) Collecting payments on guaranteed December 31 each year (unless more indemnity bond must: loans; frequent reports are needed as (1) Be issued by a qualified surety (4) Ensuring compliance with the determined by the Agency to protect the company holding a certificate of covenants and provisions in the loan financial interests of the government) authority from the Secretary of the agreement, security instruments, and regarding the condition of the lender’s Treasury and listed in Treasury other supplemental agreements relating guaranteed loan portfolio (including Department Circular 570, except when to the guaranteed loan; borrower status and loan classification) the outstanding principal balance and (5) Obtaining and analyzing financial and any material change in the general accrued Interest due the present holder, statements; financial condition of any borrower in accordance with § 5001.450(c), is less (6) Ensuring payment of taxes and since the last report was submitted. The than $1 million as verified by the lender insurance premiums; lender must submit these reports within via a written letter of certification of (7) Maintaining liens and lien priority 30 calendar days after the reporting balance due; on collateral; period, using the appropriate Agency (2) Be issued and payable to the (8) Keeping an inventory of all online reporting system. United States of America acting through collateral items, and reconciling the (2) Default reports. Monthly default the Agency; inventory of all collateral sold during reports for each guaranteed loan in (3) Be in an amount not less than the guaranteed loan servicing, including monetary default using the appropriate unpaid principal and interest; and liquidation; Agency online reporting system are due (4) Hold the Agency harmless against (9) Obtaining Agency approvals or on the 15th working day of each month. any claim or demand that might arise or concurrence as required; and (3) Notifications. The lender(s) must against any damage, loss, costs, or (10) Cooperating fully with all notify the Agency by written expenses that might be sustained or oversight and monitoring efforts of the notification within 15 calendar days of incurred by reason of the loss or Agency or its representatives as any: replacement of the instruments. specified in § 5001.502. (i) Loan agreement violation by any (c) Multi-note system. Where the (b) The lender must remain mortgagee borrower, including when the borrower guaranteed loan was closed under the and secured party of record, is 30 days past due or is otherwise in provisions of the multi-note system, the notwithstanding the fact that another default of the covenants in the loan Agency will not attempt to obtain, or party may hold a portion of the loan. agreement; participate in the obtaining of, (c) The lender must ensure that the (ii) Permanent or temporary reduction replacement promissory notes from the borrower has obtained and will in the interest rate; borrower. The holder is responsible for maintain all necessary insurance (iii) Downgrade in the lender’s loan bearing the costs of promissory note coverage appropriate to the proposed classification of any guaranteed loan; replacement if the borrower agrees to project. and issue a replacement instrument. When (d) If the Agency determines that the (iv) Protective advances in accordance the promissory note is replaced, its lender is not in compliance with its with § 5001.516.

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(4) Collection activities report. If a circumstances affecting performance practices acceptable to the Agency as lender is liquidating the assets of a must be provided to the Agency along prescribed in § 5001.9 for all borrowers borrower, the lender must also evaluate with the actual energy production of the with a guaranteed loan balance in and provide a report of collection system (in BTUs, kilowatt-hours, or excess of $600,000. The lender may activities regarding the collectability of similar energy equivalents) and the determine the type and frequency of personal and corporate guarantees. actual number of jobs created or saved financial statements for borrowers with (b) Records—(1) Lenders. Upon as a direct result of the RES project for a total guaranteed loan balance below request by the Agency, the lender must which guaranteed loan funds were used. $600,000 upon notification and permit representatives of the Agency (or (b) Energy efficiency improvements. justification to the Agency. This section other authorized persons) to inspect and For EEI projects, commencing the first does not supersede the borrower make copies of any of the records of the full calendar year following the year in financial statement requirements of 2 lender pertaining to each guaranteed which project construction was CFR part 200, subpart F. loan issued under this part or completed and continuing for two full (d) The lender must analyze the previously issued under one of the years, the borrower must provide an financial statements obtained under programs identified in § 5001.1 of this outcome project performance paragraph (a) of this section and provide part. Such inspection and copying may certification noting that either the the Agency with a financial analysis be made during regular office hours of energy efficiency improvements have or including a credit evaluation of trends, the lender or at any other time the have not been utilized at or above the strength and weaknesses, ratio analysis, lender and the Agency agree upon. projected operating levels as described and conclusions, plus any extraordinary (2) Borrowers. Except as provided by in the technical report filed with the transactions; borrower violations of loan law, upon request by the Agency, the REAP guaranteed loan application, and covenants and covenant waivers borrower must permit representatives of whether projected jobs created or saved proposed by the lender, any routine the lender (or other authorized persons) have occurred. If it has not performed as servicing actions performed; and other to inspect and make copies of any of the intended, a report detailing the indications of the financial condition of records relating to the borrower’s circumstances affecting performance the borrower. project. Such inspection and copying must be provided to the Agency along (e) Following the Agency’s review of may be made during regular office hours with the actual energy savings of the the lender’s financial analysis, the of the borrower or at any other time system and the actual number of jobs Agency will notify the lender in writing agreed upon between the borrower and created or saved as a direct result of the of any concerns. The lender must the lender. EEI project for which guaranteed loan address each concern identified in the (c) Agency and lender conference. funds were used. Agency’s findings by the due date stated When requested by the Agency, the § 5001.504 Financial reports. in the correspondence. lender must consult with the Agency to (f) The lender should routinely ascertain how the guaranteed loan is (a) The lender must obtain the confirm the outstanding principal being serviced and that the conditions borrower’s and any guarantor’s financial balance of a guarantee held by a holder and covenants of the loan agreement are statements required by this part and the to avoid any discrepancy and delay in being enforced. loan agreement. The Agency may reconciliation in the event of a lender or (d) Access to the project. Until the require an annual audited financial Agency repurchase of the guaranteed loan note guarantee is terminated, the statement based on a project’s loan from a holder in accordance with borrower must allow the lender and circumstances. States, local government, § 5001.511. therefore the Agency access to the Indian tribes, institution of higher project and its performance information education, and nonprofit organization § 5001.505 Collateral inspection and and permit periodic inspections of the borrowers who meet the Federal awards release. project by an authorized representative expended threshold established in 2 (a) Inspection of collateral. The lender of the Lender or the Agency. CFR part 200, subpart F, ‘‘Audit must inspect the collateral as often as Requirements,’’ during their fiscal year necessary to properly service the § 5001.503 REAP RES or EEI project must submit an audit conducted in guaranteed Loan. completion requirements. accordance with 2 CFR part 200, subpart (b) Release of collateral. The lender Once a REAP RES or EEI project has F. must provide written justification for been completed, the lender or borrower (b) The lender must submit financial the release and obtain Agency approval is required to submit the applicable statements obtained under this section before releasing any collateral. The project performance report as identified to the Agency within 120 days of the lender is not required to provide in paragraphs (a) and (b) of this section end of the borrower’s fiscal year. When justification for the release of collateral by January 31 each year. the borrower’s audit is conducted in when the loan is not in default or (a) Renewable energy systems. For accordance with 2 CFR part 200, subpart liquidation and the collateral being RES projects, commencing the first full F, audits must be submitted no later released is a working asset, such as calendar year following the year in than nine months after the end of the accounts receivable, inventory, and which project construction was borrower’s fiscal year or 30 days after work-in-progress, that are routinely completed and continuing for three full the borrower’s receipt of the auditor’s depleted or sold and proceeds used for years, the borrower must provide an report, whichever is earlier. If a lender the normal course of business outcome project performance makes reasonable documented attempts operations. certification noting that either the to obtain financial statements but is (1) Exceptions to prior approval. system has or has not performed at the unable to obtain the borrower’s (or Lenders are not required to obtain steady state operating level as described guarantor’s) cooperation, the failure to Agency approval prior to releasing in the technical report filed with the obtain financial statements does not collateral when the collateral sale REAP guaranteed loan application, and impair the validity of the loan note proceeds are used to pay down debt in whether projected jobs created or saved guarantee. order of lien priority, pay down the have occurred. If it has not performed as (c) Annual financial statements must guaranteed loan principal, or to acquire intended, a report detailing the be in accordance with accounting replacement collateral.

