Intermediary Relending Program (IRP) Program

CourtRural Business-cooperative Service
Citation86 FR 72151
Record Number2021-27522
Publication Date21 December 2021
Federal Register, Volume 86 Issue 242 (Tuesday, December 21, 2021)
[Federal Register Volume 86, Number 242 (Tuesday, December 21, 2021)]
                [Rules and Regulations]
                [Pages 72151-72171]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2021-27522]
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                DEPARTMENT OF AGRICULTURE
                Rural Business-Cooperative Service
                7 CFR Part 4274
                [Docket No. RBS-20-BUSINESS-0032]
                RIN 0570-AA99
                Intermediary Relending Program (IRP) Program
                AGENCY: Rural Business-Cooperative Service, USDA.
                ACTION: Final rule.
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                SUMMARY: The Rural Business-Cooperative Service (RBCS), (Agency), is
                completing a revision to the Intermediary Relending Program (IRP)
                regulations to streamline process, provide clarity on the daily
                administration of the program, and incorporate program updates. The
                regulatory cleanup incorporates the program statutory requirements
                established in the Agriculture Improvement Act of 2018 (Farm Bill).
                DATES: This final rule is effective December 21, 2021.
                FOR FURTHER INFORMATION CONTACT: Sami Zarour, Supervisory Business Loan
                and Grant Analyst, Program Management Division, Rural Business-
                Cooperative Service, U.S. Department of Agriculture, STOP 3226, 1400
                Independence Avenue SW, Washington, DC 20250-3226; email:
                [email protected]; telephone (202) 720-1400.
                SUPPLEMENTARY INFORMATION:
                I. Background
                 The Intermediary Relending Program (IRP), originally enacted under
                42 U.S.C. 9812 and currently authorized at 7 U.S.C. 1936b, authorizes
                the Secretary to make or guarantee low-interest loans to local
                intermediaries to relend funds to businesses to improve economic
                conditions and create jobs in rural communities. The purpose of the IRP
                is to alleviate poverty and increase economic activity and employment
                in rural communities, especially disadvantaged and remote communities,
                through financing targeted towards smaller and emerging businesses, in
                partnership with other public and private resources, and in accordance
                with State and regional strategy, based on identified community needs.
                This purpose is achieved through loans made to intermediaries that
                provide loans to ultimate recipients to promote community development,
                establish new businesses, establish and support microlending programs
                and create or retain employment opportunities in predominantly rural
                areas. The
                [[Page 72152]]
                regulations set forth the criteria the Agency uses via a point system
                to determine an eligible applicant's priority for available loan funds.
                 Since the enactment of the authorizing legislation, the passage of
                the Agriculture Improvement Act of 2018 (Farm Bill) has necessitated
                specific changes to this regulation. The Agency is also, through this
                rulemaking, improving processes, streamlining requirements, and
                providing clarity to daily administration of the program.
                II. Summary of Changes
                Farm Bill Specific Updates
                 The Farm Bill resulted in specific modifications to three topics:
                Limitation on loan amounts, evaluation, and return of equity (42 U.S.C.
                9812).
                 The limitation on loan amounts for ultimate recipient projects,
                including unpaid balance of any existing loans, is modified to allow a
                maximum loan to an ultimate recipient in the lesser of $400,000 or 50
                percent of the loan to the intermediary. In assigning priorities to
                applications, the Agency now requires an eligible entity to demonstrate
                that it has a governing or advisory board made up of business, civic
                and community leaders who are representative of the communities of the
                service area, without limitation to the size of the service area. Prior
                versions of the IRP limited intermediary service areas to no more than
                14 counties in order to receive points under this criterion. The Agency
                eliminated the reference to the 14-county service area to be consistent
                with the Farm Bill provision.
                 The Agency establishes a schedule that is consistent with the
                amortization schedules of the portfolio of loans made or guaranteed
                under the general requirements of the IRP, for the return of any equity
                contribution made under the program by an eligible entity that is
                current on all principal and interest payments and in compliance with
                the loan covenants. An intermediary with an IRP loan(s) where the cash
                portion of the IRP revolving loan fund includes fees, principal and
                interest payments received from the ultimate recipients and is not
                composed of any original Agency IRP loan funds may request a partial or
                full return of its contributed equity under the conditions outlined in
                the subpart: (1) The intermediary is current in all payments to the
                Agency and in compliance with all elements of their loan agreement and
                Agency reporting requirements; (2) the ratio of intermediary equity to
                the Agency loan after the return of equity remains consistent with the
                initial equity injection percentage by the intermediary; and (3) any
                return of an intermediary's equity from the revolving loan fund must be
                approved by the Agency in writing and is also limited to an amount that
                the Agency determines will not cause additional credit risk to the
                revolving loan fund.
                Across the Regulation Updates
                 The entire regulation was updated to make it easier to understand
                and more streamlined. Throughout this document, the Farm Bill changes
                are enacted, and minor edits were made that were not intended to change
                the meaning of the regulation, just to make it clearer, provide more
                clarification to the public, streamline the regulation, and make it
                easier for the public to understand. This includes deleting repetitive,
                unnecessary phrases; breaking up confusing, long sentences and
                paragraphs into small segments to be more easily understood; and re-
                organizing the document to make it flow and read more cleanly. This was
                done throughout the whole regulation.
                Introduction (Sec. 4274.301)
                 The changes in this regulation revision include an introductory
                section for loans made by the Agency to eligible intermediaries. This
                applies to borrowers, ultimate recipients, and other involved parties.
                Any complete applications that have been received but not funded, or
                funded applications where the loan has not yet been closed by the
                effective date of this regulation, will be processed under these new
                requirements. An intermediary borrower may use the Agency-prescribed
                self-election template for the Intermediary Relending Program (IRP), to
                have its existing loans (projects already approved and closed) and any
                loans approved under the previous regulation but not yet closed
                processed under these provisions. Other edits in this section were made
                to provide necessary clarification.
                Definitions (Sec. 4274.302)
                 The Definitions section, Sec. 4274.302, has been updated for a
                variety of reasons, including to be consistent with the Farm Bill,
                other Agency regulations, and provide needed clarity.
                 Administrator has been added to be consistent with other Agency
                regulations. Agency has been edited to be consistent with other Agency
                regulations. Affiliate has been updated and expanded to be consistent
                with other Agency regulations, specifically the OneRD Guarantee Loan
                Initiative, and clarify factors that will be used in determining
                whether affiliation exists. Agency IRP loan was added to distinguish
                between Agency loans and the existing term Agency IRP loan funds and
                also to distinguish the Agency's loan from an Intermediary's loan to an
                ultimate recipient. Agricultural production was changed to be
                consistent with other Agency regulations, specifically the OneRD
                Guarantee Loan Initiative. Aquaculture was added to the regulation to
                be consistent with other Agency programs, and to match the Value-Added
                Producer Grants definition. Citizenship has been changed to `Citizen'
                to simplify the definition. Community development was added to add
                context to references relating to program purpose and scoring. The Farm
                Bill clearly indicates it is an eligible purpose, so this was added for
                clarity. Conflict of interest was updated for consistency with other
                Agency programs and to add context to its reference in other parts of
                the regulation. Cooperative was added to eliminate confusion and
                establish consistency in its application when determining eligibility
                of applicable entities. Hydroponics was added to define it as an
                eligible use of funds and to distinguish it from agriculture
                production. This has been found to be a popular trend in the country
                and warranted some clarification. Immediate family was added to provide
                readers a list of relationships that constitute immediate family
                members to assist in determining if a conflict of interest exists when
                employing parties of an organization that may have a financial interest
                or tangible personal benefit in a business transaction. This definition
                is also consistent across other Business and Industry programs, and the
                OneRD Guarantee Loan Initiative program. Indian tribe was added to
                eliminate confusion and establish consistency in its application when
                determining eligibility of applicable entities. Intermediary was
                changed to add the common purpose of recapitalizing a revolving loan
                fund. Intermediary equity contribution was added to provide context to
                the use of the term under priority scoring of projects. IRP revolving
                loan fund was updated to provide clarity regarding the creation of the
                fund and the segregation of the account from other funds. Loan
                Agreement was added to define it as a debt instrument that acts as an
                agreement between an intermediary borrower and the Agency setting forth
                terms and conditions of the Agency IRP Loan. Military personnel was
                added to provide clarification to the term for eligibility purposes and
                to codify information that was previously addressed through
                Administrative
                [[Page 72153]]
                Notices. Public agency was added to eliminate confusion and establish
                consistency in its application when determining eligibility of
                applicable entities. Revolved funds was updated for clarity. The term
                ``rural and rural area'' was updated to be consistent with the Farm
                Bill. This will eliminate confusion and ensure consistency in
                application of the term throughout the Agency field offices and users
                of the regulation. Statewide nonmetropolitan median household income
                was deleted as it is not used in the regulation. Processing office or
                officer was deleted because this term is no longer used in the
                regulation. Technical assistance was updated to provide additional
                information on what constitutes technical assistance and to whom the
                assistance is provided. Underrepresented group was updated to provide
                examples of common demographic characteristics. Value-added
                agricultural product was added to provide consistency to other Agency
                programs, specifically the OneRD Guarantee Loan Initiative. Work plan
                was added to define the information components as the document is a
                required part of a complete application. Initial Agency IRP loan and
                Subsequent IRP loan were removed from the definitions as their use was
                causing confusion and a misconception as it relates to revolved funds
                and continuing compliance with program regulations. Also, there has
                been confusion regarding the continuance of the Federal character of
                funds once the funds revolved and projects were no longer funded from
                the Initial Agency IRP loan.
                 The regulations repeated definitions throughout, and duplications
                were removed to avoid confusion. For example, Sec. 4274.310(a) and (f)
                removed duplicate definitions of public agency, Indian Tribe,
                cooperative, and citizens. Section 4271.311(c) was also edited to avoid
                duplicating and confusing the definition of citizens.
                Review or Appeal Rights (Sec. 4274.303, Formerly Sec. 4274.373)
                 Discussion on Appeal Rights has been moved from the former Sec.
                4274.373 to Sec. 4274.303. Section 4274.303 was previously a reserved
                section. A description was added to clarify what appeal and review
                rights intermediaries have with respect to adverse Agency decisions, in
                accordance with 7 CFR part 11.
                Exception Authority (Sec. 4274.304, Formerly Sec. 4274.381)
                 Discussion on Exception Authority was moved from the former Sec.
                4274.381 to Sec. 4274.304. This section was revised to clarify that
                the Agency is authorized to exercise Exception Authority when use of
                such authority is in the best financial interest of the Federal
                Government and is not contrary to any applicable statutory authorities.
                Other Regulatory Requirements (Sec. 4274.305, Formerly Reserved)
                 The current rule is being updated to incorporate specific
                requirements of the applicable Rural Development environmental
                regulation, 7 CFR part 1970, ``Environmental Policies and Procedures.''
                In accordance with 7 CFR part 1970, intermediary lending is considered
                a Multi-Tier Action and all intermediaries must execute an Exhibit H to
                RD Instruction 1970-A, ``Multi-tier Action Environmental Compliance
                Agreement'' as part of their IRP application submitted to the Agency.
                In accordance with 7 CFR 1970.55, the intermediary must sign a
                certification that they have a National Environmental Policy Act (NEPA)
                staff capable of undertaking an environmental review that meets Agency
                standards. For intermediaries that do not have capable staff, the
                Agency has decided that State RBCS Program staff will deliver training
                to borrowers on the environmental process and how to determine whether
                a project is a categorical exclusion or requires an environmental
                assessment and review. Agency RBCS Program staff can also opt to assist
                with completing the NEPA categorical exclusion review with information
                provided by the intermediary or ultimate recipient.
                 In the case of each proposed loan from an intermediary to an
                ultimate recipient using Agency IRP loan funds, an environmental review
                will be completed in accordance with 7 CFR 1970.53 and 1970.54. This
                promulgation will also address whether a project funded from revolved
                program dollars is subject to NEPA requirements. Projects that do not
                qualify for a categorical exclusion, or which may be subject to an
                extraordinary circumstance under 7 CFR 1970.52, will be referred to the
                Agency for review under 7 CFR part 1970, subpart C.
                 Requirements for seismic safety of new building construction were
                revised to reference updated provisions of the most current version of
                the International Building Code (IBC) or two versions prior; currently
                that is 2021 IBC, 2018 IBC or 2015 IBC, or an above-code seismic
                standard that meets or exceeds the equivalent level of safety to that
                contained in the latest edition of the National Earthquake Hazard
                Reduction Programs (NEHRP) Recommended Provisions for the Development
                of Seismic Regulations for New Building (NEHRP Provisions).
                Eligibility Requirements--Intermediaries (Sec. 4274.310, Formerly
                Sec. 4274.307)
                 Section 4274.310 contains eligibility requirements for
                intermediaries. This section was in the former regulation at Sec.
                4274.307 and it was revised to provide clarity on process. It was
                updated to segregate lengthy paragraphs into smaller sections for
                clarity and ease of understanding. The term project completion was
                dropped and instead continuation was used as a more accurate and clear
                term. As most funds go on in perpetuity, it was the more appropriate
                term to use. Clarification was added under Section 4274.310(b) to state
                that if the intermediary is an affiliate of another entity, the
                intermediary's governing board must be independent of the affiliated
                entity. Section 4274.310(d) was expanded to clarify that the essential
                activities of a business lending operation and the administration of
                the IRP revolving loan fund must be conducted in-house by an employee
                of the intermediary; they may not routinely use outside entities for
                their lending outreach, loan underwriting, management, or day-to-day
                operations. Section 4274.310(j) was added to prohibit intermediaries
                that may be established for the purpose of, or that predominantly use
                IRP loan funds for, the financial benefit of an affiliate through loan
                participations or other funding methods.
                Eligibility Requirements--Ultimate Recipients (Sec. 4272.311, Formerly
                Sec. 4274.308)
                 Section 4274.311 contains eligibility criteria for Ultimate
                Recipients and was moved from its location in the previous regulation
                at Sec. 4274.308. This section was revised to provide clarity, but no
                substantive changes were made.
                Loan Purposes (Sec. 4274.320, Formerly Sec. 4274.314)
                 Eligible Loan Purposes are now outlined in the new Sec. 4274.320
                and were located in Sec. 4274.314 in the previous regulation.
                Paragraph (a) has been updated to provide a better explanation of
                intermediary responsibilities regarding Agency IRP loans. Aquaculture
                and hydroponics, commercial fishing, commercial nurseries, forestry,
                and value-added production will continue to be eligible loan purposes,
                but to minimize confusion, they have now been explicitly listed. In
                order to provide the necessary clarity for housing projects in the
                program, eligible use of funds for housing projects was better defined
                as limited to costs related to community
                [[Page 72154]]
                development projects, and not for the purchase of residential housing.