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(2) Appraisals. Current appraisals are disposition of funds, if any, in the in paragraphs (c)(1) through (3) of this required on all transactions pursuant to transferor’s debt service, operations and section, as applicable. the requirements of § 5001.203 of this maintenance, or other reserve accounts. (1) Whenever the transferor and part. (3) The lender must confirm that the transferee are affiliates or related (3) Sale or release transaction. The transfer and assumption can be parties, the transfer and assumption sale or release of collateral must be completed in accordance with must: based on an arm’s length transaction, applicable laws. (i) Be to an eligible borrower to unless otherwise approved by the (4) The lender must confirm that the continue the project for eligible Agency in writing. There must be conveyance instruments will be filed, purposes; adequate consideration at market value registered, and recorded as appropriate (ii) Transfer all the loan collateral; for the release of collateral. Such and legally permissible. The transfer and consideration may include, but is not and assumption must be made on the (iii) Be for the full amount of the limited to: Lender’s form of assumption agreement guaranteed loan indebtedness. (i) Application of the net proceeds and contain the Agency case number of (2) A transfer and assumption may be from the sale of collateral to the the transferor and transferee. The lender approved when the present borrower is borrower’s debts in order of their lien must provide the Agency with a copy of unable or unwilling to accomplish the priority against the sold collateral; the assumption agreement. objectives of the guaranteed loan, and (ii) Use of the net proceeds from the (5) The lender may request a transfer the transfer will be in the best financial sale of collateral to purchase other and assumption when the total interest of the borrower and the Agency. collateral of equal or greater value indebtedness, or less than the total (3) The Agency prefers to transfer to which the lender will obtain as security indebtedness, of the guaranteed loan is an eligible borrower subject to the for the benefit of the guaranteed loan assumed by another borrower. If the policies and procedures governing the with a lien position equal or superior to assumption is for less than the total type of guaranteed loan being made, the position previously held; indebtedness, the transfer and however the Agency will consider (iii) Application of the net proceeds assumption must be an arm’s length approving a transfer of a guaranteed from the sale of collateral to the transaction and the transfer must be of loan to an ineligible borrower only if: borrower’s guaranteed loan or to its all loan collateral. (i) The sale price is greater than it business operation in such a manner (6) In the event of default of the would be if the transfer was to an that a significant improvement to the guaranteed loan, a transfer and eligible borrower; borrower’s debt service ability will be assumption of the borrower’s operation (ii) The transfer to an ineligible clearly demonstrated. The Lender’s and guaranteed loan can be borrower is needed as a method for written request must detail how the accomplished before or after the loan servicing a problem case; or borrower’s debt service ability will be goes into liquidation. However, if the (iii) When an eligible borrower is not improved; and collateral has been purchased through available. All transfers to an ineligible (4) No adverse impact. Any release of foreclosure or the borrower has borrower must meet the following collateral must not materially cause an conveyed title to the lender, no transfer requirements: adverse effect to the project’s operation and assumption is permitted. (A) Transfer fees will be collected, or financial condition and the remaining (7) No transfer and assumption is and payments applied, in accordance collateral must be sufficient to provide permitted when the Agency has with § 5001.509(b); for adequate collateral coverage. Such repurchased any guaranteed portion of (B) The ineligible borrower agrees to assurance must be supported by written the guaranteed portion of the loan. pay the loan balance within the documentation from the lender and be (8) If the transfer is for less than the remaining term of the original acceptable to the Agency. If the Agency total indebtedness, the pro rata share of guaranteed loan in periodic installments determines that the project may be an eligible loss will be paid to the that will not result in a balloon payment adversely affected by a release of lender after execution of the transfer at the loan’s maturity; collateral, the Agency may, at its and assumption documents. (C) Interest rates are at the rate discretion, require an appraisal on the (b) Documentation. The lender will specified in the promissory note of the remaining collateral in accordance with provide to the Agency documentation to transferor or at rates customarily § 5001.203 of this part. support the transferee’s status as an charged borrowers in similar eligible borrower, and such other circumstances in the ordinary course of § 5001.506 Loan transfers and documentation as the Agency may business. The rates can be either fixed assumptions. request to determine eligibility and or variable, and are subject to Agency (a) General. A lender must obtain credit evaluation. review and approval; prior written Agency approval in (1) The new borrower must sign an (D) The ineligible borrower must have accordance with paragraph (c) of this Agency-approved application form. the legal authority to enter into the section before the lender conducts a (2) The Agency will require personal contract and have the ability to repay transfer and assumption of a guaranteed and/or corporate guarantee(s) in the loan, as determined by the lender loan. The transferee will assume a loan accordance with § 5001.204 of this part, and the Agency. The ineligible borrower amount at least equal to the outstanding as applicable. Any required new must submit a current balance sheet to loan balance or the present market value personal, partnership or corporate the lender. The lender must obtain and of the collateral, whichever is less. If the guarantors of the transferred guaranteed analyze the credit history of the transferor is to receive a payment for loan must sign an Agency approved ineligible borrower. their equity, the total debt must be guarantee form. (d) Release of liability. The transferor, assumed. The following conditions (c) Agency approval. The Agency will including any guarantor, can be released must be met: only approve a transfer and assumption from liability only with prior Agency (1) All transfers and assumptions will if the transferee will continue the written approval when the transfer and have a fee as provided by § 5001.509(b). eligible purpose of the guaranteed loan assumption is for the full outstanding (2) For each transfer and assumption, and such transfer and assumption balance of the guaranteed loan. If the the lender must concur in plans for the complies with the conditions specified assumption is for less than the full

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amount of the loan and the Agency pays amount of the assumption must not be there is a significant change in the a loss to the lender, the transferor, less than this appraised value. The control of the borrower. including any guarantor, are specifically lender is responsible for obtaining the subject to the Debt Collection appraisal, which must conform to the § 5001.507 Lender transfer. Improvement Act provisions unless requirements of § 5001.203 of this part. (a) After the issuance of a loan note other workout arrangements have been However, if the original appraisal is guarantee, a lender may sell or transfer made. more than one year old, but less than the entire loan to a new lender with (e) Loan agreement. A new loan two years old, the lender may provide prior written approval of the Agency. agreement or an assumption agreement, an appraisal with a new effective date The Agency may approve the sale or acceptable to the Agency must be of evaluation in lieu of a completely transfer to a new lender if the following executed to establish the terms and new appraisal. conditions are met. The new lender: conditions of the loan being assumed (l) Legal opinion. Prior to Agency (1) Is an eligible lender in accordance (f) Changes in loan terms. When a approval, the lender must provide the with § 5001.130 of this part and is transfer or assumption is made to an Agency a preliminary written legal approved as such; eligible borrower continuing the project opinion that the guaranteed loan can be (2) Is able to service the loan in for eligible purposes, the loan terms properly and legally transferred and accordance with the original loan may remain the same or may be changed assurance that the conveyance documents; whether the transfer is for the total instruments will be appropriately filed, (3) Agrees in writing to acquire title indebtedness or less than the total registered, and recorded. Upon to the unguaranteed portion of the loan indebtedness. If the loan terms are to be execution of the transfer and held by the original Lender and assumes changed, the lender must submit a assumption, the lender must provide the all original loan requirements, including request in accordance with this Agency with a final legal opinion that liabilities and servicing responsibilities; paragraph (f). The changed loan terms the assumption is completed, valid, and and (4) The transfer to the new lender is must be concurred to by the Agency, all enforceable, and the assumption is requested in writing by the borrower, holders, and the transferee (including consistent with the conditions outlined the proposed new lender, and the guarantors). If there are changes in loan in the Agency’s conditions of approval original lender of record, if still in terms, the lender’s request will require for the transfer and complies with all existence. the following: Agency regulations. (b) Upon Agency approval, the (1) An explanation of the reasons for (m) Promissory notes. The lender original lender must transfer to the new the proposed change in the loan terms, must not issue any new promissory lender the: and notes, release any mortgages and/or (2) Certification that the lien position (1) Original promissory note and loan deeds of trust on the existing debt being securing the guaranteed loan will be security documents; transferred. An allonge may be attached maintained or improved, and proper (2) Original loan note guarantee; to existing promissory notes as needed. insurances will continue to be in effect. (3) Original personal and corporate (g) Loan note guarantee. The lender is (n) Loss/repurchase