                Additional IRP revolving loan fund purposes were included as
                appropriate. Section 4274.320(c) was expanded to clarify the use of
                loan participations as an eligible loan purpose, including provisions
                that must be included in a loan participation agreement between lenders
                while also prohibiting the use of an open-ended participation agreement
                between the intermediary and any lender. A provision was also added
                that no more than 50 percent of the total intermediary loans to
                ultimate recipients may be sold or participated to an individual lender
                or affiliation of lenders.
                Ineligible Loan Purposes (Sec. 4274.321, Formerly Sec. 4274.319)
                 Ineligible loan purposes are outlined in Sec. 4274.321 and were
                formerly found in the prior regulation at Sec. 4274.319. In addition
                to reorganization, this section now has been updated to include
                additional information on conflict of interest prohibitions for
                clarification, agricultural production was modified to reference the
                now eligible activities in Sec. 4274.320(b)(15) through (19), and the
                Agency has increased the threshold for ineligibility due to annual
                gross revenue derived from gambling activities from 10 to 15 percent,
                as recent industry trends show an increase in revenue from gambling
                activities, including lease income from space or machines.
                Agency IRP Loan Conditions and Terms (Sec. 4274.330, Formerly Sec.
                4274.320)
                 Information about Loan Terms is now included in Sec. 4274.330,
                moved from the former location of Sec. 4274.320 in the previous
                regulation. In Sec. 4274.330(b), loan closing between the intermediary
                and Agency was revised to require that loan closing must take place
                within six months of loan approval or else funds will be deobligated.
                The rationale for this change is that the Agency has had numerous cases
                where projects are not closed for years. This nonuse of funds has had a
                negative effect on subsidy rates for the program and does not meet the
                intent of the program.
                 In Sec. 4274.330(c) loan terms between the intermediary and Agency
                are clarified to indicate that in the fourth year after loan closing,
                the loan will fully amortize, and that ``full amortization'' means
                principal and interest payments are due based on the total outstanding
                amount of the loan and not just on the amount drawn down and advanced
                to ultimate recipients. There has been past confusion on this issue, so
                the Agency is providing the necessary clarification in this update. All
                documents representing an interest in a participation loan made under
                Sec. 4274.320 were added at Sec. 4274.330(e)(2) to the list of
                documents that must be assignable.
                IRP Revolving Loan Fund Loan Conditions and Terms (Sec. 4274.331,
                Formerly Sec. 4274.320 and Sec. 4274.325)
                 In Sec. 4274.331(a)(1) the Agency clarifies IRP revolving loan
                fund loan conditions and terms between the intermediary and ultimate
                recipients. This section provides the needed clarification that
                interest rates are negotiated between the two parties and that rates
                must be the lowest rates sufficient to cover the loan's proportional
                share of the fund debt service reserve and administrative costs.
                Post Award Requirements (Sec. 4274.332)
                 Intermediaries can contract personnel for hire; however, Sec.
                4274.332(b)(2) prohibits contracting of essential activities, such as
                loan underwriting, or day-to-day operations.
                 In Sec. 4274.332(b)(3) language was revised to use ``debt service
                reserve'' in lieu of ``bad debt reserve.'' The revised term clarifies
                that funds may be used to ensure that adequate cash is available for
                the annual IRP loan installment(s) in the event that the IRP revolving
                loan fund has insufficient cash to make these payments. Some
                intermediaries interpreted ``bad debt reserve'' as available only to
                payoff bad debts; thus, there was needed clarification on the
                definition and term. Additional language was added that prohibits
                Agency IRP funds or funds from an encumbered source from being used to
                fund this account.
                 In Sec. 4274.332(b)(5) language was clarified that an intermediary
                cannot use funds for any investments in securities, or certificates of
                deposit over a 30-day duration. Certificates of deposit often come with
                penalties for withdrawals outside of a pre-determined period of time.
                IRP is not designed for investment of proceeds and therefore such a
                financial tool does not meet the intent of the program.
                Loan Agreements (Sec. 4274.333)
                 In Sec. 4274.333(a)(4)(i) and (ii) the Agency addresses the
                provisions for late charges on the intermediary loan by the Agency.
                There has been a disconnect in communication with borrowers on late fee
                assessments and interest calculations. Language was added here to
                notify readers that in the event of late fees being charged, that a
                notice will be sent to the intermediary identifying the per diem amount
                until the account becomes current. Guidance further explains that
                interest will be calculated on a 365-day basis unless otherwise stated
                in legal documents.
                Audit Opinion (Sec. 4274.333, Formerly in Sec. 4274.338)
                 In Sec. 4274.333(b)(4)(i)(A) the Agency removed the requirement
                for an unqualified audit opinion. Unlike an adverse opinion, the reason
                for the issuance of a qualified opinion generally has no impact on the
                fair presentation of the financial information provided; therefore, the
                Agency has determined that the blanket restriction on qualified
                opinions was placing an undue burden on applicants.
                The Disbursement Procedure (Sec. 4274.333, Formerly Sec. 4274.338)
                 Disbursement Procedures have been relocated from Sec. 4274.338 to
                Sec. 4274.333(a)(5) and have been updated to include current funds
                disbursement procedures. The Agency believes these procedures better
                provide the appropriate balance between safeguarding taxpayer funds and
                allowing the intermediaries to operate their funds according to their
                standards and practices.
                Applications (Sec. 4274.340, Formerly Sec. 4274.343)
                 Application requirements have been moved from Sec. 4274.343 in the
                prior regulation to Sec. 4274.340. This section was changed in format
                and layout to be consistent with other RBCS programs. In addition,
                necessary forms are indicated as well as an indication for where other
                online guidance can be found. Additional guidance on contracted
                personnel was added at Sec. 4274.340(a)(1)((ii)(A) through (C) to
                reinforce that contract personnel are for interim expertise and should
                only be used on an ``as needed'' basis.
                Processing Applications for Loans (Sec. 4274.341, Formerly Sec.
                4274.343)
                 Section 4274.341 (formerly Sec. 4274.343) was updated to clarify
                that applications are received on an ongoing basis but will compete for
                funds on a quarterly basis for available funds based on a priority
                score ranking. This section also modifies the priority scoring criteria
                to address current economic and community development demographics and
                program conditions, resulting in maximum utilization of the loan fund
                awards by addressing critical community and small business financing
                needs. The Agency is revising the scoring requirements found in this
                section as follows:
                 First. The scoring criteria, for base points, is being realigned to
                reduce
                [[Page 72155]]
                redundancy and focus on items that best ensure program dollars are
                targeted to communities the IRP was designed to assist. To ensure more
                equitable priority scoring, separate scoring criteria for initial
                applications and existing intermediaries seeking funds to replenish
                their revolving loan funds were created. Expanded scoring thresholds
                for equity contributions to the revolving loan fund are included. Due
                to the removal of the intermediary service area restriction, the Agency
                added a criterion regarding the makeup of the governing board of the
                organization. The Agency provided clarification on the median household
                income calculation used in scoring and reiterated that the source of
                unemployment information was the Department of Labor. To better
                prioritize projects, two new criteria were added. The first provides
                points if greater than 50 percent of the service area is experiencing
                trauma due to a natural disaster, and the second is for loan requests
                of $750,000 or less.
                 Second. Under the prior regulation, the leveraging criteria was
                calculated on three levels which caused confusion and inconsistencies
                in scoring projects and thereby affected whether the most noteworthy
                applicants were funded. The updated rule will only evaluate
                intermediary contributions toward ultimate recipient total project
                costs from its equity contributions to the IRP revolving loan fund. To
                incentivize the change, increased points will be awarded if the
                intermediary's equity contribution to an ultimate recipient project is
                50 percent or more of the project costs from 15 points to 25 points. An
                intermediary's equity contribution must be loaned out prior to, or on a
                pro rata basis, with Agency IRP loan funds.
                 Third. The scoresheet is being automated to remove repetitive
                criteria, reduce errors in mathematical calculations and include the
                Administrator points criteria. The Administrator points scoring was
                modified to two criteria, versus six criteria in the prior regulation.
                This change significantly reduces the subjective nature that can arise
                in awarding points and allows for a more objective process that is
                based purely on hard facts. As such, the number of Administrator points
                that can be awarded is reduced from 35 points to a maximum 10 points.
                The overall combined scoresheet is more user-friendly, cleanly outlined
                and complies with Department requirements to automate forms.
                Letter of Conditions (Sec. 4274.345, Formerly Sec. 4274.350)
                 There is minimum change to this section and the Agency has
                clarified that there are separate Agency forms, one for each of the
                Letter of Conditions, Letter of Intent to Meet Conditions and Request
                for Obligation of Funds, that must be completed by the intermediary.
                The Agency has also clarified that any changes to the letter of
                conditions proposed by the intermediary must be approved in writing by
                the Agency prior to finalization and approval of the letter of
                conditions.
                Loan Closing (Sec. 4274.346, Formerly Sec. 4274.356)
                 The format and layout of the loan closing documents, and process
                has been adjusted to be consistent with other RBCS programs.
                Loan Approval and Obligating Funds (Sec. 4274.351)
                 The format and layout have been adjusted to be consistent with
                other RBCS programs. The Request for Obligation of Funds was previously
                mentioned as administrative text and was needed, but the regulation now
                clarifies that the form is required.
                Loan Documentation for Ultimate Recipients (Sec. 4274.352, Formerly
                Sec. 4274.361)
                 Section 4274.352(b) was added to provide information on loans made
                by the intermediary with revolved funds as there has been confusion
                among Agency staff and intermediaries on the process and information
                required.
                Executive Orders and Other Certifications
                Executive Order 12866 and 13563
                 This final rule has been determined to be non-significant for
                purposes of Executive Order (E.O.) 12866 and 13563 and therefore has
                not been reviewed by the Office of Management and Budget (OMB).
                Assistance Listing Assistance Listing (Formerly Known as Catalog of
                Federal Domestic Assistance)
                 The assistance listing number for the program impacted by this
                action is 10.767, Intermediary Relending Program. All active assistance
                listing programs and the assistance listing catalog can be found at the
                following website: https://sam.gov/. The website also contains a PDF
                file version of the catalog that, when printed, has the same layout as
                the printed document that the Government Publishing Office (GPO)
                provides. GPO prints and sells the assistance listing to interested
                buyers. For information about purchasing the Catalog of Federal
                Domestic Assistance from GPO, call the Superintendent of Documents at
                (202) 512-1800 or toll free at (866) 512-1800, or access GPO's online
                bookstore at https://bookstore.gpo.gov.
                Executive Order 12372
                 This Program is not subject to the provisions of E.O. 12372, which
                requires intergovernmental consultation with State and local officials.
                Executive Order 12988
                 This rule has been reviewed under Executive Order 12988, Civil
                Justice Reform. RBCS has determined that this rule meets the applicable
                standards provided in Sec. 3 of the Executive Order. Additionally, (1)
                all State and local laws and regulations that are in conflict with this
                rule will be preempted; (2) no retroactive effect to the Executive
                Order will be given to the rule; and (3) administrative appeal
                procedures, if any, must be exhausted before litigation against the
                Department or its agencies may be initiated, in accordance with the
                regulations of the National Appeals Division of USDA at 7 CFR part 11.
                Executive Order 13132, Federalism
                 The policies contained in this rule do not have any substantial
                direct effect on States, on the relationship between the national
                government and the States, or on the distribution of power and
                responsibilities among the various levels of government. Nor does this
                final rule impose substantial direct compliance costs on State and
                local governments. Therefore, consultation with States is not required.
                Regulatory Flexibility Act
                 In compliance with the Regulatory Flexibility Act (5 U.S.C. 601 et
                seq.) the undersigned has determined and certified by signature of this
                document that this rule, while affecting small entities, will not have
                an adverse economic impact on small entities. This rule does not impose
                any significant new requirements on program recipients, nor does it
                adversely impact proposed real estate transactions involving program
                recipients as the buyers.
                National Environmental Policy Act/Environmental Impact Statement
                 This final rule has been reviewed in accordance with 7 CFR part
                1970 ``Environmental Policies and Procedures.'' Rural Development has
                determined that this action was
                [[Page 72156]]
                analyzed and meets the criteria established in 7 CFR 1970.53(f) and
                does not have any extraordinary circumstances and the action does not
                have a significant effect on the human environment, and therefore
                neither an Environmental Assessment nor an Environmental Impact
                Statement is required.
                Unfunded Mandates Reform Act
                 This final rule contains no Federal mandates (under the regulatory
                provisions of Title II of the UMRA) for State, local, and tribal
                governments, or the private sector. Thus, this rule is not subject to
                the requirements of Sec. Sec. 202 and 205 of the UMRA.
                E-Government Act Compliance
                 Rural Development is committed to complying with the E-Government
                Act, to provide increased opportunities for citizens to access
                Government information and services electronically to the maximum
                extent possible.
                Civil Rights Impact Analysis
                 Rural Development has reviewed this rule in accordance with USDA
                Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify any
                major civil rights impacts the rule might have on program participants
                on the basis of age, race, color, national origin, sex or disability.
                Based on the review and analysis of the rule and available data,
                application submission, and eligibility criteria, issuance of this
                Final Rule is not likely to adversely nor disproportionately impact low
                and moderate-income populations, minority populations, women, Indian
                tribes or persons with disability, by virtue of their race, color,
                national origin, sex, age, disability, or marital or familial status.
                Congressional Review Act
                 Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
                the Office of Information and Regulatory Affairs designated this rule
                as not a major rule, as defined by 5 U.S.C. 804(2).
                Executive Order 13211, Actions Concerning Regulations That
                Significantly Affect Energy Supply, Distribution, or Use
                 This final rule has been designated as non-significant by OMB under
                Executive Order 12866. The promulgation of this regulation will not
                have a significant effect on energy supply, distribution, or use.
                Executive Order 13175, Consultation and Coordination With Indian Tribal
                Governments
                 This rule has been reviewed in accordance with the requirements of
                Executive Order 13175, Consultation and Coordination with Indian Tribal
                Governments. Executive Order 13175 requires Federal agencies to consult
                and coordinate with tribes on a government-to-government basis on
                policies that have tribal implications, including regulations,
                legislative comments or proposed legislation, and other policy
                statements or actions that have substantial direct effects on one or
                more Indian tribes, on the relationship between the Federal Government
                and Indian tribes or on the distribution of power and responsibilities
                between the Federal Government and Indian tribes.