resulting from guarantee(s); responsible for noting each transfer and transfer and assumption. (1) Any (4) Loan payment history; and assumption on all originals of the loan resulting loss must be processed in (v) The new lender must agree to note guarantee. accordance with § 5001.521. accept the current loan terms, including (h) Proceeds. Before the transfer and (2) If a holder owns any of the the interest rate, secondary market assumption is closed, the lender must guaranteed portion of the loan, such holder (if any), collateral, loan credit any proceeds received from the portion must be repurchased by the agreement terms, and guarantors. The sale of collateral to the transferor’s lender or the Agency in accordance with new lender can modify the loan terms guaranteed loan debt in order of lien § 5001.511. after acquisition only by submitting a priority. (o) Cash down payment. The lender written request to the Agency and (i) Additional loans. Guaranteed loans may allow the transferee to make cash receiving Agency approval. may be used to provide additional funds down payments directly to the (vi) The new lender must certify to in connection with a transfer and transferor provided: the Agency that the loan transfer has assumption. The Agency will consider (1) The transfer and assumption are been completed in accordance with approving a guaranteed loan to provide made for the total indebtedness to an applicable laws and all provisions of the additional funds in connection with a eligible borrower to continue the project original loan remain in full force and transfer and assumption pursuant to the for eligible purposes; effect. lender’s submission of a complete (2) The lender recommends that the (c) The Agency will not pay any loss application in accordance with 7 CFR cash be released, and the Agency or share in any costs (e.g., legal fees, part 5001, subpart D. concurs prior to the assumption being appraisal fees and environmental (j) Credit quality. The lender must completed. The lender can require that assessments) for a voluntary transfer of make a complete credit evaluation in an amount be retained for a defined lender. This includes situations where a accordance with § 5001.202 of this part period of time as a reserve against future lender is merged with or acquired by to determine viability of the project defaults. Interest on such account may another lender and situations where the (subject to the Agency review and be paid periodically to the transferor or lender has failed and been taken over by approval) including any requirement for transferee as agreed; and a Federal regulatory agency such as the deposits in an escrow account as (3) The lender determines that the Federal Deposit Insurance Corporation security to meet the applicable equity transferee has the repayment ability to (FDIC) and the loan is subsequently sold requirements for the project. meet the obligations of the assumed to another lender. However, in (k) Appraisals. If the proposed guaranteed loan as well as any other situations where the lender has failed Transfer and Assumption is for less than indebtedness. and been taken over by a Federal the full amount of the guaranteed loan, (p) Change in control of borrower. The regulator and the loan is liquidated an appraisal is required on all the Agency will deem that a transfer and rather than being sold to another lender, collateral being transferred, and the assumption has occurred whenever the Agency will pay losses and share in

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costs as if the Federal regulatory agency old, of the borrower and guarantors. The (3) If the lender does not repurchase were an approved new lender. lender must receive written Agency the guaranteed portion from the holder, (d) In cases when there is a transfer approval prior to the subordination. the Agency may, at its option, purchase to a new lender or when a lender has (b) Agency approval. Agency approval such guaranteed portion of the loan for been merged with or acquired by of the subordination request requires servicing purposes. another Lender, the Agency and the new that: (4) If a repurchase of a guaranteed lender must execute a new lender’s (1) The subordination of the lender’s loan includes the capitalization of agreement, unless the new lender lien position enhances the borrower’s interest, interest accrued on the already has a valid lender’s agreement business and is in the best financial capitalized interest will not be paid to with the Agency. interest of the Agency; the holder. (e) After Agency approval of a transfer (2) The lien to which the guaranteed (b) Repurchase by lender. If the of lender, all terms of the original loan loan is subordinated is for a fixed dollar lender, borrower, and holder are unable note guarantee shall transfer to the amount or fixed credit limit and for a to agree to restructuring of loan benefit of the new lender. fixed term, after which the guaranteed repayment, interest rate, or loan terms to resolve any loan problem or resolve any § 5001.508 Mergers. loan lien priority will be restored; (3) Remaining collateral is sufficient default, and repurchase of the Agency approval. All borrower to provide for adequate collateral guaranteed portion of the loan is mergers or consolidations (herein coverage of the guaranteed loan. The necessary to adequately service the loan, referred to as ‘‘mergers’’) require Agency may require a current the holder must sell the guaranteed approval by the Agency and the lender. independent appraisal in accordance portion of the loan to the lender. The The Agency may approve a merger with § 5001.203 of this part. However, if sale must be for an amount equal to the when— the original appraisal is more than one unpaid principal and accrued Interest, (a) The resulting organization will be year old, but less than two years old, the in accordance with § 5001.450(c) of this eligible for a guaranteed loan and lender may provide an appraisal with a part, on such portion less the lender’s assumes all the liabilities and acquires new effective date of evaluation in lieu servicing fee. (1) When a lender receives a written all the assets of the merged borrower; of a completely new appraisal; (b) The merger is in the best interest demand for repurchase from a holder, (4) Lien priorities remain for the of the government and the merging the lender must notify any other holder portion of the loan collateral that was organization; and the Agency within 30 calendar days not subordinated; (c) The resulting organization can of receipt of the written demand. The meet all required conditions as (5) The subordination of collateral to lender must inform all parties if the contained in specific loan agreements; a line of credit does not extend beyond lender will repurchase the unpaid and the term of the line of credit and in no guaranteed portion of the loan from the (d) All property can be legally event exceeds more than three years. requesting holder. transferred to the resulting organization. (6) Subordination to a tax-exempt (2) When the lender repurchases the obligation is strictly prohibited in unpaid guaranteed portion from the § 5001.509 Servicing fees. compliance with OMB Circular A–129, holder for servicing purposes, and any The lender may pass the servicing ‘‘Policies for Federal Credit Programs default is not cured within 90 calendar fees on to the borrower but may not and Non-Tax Receivables.’’ days, the lender must discontinue delay payment of the fee to the Agency § 5001.511 Repurchases from holders. interest accrual. while collecting the payment from the (3) Upon repurchase the holder will borrower. (a) General. A holder can make assign the assignment agreement to the (a) Guarantee retention fees. Where written demand on either the lender or lender without recourse. the lender is required to pay a periodic the Agency to repurchase the unpaid (4) The lender must not repurchase guarantee retention fee (see § 5001.455), guarantee portion of the loan when the from the holder for arbitrage or other the fee is due for the entire payment borrower is in monetary default or when purposes to further its own financial period even if the loan note guarantee the lender has failed to pay the holder gain. is terminated or transferred before the its pro-rata share of any payment made (5) Any repurchase from a holder may next retention fee payment is due. by the borrower within 30 days of the only be made after the lender obtains (b) Borrower transfer fee. The Agency lender’s receipt thereof from the the Agency’s written approval. will charge the following fees: borrower. When making written (c) Agency repurchase. A holder can (1) A one-time, $1,500 nonrefundable demand on the lender, the holder must submit a written demand to the Agency transfer fee at the time of transfer to an concurrently send a copy of the demand for repurchase only if the lender eligible borrower. letter to the Agency. declines to repurchase. If a prior written (2) Payment of a one-time (1) The lender is encouraged to demand was not made upon the lender, nonrefundable transfer fee of 1 percent repurchase the guarantee to facilitate the the Agency will notify the lender and of the guaranteed loan balance to accounting of funds, resolve any loan allow up to seven calendar days for the ineligible borrowers. problem, and resolve the monetary lender to exercise their option to default, where and when reasonable. repurchase as provided in this section. § 5001.510 Subordination of lien position. The benefit to the lender is that it may (1) Lender does not repurchase. If the (a) Request for subordination. A re-sell the guaranteed portion of the lender does not repurchase the unpaid lender seeking a subordination of its loan and then continue collection of its guaranteed portion of a loan as provided lien position in collateral must submit servicing fee, if any, when the monetary in paragraph (a) of this section, the a written request to the Agency. The default is cured. Agency will, within 30 calendar days lender must include in the request a (2) When the lender and the Agency after written demand to the Agency financial analysis of the servicing determine that repurchase is necessary from the holder, purchase from the action. The financial analysis must be to adequately service the loan, the holder the unpaid principal balance of fully supported by current financial holder must sell the guaranteed portion the guaranteed portion together with statements, less than 90 calendar days to the requesting entity. accrued interest to date of repurchase or