                 The USDA's Office of Tribal Relations (OTR) has assessed the impact
                of this rule on Indian tribes and concluded that this rule does not
                have substantial direct effects on one or more Indian tribes, on the
                relationship between the Federal Government and Indian tribes or on the
                distribution of power and responsibilities between the Federal
                Government and Indian tribes. OTR has determined that tribal
                consultation under E.O. 13175 is not required at this time. If
                consultation is requested, OTR will work with RD to ensure quality
                consultation is provided.
                USDA Non-Discrimination Policy
                 In accordance with Federal civil rights laws and U.S. Department of
                Agriculture (USDA) civil rights regulations and policies, the USDA, its
                Mission Areas, agencies, staff offices, employees, and institutions
                participating in or administering USDA programs are prohibited from
                discriminating based on race, color, national origin, religion, sex,
                gender identity (including gender expression), sexual orientation,
                disability, age, marital status, family/parental status, income derived
                from a public assistance program, political beliefs, or reprisal or
                retaliation for prior civil rights activity, in any program or activity
                conducted or funded by USDA (not all bases apply to all programs).
                Remedies and complaint filing deadlines vary by program or incident.
                 Program information may be made available in languages other than
                English. Persons with disabilities who require alternative means of
                communication to obtain program information (e.g., Braille, large
                print, audiotape, American Sign Language) should contact the
                responsible Mission Area, agency, or staff office; the USDA TARGET
                Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service
                at (800) 877-8339.
                 To file a program discrimination complaint, a complainant should
                complete a Form AD-3027, USDA Program Discrimination Complaint Form,
                which can be obtained online at https://www.ocio.usda.gov/document/ad-3027, from any USDA office, by calling (866) 632-9992, or by writing a
                letter addressed to USDA. The letter must contain the complainant's
                name, address, telephone number, and a written description of the
                alleged discriminatory action in sufficient detail to inform the
                Assistant Secretary for Civil Rights (ASCR) about the nature and date
                of an alleged civil rights violation. The completed AD-3027 form or
                letter must be submitted to USDA by:
                 (1) Mail: U.S. Department of Agriculture, Office of the Assistant
                Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC
                20250-9410; or
                 (2) Fax: (833) 256-1665 or (202) 690-7442; or
                 (3) Email: [email protected].
                Information Collection and Recordkeeping Requirements
                 In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
                3501 et seq.), the information collection activities associated with
                this rule are covered under OMB Number: 0570-0063. This final rule
                contains no new reporting or recordkeeping requirements that would
                require approval under the Paperwork Reduction Act of 1995.
                List of Subjects for 7 CFR Part 4274
                 Community development, Loan programs-business, Reporting and
                recordkeeping requirements, Rural areas.
                 For the reasons set forth in the preamble, 7 CFR part 4274 is
                amended as follows:
                PART 4274--DIRECT AND INSURED LOANMAKING
                0
                1. The authority citation for part 4274 continues to read as follows:
                 Authority: 5 U.S.C. 301; 7 U.S.C. 1932 note; 7 U.S.C. 1989.
                0
                2. Subpart D is revised to read as follows:
                Subpart D--Intermediary Relending Program (IRP)
                Sec.
                4274.301 Introduction.
                4274.302 Definitions.
                4274.303 Review or appeal rights.
                4274.304 Exception authority.
                [[Page 72157]]
                4274.305 Other regulatory requirements.
                4274.306-4274.309 [Reserved]
                4274.310 Eligibility requirements--intermediary.
                4274.311 Eligibility requirements--ultimate recipients.
                4274.312-4274.319 [Reserved]
                4274.320 Loan purposes.
                4274.321 Ineligible loan purposes.
                4274.322-4274.329 [Reserved]
                4274.330 Agency IRP loan conditions and terms.
                4274.331 IRP revolving loan fund loan conditions and terms.
                4274.332 Post award requirements.
                4274.333 Loan agreements between the Agency and the intermediary.
                4274.334-4274.339 [Reserved]
                4274.340 Application content and submittal.
                4274.341 Processing applications for loans.
                4274.342-4274.344 [Reserved]
                4274.345 Letter of conditions.
                4274.346 Agency IRP loan closing.
                4274.347-4274.350 [Reserved]
                4274.351 Loan approval and obligating funds.
                4274.352 Loan documentation for ultimate recipients.
                4274.353-4274.359 [Reserved]
                Subpart D--Intermediary Relending Program (IRP)
                Sec. 4274.301 Introduction.
                 (a) This subpart contains regulations for loans made by the Agency
                to eligible intermediaries. This applies to borrowers, ultimate
                recipients and other parties involved in making such loans. The
                provisions of this subpart supersede conflicting provisions of any
                other subpart. All complete applications received before December 21,
                2021 will be processed, awarded, and serviced in accordance with the
                existing regulatory provisions in effect at the complete application
                date for the program under which the application was submitted. An
                intermediary borrower may use the Agency-prescribed self-election
                template, available at the USDA Rural Development website under
                ``Details'' in the RBCS IRP program section to have its existing loans,
                and any loans approved under the previous regulation but not yet
                closed, serviced under these provisions.
                 (b) The purpose of the program is to alleviate poverty and increase
                economic activity and employment in rural communities, especially
                disadvantaged and remote communities in partnership with other public
                and private resources, and in accordance with State and regional
                strategy based on identified community needs. This purpose is achieved
                through loans made to intermediaries that establish a revolving loan
                fund for the purpose of providing loans to ultimate recipients to
                promote community development, establish new businesses, establish and
                support microlending programs, and create or retain employment
                opportunities in rural areas.
                 (c) Intermediaries are required to identify any known relationship
                or association with an Agency employee. Any processing or servicing
                Agency activity conducted pursuant to this subpart involving authorized
                assistance to Agency employees, members of their families, close
                relatives, or business or close personal associates, is subject to the
                provisions of 7 CFR part 1900, subpart D.
                 (d) Copies of all forms, regulations, and Agency procedures
                referenced in this subpart are available at USDA Rural Development's
                website under the ``Resources'' section, in the Rural Development
                National Office, or any Agency State Office.
                Sec. 4274.302 Definitions.
                 The following definitions are applicable to the terms used in this
                subpart.
                 Administrator. The Administrator of the Rural Business-Cooperative
                Service within the Rural Development mission area of the U.S.
                Department of Agriculture (USDA).
                 Affiliate. Affiliate means individuals and entities are affiliates
                of each other when:
                 (1) One controls or has the power to control the other, or a third
                party or parties controls or has the power to control both. Factors
                such as ownership, management, current and previous relationships with
                or ties to another concern, and contractual relationships, shall be
                considered in determining whether affiliation exists. It does not
                matter whether control is exercised, so long as the power to control
                exists. Concerns owned and controlled by Indian Tribes, Alaska Native
                Corporations (ANC), Native Hawaiian Organizations (NHO), Community
                Development Corporations (CDC), or wholly-owned entities of Indian
                Tribes, ANCs, NHOs, or CDCs, are not considered to be affiliated with
                other concerns owned by these entities because of their common
                ownership or common management.
                 (2) There is an identity of interest between immediate family with
                identical or substantially identical business or economic interests
                (such as where the immediate family operate concerns in the same or
                similar industry in the same geographic area); however, an individual
                or entity may rebut that determination with evidence showing that the
                interests deemed to be one are in fact separate.
                 Agency. The Rural Business-Cooperative Service (RBCS) that has the
                responsibility to administer the Intermediary Relending Program (IRP).
                 Agency IRP loan. An IRP loan from the Agency to an intermediary
                with established terms and evidenced by a loan agreement and promissory
                note between parties.
                 Agency IRP loan funds. Cash proceeds of an Agency IRP loan received
                by an intermediary are considered Agency IRP loan funds.
                 Agricultural production or agriculture production. The cultivation,
                growing, or harvesting of plants and crops (including farming)
                breeding, raising, feeding, or housing of livestock (including
                ranching); forestry products, hydroponics, or nursery stock; or
                aquaculture.
                 Aquaculture. The commercial cultivation of aquatic animals and
                plants in natural or controlled marine or freshwater environments.
                 Citizen. An individual who is a citizen of the United States or
                resides in any State in the United States after being legally admitted
                for permanent residence.
                 Community development. Advancing livable and vibrant communities
                through coordinated approaches to economic, environmental, and human
                development by means of comprehensive business-based technical and
                financial assistance.
                 Conflict of interest. A situation in which a person or entity has
                competing personal, professional, or financial interests that make it
                difficult for the person or business to act impartially, or there is a
                real or perceived benefit from engaging in certain projects or
                transactions. Regarding use of both grant and matching funds, Federal
                procurement standards prohibit transactions that involve a real or
                apparent conflict of interest for owners, employees, officers, agents,
                their immediate family members, partners, or an organization which is
                about to employ any of the parties indicated herein, having a financial
                or other interest in or tangible personal benefit from the outcome of
                the project; or that restrict open and free competition for
                unrestrained trade. Specifically, project funds may not be used for
                services or goods going to, or coming from, a person or entity with a
                real or apparent conflict of interest, including, but not limited to,
                owner(s) and their immediate family members and as stated in Sec.
                4274.321(b)(4).
                 Cooperative. An entity that is legally chartered by a State in
                which it operates as a cooperatively-operated business, or an entity
                that is not legally chartered as
                [[Page 72158]]
                a cooperative but is owned and operated for the benefit of its members,
                with the return of residual earnings paid to such members on the basis
                of patronage.
                 Hydroponics. The commercial cultivation of plants by placing the
                roots in liquid nutrient solutions rather than in soil.
                 Immediate family. Individuals who live in the same household or who
                are closely related by blood, marriage, or adoption, such as a spouse,
                domestic partner, parent, child, stepchild, sibling, aunt, uncle,
                grandparent, grandchild, niece, nephew, or first cousin.
                 Indian tribe. The term as defined in 25 U.S.C. 5304(e); any Indian
                tribe, band, nation, or other organized group or community, including
                any Alaska Native village or regional or village corporation as defined
                in or established pursuant to the Alaska Native Claims Settlement Act
                (85 Stat. 688) [43 U.S.C. 1601 et seq.], which is recognized as
                eligible for the special programs and services provided by the United
                States to Indians because of their status as Indians.
                 Intermediary. The entity requesting or receiving, as applicable,
                Agency IRP loan funds for establishing or recapitalizing an IRP
                revolving loan fund and relending to ultimate recipients.
                 Intermediary equity contribution. Represents an intermediary's
                investment in the IRP revolving loan fund, in the form of cash and
                unencumbered ownership in an amount determined by the applicant. This
                must be contributed to the IRP revolving loan fund prior to, or
                concurrently to, the disbursement of Agency IRP loan funds from the
                Agency. This contribution becomes restricted and must remain as equity
                in the IRP revolving loan fund subject to the provisions of Sec. Sec.
                4274.332(d) and 4274.341(b)(1) and (2).
                 IRP revolving loan fund. A group of assets:
                 (1) Obtained through or related to an Agency IRP loan; and
                 (2) Accounted for, along with related liabilities, revenues, and
                expenses, as an entity or enterprise separate from the intermediary's
                other assets and financial activities.
                 Loan agreement. The agreement, which utilizes the requisite OMB-
                approved form, between the Agency and the intermediary setting forth
                the terms and conditions of the Agency IRP loan.
                 Military personnel. Individuals currently on active duty in the
                regular service, having enlisted from civilian or Reserve Officers'
                Training Corps status, or individuals on active duty in the regular
                service with more than six months until their anticipated date of
                release from service.
                 Principals of intermediary. Members, officers, directors, and other
                individuals or entities directly involved in the operation and
                management, including those setting policy, of an intermediary.
                 Public agency. Any State, Indian Tribal or local government, or any
                branch or agency of such government having authority to act on behalf
                of that government, to borrow funds and engage in activities eligible
                for funding under this subpart.
                 Revolved funds. The cash portion of an IRP revolving loan fund that
                includes fees, principal, and interest payments received from ultimate
                recipients and is not composed of any Agency IRP loan funds.
                 Rural or rural area. Any area of a State not in a city or town that
                has a population of more than 50,000 inhabitants, and which excludes
                certain populations pursuant to 7 U.S.C. 1991(a)(13)(H), according to
                the latest decennial census of the United States and not in the
                urbanized area contiguous and adjacent to a city or town that has a
                population of more than 50,000 inhabitants. In making this
                determination, the Agency will use the latest decennial census of the
                United States. The following exclusions apply:
                 (1) Any area in the urbanized area contiguous and adjacent to a
                city or town that has a population of more than 50,000 inhabitants that
                has been determined to be ``rural in character'' as follows:
                 (i) The determination that an area is ``rural in character'' will
                be made by the Under Secretary of Rural Development. The process to
                request a determination under this provision is outlined in paragraph
                (1)(ii) of this definition. The determination that an area is ``rural
                in character'' under this definition will apply to areas that are
                within:
                 (A) An urbanized area that has two points on its boundary that are
                at least 40 miles apart, which is not contiguous or adjacent to a city
                or town that has a population of greater than 150,000 inhabitants or
                the urbanized area of such a city or town; or
                 (B) An urbanized area contiguous and adjacent to a city or town of
                greater than 50,000 inhabitants that is within \1/4\ mile of a rural
                area.
                 (ii) Units of local government may petition the Under Secretary of
                Rural Development for a ``rural in character'' designation by
                submitting a petition to the appropriate Rural Development State
                Director for recommendation to the Administrator on behalf of the Under
                Secretary. The petition shall document how the area meets the
                requirements of paragraph (1)(i)(A) or (B) of this definition and
                discuss why the petitioner believes the area is ``rural in character,''
                including, but not limited to, the area's population density,
                demographics, and topography and how the local economy is tied to a
                rural economic base. Upon receiving a petition, the Under Secretary
                will consult with the applicable governor or leader in a similar
                position and request comments to be submitted within five business
                days, unless such comments were submitted with the petition. The Under
                Secretary will release to the public a notice of a petition filed by a
                unit of local government not later than 30 days after receipt of the
                petition by way of publication in a local newspaper and posting on the
                Rural Development State Office website and the Under Secretary will
                make a determination not less than 15 days, but no more than 60 days,
                after the release of the notice. Upon a negative determination, the
                Under Secretary will provide to the petitioner an opportunity to appeal
                a determination to the Under Secretary, and the petitioner will have 10
                business days to appeal the determination and provide further
                information for consideration. The Under Secretary will make a
                determination of the appeal in not less than 15 days, but no more than
                30 days.
                 (iii) Rural Development State Directors may also initiate a request
                to the Under Secretary to determine if an area is ``rural in
                character.'' A written recommendation should be sent to the
                Administrator, on behalf of the Under Secretary, that documents how the
                area meets the statutory requirements of paragraph (1)(i)(B) of this
                definition and discusses why the State Director believes the area is
                ``rural in character,'' including, but not limited to, the area's
                population density, demographics, topography, and how the local economy
                is tied to a rural economic base. Upon receipt of such a request, the
                Administrator will review the request for compliance with the ``rural
                in character'' provisions and make a recommendation to the Under
                Secretary. Provided a favorable determination is made, the Under
                Secretary will consult with the applicable Governor and request
                comments within 10 business days, unless gubernatorial comments were
                submitted with the request. A public notice will be published by the
                State Office in accordance with paragraph (1)(ii) of this definition.
                There is no appeal process for requests made on the initiative of the
                State Director.
                 (2) An area that is attached to the urbanized area of a city or
                town with more than 50,000 inhabitants by a
                [[Page 72159]]
                contiguous area of urbanized census blocks that is not more than two
                census blocks wide. Applicants from such an area should work with their
                Rural Development State Office to request a determination of whether
                their project is located in a rural area under this provision.
                 (3) For the Commonwealth of Puerto Rico, the island is considered
                rural and eligible except for the San Juan Census Designated Place
                (CDP) and any other CDP with greater than 50,000 inhabitants. Areas
                within CDPs with greater than 50,000 inhabitants, other than the San
                Juan CDP, may be determined to be Rural if they are not urban in
                character.
                 (4) For the State of Hawaii, all areas within the State are
                considered rural and eligible except for the Honolulu CDP within the
                County of Honolulu and any other CDP with greater than 50,000
                inhabitants. Areas within CDPs with greater than 50,000 inhabitants,
                other than the Honolulu CDP, may be determined to be Rural if they are
                not urban in character.
                 (5) For the purpose of defining a rural area in the Republic of
                Palau, the Federated States of Micronesia, and the Republic of the
                Marshall Islands, the Agency shall determine what constitutes rural and
                rural area based on available population data.
                 State. Any of the 50 States of the United States, the Commonwealth
                of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the
                Commonwealth of the Northern Mariana Islands, the Republic of Palau,
                the Federated States of Micronesia, and the Republic of the Marshall
                Islands.
                 Technical assistance. A function performed for the benefit of an
                ultimate recipient, or proposed ultimate recipient, that is a problem-
                solving activity that assists the ultimate recipient in selecting,
                initiating, or completing a project. The Agency will determine whether
                a specific activity qualifies as technical assistance.
                 Ultimate recipient. An entity or individual that receives a loan
                from an intermediary's IRP revolving loan fund.
                 Underrepresented group. U.S. citizens with identifiable common
                characteristics, (including, but not limited to, racial and ethnic
                minorities, disabled and/or gender) that have not received IRP
                assistance or have received a lower percentage of total IRP dollars
                than the percentage they represent of the general population.
                 Value-added agricultural product. Any agricultural commodity that
                meets the requirements specified here. The agricultural commodity must
                meet one of the following value-added methodologies:
                 (1) Has undergone a change in physical state;
                 (2) Is a source of farm or ranch-based renewable energy; or
                 (3) Is aggregated and marketed as a locally produced agricultural
                food product.
                 Work plan. A narrative provided by the intermediary that
                demonstrates the feasibility of the intermediary and its lending
                program to meet the objectives of the IRP program, including a set of
                goals, strategies, anticipated outcomes, and well-developed targeting
                criteria for assisting eligible ultimate recipients.
                Sec. 4274.303 Review or appeal rights.
                 An intermediary may have appeal or review rights for adverse Agency
                decisions made under this part. Agency decisions that are adverse to
                the individual participant are appealable, while matters of general
                applicability are not subject to appeal; however, such decisions are
                reviewable for appealability by the National Appeals Division (NAD).
                All appeals will be conducted by NAD and will be handled in accordance
                with 7 CFR part 11.
                Sec. 4274.304 Exception authority.
                 The Administrator may, on a case-by-case basis, grant an exception
                to any requirement or provision of this subpart provided that such an
                exception is in the best financial interests of the Federal government.
                Exercise of this authority cannot be in conflict with applicable law.
                Sec. 4274.305 Other regulatory requirements.
                 (a) Intergovernmental consultation. The approval of an Agency IRP
                loan to an intermediary is subject to intergovernmental consultation in
                accordance with Executive Order 12372. For ultimate recipients located
                in States where the State has elected to review the program under the
                intergovernmental review process, in accordance with Executive Order
                12372, the intermediary and ultimate recipient must submit a
                notification in the form of a project description to the State single
                point of contact. The intermediary must include any comments from the
                State with the intermediary's request to use the Agency IRP loan funds
                for the ultimate recipient. Prior to the Agency's decision on the
                request, the ultimate recipient must demonstrate compliance with the
                requirements of intergovernmental consultation. These requirements are
                set forth in 2 CFR part 415, subpart C, General Program Administrative
                Regulations.
                 (b) Environmental requirements. The requirements of 7 CFR part 1970
                apply to this subpart. Intermediaries and ultimate recipients must
                consider the potential environmental impacts of their projects at the
                earliest planning stages and develop plans in order to minimize the
                potential to adversely impact the environment. Both the intermediaries
                and the ultimate recipients must cooperate and furnish such information
                and assistance as the Agency needs to make any of its environmental
                determinations.
                 (1) All IRP loans between the Agency and the intermediary are
                considered categorical exclusions absent the existence of extraordinary
                circumstances in accordance with 7 CFR part 1970. All intermediaries
                must execute an Exhibit H, ``Multi-tier Action Environmental Compliance
                Agreement,'' to RD Instruction 1970-A as part of their IRP application
                submitted to the Agency. The intermediary must sign a certification
                that they have National Environmental Policy Act (NEPA) staff capable
                of undertaking an environmental review that meets Agency standards. For
                intermediaries that don't have capable staff, the Agency will deliver
                sufficient training to intermediaries on the environmental process and
                how to determine whether an ultimate recipient project is a categorical
                exclusion or requires an environmental assessment and review.
                 (2) For each proposed loan from an intermediary to an ultimate
                recipient using Agency IRP loan funds, an environmental review will be
                completed in accordance with 7 CFR 1970.55. For projects that do not
                qualify for a categorical exclusion, or which may be subject to an
                extraordinary circumstance under 7 CFR 1970.52, the intermediary will
                refer the project to the Agency for review under 7 CFR part 1970,
                subpart C. The intermediary retains responsibility for providing
                sufficient information for the Agency to make an environmental
                determination, though Agency staff may also opt to complete the
                environmental review with information provided by either the
                intermediary or ultimate recipient.
                 (3) The Agency will prepare an environmental impact statement for
                any application for a loan from Agency IRP loan funds determined to
                have a significant adverse effect on the quality of the human
                environment.
                 (c) Equal opportunity and nondiscrimination requirements. In
                accordance with Title V of Public Law 93-495, the Equal Credit
                Opportunity Act, and section 504 of the Rehabilitation Act for
                Federally
                [[Page 72160]]
                Conducted Programs and Activities, neither the intermediary nor the
                Agency will discriminate against any employee, intermediary, or
                proposed ultimate recipient on the basis of sex, marital status, race,
                color, religion, national origin, age, physical or mental disability
                (provided the intermediary or proposed ultimate recipient has the
                capacity to contract), because all or part of the intermediary's or
                proposed ultimate recipient's income is derived from public assistance
                of any kind, or because the intermediary or proposed ultimate recipient
                has in good faith exercised any right under the Consumer Credit
                Protection Act, with respect to any aspect of a credit transaction
                anytime any cash of the IRP revolving loan fund is involved.
                 (1) The civil rights compliance requirements contained in 7 CFR
                part 1901, subpart E, apply to intermediaries and ultimate recipients.
                 (2) The Agency will ensure that equal opportunity and
                nondiscrimination requirements are met in accordance with the Equal
                Credit Opportunity Act, Title VI of the Civil Rights Act of 1964,
                ``Nondiscrimination in Federally Assisted Programs,'' 42 U.S.C. 2000d-
                4, Sec. 504 of the Rehabilitation Act for Federally Conducted Programs
                and Activities, the Age Discrimination Act of 1975, and the Americans
                With Disabilities Act of 1990 (as amended).
                 (d) Seismic safety of new building construction. The IRP is subject
                to the provisions of Executive Order 12699, which require each Federal
                agency assisting in the financing, through Federal grants or loans, or
                guaranteeing the financing, through loan or mortgage insurance
                programs, of newly constructed buildings to assure appropriate
                consideration of seismic safety.
                 (1) All new buildings financed from the IRP revolving loan fund,
                whether directly or through participations, must be designed and
                constructed in accordance with the seismic provisions of the most
                current version of the International Building Code (IBC) or two
                versions prior; currently that is 2021 IBC, 2018 IBC or 2015 IBC, or an
                above-code seismic standard that meets or exceeds the equivalent level
                of safety to that contained in the latest edition of the National
                Earthquake Hazard Reduction Programs (NEHRP) Recommended Provisions for
                the Development of Seismic Regulations for New Building (NEHRP
                Provisions.)
                 (2) The date, signature, and seal of a registered architect or
                engineer and the identification and date of the model building code on
                the plans and specifications constitutes evidence of compliance with
                the seismic requirements of the appropriate code.
                Sec. 4274.306-Sec. 4274.309 [Reserved]
                Sec. 4274.310 Eligibility requirements--intermediaries.
                 To be eligible to receive an Agency IRP loan, an intermediary must
                comply with the requirements specified in paragraphs (a) through (i) of
                this section.
                 (a) Type of entity. The intermediary must be one of the following
                types of entities:
                 (1) A private nonprofit corporation;
                 (2) A public agency;
                 (3) An Indian Tribe; or
                 (4) A cooperative.
                 (b) Legal authority. The intermediary must have the legal authority
                necessary for carrying out the proposed loan purposes and for
                obtaining, giving security for, and repaying the proposed loan. If the
                intermediary is an affiliate of another entity, the intermediary's
                governing board must be independent of the affiliated entity.
                 (c) Proven record. The intermediary must have a proven lending
                record of successfully assisting rural business and industry or, for
                intermediaries that propose to finance community development, a proven
                lending record of successfully assisting rural community development
                projects of the type planned. The intermediary must have the capacity
                to conduct outreach and marketing, the underwriting of loan
                applications, and provide the servicing and monitoring of its proposed
                IRP portfolio.
                 (1) Except as provided in paragraph (c)(2) of this section, such
                record must include recent experience in loan making and servicing with
                loans that are similar in nature to those proposed by the intermediary
                and a delinquency and loss rate acceptable to the Agency. Any request
                for an exception must be specifically addressed in the loan application
                and be supported with concluding statements that relate to the items
                specified in paragraphs (c)(2)(i) and (ii) of this section.
                 (2) The Agency may approve an exception to the requirement for loan
                making and servicing experience provided the intermediary:
                 (i) Itself has a proven record of successfully assisting (other
                than through lending) rural business and industry or rural community
                development projects through technical assistance or business
                development projects to the type and size of planned ultimate recipient
                borrowers; and
                 (ii) Will, before the loan is closed, employ individuals with loan
                making and servicing experience and qualifications and expertise for
                the operation and administration of an IRP revolving loan fund as
                described in Sec. 4274.340(a)(1)(ii). These shall not include
                contracted staff and staff from affiliates of the intermediary.
                 (d) Staff. The intermediary itself must employ a staff with loan
                making and servicing expertise acceptable to the Agency. The
                intermediary may contract for general services, such as, clerical,
                administrative, and accounting services, and loan packaging. The
                intermediary may not routinely contract their lending outreach, loan
                underwriting, management, or day-to-day operations. Essential
                activities of a business lending operation and the administration of
                the IRP revolving loan fund must be conducted in-house.
                 (e) Capitalization/equity. The intermediary's balance sheet must
                have capitalization or equity acceptable to the Agency and deemed
                sufficient to sustain its lending and business operations.
                 (f) Citizens. At least 51 percent of the outstanding interest or
                membership in any nonpublic body intermediary must be composed of
                citizens.
                 (g) Delinquent debt. An intermediary is ineligible to receive an
                Agency IRP loan if the intermediary or any principal of the
                intermediary has any delinquent debt to the Federal government. Agency
                IRP loan funds cannot be used to satisfy the delinquent debt.
                 (h) Conditions. No loans will be extended to an intermediary
                unless:
                 (1) There is adequate assurance of repayment of the loan based on
                the fiscal and managerial capabilities of the intermediary itself; and
                 (2) The amount of the loan, together with other funds available, is
                adequate to ensure the continuation or establishment of an effective
                IRP revolving loan fund or achieve the purposes for which the loan is
                made.
                 (i) Other financing unavailable. The intermediary must be unable to
                finance the continuation or establishment of an effective IRP revolving
                loan fund from its own resources, or through commercial credit, or from
                other Federal, State, or local programs at reasonable rates and terms.
                 (j) Restrictions. Intermediaries established for the purpose of, or
                that predominantly use IRP loan funds for, the financial benefit of an
                affiliate through loan participations or other funding methods will not
                be allowed.
                Sec. 4274.311 Eligibility requirements--ultimate recipients.
                 To be eligible for a loan from an intermediary under this subpart,
                an ultimate recipient must meet or comply with the requirements
                specified in
                [[Page 72161]]
                paragraphs (a) through (g) of this section.
                 (a) Type of entity. The ultimate recipient must be a legal entity
                that can incur debt, including but not limited to, an individual; a
                public organization; a private organization; or other legal entity.
                 (b) Legal authority. The ultimate recipient must have the legal
                authority to incur the debt and carry out the purpose of the loan.
                 (c) Citizens. An individual ultimate recipient must be a citizen.
                In the case of an entity ultimate recipient, at least 51 percent of the
                outstanding membership or ownership of the entity must be citizens.
                 (d) Location. The ultimate recipient project must be located in an
                eligible rural area, although funds may also be used for community
                projects that predominantly serve rural residents of a State.
                Predominantly serves means more than 50 percent of the ultimate
                recipient's service is to rural residents of a State.
                 (e) Other financing unavailable. The ultimate recipient must be
                unable to finance the entirety of the proposed project from its own
                resources, or through commercial credit or from other Federal, State,
                or local programs at reasonable rates and terms.
                 (f) Legal or financial influence. (1) The intermediary and its
                principals (including immediate families) must hold no legal or
                financial interest or influence in or with the ultimate recipient as
                this is considered a conflict of interest, as defined. However, this
                paragraph does not prevent an intermediary that is organized as a
                cooperative from making a loan to one of its members per Sec.
                4274.321(b)(4) of this subpart.