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the interest termination date, whichever servicing fee to the Agency nor collect borrower to meet their restructuring is sooner, less the lender’s servicing fee. such fee from the Agency. plan, the lender’s treatment of accruing The guarantee will not cover the (6) Payments and proceeds. The interest, and potentially establish an accrued interest to the holder on the lender must apply all loan payments interest termination date for the loan as determined under § 5001.450(c) and collateral proceeds received to the guaranteed loan. If the restructuring of this part. guaranteed and unguaranteed portions bankruptcy Chapter 9 or Chapter 11 is (2) Written demand content. The of the loan on a pro rata basis. converted to a liquidation bankruptcy holder must include in its written (7) Accrued interest. If Federal or Chapter 7 by court order, the interest demand to the Agency: State regulators place the loan in non- termination date will be the date of such (i) A copy of the written demand accrual status, the lender must also conversion. made upon the lender; discontinue interest accrual. If the (ii) A copy of the lender’s denial to Agency repurchases 100 percent of the § 5001.512 Additional expenditures and repurchase the unpaid guaranteed guaranteed portion of a loan and loans. portion of the guaranteed loan; becomes the holder, interest accrual on The lender shall not make additional (iii) Evidence of the right to require the loan will cease until the lender expenditures on behalf of, or provide payment from the Agency as provided resumes remittance of the pro rata new loans to, the borrower without by the holder or duly authorized agent. payments to the Agency. notification to the Agency even though Such evidence must consist of the (8) Establishing interest termination such expenditures or loans will not be original assignment guarantee date. When a guaranteed loan has been guaranteed. The lender shall not agreement properly assigned to the delinquent more than 60 calendar days approve additional expenditures or new Agency without recourse including all and no holder comes forward or when loans where the expenditure or loan rights, title, and interest in the loan; the lender has accelerated the account, will violate, or cause a violation of, any (iv) The amount due including unpaid and subject to the expiration of any of the loan covenants in the borrower’s principal, unpaid interest to date of forbearance or workout agreement, the loan agreement. demand, and interest subsequently lender, or the Agency at its sole accruing from date of demand to discretion, must issue a letter to the § 5001.513 Interest rate changes. proposed payment date; and holder(s) establishing the interest (a) Interest rate freezes. The (v) When the initial holder has sold termination date. Accrued interest paid guaranteed loan interest rate will freeze its interest, the original assignment to the holder(s) will not exceed 90 at the earliest uncured default date and guarantee agreement and an original of calendar days and will be calculated will remain unchanged until the each Agency-approved reassignment from date when interest was last paid on cancellation of the loan note guarantee document in the chain of ownership, the loan. in compliance with § 5001.524. with the latest reassignment being (9) Obligations and rights. Purchase (b) Reductions. The borrower, lender, assigned to the Agency without by the Agency neither changes, alters, or and holder (if any) may collectively recourse, including all rights, title, and modifies any of the lender’s obligations initiate a permanent or temporary interest in the guarantee. to the Agency arising from the lender’s reduction in the interest rate of the (3) Payment. Unless otherwise agreed agreement, guaranteed loan or loan note guaranteed loan at any time during the upon, payment will not be later than 30 guarantee, nor does it waive any of the life of the loan upon written agreement calendar days from the date of demand. Agency’s rights against the lender. The among these parties. After a permanent (i) Upon request by the Agency, the Agency will have the right to set-off reduction, the loan note guarantee will lender must promptly furnish (within against the lender all rights inuring to only cover losses of interest at the 30 calendar days of such request) a the Agency as the holder of the reduced interest rate. current statement, certified by an instrument against the Agency’s (1) When the Agency is a holder, the appropriate authorized officer of the obligation to the lender under the loan lender must obtain Agency approval lender, of the unpaid principal and note guarantee. before implementing the reduction. The interest then owed by the borrower on (10) Accelerated loan. When the lender must provide a copy of the the loan and the amount then owed to lender has accelerated the loan and the modification agreement to the Agency any holder, along with the information lender holds all or a portion of the for approval. The Agency will approve necessary for the Agency to determine guaranteed loan, an estimated loss claim the reduction only when it is the appropriate amount due the holder. must be filed by the Lender with the demonstrated that the change is more (ii) Any discrepancy between the Agency within 60 calendar days from viable than liquidation and that the amount claimed by the holder and the the date the loan was accelerated. government’s financial interests are not information submitted by the lender Accrued interest paid to the lender will adversely affected. must be resolved between the lender not exceed 90 calendar days and will be (2) Factors that the Agency will and the holder before payment will be calculated from date when interest was consider in determining whether to approved. The Agency will notify both last paid on the loan. approve the change are the parties and such conflict will suspend (11) Interest termination during Government’s cost of borrowing money; the running of the 30-calendar-day bankruptcy. When a borrower files a the monetary recovery is greater than payment requirement. Chapter 7 liquidation plan, the lender the liquidation recovery; and the (4) Subrogation. When the Agency shall immediately notify the Agency project’s continued viability as purchases a loan from a holder it and submit a liquidation plan. The demonstrated by a financial feasibility assumes all rights that were previously Agency will establish an interest analysis. held by the holder. termination date based on the date (c) Increases. Unless a temporary (5) Servicing fee. When the Agency Interest was last paid to the lender. interest rate reduction occurred, purchases the guaranteed portion of the When a borrower files either a Chapter increases in fixed interest rates and loan from a holder, the lender’s 9 or Chapter 11 bankruptcy increases in variable interest rate servicing fee will stop on the date that restructuring plan, the Agency and structure are prohibited. interest was last paid by the borrower. lender shall meet to discuss the (d) Fixed rate to variable rate change. The lender can neither charge a bankruptcy procedure, the ability of the Fixed rates can be changed to variable

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rates to reduce the borrower’s interest fails to become a lender as set forth in to the Agency and the lender is the rate only when the variable rate has a § 5001.130 of this part within 60 paramount objective. The lender may ceiling that is less than or equal to the calendar days, the loan note guarantee consider temporary curative actions original fixed rate. will not be enforceable. (e.g., payment deferments or collateral (e) Variable rate to fixed rate change. (c) Regulated lender. Where the failed subordination) provided they strengthen Variable rates can be changed to a fixed lending entity is an FDIC regulated the loan and are in the best financial rate that is lower or equal to the current lender, the FDIC and the Agency will interest of the lender and the Agency. variable rate. enter into an Inter-Agency Agreement (1) Curative actions (subject to the (f) After adjustments. The interest regarding the FDIC’s role as the rights of any holder and Agency rates, after adjustments, must comply successor lending entity, and all parties concurrence) include, but are not with the requirements for interest rates are to abide by this agreement or limited to, the following options: on new loans as established by successor document(s). This agreement (i) Deferment of principal and/or paragraph § 5001.401. sets forth the duties and responsibilities interest payments; (g) Documentation. The lender is of each Agency when a lender fails. (ii) An additional unguaranteed responsible for the legal documentation When the FDIC is not the successor to temporary loan by the lender to bring of interest rate changes by an a failed regulated lender, the regulatory the account current; endorsement or any other legally agency serving as the successor lending (iii) Re-amortization of or effective amendment to the promissory entity and the Agency will abide by rescheduling the payments on the loan note; however, no new promissory notes terms of the lender’s agreement as excluding capitalization of accrued can be issued. The lender must provide executed by the originating lender. The interest; copies of all such documents to the Agency reserves the right to request a (iv) Transfer and assumption of the Agency within 10 calendar days of the meeting with the successor lending loan in accordance with § 5001.506; change. entity to further define the duties and (v) Reorganization; (3) In a final loss settlement when responsibilities of each agency when a (vi) Liquidation; qualifying interest rate changes are lender fails. (vii) Changes in interest rates in made in compliance with this part, the (d) No successor entity. In the event accordance with § 5001.513. Any lender must calculate interest based on no successor lending entity can be interest payments must be adjusted the periods the given rates were in determined, the Agency reserves the proportionately between the guaranteed effect. The lender must maintain records right to enforce the provisions of the and unguaranteed portion of the loan; that adequately document the accrued loan documents on behalf of the lender and interest claimed, which must be or to purchase the lender’s interest in (viii) Troubled debt restructure. determined in accordance with the loan. (2) The term of any deferment, § 5001.450(c). rescheduling, re-amortization, or § 5001.515 Default by borrower. moratorium cannot exceed the lesser of § 5001.514 Lender failure. When there is a default by a borrower, the remaining useful life of the (a) General. In the event a lender fails the lender must act prudently and collateral or remaining term of the loan or ceases to service a guaranteed loan, expeditiously in working with the as set forth in § 5001.402(b) of this part. the Agency will make the successor borrower to bring the account current or (i) During a period of deferment or