                 (2) The ultimate recipient must, along with its principals
                (including their immediate families), hold no legal or financial
                interest or influence in or with the intermediary as per Sec.
                4274.321(b)(4) as this is considered a conflict of interest, as
                defined.
                 (g) Delinquent debt. An ultimate recipient is ineligible to receive
                a loan from IRP loan funds if the ultimate recipient or any of its
                principals has any federal delinquent debt or is debarred from engaging
                in business with the Federal government. IRP loan funds may not be used
                to satisfy any Federal delinquent debt or used to make an otherwise
                ineligible ultimate recipient eligible for IRP loan funds.
                 (h) Fund usage. Ultimate recipients must demonstrate, to the
                Agency's satisfaction, that loan funds will remain in the United States
                and the facility being financed will primarily create new or save
                existing jobs for rural U.S. residents.
                Sec. 4274.312-Sec. 4274.319 [Reserved]
                Sec. 4274.320 Loan purposes.
                 (a) Agency IRP loans. The intermediary must deposit the Agency IRP
                loans into the intermediary's IRP revolving loan fund to provide loans
                directly to eligible ultimate recipients or in cooperation with banks
                and other lending organizations through loan participation agreements.
                 (b) IRP revolving loan fund loans. Ultimate recipients receiving
                loans from an IRP revolving loan fund must use those loans for business
                or community development projects and for projects that predominately
                serve communities and residents in rural areas.
                 (1) The Secretary may relend funds to eligible intermediaries for
                projects that:
                 (i) Promote community development;
                 (ii) Establish new businesses;
                 (iii) Establish and support microlending programs; and
                 (iv) Create or retain employment opportunities.
                 (2) Such loan purposes may include, but are not limited to, those
                purposes identified in paragraphs (b)(2)(i) through (xx) of this
                section.
                 (i) Business and industrial acquisitions when the loan will keep
                the business from closing, prevent the loss of employment
                opportunities, or provide expanded job opportunities.
                 (ii) Business construction, conversion, enlargement, repair,
                modernization, or development.
                 (iii) Purchase and development of land, easements, rights-of-way,
                buildings, facilities, leases, or materials.
                 (iv) Purchase of equipment, leasehold improvements, machinery, or
                supplies.
                 (v) Pollution control and abatement.
                 (vi) Transportation services.
                 (vii) Start-up operating costs and working capital.
                 (viii) Interest (including interest on interim financing) during
                the period before the facility becomes income producing, but not to
                exceed three years.
                 (ix) Feasibility studies.
                 (x) Debt refinancing.
                 (A) The intermediary is responsible for making prudent lending
                decisions based on sound underwriting principles when considering the
                restructuring of an ultimate recipient's debt.
                 (B) Refinancing debts may be allowed only when it is determined by
                the intermediary that the project is viable, and refinancing is
                necessary to create new or save existing jobs or create or continue a
                needed service.
                 (xi) Reasonable fees and charges to the ultimate recipient are
                allowed only as specifically listed in this paragraph. Authorized fees
                include loan documentation and fees for recording a collateral lien,
                environmental data collection fees, management consultant fees, and
                other fees for services rendered by professionals in relation to the
                loan project. Professionals are generally persons licensed by States or
                accreditation associations, such as engineers, architects, lawyers,
                accountants, and appraisers. Additional charges to the ultimate
                recipient, whether by a fee or interest rate increase, for an
                intermediary's costs related to loan participations are not allowed. In
                addition, the intermediary shall not be charged fees related to the
                purchase or sale of a loan participation. The maximum amount of any fee
                will be what is reasonable and customary in the community or region
                where the project is located; provided, however, that all costs must be
                actual costs and shall not be marked-up beyond actual cost. Any such
                fees or charges are to be fully documented and justified.
                 (xii) Hotels, motels, tourist homes, bed and breakfast
                establishments, nonowner-occupied real estate, convention centers, and
                other tourist and recreational facilities except as prohibited by Sec.
                4274.321. These types of facilities are allowed when the pro rata
                value, supported by an analysis of the supporting real estate
                appraisal, of the owner's living quarters is deleted from the appraised
                value.
                 (xiii) Educational institutions.
                 (xiv) Revolving lines of credit provided the portion of the
                intermediary's total IRP revolving loan fund that is committed to, or
                in use for revolving lines of credit, will not exceed 25 percent at any
                time.
                 (A) All ultimate recipients receiving revolving lines of credit
                must reduce the outstanding balance of the revolving line of credit to
                zero at least once each year.
                 (B) The intermediary must approve all revolving lines of credit for
                a specific maximum amount and for a specific maximum time period, not
                to exceed two years.
                 (C) The intermediary must provide a detailed description, which
                will be incorporated into the intermediary's work plan and be subject
                to Agency approval, of how the revolving lines of credit will be
                operated and managed. The description must include evidence that the
                intermediary has an adequate system for:
                 (1) Interest calculations on varying balances; and
                 (2) Monitoring and control of the ultimate recipients' cash,
                inventory, and accounts receivable.
                [[Page 72162]]
                 (D) If, at any time, the Agency determines that an intermediary's
                operation of revolving lines of credit is causing excessive risk of
                loss for the intermediary or the government, the Agency may terminate
                the intermediary's authority to use the IRP revolving loan fund for
                revolving lines of credit. Such termination will be by written notice
                and will prevent the intermediary from approving any new lines of
                credit or extending any existing revolving lines of credit beyond the
                effective date of termination contained in the notice.
                 (xv) Aquaculture and hydroponics, as defined in this subpart.
                 (xvi) Commercial fishing.
                 (xvii) Commercial nurseries engaged in the production of ornamental
                plants and trees and other nursery products such as bulbs, flowers,
                shrubbery, flower and vegetable seeds, sod, and the growing of plants
                from seed to the transplant stage.
                 (xviii) Forestry, which includes businesses primarily engaged in
                the commercial operation of timber tracts, tree farms, and forest
                nurseries and related activities such as reforestation.
                 (xix) Value-added production.
                 (xx) Housing, only when related to community development projects
                and, limited to working capital, equipment, pre-business development
                costs, and other such business purposes. Agency IRP loan funds may be
                used to assist a housing project planner, a housing project builder, a
                construction sub-contractor (indirect soft costs such as architectural,
                engineering and legal fees), or for any other business-related aspect
                of a housing project that is separate from the sale and/or purchase
                transaction involved in transferring ownership of a single or multi-
                family dwelling. While the proceeds from a sale might be used by an
                ultimate recipient to repay an Agency IRP loan, an Agency IRP loan
                cannot be used to finance a residential housing purchase. Agency IRP
                loans may not be used to assist in the purchase of residential housing
                (single, multiple dwelling, etc.) as financial assistance moves outside
                of community development when the financial assistance (a mortgage
                loan) is requested for a purchase.
                 (c) Participations. (1) Loans made to eligible ultimate recipients
                by eligible intermediaries in cooperation with banks and other
                organizations through loan participation agreements shall be considered
                an eligible loan to an ultimate recipient for the purposes of this
                program. Loan participations are allowed in the IRP program, subject to
                the provisions of this regulation, with the intent to assist
                intermediaries in the management of their revolving loan fund, to meet
                the needs of larger ultimate recipient projects, and to promote
                cooperation in community projects where multiple lenders may be
                involved. In a participation, the lead (originating) bank retains a
                partial interest in the loan, holds all loan documentation in its own
                name, services the loan, and deals directly with the customer for the
                benefit of all participants. All loan participants share in the credit
                risk of the associated loan up to the amount of their participation.
                 (2) Loan participant buyers are able to compensate for low loan
                demand or invest in large loans without servicing burdens and
                origination costs. Lenders selling loan participations can accommodate
                a larger credit while mitigating some of the risk by reducing their
                credit exposure.
                 (3)(i) Participation agreements between the lead lender and buying
                participants are executed with each transaction and must address, among
                other items:
                 (A) The obligation of the lead lender to furnish timely credit
                information and to provide notification of material changes in the
                borrower's status;
                 (B) Requirements that the lead lender consult with participants and
                obtain their consent prior to modifying any loan, guaranty, or security
                agreements and before taking any action on defaulted loans; and
                 (C) The specific rights and remedies available to the lead and
                participating lenders upon default of the borrower.
                 (ii) A Master (open ended) participation agreement between the
                intermediary and any lender is not allowed. All loans made through use
                of participation agreements must be to eligible ultimate recipients and
                for eligible purposes. The ultimate recipients, lead lender and all
                participating lenders must agree to be bound by the applicable
                requirements of this regulation.
                 (4) Participation in loans where 50 percent or more of the loan
                funds are used to refinance a lead lender's existing loans to the
                borrower are ineligible. The Agency does not consider take out or
                terming out a construction loan as refinancing.
                 (5) No more than 50 percent of an intermediary's loan funds may be
                used to purchase loans from any individual lender or affiliation of
                lenders, to prevent an exclusive relationship with a lender or lender
                holding company. Likewise, no more than 50 percent of the total
                intermediary loans to ultimate recipients may be sold or participated
                to an individual lender or affiliation of lenders. An exception to
                these limits may be requested by the intermediary and is subject to
                review by the Agency of the intermediary's lending portfolio, credit
                quality and overall use of loan participations.
                Sec. 4274.321 Ineligible loan purposes.
                 (a) Agency IRP loans. The intermediary cannot use Agency IRP loan
                funds to pay for its administrative costs and expenses.
                 (b) IRP revolving loan fund loans. IRP revolving loan fund loans
                cannot be used for any of the purposes identified in paragraphs (b)(1)
                through (13) of this section.
                 (1) Assistance in excess of what is needed to accomplish the
                purpose of the ultimate recipient's project.
                 (2) Distribution, payment, or loans to the owner, partners,
                shareholders, or beneficiaries of the ultimate recipient or members of
                their families when such persons will retain any portion of their
                equity, or control, in the ultimate recipient. This is not intended to
                prevent the sale of a business among immediate family members as long
                as the selling immediate family member does not retain an ownership
                interest and the price paid is deemed to be reasonable. This type of
                transaction is not an arm's length transaction and reasonableness of
                the price paid will be based upon an appraisal acceptable to the
                Agency.
                 (3) Charitable institutions and fraternal organizations that would
                not have revenue from sales, fees, or stable revenue source to support
                their operation and repay the loan.
                 (4) Assistance to Federal government employees, active-duty
                military personnel, employees of the intermediary, or any organization
                for which such persons are directors or officers or have 20 percent or
                more ownership.
                 (5) A loan to an ultimate recipient that has an application pending
                with or a loan outstanding from another intermediary involving an IRP
                revolving loan fund if the total Agency IRP loans would exceed the
                limits established in Sec. 4274.331(c).
                 (6) Agricultural production. For the purposes of this program,
                Agricultural production does not include those activities specifically
                listed as eligible uses of IRP revolving loan fund loans in Sec.
                4274.320(b)(15) through (19).
                 (7) The transfer of ownership unless the loan will keep the
                business from closing, prevent the loss of employment opportunities in
                the area, or provide expanded job opportunities.
                 (8) Community antenna television services or facilities.
                 (9) Any illegal activity.
                [[Page 72163]]
                 (10) Any project that is in violation of either a Federal, State,
                or local environmental protection law or regulation or an enforceable
                land use restriction unless the assistance given will result in curing
                or removing the violation.
                 (11) Loans to lending and investment institutions and insurance
                companies.
                 (12) Golf courses, racetracks, or gambling facilities.
                 (13) An entity is ineligible if it derives more than 15 percent of
                its annual gross revenue (including any lease income from space or
                machines) from gambling activity, excluding State-authorized lottery
                proceeds or Tribal-authorized gambling proceeds, as approved by the
                Agency, conducted for the purpose of raising funds for the approved
                project.
                Sec. 4274.322-Sec. 4274.329 [Reserved]
                Sec. 4274.330 Agency IRP loan conditions and terms.
                 (a) Revolving fund. The intermediary must place Agency IRP loan
                funds in the intermediary's IRP revolving loan fund, and these funds
                must only be used to provide loans to eligible ultimate recipients per
                Sec. 4274.320(a).
                 (b) Loan closing. Loan closing between the intermediary and the
                Agency must take place within six months of loan approval and
                obligation of funds, or funds will be forfeited, and the Agency will
                deobligate the loan.
                 (c) Term. The Agency IRP maximum loan term will be 30 years.
                Principal and interest payments will be scheduled at least annually.
                All Agency IRP loans will have interest-only payments scheduled for a
                maximum of the first three years following the loan closing. An
                intermediary may request a shorter interest-only period during the
                application process. All Agency IRP loans will automatically, fully
                amortize with principal and interest payments due in the fourth year on
                the anniversary of the closing date. The Agency IRP loan will fully
                amortize based on the total amount of the loan.
                 (d) Interest rate. The interest rate for an Agency IRP loan will be
                a fixed rate of one percent per annum over the term of the loan.
                 (e) Security. Security for all Agency IRP loans to intermediaries
                must ensure that the repayment of the loan is reasonably assured, when
                considered along with the intermediary's financial condition, work
                plan, and management ability. The intermediary is responsible for
                making loans to ultimate recipients in a manner that fully protects the
                interests of the intermediary and the Federal Government.
                 (1) Security for such loans may include, but is not limited to:
                 (i) Any realty, personalty, or intangible asset capable of being
                mortgaged, pledged, or otherwise encumbered by the intermediary in
                favor of the Agency; and
                 (ii) Any realty, personalty, or intangible asset capable of being
                mortgaged, pledged, or otherwise encumbered by an ultimate recipient in
                favor of the Agency.
                 (2) Initial security will consist of a pledge by the intermediary
                of all assets now in or hereafter placed in the IRP revolving loan
                fund, including cash and investments, notes receivable from ultimate
                recipients, and the intermediary's security interest in collateral
                pledged by ultimate recipients. Except for good cause shown, the Agency
                will not obtain assignments of specific assets at the time a loan is
                made to an intermediary or ultimate recipient. The intermediary must
                covenant that, in the event the intermediary's financial condition
                deteriorates or the intermediary takes action detrimental to prudent
                fund operation or fails to take action required of a prudent lender,
                the intermediary will provide additional security, execute any
                additional documents, and undertake any reasonable acts the Agency may
                request to protect the Federal Government interest or to perfect a
                security interest in any asset, including physical delivery of assets
                and specific assignments to the Agency. All debt instruments and
                collateral documents used by an intermediary in connection with loans
                to ultimate recipients, including all documents representing an
                interest in a participation loan made pursuant to Sec. 4273.320 of
                this chapter, must be assignable.