lending entity aware of the statutory and cure the default through restructuring if moratorium on the guaranteed loan, the regulatory requirements and will a realistic plan can be developed, or to lender’s non-guaranteed loan(s) and any provide instruction to the successor accelerate the account and conduct a stockholder or affiliate loans must also lending entity on a case-by-case basis. liquidation in accordance with be under deferment or moratorium. Such instructions may include the § 5001.517 and in a manner that will (ii) Balloon payments are permitted as Agency’s determination that the Agency minimize any potential loss. a loan servicing option as long as there will service the entire loan or the (a) Default notification and meetings. is a reasonable prospect for successful guaranteed portion of the loan. The lender must notify the Agency repayment of the guaranteed loan and (1) Any successor lender must take within the timeframe as provided in the remaining life of the collateral such action that a reasonable lender § 5001.502(a)(3)(i). supports the action. would take if it did not have a loan note (1) The lender will provide this (c) Multi-note system. If the loan was guarantee to protect the lender and notification by submitting the closed with the multi-note system, the Agency’s mutual interest. guaranteed loan borrower default status lender may need to possess all (2) A successor entity approved by the report in the Agency’s electronic promissory notes to take some servicing Agency as a lender will be afforded the reporting system. The lender must actions. In situations where the Agency benefits of the loan note guarantee in update the loan’s status each month is a holder of some of the promissory the sharing of any loss and eligible until such time as the loan is no longer notes, the Agency may endorse the expenses subject to the limits that are in default. promissory notes back to the lender, set forth in the regulations governing the (2) If a monetary default exceeds 30 provided the lender provides the loan guarantee. calendar days, the lender must meet Agency with a receipt identifying the (b) Non-regulated lender. If the with the borrower and, if necessary, the reason for the transfer. The Agency will successor lending entity is a non- Agency within 45 calendar days of the not endorse the original loan note regulated lender, the lending entity is date of the default to discuss the guarantee to the lender under any prohibited from making changes to the situation. The lender must provide the circumstances. lender’s agreement and related Agency with a written summary of the documents on the guaranteed loan. The meeting, including any decisions and § 5001.516 Protective advances. successor lending entity must comply actions agreed upon within 10 calendar Protective advances are allowed only with the provisions of this part, days of the meeting. when they are necessary to preserve the including promptly applying to become (b) Curative options. In considering value of the collateral. Therefore, a a lender if not already an eligible lender. curative actions, providing a permanent lender must exercise sound judgment in If the successor lending entity is not or cure without adversely affecting the risk determining that the protective advance

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preserves collateral and recovery is determines that the default cannot be $250,000, the lender may, instead of an actually enhanced by making the cured or when the Agency and the appraisal, obtain these values or advance. lender determine that it is in the best estimates by using their primary (a) Protective advances must be interest of the Agency and the lender to regulator’s policies relating to appraisals reasonable with respect to the liquidate. The decision to liquidate or and evaluations or, if the lender is not outstanding loan amount and the value proceed otherwise with the borrower regulated, normal banking practices and of the collateral being preserved. must be made as soon as possible when generally accepted methods of (b) A lender cannot make protective one or more of the following exist: determining value. advances in lieu of additional loans. (1) The loan is 90 calendar days (ii) The procedure used to obtain (c) A lender must obtain written behind on any scheduled payment and these values or estimates of the Agency approval for any protective the lender and the borrower have not collateral must include an evaluation of advance that will cumulatively amount been able to cure the delinquency; the impact of any release of hazardous to more than $200,000, or 10 percent of (2) Delaying liquidation will substances, petroleum products, or the aggregate outstanding balance of jeopardize full or maximum recovery on other environmental hazards. principal and interest, whichever is less, the loan; or (iii) Any independent appraiser’s fee, to the same borrower. (3) The borrower or lender is including the cost of the environmental (d) Protective advances constitute an uncooperative in resolving the problem site assessment if necessary, will be indebtedness of the borrower to the or the Agency or lender has reason to shared equally by the Agency and the lender and must be secured by collateral believe the borrower is not acting in lender; to the same extent as the original good faith, and immediate liquidation (7) Proposed protective bid amounts guaranteed loan. would minimize loss to the Agency. on collateral to be sold at auction and (e) Notwithstanding § 5001.22(c) of (b) Repurchase of loan. When the a description to show how the amounts this part, upon Agency approval, decision to liquidate a loan is made, if were determined. protective advances can be used to pay any portion of the loan has been sold or (i) A protective bid can be made by Federal tax liens or other Federal debt. assigned under § 5001.408 of this part the lender, with prior Agency written (f) A Protective advance claim will be and has not already been repurchased, approval, at a foreclosure sale to protect paid only at the time of the final the lender must make provisions for the lender’s and the Agency’s interest. payment as indicated in the report of repurchase in accordance with (ii) The protective bid must not loss. In the event of a final loss, § 5001.511. exceed the amount of the loan balance protective advances may accrue interest (c) Lender’s liquidation plan. Within plus applicable foreclosure expenses at the promissory note rate from the date 30 calendar days after the lender and must be based on the liquidation of such advance and will be guaranteed decides to liquidate a loan, the lender value and estimated net recovery at the same percentage of loss as must submit a written, proposed plan of considering prior liens and outstanding provided for in the loan note guarantee. liquidation to the Agency for approval. taxes, expenses of foreclosure, and The loan note guarantee will not cover The liquidation plan must be detailed estimated expenses for holding and interest on the protective advance and include at least the following reselling the property. Foreclosure accruing after the interest termination information: expenses include, but are not limited to, date. (1) Such proof as the Agency requires expenses for resale, interest accrual, (g) The maximum loss to be paid by to establish the lender’s ownership of length of time necessary for resale, the Agency will never exceed the the guaranteed loan promissory note maintenance, guard service, original loan amount plus accrued and related security instruments; weatherization, and prior liens; interest times the percentage of (2) A copy of the payment ledger, if (8) Copies of the borrower’s latest guarantee regardless of any protective available, or other documentation that available financial statements; advances made. reflects the current outstanding loan (9) Copies of each guarantor’s latest (h) Holders do not have an interest in balance, accrued interest to date, and available financial statements; protective advances. the method of computing the accrued (10) An itemized list of estimated interest; liquidation expenses expected to be § 5001.517 Liquidation. (3) A full and complete list of all incurred along with justification for In the event of one or more incidents collateral and a listing of all liens held each expense; of default or third-party actions that the and status of such liens, plus any (11) Estimated protective advance borrower cannot or will not cure or personal and corporate guarantees; amounts with justification; eliminate within a reasonable period of (4) The recommended liquidation (12) If a voluntary conveyance is time, the lender, with Agency consent, methods for making the maximum considered, the proposed amount to be must provide for liquidation in collection possible on the indebtedness credited to the guaranteed debt; accordance with paragraphs (a) through and the justification for such methods, (13) Legal opinions, if needed by the (n) of this section. The lender is including recommended action for lender’s legal counsel; and responsible for initiating actions acquiring and disposing of all collateral (14) A schedule to periodically report immediately and as necessary to assure and collecting from guarantors; to the Agency on the progress of a prompt, orderly liquidation that will (5) Necessary steps for preservation of liquidation, not to exceed every 60 days. provide maximum recovery. The the collateral including any anticipated (d) Partial liquidation plan. If actions Agency reserves the right to unilaterally protective advances; are necessary to immediately preserve conclude that liquidation is necessary (6) The market value and the potential and protect the collateral, the lender and require the lender to assign the liquidation value, or estimates thereof, may submit a partial liquidation plan collateral to the Agency and the Agency of all the collateral securing the loan. and, when approved by the Agency, will then liquidate the loan per (i) These values or estimates of the submit a complete liquidation plan paragraph (o) of this section. collateral must be obtained by the prepared by the Lender in accordance (a) Decision to liquidate. A decision to lender through an independent with paragraph (c) of this section. liquidate a loan or proceed otherwise appraisal. If the outstanding balance of (e) Approval of liquidation plan. The must be made when the lender principal and interest is less than lender cannot implement its liquidation

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plan before obtaining written approval (g) Estimated loss claim and payment. (2) A recommendation by the lender from the Agency. The Agency will If the lender is conducting the for abandonment of collateral is approve or disapprove the plan within liquidation and owns any or all the considered a servicing action under 7 30 calendar days of its receipt. In order guaranteed portion of the loan, the CFR 1970.8(e) and a separate NEPA to ensure prompt action, the lender may lender must file an estimated loss claim review is not required. submit its liquidation plan with an once a decision has been made to (l) Disposition of personal or estimate of collateral value, and the liquidate if the liquidation will exceed corporate guarantees. The lender must Agency may approve the liquidation 90 calendar days. The Agency will take action to maximize recovery from plan subject to the results of the final process the estimated loss claim and all personal and corporate guarantees, liquidation appraisal. will make final loss payments in including seeking deficiency judgments (1) If the Agency approves the accordance with § 5001.521. when there is a reasonable chance of lender’s liquidation plan, the lender (h) Liquidation expenses. (1) The future collection. must: guarantee will not cover liquidation (m) Compromise settlement. (i) Proceed expeditiously with expenses in excess of liquidation Compromise settlements must be liquidation; proceeds under any circumstances. approved by the lender and the Agency. (ii) Take all legal action necessary to (2) When a liquidation is performed The lender must provide complete liquidate the loan in accordance with by the lender, the Agency must approve, current financial information on all the approved liquidation plan; and in advance and in writing, the lender’s parties obligated for the loan. At a (iii) Update or modify the liquidation estimated liquidation expenses of minimum, the compromise settlement plan when conditions warrant, collateral. must be equivalent to the value and including a change in value based on a (3) Liquidation expenses must be timeliness of that which would be liquidation appraisal. reasonable and customary and must received from attempting to collect on (iv) If changed circumstances after provide a demonstrated economic the guarantee. Any guarantor cannot be submission of the liquidation plan benefit to the lender and the Agency. released from liability until the full require a revision of liquidation costs, The lender and Agency will share amount of the compromise settlement the lender must obtain the Agency’s liquidation expenses equally. To has been received. In determining written approval prior to proceeding accomplish this, the lender must deduct whether to approve a compromise with the proposed changes if the revised 50 percent of the liquidation expenses settlement, the Agency will consider, liquidation costs exceed 10 percent of from the collateral sale proceeds. among other things, whether the the amount proposed in the liquidation (i) Accounting and reports. The lender compromise is more financially plan approved by the Agency. must account for funds during the advantageous than collecting on the (2) If the Agency does not approve the period of liquidation and must provide guarantee. lender’s liquidation plan, the Agency the Agency with reports on the progress (n) Liquidation provisions selection. will meet with the lender to resolve the of liquidation including disposition of (1) If a lender has made a loan concern(s). Until the concerns are collateral and resulting costs. If in the guaranteed under one of the programs resolved, the lender must take such course of implementing the approved identified in § 5001.1 of this part, the actions that a reasonable lender would liquidation plan the lender determines lender has the option to liquidate the take without a guarantee and keep the additional procedures are necessary for loan under the provisions of this part or Agency informed, in writing, of those the successful completion of the under the entire provisions of actions. Once the revised liquidation liquidation or otherwise makes any applicable regulation at the time the plan is approved by the Agency, the other changes to or deviations from the loan was guaranteed by the Agency. lender must proceed in accordance with approved liquidation plan, the lender (2) The lender must notify the Agency paragraphs (e)(1)(i) through (iii) of this must identify in the report such in writing within 10 calendar days after section. procedures, changes, and deviations. its decision to liquidate as to which (f) Acceleration. The lender must (j) Transmitting payments and regulatory provisions it chooses to use. proceed to accelerate the loan as proceeds to the Agency. When the If the lender does not notify the Agency expeditiously as possible when Agency is the holder of a portion of the in writing within these 10 calendar acceleration is necessary, including guaranteed loan, the lender must days, it must use the liquidation giving any notices and taking any other transmit to the Agency within 14 provisions in this part. required legal actions. The guaranteed calendar days the Agency’s pro rata (o) Agency liquidation. The Agency loan will be considered in liquidation share of any payments received from the will liquidate a guaranteed loan at its once it has been accelerated and a borrower, liquidation, or other proceeds option only when it is a holder and demand for payment has been made using an Agency approved form. there is reason to believe the lender is upon the borrower. (k) Disposition of collateral. (1) not likely to undertake liquidation (1) If the sole basis for acceleration is Disposition of collateral acquired by the efforts that will result in maximum a non-monetary default, the lender must lender must be approved, in writing, by recovery. When it conducts a obtain concurrence from the Agency the Agency when— liquidation, the Agency will apply prior to accelerating the loan. In the case (i) The lender’s cost to acquire the proceeds derived from the sale of the of monetary default, the lender may collateral of a borrower exceeds the collateral first to reasonable liquidation accelerate the loan without prior potential recovery value of the security expenses and second to the guaranteed approval by the Agency, although and the lender proposes abandoning the portion of the loan. Agency concurrence must still be given collateral in lieu of liquidation; or § 5001.518 [Reserved] no later than the time the Agency (ii) The acquired collateral is to be approves the liquidation plan. sold to the borrower, affiliates or § 5001.519 Bankruptcy. (2) The Lender must provide the members of the borrower or to (a) Lender’s responsibilities. The Agency a copy of the acceleration notice borrower’s stockholders or officers, or lender is responsible for protecting the or other acceleration document sent to the lender or lender’s stockholders or guaranteed loan and the collateral the borrower. officers. securing it in bankruptcy and any

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related appellate proceedings. These (d) Reports of loss during bankruptcy. the documentation necessary for the responsibilities include, but are not In bankruptcy proceedings, the lender Agency to review and adjust the limited to, the following: must use the report of loss form for bankruptcy loss claim to reflect any (1) Taking actions that result in reporting all estimated and final loss actual discharge of principal and greater recoveries and avoiding actions determinations. Payment of loss claims Interest. that are likely not to be cost-effective; will be made as provided in this section. (ii) The lender must use the report of (2) Monitoring confirmed bankruptcy (1) Estimated loss payments. (i) If a loss to request a bankruptcy loss plans to determine borrower borrower has filed for bankruptcy and payment and to revise any bankruptcy compliance, and, if the borrower fails to all or a portion of the debt has been loss payments during the course of the comply, pursuing appropriate relief, discharged, the lender must request an bankruptcy. The lender must include including seeking a dismissal of the estimated loss payment of the with the bankruptcy loss claim bankruptcy plan; guaranteed portion of the accrued documentation to support the claim, as (3) Requesting modifications of any interest and principal discharged by the well as any revisions to this claim. proposed bankruptcy plan whenever it court. Only one estimated loss payment (iii) Upon completion of a bankruptcy appears that the lender could obtain is allowed during the bankruptcy and plan, restructure, or liquidation, the additional recoveries via plan any related appellate proceedings. The lender must enter the data directly into modification; Agency will treat all subsequent claims the Agency’s electronic reporting (4) Filing a proof of claim, when of the lender during bankruptcy and any system. necessary, and all the necessary papers related appellate proceedings as (iv) If an estimated loss claim is paid and pleadings concerning the case; revisions to the initial estimated loss. At during a bankruptcy and the borrower (5) Attending and, when necessary, its option, the Agency may process a repays in full the remaining balance participating in meetings of the revised estimated loss payment in without an additional loss sustained by creditors and all court proceedings; accordance with any court-approved the lender, a final report of loss will be (6) Immediately seeking adequate changes in the bankruptcy plan. Once filed to terminate the loan. protection of the collateral if it is subject the bankruptcy plan has been (3) Interest losses as a result of to being used by the trustee in satisfactorily completed, the lender is bankruptcy reorganization. Interest bankruptcy or the debtor in possession; responsible for submitting the losses as a result of bankruptcy (7) When appropriate, seeking documentation necessary for the Agency reorganization will be paid as described involuntary conversion of a pending to review and adjust the estimated loss in paragraphs (e)(3)(i) and (ii) of this chapter 11 case to a liquidation claim to reflect any actual discharge of section, as applicable. proceeding or seeking dismissal of the principal and interest and to reimburse (i) For guaranteed loans closed for proceedings; the lender for any court-ordered interest which the Agency has not issued an (8) Submitting a default status report rate reduction under the terms of the interest termination letter— within 15 calendar days after the date bankruptcy plan. (A) The loss of interest income when the borrower defaults and every (ii) The lender must use the report of sustained during the period of the 30 calendar days thereafter until the loss to request an estimated loss bankruptcy plan will be processed in default is resolved or a final loss claim payment and to revise any estimated accordance with paragraph (d)(1) of this is paid by the Agency; and loss payments during the bankruptcy section; (9) Informing the Agency within 10 plan. The