                 (3) In addition to normal security documents, a first lien interest
                in the intermediary's IRP revolving loan fund account(s) will be
                accomplished by a control agreement satisfactory to the Agency. Agency
                signatures for withdrawals are not required. The depository bank must
                waive its offset and recoupment rights against the depository account
                to the Agency and subordinate any liens it may have against the IRP
                depository bank account. The use of Form RD 402-1, ``Deposit
                Agreement,'' or a similar form developed by the Agency's Office of the
                General Counsel is acceptable.
                 (f) Loan limits. (1) No loan to an intermediary will exceed the
                maximum amount the intermediary can reasonably be expected to lend to
                eligible ultimate recipients, in an effective and sound manner, within
                three years after loan closing. Only one Agency IRP loan will be
                approved by the Agency for an intermediary in any single fiscal year
                unless the additional request is from an IRP earmark that serves a
                different geographical area than the initial non-earmarked loan.
                 (2) The Agency IRP loan to an intermediary will not exceed the
                maximum award amount established by the Agency in an annual Notice.
                 (3) Intermediaries that have received one or more Agency IRP loans
                may apply for and be considered for additional Agency IRP loans
                provided that the outstanding loans of the intermediary's IRP revolving
                loan fund are generally sound, the intermediary is in compliance with
                all applicable regulations and its loan agreements with the Agency, and
                either:
                 (i) The intermediary has insufficient IRP revolving loan funds
                available for lending to meet current and expected ultimate recipient
                loan demand. Funds available for lending consist of Agency IRP loan
                funds not yet disbursed by the Agency, revolved funds, and cash on-hand
                in the IRP revolving loan fund. Necessary cash reserves including, but
                not limited to, debt service reserves, may be deducted from the IRP
                revolving loan fund cash on-hand in determining funds available for
                lending. The intermediary must provide documentation acceptable to the
                Agency of the current and expected ultimate recipient loan demand; or
                 (ii) The Agency IRP loan will serve a geographic area not included
                in an area currently served by an existing IRP intermediary and it is
                not possible or feasible to expand the existing IRP loan's service area
                to include the new geographic area; and
                 (4) Total outstanding IRP indebtedness of an intermediary to the
                Agency will not exceed $15 million at any time.
                Sec. 4274.331 IRP revolving loan fund loan conditions and terms.
                 (a) Conditions and terms. Loan conditions and terms made by an
                intermediary to an ultimate recipient from the IRP revolving loan fund
                will be negotiated by the intermediary and ultimate recipient.
                 (1) Interest rate. The interest rate must be within limits
                established by the intermediary's work plan approved by the Agency. The
                rate must be the lowest rate sufficient to cover the loan's
                proportional share of the IRP revolving loan fund's debt service
                reserve and administrative costs.
                 (2) Repayment. The loan term must be reasonable and prudent
                considering the purpose of the loan, expected repayment ability of the
                ultimate recipient, and the useful life of
                [[Page 72164]]
                collateral, and must be within any limits established by the
                intermediary's work plan approved by the Agency.
                 (b) Security. The intermediary is responsible for adherence to
                prudent lending practices when obtaining adequate security on each of
                its ultimate recipient loans.
                 (c) Loan limits. Loans from intermediaries to ultimate recipients
                using the IRP revolving loan fund must not exceed the limits in
                paragraphs (c)(1) and (2) of this section. In accordance with Sec.
                4274.321(b)(5), these loan limits apply to ultimate recipients
                cumulatively based on all existing and pending loans from one or
                multiple IRP intermediaries. The loan limits of ultimate recipient
                loans made from Agency IRP funds may be based on the total amount of
                the Agency IRP loans awarded. However, should any portion of an
                intermediary's Agency IRP loan funds be de-obligated by the Agency, the
                ultimate recipient loan limit will thereafter be based on the actual
                amount of Agency IRP loan funds advanced to the intermediary and loaned
                out to ultimate recipients. Intermediaries with multiple IRP loans that
                have combined those IRP funds in accordance with Sec. 4274.332(b)(6)
                may base their ultimate recipient loan limits on the combined amount of
                Agency IRP loans. The maximum amount of an IRP Agency loan made by an
                intermediary to an ultimate recipient, whether directly or held through
                loan participation and including the balance of any existing ultimate
                recipient loans, shall be the lesser of:
                 (1) $400,000; and
                 (2) Fifty percent of the originally-approved Agency IRP loan amount
                to an intermediary (including the unpaid balance of any existing
                ultimate recipient loans).
                Sec. 4274.332 Post award requirements.
                 (a) Applicability. Intermediaries receiving loans under this
                program shall be governed by these regulations, the loan agreement, the
                approved work plan, security interests, and any other conditions which
                the Agency may impose in making a loan. Whenever this subpart imposes a
                requirement on loans made from the ``IRP revolving loan fund,'' such
                requirement shall apply to all loans made by an intermediary to an
                ultimate recipient from the intermediary's IRP revolving fund for as
                long as any portion of the intermediary's IRP loan from the Agency
                remains unpaid. This includes revolved funds. Whenever this subpart
                imposes a requirement on loans made by intermediaries from ``Agency IRP
                loan funds,'' without specific reference to the IRP revolving loan
                fund, such requirement shall apply only to loans made by an
                intermediary using Agency IRP loan funds and will not apply to loans
                made from revolved funds.
                 (b) Maintenance of IRP revolving loan fund. For as long as any part
                of an Agency IRP loan to an intermediary remains unpaid, the
                intermediary must maintain the IRP revolving loan fund. All Agency IRP
                loan funds received by an intermediary must be deposited in an IRP
                revolving loan fund. The IRP revolving loan fund can only be used for
                receiving advances from the Agency, making payments to the Agency,
                disbursing ultimate recipient loans, and collecting ultimate recipient
                loan repayments. This includes transferred IRP revolving loan funds
                from another intermediary as a result of a transfer and assumption.
                Interest earned, cash obtained from fees assessed from activities of
                the IRP revolving loan fund, etc. must remain part of the IRP revolving
                loan fund though these monies may be used to pay administrative
                expenses as provided below. All Agency IRP loan activity must be
                managed through the IRP revolving loan fund. The intermediary may
                transfer additional assets into the IRP revolving loan fund to cover
                any shortage at any time. The intermediary must deposit all cash of the
                IRP revolving loan fund in a separate bank account or accounts. The
                intermediary is prohibited from commingling other funds of the
                intermediary with the funds in the IRP revolving loan fund.
                Intermediaries may use an operating account, general fund, or Automated
                Clearing House (ACH) account to initially collect payments from
                ultimate recipients, as long as those payments are transferred to the
                IRP revolving loan fund within 10 working days of receipt or by the end
                of the Federal fiscal quarter, whichever occurs first. All moneys
                deposited to the IRP revolving loan fund bank account or accounts must
                be money of the IRP revolving loan fund, and such accounts must be
                properly secured in accordance with Sec. 4274.330(e). The receivables
                created by making loans to ultimate recipients, the intermediary's
                security interest in collateral pledged by ultimate recipients,
                collections on the receivables, interest, fees, and any other income or
                assets derived from the operation of the IRP revolving loan fund are a
                part of the IRP revolving loan fund.
                 (1) The intermediary can use the portion of the IRP revolving loan
                fund that consists of Agency IRP loan funds only for making loans in
                accordance with Sec. 4274.320. The intermediary may use the portion of
                the IRP revolving loan fund that consists of revolved funds for debt
                service reserve and reasonable administrative costs, in accordance with
                this section, or for making additional ultimate recipient loans.
                 (2) The intermediary must submit for Agency approval an annual
                budget of proposed IRP revolving loan fund income and expenses
                including expected administrative costs. The annual budget must itemize
                income, including interest received from ultimate recipients, interest
                earnings on deposits, fees, and other income excluding principal
                recaptured from ultimate recipients, and expenses including interest
                repaid to the Agency, administrative expenses, liquidation expenses,
                loan write-offs, and other fees and costs excluding principal repaid to
                the Agency. The intermediary cannot use proceeds received from the
                collection of principal repayment by an ultimate recipient for
                administrative expenses. The amount removed by the intermediary from
                the IRP revolving loan fund for administrative costs in any year must
                be reasonable, must not exceed the actual cost of operating the IRP
                revolving loan fund, including loan servicing, and providing technical
                assistance, and must not exceed the amount approved by the Agency in
                the intermediary's annual budget. The administrative expenses that the
                intermediary charges to the IRP fund may never exceed the actual income
                earned on an annual basis. An intermediary can contract personnel for
                hire per Sec. 4274.340(a)(1)(ii); but the intermediary may not
                routinely contract loan underwriting, management, or day-to-day
                operations. Essential activities of the IRP revolving loan funds must
                be conducted in-house.
                 (3) The intermediary must establish a debt service reserve fund.
                The purpose of the debt service reserve fund is to ensure that adequate
                cash is available for the annual IRP loan installment(s) in the event
                that the IRP revolving loan fund has insufficient cash to make these
                payments. The minimum amount of cash in the debt service reserve fund
                must be at least equal to the intermediary's cumulative, annual debt
                service requirements for all Agency IRP loans outstanding. This account
                should be established by the date of loan closing, but the minimum
                required cash balance does not have to be reached until the third
                anniversary of an Agency IRP loan closing. The minimum required balance
                must be maintained for the life of the Agency IRP loan thereafter. The
                debt service reserve funds can only be withdrawn when there is
                insufficient cash in the IRP revolving loan fund's other account(s) to
                [[Page 72165]]
                make the annual Agency IRP loan installments, and such withdrawals
                require the prior written concurrence of the Agency. Any withdrawal
                that causes the cash balance to drop below the minimum amount required
                must be repaid to the debt service reserve fund as soon as possible,
                but in no event can such repayment be longer than six months from the
                date of withdrawal. The funding of this debt service reserve fund may
                not come from Agency IRP loan funds and must come from an unencumbered
                source.
                 (4) The intermediary must make any cash in the IRP revolving loan
                fund that is not needed for debt service or approved administrative
                costs available for additional loans to ultimate recipients. If the
                Agency determines that the intermediary has substantial amounts of
                Agency IRP loan funds available for lending that is not being regularly
                loaned out to ultimate recipients, the Agency may require, at its
                discretion, that those funds be returned to the Agency in accordance
                with paragraph (b)(8) of this section.
                 (5) The intermediary must deposit all reserves and other cash of
                the IRP revolving loan fund not immediately needed for loans to
                ultimate recipients or other authorized uses in accounts in banks or
                other financial institutions. Such accounts must be fully covered by
                Federal deposit insurance or fully collateralized with other securities
                in accordance with normal banking practices and all applicable State
                laws. The account must be interest-bearing if feasible and any interest
                earned thereon remains a part of the IRP revolving loan fund. The
                intermediary cannot use funds for any certificates of deposit over a
                30-day duration or for investments in securities. All instruments
                associated with the revolving loan fund must be liquid and not impose
                fees associated with the withdrawal or movement of cash.
                 (6) If an intermediary receives more than one IRP loan, the
                intermediary does not need to establish and maintain a separate IRP
                revolving loan fund for each loan. Instead, the intermediary may
                combine them and maintain only one IRP revolving loan fund, unless the
                Agency requires separate IRP revolving loan funds because there are
                significant differences in the loan purposes, work plans, loan
                agreements, or requirements for the loans. The Agency may allow loans
                with different requirements to be combined into one IRP revolving loan
                fund if the intermediary agrees in writing to operate the combined
                revolving funds in accordance with the most stringent requirements of
                the Agency. The combining of multiple loans in one IRP revolving loan
                fund does not preclude the intermediary from being able to individually
                track the activity of each Agency IRP loan. The Agency must be able to
                readily determine the ultimate recipient loans made from each Agency
                IRP loan.
                 (7) The intermediary may deposit their full equity contribution for
                the entire Agency IRP loan before the initial advance of Agency IRP
                loan funds or it may deposit its matching percent at each interval that
                loan advances are made by the Agency.
                 (8) IRP revolving loan fund funds are intended to be active
                mechanisms to enhance business development in rural communities. If
                Agency IRP loan funds have been unused for a period of six months or
                more, those funds in excess of $250,000 will be returned to the Agency
                unless the Agency concurs with an intermediary's request for an
                exception. Any exception would be based on evidence satisfactory to the
                Agency that every effort is being made by the intermediary to utilize
                the IRP revolving loan fund funding for loans to ultimate recipients in
                conformance with program objectives.
                 (9) The full measure of collateral must be made up of cash
                available in the IRP revolving loan fund, the debt service reserve, and
                the total outstanding balance of ultimate recipient loans. At all
                times, the sum of the IRP revolving loan fund, debt service reserve,
                and principal amount outstanding on performing ultimate recipient loans
                must equal 100 percent of what is owed to the Agency by the
                intermediary plus any equity contribution amount. Therefore, if any
                part of the collateral fluctuates to the extent that the minimum
                retention requirement falls below the 100 percent plus the equity
                contribution threshold, the intermediary must inject cash into the IRP
                revolving loan fund and or debt service reserve fund to ensure that the
                total collateral is maintained at the minimum required level.
                 (10) The intermediary must also file a Uniform Commercial Code
                (UCC) financing statement at closing in order to perfect the Agency's
                security interest in the ultimate recipient's promissory notes. The
                intermediary is responsible for covering the costs of filing as well as
                ensuring the necessary filings are renewed and recorded with the
                Secretary of State, or the equivalent tribal official as appropriate.
                 (c) Agency oversight. The Agency will monitor each intermediary
                based on progress reports submitted by the intermediary, audit
                findings, disbursement transactions, visitations, and other contact
                with the intermediary as necessary. The Agency will send written
                notices on payments coming due to the intermediary approximately 15
                days in advance of the payment due date.
                 (d) Return of equity. An intermediary with an IRP loan(s) where the
                cash portion of the IRP revolving loan fund includes fees, principal
                and interest payments received from ultimate recipients and is not
                composed of any original Agency IRP loan funds, may annually request a
                partial or full return of their contributed equity under the following
                conditions:
                 (1) The intermediary is current in all payments to the Agency and
                in compliance with all elements of their loan agreement and Agency
                reporting requirements;
                 (2) The ratio of intermediary equity to the Agency loan after the
                return of equity remains consistent with the initial equity injection
                percentage by the intermediary; and
                 (3) Any return of an intermediary's equity from the revolving loan
                fund must be approved by the Agency in writing and is limited to an
                amount that the Agency determines will not cause additional credit risk
                to the revolving loan fund or the Agency and is in compliance with
                paragraph (b)(9) of this section.
                Sec. 4274.333 Loan agreements between the Agency and the
                intermediary.
                 The intermediary and the Agency must execute a loan agreement or a
                supplement to a previous loan agreement at loan closing for each Agency
                IRP loan. The Agency will prepare the loan agreement and the
                intermediary must review it prior to loan closing. The intermediary is
                responsible for compliance with the terms and conditions of the loan
                agreement.