estimated loss claim, as well (B) The loss of interest income working days upon notification of the as any revisions to this claim, must be sustained after the bankruptcy plan is filing of a bankruptcy case and keeping accompanied by documentation to confirmed will be processed annually the Agency adequately and regularly support the claim. when the lender sustains a loss as a informed, in writing, of all aspects of (iii) Upon completion of a bankruptcy result of a permanent interest rate the proceedings, at a minimum, on a bi- plan, the lender must— reduction that extends beyond the monthly basis. (A) Enter the data directly into the period of the bankruptcy plan; and (b) Appraisals. In a Chapter 9 or Agency’s electronic system; and (C) If an estimated loss claim is paid Chapter 11 reorganization, the lender (B) Provide the Agency with the during the operation of the bankruptcy must obtain an independent appraisal of documentation necessary to determine plan and the borrower repays in full the the collateral if the Agency has whether the estimated loss paid equals remaining balance without an determined that an independent the actual loss sustained. Where the additional loss sustained by the lender, appraisal is necessary. With written actual loss sustained is different than a final report of loss will be filed to Agency consent, the lender and Agency the estimated loss paid, the difference terminate the loan. will equally share the cost of any will be handled in accordance with (ii) For guaranteed loans closed for independent appraisal fee to protect the § 5001.521(h). which the Agency has issued an interest guaranteed loan in any bankruptcy (2) Bankruptcy loss payments. (i) The termination letter, the Agency will not proceedings. lender must request a bankruptcy loss compensate the lender for any (c) Repurchase from the holder. The payment of the guaranteed portion of difference in the interest rate specified Agency or the lender, with the approval the accrued interest and principal in the loan note guarantee and the rate of the Agency, can initiate the discharged by the court for all of interest specified in the bankruptcy repurchase of the unpaid guaranteed bankruptcies when all or a portion of plan. portion of the loan from the holder. If the debt has been discharged. Unless a (4) Final bankruptcy loss payments. the lender is the holder, an estimated final court decree approves a The Agency will process final loss payment may be filed at the subsequent change to the bankruptcy bankruptcy loss payments when the initiation of a Chapter 7 proceeding or plan that is adverse to the lender, only loan is fully liquidated. after a Chapter 9 or Chapter 11 one bankruptcy loss payment is allowed (5) Application of loss claim proceeding becomes a liquidation during the bankruptcy. Once a final payments. The lender must apply proceeding. Any loss payment on loans court decree has discharged all or part estimated loss payments first to the in bankruptcy must be approved by the of the guaranteed loan and any appeal principal balance of the guaranteed Agency. period has run, the lender must submit portion of the debt and then to the

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interest of the guaranteed portion of the to the loan and keeping the Agency (d) Reduction of loss claims payable. debt. In the event a court attempts to adequately and regularly informed, in (1) Negligent loan origination and direct the payments to be applied in a writing, of all aspects of the negligent loan servicing will result in a different manner, the lender must proceedings. If the Agency determines reduction of loss claims payable under immediately notify the Agency in that the lender is not adequately the guarantee to the lender if any losses writing. protecting the rights of the lender or the have occurred as the result of such (6) Protective advances. If approved Agency with respect to the loan, the negligence. The Agency will assess protective advances, as authorized by Agency reserves the right to take any against the lender any cost to the § 5001.516, were incurred in connection legal action the Agency determines Agency associated with actions taken by with the initiation of liquidation action necessary to protect the rights of the the Agency necessary to protect the and were required to protect the lender and Agency, on behalf of the Agency’s interests with respect to the collateral as result of delays in the case lender or the Agency. If the Agency loan where a lender is not in or failure of the borrower to maintain exercises this right, the lender must compliance with its origination and the security prior to the borrower having cooperate with the Agency. The Agency servicing responsibilities. The extent of filed bankruptcy, the protective will assess against the lender any cost the reduction, which could be a total advances together with accrued interest, the Agency incurs with such action. reduction of the loss claims payable, as determined under § 5001.450(c) of (b) Notwithstanding any other will depend on the extent of the losses this part, are payable under the provision of this part, the Agency incurred as a result of the negligent loan guarantee in the final loss claim. reserves the right to be represented by origination or servicing. (e) Liquidation expenses during the U.S. Department of Justice in any (2) Non-compliance with the bankruptcy proceedings. (1) The litigation where the Agency is named as requirements of § 5001.205(a) or liquidation expenses will be in a party. § 5001.305(a) will result in a reduction compliance with § 5001.517(h). § 5001.521 Loss calculations and payment. of loss claims payable. The Agency’s (2) Reasonable and customary review of the non-compliance could liquidation expenses in bankruptcy may Unless the Agency anticipates a future result in a total reduction of the loss be deducted from liquidation proceeds recovery, the Agency will make a final claim payable. settlement with the lender after the of collateral. In the case of Chapter 11 (3) Any delinquent fees, including collateral is liquidated or after reorganizations or Chapters 11 or 7 any interest due thereon, will be settlement and compromise of all liquidation, only expenses authorized deducted from any loss payment due parties has been completed. The Agency by the court can be deducted from the the lender. has the right to recover losses paid collateral proceeds, unless the (e) Final loss claim. Except for certain under the guarantee from any party that liquidation is by the lender. unsecured personal or corporate (3) When a bankruptcy proceeding may be liable. (a) Report of loss form. The lender guarantees as provided for in this results in a liquidation of the borrower section, the lender must submit a final by a bankruptcy trustee appointed must use the report of loss form for all estimated and final loss claim requests. report of loss to the Agency within 30 under 11 U.S.C. 701, 702, 703, or 1104, calendar days after liquidation of all expenses will be handled as directed by (b) Estimated loss claim. The lender must submit to the Agency a completed collateral is completed. The Agency will the court, and the lender cannot claim not guarantee interest beyond the liquidation expenses for the sale of the report of loss form for all estimated loss claims. In calculating the estimated loss, interest termination date or this 30-day assets. period, other than for the period of time (4) If the property is abandoned by the the lender must use the estimated or it takes the Agency to process the loss bankruptcy trustee and any relief from current appraised liquidation value of claim. The lender must apply the total the stay has been obtained, the lender the collateral. amount of the loss payment remitted by will conduct the liquidation in (c) Estimated loss payment. The the Agency to the guaranteed portion of accordance with § 5001.517. Agency will approve estimated loss the loan debt. At the time of final loss (5) Proceeds received from partial sale payments only after it has approved the settlement, the lender must notify the of collateral during bankruptcy can be lender’s liquidation plan. For a loan borrower that the loss payment has been used by the lender to pay reasonable which has been approved by the Agency so applied. Such application does not costs (e.g., freight, labor, and sales for a debt write-down (or debt release the borrower from liability. Once commissions) associated with the restructure), the maximum amount of the lender receives a final loss payment partial sale. Reasonable use of proceeds loss payment will not exceed the from the Agency, the Agency will for this purpose must be documented percent of guarantee multiplied by the collect any outstanding debts owed to with the final loss claim request. difference between the outstanding (6) Legal fees as a result of a principal and interest balance of the the government in accordance with part bankruptcy are limited by the Agency to loan before the write-down and the 3 of this title. an amount not to exceed 3 percent of outstanding balance of the loan after the (1) Loss. In the event of a loss, the the current principal balance and are write-down. loan note guarantee will not cover— only recoverable from liquidation (1) The amount of an estimated loss (i) Interest to the lender accruing after proceeds. Legal fees in excess of 3 payment must be credited first as a the interest termination date; percent of the current principal balance deduction from the principal balance of (ii) Any interest accrued as the result shall be borne by the lender and are not the loan with any remaining balance to of the borrower’s default on the recoverable from liquidation proceeds accrued interest. guaranteed loan over and above that or any loss claim by the lender. (2) The estimated loss payment which would have accrued at the cannot be applied as a payment on the Agency-approved promissory note rate § 5001.520 Litigation. loan for purposes of reducing the on the guaranteed loan (e.g., default (a) In all litigation proceedings unpaid balance owed by the borrower interest rate); or involving the borrower, the lender is for status reporting or any debt (iii) Any late fees, penalties, bond responsible for protecting the rights of collection actions against the borrower fees, interest rate swap charges, the lender and the Agency with respect or any guarantors. liquidation expenses, and other costs