                 (a) The loan agreement will, at a minimum, set out:
                 (1) The amount of the loan;
                 (2) The interest rate;
                 (3) The term and repayment schedule;
                 (4) The provisions for late charges. The intermediary must pay a
                late charge of four percent of the payment due if payment is not
                received within 15 calendar days following the due date. The Agency
                will consider the late charge as unpaid if it is not received within 30
                calendar days of the missed due date for which it was imposed. The
                Agency will add any unpaid late charge to the loan's principal balance,
                and it will be due as an extra payment at the end of the term.
                Acceptance of a late charge by the Agency does not constitute a waiver
                of default.
                [[Page 72166]]
                 (i) A per diem amount will be shown on the late notice sent to the
                intermediary. The Agency will continue sending notices to the
                intermediary on the late payments or any further payments until the
                account is in a current status.
                 (ii) Interest will be computed on a 365-day basis unless legal
                documents state otherwise.
                 (5) The disbursement procedure. The Agency will disburse the Agency
                IRP loan funds to the intermediary on an as-needed basis after the loan
                agreement and promissory note are executed, and after any other
                conditions precedent to disbursement of funds are fully satisfied. Fund
                disbursement requests must be submitted with an intermediary's request
                for Agency concurrence in accordance with the provisions of Sec.
                4274.352(a). Only the amount of Agency IRP loan funds necessary to fund
                the given ultimate recipient loan request(s) can be requested by the
                intermediary and disbursed by the Agency. The intermediary's equity
                contribution may not be used for administrative costs. When lending,
                the intermediary's equity contribution must be loaned out prior to or
                on a pro rata basis with Agency IRP loan funds. For purposes of
                computing interest, the date of each draw down of an Agency IRP loan
                constitutes the date the funds are advanced under the loan agreement.
                 (6) The provisions regarding default. On the occurrence of any
                event of default (monetary or nonmonetary), the Agency may declare all
                or any portion of the debt and interest to be immediately due and
                payable and may proceed to enforce its rights under the loan agreement
                or any other instruments securing or relating to the loan and in
                accordance with the applicable laws and regulations. Any of the
                following may be regarded as an ``event of default'' at the sole
                discretion of the Agency:
                 (i) Failure of the intermediary to carry out the specific
                activities in its loan application as approved by the Agency or failure
                to comply with the loan terms and conditions of the loan agreement, any
                applicable Federal or State laws, or with such USDA or Agency
                regulations as may be applicable; or
                 (ii) Failure of the intermediary to pay within 15 calendar days of
                its due date any installment of principal or interest on its promissory
                note to the Agency; or
                 (iii) The occurrence of:
                 (A) The intermediary becoming insolvent, or ceasing, being unable,
                or admitting in writing its inability to pay its debts as they mature,
                or making a general assignment for the benefit of, or entering into any
                composition or arrangement with creditors; or
                 (B) Proceedings for the appointment of a receiver, trustee, or
                liquidator of the intermediary, in whole or of a substantial part of
                its assets, being authorized or instituted by or against it; or
                 (iv) Submission or making of any report, statement, warranty, or
                representation by the intermediary or agent on its behalf to the Agency
                in connection with the financial assistance awarded hereunder which is
                false, incomplete, or incorrect in any material respect; or
                 (v) Failure of the intermediary to remedy any material adverse
                change in its financial or other condition (such as the
                representational character of its board of directors, loan making or
                policymaking body) arising since the date of the Agency's award of
                assistance hereunder, which condition was an inducement to the Agency's
                original award.
                 (7) Insurance requirements.
                 (i) Hazard insurance with a standard mortgage clause naming the
                intermediary as beneficiary will be required by the intermediary on
                every ultimate recipient's project funded from the IRP revolving loan
                fund in an amount that is at least the lesser of the depreciated
                replacement value of the property being insured or the amount of the
                loan. Hazard insurance includes fire, windstorm, lightning, hail,
                business interruption, explosion, riot, civil commotion, aircraft,
                vehicle, marine, smoke, builder's risk, public liability, property
                damage, flood or mudslide, or any other hazard insurance that may be
                required to protect the security. The intermediary's interest in the
                insurance will be assigned to the Agency, upon the Agency's request, in
                the event of default by the intermediary.
                 (ii) Workmen's compensation insurance on ultimate recipients is
                required in accordance with State law.
                 (iii) The intermediary is responsible for determining if an
                ultimate recipient funded from the IRP revolving loan fund is located
                in a special flood or mudslide hazard area. If the ultimate recipient
                is in a flood or mudslide area, then flood or mudslide insurance must
                be provided in accordance with 7 CFR part 1806, subpart B.
                 (iv) Intermediaries must provide fidelity bond coverage, or
                employee dishonesty insurance, for all persons who have access to
                intermediary funds. Coverage may be provided either for all individual
                positions or persons, or through ``blanket'' coverage providing
                protection for all appropriate employees and officials.
                 (A) The minimum amount of fidelity bond/employee dishonesty
                coverage required by the Agency will equal the total, cumulative annual
                debt service requirements for all Agency IRP loans. Intermediaries with
                fidelity bond/employee dishonesty coverage requirements through other
                Agency programs (e.g., the Rural Microentrepreneur Assistance Program)
                must add the coverage requirements of those programs to the coverage
                requirements of this section in calculating the minimum coverage
                amount.
                 (B) Evidence of this coverage must be provided at, or prior to,
                loan closing and must be maintained for the life of the IRP loan.
                During the term of the loan, the intermediary must provide evidence to
                the Agency, upon request, that adequate fidelity bond/employee
                dishonesty coverage is in place.
                 (v) The Agency may also require the intermediary to carry other
                appropriate insurance, such as coverage for public liability,
                leasehold, and property damage.
                 (b) The intermediary must agree in the loan documents to:
                 (1) Not make any changes in the intermediary's articles of
                incorporation, charter, or by-laws that would impact the intermediary's
                eligibility for the IRP program or would adversely affect their ability
                to operate the IRP program in accordance with the provisions of this
                instruction and any other applicable laws, regulations, and executive
                orders without the prior written concurrence of the Agency. This
                pertains to the Agency's original IRP loan funds and revolved funds.
                 (2) Not make a loan commitment to an ultimate recipient to be
                funded from Agency IRP loan funds without first receiving the Agency's
                written concurrence;
                 (3) Maintain a separate ledger and segregated accounting for the
                IRP revolving loan fund;
                 (4) Provide to the Agency:
                 (i) An annual audit as described in 2 CFR part 200, subpart F, or
                any successor regulation;
                 (A) The financial audit report period may be different than the IRP
                reporting periods. Intermediaries must promptly provide the auditor
                with the records and documentation necessary for the completion of the
                audit following the end of the audit period. The audit report must be
                submitted to the Agency within the earlier of 30 calendar days after
                receipt of the auditor's report, or nine months after the end of the
                audit period as described in 2 CFR 200.512. Audits must cover all the
                intermediary's activities. Audits will be performed by
                [[Page 72167]]
                an independent certified public accountant. An acceptable audit will be
                performed in accordance with Generally Accepted Government Auditing
                Standards (GAAP) and include such tests of the accounting records as
                the auditor considers necessary in order to express an opinion on the
                financial condition of the intermediary. Compilations or reviews do not
                satisfy the audit requirement.
                 (B) It is not intended that audits required by this subpart be
                separate and apart from audits performed in accordance with State and
                local laws or for other purposes. To the extent feasible, the audit
                work should be done in connection with these audits. Intermediaries
                covered by 2 CFR part 200, subpart F, as codified in 2 CFR 400.1,
                should submit audits conducted in accordance with that regulation.
                 (ii) Quarterly or semiannual reports (due 30 days after the end of
                the period);
                 (A) Reports will be required quarterly during the first year after
                loan closing and, if all loan funds are not utilized during the first
                year, quarterly reports will be continued until at least 90 percent of
                the Agency IRP loan funds have been loaned out to ultimate recipients.
                Thereafter, reports will be required semiannually. Also, the Agency may
                require quarterly reports if the intermediary becomes delinquent in
                repayment of its loan or otherwise fails to fully comply with the
                provisions of its work plan or loan agreement, or the Agency determines
                that the intermediary's IRP revolving loan fund is not adequately
                protected by the current sound worth and paying capacity of the
                ultimate recipients.
                 (B) These reports must contain information only on the IRP
                revolving loan fund. Information required to be included in these
                reports as well as detailed reporting instructions will be provided by
                the Agency through a revolving loan fund user manual (available on the
                USDA Rural Development Intermediary Relending Program website) or
                similar documentation, which may be amended from time to time;
                 (iii) Annual proposed budget for the following year that meets the
                requirements of Sec. 4274.360(b)(2); and
                 (iv) Other reports as the Agency may require from time to time;
                 (5) Before the initial lending of Agency IRP loan funds to an
                ultimate recipient, to obtain written Agency approval of all forms to
                be used for relending purposes, including application forms, loan
                agreements, promissory notes, and security instruments. If the
                intermediary plans to sell participations in its loans made to ultimate
                recipients, the loan participation agreement and any planned interest
                rate spread or associated fees must be submitted to the Agency for
                review and concurrence;
                 (6) To obtain written approval of the Agency before making any
                significant changes in forms, security policy, or the work plan. The
                servicing officer may approve changes in forms, security policy, IRP
                revolving loan fund plan, or work plans at any time upon a written
                request from the intermediary and determination by the Agency that the
                change will not jeopardize repayment of the loan or violate any
                requirement of this subpart or other Agency regulations. The
                intermediary must comply with the work plan approved by the Agency so
                long as any portion of the intermediary's IRP loan is outstanding.
                 (7) To secure the indebtedness by pledging the IRP revolving loan
                fund, including all of its loans derived from the proceeds of the
                Agency loan award, and pledging its real and personal property and
                other rights and interests as the Agency may require;
                 (8) In the event the intermediary's financial condition
                deteriorates or the intermediary takes action detrimental to prudent
                fund operation or fails to take action required of a prudent lender, to
                provide additional security, execute any additional documents, and
                undertake any reasonable acts the Agency may request, to protect the
                agency's interest or to perfect a security interest in any assets,
                including physical delivery of assets and specific assignments; and
                 (9) Funds not disbursed to the intermediary by the end of the 36th
                month of the IRP loan from the Agency will be deobligated and not
                available for disbursement to the intermediary.
                 (10) For revolved funds, the intermediary is responsible for
                continuing compliance with the terms and conditions of the loan
                agreement until the Agency loan is fully satisfied and repaid.
                Sec. 4274.334--Sec. 4274.339 [Reserved]
                Sec. 4274.340 Application content and submittal.
                 Intermediaries seeking to participate in the IRP program must
                submit an application in accordance with paragraph (a) of this section.
                Intermediaries applying for a subsequent Agency IRP loan may instead
                submit a streamlined application in accordance with paragraph (b) of
                this section. All intermediaries must submit their applications as
                provided in paragraph (c) of this section.
                 (a) Intermediary application content. A complete application will
                include forms as requested in the intermediary application checklist
                guide available on the USDA Rural Development Intermediary Relending
                Program website plus information identified in paragraphs (a)(1)
                through (12) of this section.
                 (1) A work plan/narrative that demonstrates the feasibility of the
                intermediary's program to meet the objectives of this program. The work
                plan must include, at a minimum:
                 (i) A copy of the intermediary's policy and/or procedural manuals
                to assure the Agency that its mission and goals align with that of the
                Agency (i.e., economic development, promoting rural America, regional
                and community development.)
                 (ii) Document the intermediary staff's ability in administering an
                IRP revolving loan fund. This includes but is not limited to providing
                a complete listing of all personnel responsible for administering this
                program along with a statement of their qualifications and experience.
                Their qualifications should detail their experience in loan making,
                loan monitoring, and loan servicing including liquidations. The
                personnel may be either members or employees of the intermediary's
                organization or on an as-needed basis and as allowed by this
                regulation, contracted personnel.
                 (A) Contract personnel may be used to train, develop, or supervise
                the intermediary's members or employees or to provide interim expertise
                while the intermediary develops relevant in-house experience. The
                intermediary may contract for general services, such as clerical,
                administrative, and accounting services, and loan packaging.
                 (B) The intermediary cannot use contract personnel for the primary
                functions of its lending program, such as credit analysis and loan
                underwriting. The intermediary is expected to make an independent
                lending decision for each ultimate recipient loan request.
                 (1) The contract between the intermediary and the person or entity
                providing such service must be submitted for Agency review.
                 (2) The terms of the contract and its duration must be sufficient
                to develop in-house expertise and to ensure the Agency loan is
                adequately serviced throughout its term. The contract must provide for
                termination at the request of the Agency whether or not for cause.
                 (C) If the Agency determines the intermediary's personnel lack the
                necessary expertise to administer the program, the loan request will
                not be approved;
                 (iii) Demonstrate a need for loan funds. At a minimum, the
                intermediary must either positively identify a
                [[Page 72168]]
                sufficient number of proposed and known ultimate recipients it has on
                hand to justify the level of Agency funding of its loan request, or
                include well developed targeting criteria for ultimate recipients
                consistent with the intermediary's mission and strategy for the IRP,
                along with supporting statistical or narrative evidence that such
                prospective recipients exist in sufficient numbers to justify Agency
                funding of the loan request;
                 (iv) Provide a set of goals, strategies, and anticipated outcomes
                for the intermediary's program. Outcomes should be expressed in
                quantitative or observable terms (e.g., jobs created for low-income
                area residents or self-empowerment opportunities funded) and should
                relate to the purpose of IRP (see Sec. 4274.301(b)); and
                 (v) Provide specific information as to whether and how the
                intermediary will ensure that technical assistance is made available to
                ultimate recipients and potential ultimate recipients. Describe the
                qualifications of the technical assistance providers, the nature of
                technical assistance that will be available, and expected and committed
                sources of funding for technical assistance. If other than the
                intermediary itself, describe the organizations providing such
                assistance and the arrangements between such organizations and the
                intermediary.
                 (2) Demonstrate the sustainability of the IRP revolving loan fund
                by providing a pro forma balance sheet at start-up and projected
                balance sheets for at least three additional years including the
                accumulated debt service reserve; financial statements for the last
                three years, or from inception of the operations of the intermediary if
                less than three years; and projected cash flow and earnings statements
                for at least three years supported by a list of assumptions showing the
                basis for the projections. The projected earnings statement and balance
                sheet must include one set of projections that shows the IRP revolving
                loan fund only and a separate set of projections that shows the
                intermediary organization's total operations. Also, if principal
                repayment on the IRP loan will not be scheduled during the first three
                years, the projections for the IRP revolving loan fund must extend to
                include at least one year with a full annual installment on the IRP
                loan.