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unless authorized under paragraph (ii) The Agency may consider a interest in accordance with (e)(7) of this section. compromise settlement of a debt owed § 5001.450(c) of this part. (2) Accounting of funds. Before the to the Agency after it has processed a (i) Accrued interest eligible for Agency will approve a final report of final report of loss and issued a 60-day payment under the guarantee on a loss, the lender must account for all due process letter. Any funds collected defaulted loan will be discontinued funds during the period of liquidation, by the Agency will not be shared with when the estimated loss is paid. Interest disposition of the collateral, all costs the lender. will not be paid beyond the interest incurred, and any other information (6) Protective advances. In those termination date. necessary for the successful completion instances where the lender made (ii) The lender must support accrued of liquidation. The lender must authorized protective advances, the interest by documenting how the document and show that all the lender can claim recovery for the amount was accrued, including collateral has been accounted for and guaranteed portion of any loss of monies attaching a copy of both the promissory properly liquidated, and that liquidation advanced as well as interest resulting note and ledger. If the interest rate was proceeds have been properly accounted from such protective advances. These a variable rate, the lender must include for and applied correctly on the loan. claims must be included in the final documentation of changes in both the (3) Audit. Upon receipt of the final report of loss. The lender must provide selected base rate and the loan rate. accounting and report of loss, the receipts and a breakdown of protective (iii) If a restructuring of a guaranteed Agency may audit all applicable advances as to the payee, purpose of the loan includes the capitalization of documentation to determine the final expenditure, date paid, evidence that interest, the guarantee will not cover the loss. The lender must make its records the amount expended was proper, and interest accrued on the capitalized available to and otherwise assist the that the amount was actually paid. Interest. Agency in making any investigation or (7) Liquidation expenses. As provided (9) Acquiring property titles. If a audit of the report of loss. The in § 5001.517(e), certain reasonable lender acquires title to property, any liquidation expenses are allowed during documentation accompanying the loss will be based on the collateral value the liquidation process. The lender Report of loss must support the amounts at the time the lender obtains title. cannot claim any liquidation expenses reported. The Agency must be satisfied Alternatively, the lender can calculate in excess of liquidation proceeds. that the lender has maximized the the final loss settlement using the net (i) Liquidation expenses are proceeds received at the time of the collections in conducting the recoverable only from liquidation liquidation. ultimate disposition of the property if— proceeds. The Agency will deduct (i) The lender has submitted to the (4) Guarantees. The lender must liquidation expenses from the Agency a written request to use this determine the collectability of liquidation proceeds of the collateral option within 15 calendar days of unsecured personal and corporate unless the costs have been previously acquiring title; and guarantees required in accordance with determined by the lender (with Agency (ii) The Agency approves the request § 5001.204 of this part. The lender must concurrence) to be protective advances. prior to the lender submitting any promptly collect or otherwise dispose of The lender must provide receipts and a request for estimated loss payment. such guarantees prior to completion of breakdown of liquidation expenses as to (f) Loss limit. The amount payable by the final loss report. However, if the payee, purpose of the expenditure, the Agency to the lender cannot exceed collection from the guarantors appears date paid, evidence that the amount the limits contained in the loan note unlikely or will require a prolonged expended was proper, and that the guarantee. If the lender conducts the period of time, the lender must file the amount was actually paid. liquidation, loss occasioned by accruing report of loss when all other collateral (ii) The Agency may approve legal interest will be covered to the interest has been liquidated. Unsecured fees as liquidation expenses provided termination date, provided the lender personal or corporate guarantees that the fees are reasonable, require the proceeds expeditiously with the outstanding at the time of the assistance of attorneys, and cover legal liquidation plan approved by the submission of the final report of loss issues pertaining to the liquidation that Agency. If the Agency conducts the will be treated as a Future Recovery could not be properly handled by the liquidation, loss occasioned by accruing with the net proceeds to be shared on lender, its employees or in-house interest will be covered by the guarantee a pro rata basis by the lender and the counsel. Approved legal expenses are only to the date the Agency accepts this Agency. limited by the Agency to an amount not responsibility. (5) Federal debt. Any amounts paid by to exceed 3 percent of the current (g) Rent. The lender must apply any the Agency on account of liabilities of principal balance and will be shared by net rental or other income that it a borrower constitute a Federal debt the lender and Agency equally. This receives from the collateral to the owed to the Agency by the borrower. In includes those instances where the guaranteed loan debt. such case, the Agency can use all lender has incurred such expenses from (h) Final loss payment. The Agency remedies available to it to collect the a trustee conducting the liquidation of will make loss payments after it has debt from the borrower, including offset assets. Legal fees in excess of 3 percent reviewed the complete final report of in accordance with part 3 of this title. of the current principal balance shall be loss, all collateral has been properly (i) Any amounts paid by the Agency borne by the lender and are not liquidated and accounted for, and the pursuant to a claim by a lender recoverable from liquidation proceeds Agency has determined that liquidation constitute a Federal debt owed to the or any loss claim by the lender. expenses are reasonable and within Agency by a third-party guarantor of the (iii) The lender cannot claim the approved limits. guaranteed loan, to the extent of the guarantee fee or the other Agency fees (1) Any estimated loss payments amount of the third-party guarantee. In as authorized liquidation expenses, and made to the lender will be credited such case, the Agency can use all In-house expenses of the lender are not against the final loss payment on the remedies available to it to collect the allowed. guaranteed loan. debt from the third-party guarantor (8) Accrued interest. If the lender (2) Once the Agency approves the including offset in accordance with part holds all or a portion of the guaranteed report of loss and supporting documents 3 of this title. loan, the Agency will guarantee accrued submitted by the lender—

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(i) If the actual loss is greater than any the Federal Government from any liable titled in the Agency’s name in whole or estimated loss payment, the Agency will party to the guaranteed loan. in part. pay the additional amount owed by the Agency to the lender. § 5001.523 Property acquired by the § 5001.524 Termination of loan note lender. guarantee. (ii) If the actual loss is less than the (a) Collateral preservation. When a estimated loss payment, the lender must Each loan note guarantee issued lender acquires title to the collateral and reimburse the Agency for the under this part or under one of the the final loss claim is not paid until overpayment plus interest at the guaranteed loan programs identified in final disposition, the lender must § 5001.1 of this part will terminate promissory note rate from the date of proceed as quickly as possible to automatically when one of the events payment of the estimated loss. develop a plan to fully protect the (iii) If the Agency conducted the collateral from deterioration (weather, described in paragraphs (a) through (c) liquidation, it will provide an vandalism, etc.). Hazard insurance in an of this section occur. The lender will accounting to the lender and will pay amount necessary to cover the market maintain its guaranteed loan files for at the lender in accordance with the loan value of the collateral must be least three years after termination of the note guarantee. maintained. loan note guarantee. § 5001.522 Future recovery. (b) Collateral sale. (1) Upon acquiring (a) The guaranteed loan is paid in full; the collateral, the lender must prepare (b) Full payment by the Agency of any After a final loss claim has been paid, and submit without delay to the Agency the lender must use reasonable efforts to loss claim or compromised settlement a plan on the best method for the sale except for future recovery provisions; or collect from any party still liable for of the collateral, keeping in mind any future recovery unless the Agency prospective purchasers. The Agency (c) Written request from the lender to notifies the lender otherwise. Any net must approve the plan in writing. If an the Agency to terminate the guarantee, proceeds from future recovery will be existing approved liquidation plan which will be effective the date the split pro rata between the lender and the addresses the disposition of acquired Agency receives the request provided Agency based on the percent of the loan property, no further review is required that the lender holds all the guaranteed guarantee even if the loan note unless modification of the plan is portion of the loan. guarantee has been terminated. Once the needed. (d) The Agency may terminate the Agency determines a debt is Federal (2) Whenever the conversion of loan note guarantee if it is determined debt and provides notice to the lender, collateral to cash can reasonably be that the lender or borrower failed to that Federal debt is excluded from expected to result in a negative net adhere to the applicable provisions of future recovery. The lender must cease recovery amount, the lender should this part or other good cause. all collection efforts against the consider abandonment of the collateral. borrower and any individual or If the lender seeks to abandon the §§ 5001.525–5001.600 [Reserved] corporate guarantors upon referral of the collateral, the lender must obtain Bette B. Brand, debts by the Agency for collection in written Agency approval before accordance with part 3 of this title. The abandoning the collateral. Deputy Under Secretary, Rural Development. Agency will not share with the lender (c) Re-title collateral. Any collateral [FR Doc. 2020–13991 Filed 7–13–20; 8:45 am] any collection of Federal debt made by accepted by the lender must not be BILLING CODE 3410–15–P

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