                 (3) Provide documentation of any funds pledged and intermediary
                equity contribution that will be contributed into the IRP revolving
                loan fund to serve as security for the IRP loan and to pay for part of
                the cost of the ultimate recipient projects. Pledged funds and
                intermediary equity contribution must be in the form of cash and cannot
                be in-kind contributions; they also cannot be used as intermediary
                operating funds.
                 (4) A written agreement of the intermediary to abide with the
                Agency audit requirements.
                 (5) Complete organizational documents including: Articles of
                Incorporation (initial loan only), Bylaws, Certificate of Good
                Standing, a list of board members with contact and lending experience
                information, and evidence of authority to conduct the proposed lending
                activities (this could be satisfied with a statement from the
                intermediary's counsel).
                 (6) Document the intermediary's ability to commit financial
                resources under the control of the intermediary to the establishment of
                an IRP program. This should include a statement of the sources of non-
                Agency funds for administration of the intermediary's operations and
                financial assistance for projects.
                 (7) Demonstrate to Agency satisfaction that the intermediary has
                secured commitments of significant financial support from public
                agencies and private organizations.
                 (8) Provide evidence to Agency satisfaction that the intermediary
                has a proven record of obtaining private or philanthropic funds for the
                operation of similar programs to the IRP.
                 (9) Latest audit report, if available.
                 (10) The IRP revolving loan fund plan is a separate stand-alone
                document from the application and may be revised in the future. The IRP
                revolving loan fund plan governs the use of the RLF and must be
                developed by the intermediary and approved by the Agency. The plan must
                include a detailed explanation of the intermediary's fund
                administration policies and procedures in addition to planned fund use
                after the original IRP loan funds in the RLF have revolved. Fund
                administration policies and procedures must also include information
                regarding the review and approval of loans from the fund, including
                participation loans. The revolving loan fund plan must be of sufficient
                and detailed information to provide the Agency with a complete
                understanding of what the intermediary will accomplish by lending the
                funds to the ultimate recipient and the complete mechanics of how the
                funds will get from the intermediary to the ultimate recipient,
                including participation loans. The IRP revolving loan fund plan must
                contain:
                 (i) The specific service area of the IRP fund including names of
                counties and or cities within the service area;
                 (ii) Borrower eligibility criteria, loan purposes, loan priorities,
                fees, rates, terms, loan limits and collateral requirements;
                 (iii) Details on the intermediary's application review and approval
                process;
                 (iv) Details on the method of disposition of funds to the ultimate
                recipient, monitoring of the ultimate recipient's accomplishments, the
                reporting requirements by the ultimate recipient's management; and
                 (v) A copy of the intermediary's ultimate recipient loan
                application package and sample loan documents (i.e., application forms,
                debt instruments, collateral and security documents, etc.).
                 (11) Credit Elsewhere Certification (see Agency template available
                at the USDA Rural Development Intermediary Relending Program website).
                 (12) Prior to applying for program funding, a resolution by the
                intermediary's board of directors is required. At a minimum, the
                executive director of the intermediary must make the organization's
                board of directors aware of the possibility that the organization may
                be entering into a significant debt.
                 (b) Streamlined applications. Intermediaries that have an active
                Agency IRP loan may submit a streamlined application that includes the
                following:
                 (1) Submission of the information required under the Intermediary
                Guide (available at the USDA Rural Development Intermediary Relending
                Program website) and paragraphs (a)(1) through (4) of this section
                except that the information required by paragraph (a)(2) of this
                section may be limited to projections for the proposed new IRP
                revolving loan fund.
                 (2) A statement that the new loan would be operated in accordance
                with the work plan on file for the previous IRP loan(s) may be
                submitted in lieu of a new work plan. Any substantial change to an
                existing work plan would require the submission of a new work plan.
                 (3) Intermediaries that have received one or more Agency IRP loans
                may apply for and be considered for additional Agency IRP loans
                provided that the outstanding loans of the intermediary's IRP revolving
                loan fund are generally sound, the intermediary is in compliance with
                all applicable regulations and its loan agreements with the Agency, and
                the revolving loan fund's liabilities do not significantly exceed their
                assets. The intermediary must have a reasonable plan to disburse any
                unused IRP loan funds within six
                [[Page 72169]]
                months of loan closing in addition to showing the need for additional
                IRP funds in accordance with paragraph (a)(1)(iii) of this section.
                 (c) Application submittal. Intermediaries must submit the complete
                application in one package. The intermediary must file its application
                with the Agency State Office in the State in which the intermediary's
                headquarters is located. An intermediary headquartered in the District
                of Columbia may file its application with the Delaware/Maryland Rural
                Development State Office, Attention: Business Programs, 1221 College
                Park Drive, Suite 200, Dover, DE 19904.
                Sec. 4274.341 Processing applications for loans.
                 (a) Processing applications. Applications are accepted in the Rural
                Development State Office on an ongoing basis. The Agency will review
                all applications received for eligibility and will score each
                application according to the criteria in paragraph (b) of this section.
                Eligible applications received by the Rural Development State Office by
                close of business on September 30, December 31, March 31, and June 30
                of each year will compete based on score ranking for available funds
                with other applications in that Federal fiscal quarter. If the
                quarterly application deadline falls on a weekend or holiday, the
                application deadline will be the next business day. The Agency will
                rank all eligible, scored applications each Federal fiscal quarter and
                will fund applications in the order of priority ranking using available
                funds for that quarter. The Agency will retain unsuccessful
                applications due to limited funding for consideration in subsequent
                reviews, through a total of four quarterly reviews.
                 (b) Scoring. The Agency will use a point system to determine an
                eligible applicant's priority ranking for available loan funds. Points
                will be awarded only for factors indicated by well documented,
                reasonable plans which, in the opinion of the Agency, provide assurance
                that the work plan items have a high probability of being accomplished.
                Application content must contain sufficient information to assess the
                applicant's ability to manage an IRP revolving loan fund and allow the
                Agency to assign priority points in accordance with the criteria
                discussed in this section. The Agency will award points using the
                criteria identified in paragraphs (b)(1) through (9) of this section.
                Any application that does not meet the minimum value for receiving
                points associated with a criterion will receive no points for that
                criterion.
                 (1) Intermediary equity contribution for initial Agency IRP loan
                applications only (maximum 35 points). The Agency will award points
                under this criterion if the applicant is applying for its first ever
                Agency IRP loan and will contribute cash matching funds to the IRP
                revolving loan fund. These funds must be deposited into the IRP account
                at closing and are subject to the same use restrictions as Agency IRP
                loan funds. These funds must be loaned out to ultimate recipients in
                conjunction with Agency IRP loan funds. The amount of cash matching
                funds contributed will be:
                 (i) At least 5 percent, but less than 10 percent of the requested
                loan amount--10 points.
                 (ii) At least 10 percent, but less than 20 percent of the requested
                loan amount--15 points.
                 (iii) At least 20 percent, but less than 30 percent of the
                requested loan amount--20 points.
                 (iv) At least 30 percent, but less than 40 percent of the requested
                loan amount--25 points.
                 (v) At least 40 percent, but less than 50 percent of the requested
                loan amount--30 points.
                 (vi) More than 50 percent of the requested loan amount--35 points.
                 (2) Intermediary equity contribution for subsequent Agency IRP loan
                applications only (maximum 35 points). The Agency will award points
                under this criterion if the applicant is applying for a subsequent IRP
                loan and will contribute cash matching funds to the IRP revolving loan
                fund. The Agency must determine that the applicant's performance under
                their current IRP loan(s) is satisfactory in accordance with Sec.
                4274.330(f)(3) in order to be eligible and receive points under this
                criterion. These funds must be deposited into the IRP account at
                closing and are subject to the same use restrictions as Agency IRP
                Funds and loaned out to ultimate recipients in conjunction with Agency
                IRP loan funds. Cash matching funds are not required of subsequent
                applicants, but points will be awarded if the amount of cash matching
                funds contributed will be:
                 (i) At least 5 percent, but less than 10 percent of the requested
                loan amount--10 points.
                 (ii) At least 10 percent, but less than 20 percent of the requested
                loan amount--15 points.
                 (iii) At least 20 percent, but less than 30 percent of the
                requested loan amount--20 points.
                 (iv) At least 30 percent, but less than 40 percent of the requested
                loan amount--25 points.
                 (v) At least 40 percent, but less than 50 percent of the requested
                loan amount--30 points.
                 (vi) More than 50 percent of the requested loan amount--35 points.
                 (3) Community Representation (10 points). Governing board of
                directors where 50 percent or more of its members consist of business,
                banking, civic and community leaders that are representative of the
                rural communities within the service area(s) that intermediary serves.
                These board members are diversely spread across the service areas and
                represent at least 50 percent of the intermediary total service area.
                These board members are not employees of the intermediary. Statewide
                and national IRP lenders must have a board of directors with members
                that are also familiar with current economic conditions and the
                inherent credit risks of making and servicing loans outside of the
                intermediary's primary location to receive these points. Documentation
                in the workplan must address these qualifications.
                 (4) Leveraging (maximum 25 points). The Agency will award points if
                the intermediary will limit the funding of ultimate recipient project
                loans with Agency IRP funds. IRP revolving loan fund funds that consist
                of revolved funds may also be used as leveraging. However, any projects
                funded must continue to comply with the loan agreement and requirements
                of this subpart so long as any part of the Agency IRP loan remains
                unpaid. The intermediary's equity contribution will be the following
                percentages of an ultimate recipient's total project costs:
                 (i) At least 10 percent, but less than 25 percent of the total
                project costs--5 points will be awarded;
                 (ii) At least 25 percent, but less than 50 percent of the total
                project costs--10 points will be awarded; or
                 (iii) Fifty percent or more of the total project costs--25 points
                will be awarded.
                 (5) Median household income (maximum 15 points). The Agency will
                award points under this criterion based on the degree to which the
                median household income in the service area of the intermediary exceeds
                the poverty line for a family of four. For applicant intermediaries
                whose service area includes multiple locations or geographic areas,
                weighted averages based on the populations will be used in calculating
                the area's median household income. For median household income
                computations,
                [[Page 72170]]
                applicant intermediaries will use income data from the latest decennial
                census of the United States, updated according to changes in the
                consumer price index as published annually by the Agency. The poverty
                line used will be as defined in section 673(2) of the Community
                Services Block Grant Act (42 U.S.C. 9902(2)), which will be published
                annually by the Agency. If the median household income in the
                intermediary's service area exceeds the poverty line for a family of
                four by:
                 (i) At least 50 percent, but not more than 75 percent, 5 points
                will be awarded;
                 (ii) At least 25 percent, but less than 50 percent, 10 points will
                be awarded; or
                 (iii) Below 25 percent, 15 points will be awarded.
                 (6) Unemployment (maximum 15 points). The Agency will award points
                under this criterion based on the extent to which the unemployment rate
                in the intermediary's service area exceeds the national unemployment
                rate. For unemployment computations, applicant intermediaries must use
                the unemployment data published by the Bureau of Labor Statistics, U.S.
                Department of Labor, for the most current month available at the time
                of application in comparison to the national unemployment rate for the
                same month. If the service area is a single city, town, or Indian
                Reservation and current, monthly unemployment data is not available for
                that city or town, the current, monthly unemployment rate for the
                county (or Indian Reservation) in which the service area is located
                should be used. For applicant intermediaries whose service area
                includes multiple locations or geographic areas, a weighted average
                based on the populations should be used in calculating the area's
                unemployment rate. If the unemployment rate in the intermediary's
                service area is:
                 (i) Equal to, or less than 25 percent above the national
                unemployment rate, 5 points will be awarded;
                 (ii) At least 25 percent above, but less than 50 percent above the
                national unemployment rate, 10 points will be awarded; or
                 (iii) Fifty percent or more above the national unemployment rate,
                15 points will be awarded.
                 (7) Trauma (maximum 15 points). Under this criterion, the Agency
                will award 15 points if 50 percent or more of the intermediary's
                service area is experiencing trauma due to a major natural disaster, as
                declared by the Federal Emergency Management Agency (FEMA), that
                occurred not more than three years prior to the filing of the
                application for assistance. Intermediaries with proposed statewide and
                nationwide service areas do not qualify for these points.
                 (8) Experience (maximum 30 points). The Agency will award points
                under this criterion based on the number of years the intermediary
                entity has in successfully making and servicing commercial loans. If
                the intermediary entity itself has actual experience in making and
                servicing commercial loans, with a successful record, for:
                 (i) At least 1 but less than 3 years, 5 points will be awarded;
                 (ii) At least 3 but less than 5 years, 10 points will be awarded;
                 (iii) At least 5 but less than 10 years, 20 points will be awarded;
                or
                 (iv) Ten or more years, 30 points will be awarded.
                 (9) Size of loan request (maximum 20 points). The Agency will award
                points under this criterion based on the size of the intermediary's
                loan request. If the size of the loan request is:
                 (i) $500,000 or less, 20 points will be awarded; or
                 (ii) Over $500,000, and up to $750,000, 10 points will be awarded
                 (10) Administrator (maximum 10 points). The Administrator may award
                up to 10 additional points to an application to account for either or
                both of the items identified in below:
                 (i) The project meets the President/Secretary Initiative(s) (e.g.,
                local foods, regional development, persistent poverty, energy-related,
                etc.); or
                 (ii) The applicant's service area will include areas not currently
                served by existing IRP Intermediaries. Statewide and nationwide
                Intermediaries will not be considered for Administrator points with
                regard to whether an area is currently covered by an existing IRP fund.
                Sec. 4274.342-Sec. 4274.344 [Reserved]
                Sec. 4274.345 Letter of conditions.
                 The Agency will provide the successful intermediary with a letter
                of conditions listing all requirements for the loan. Immediately after
                reviewing the conditions and requirements in the letter of conditions,
                the intermediary must complete, sign, and return the requisite forms
                provided by the Agency indicating the intermediary's intent to meet the
                conditions and the request of obligation of funds. If the intermediary
                identifies certain conditions that cannot be met, the intermediary may
                propose alternate conditions to the Agency. The Agency must approve in
                writing of any proposed changes made to the initially issued or
                proposed letter of conditions prior to acceptance and finalization
                Sec. 4274.346 Agency IRP loan closing.
                 (a) At the time the Agency IRP loan is closed, the intermediary
                must certify to each condition identified in paragraphs (a)(1) through
                (5) of this section.
                 (1) No major changes have been made in the work plan except those
                approved in the interim by the Agency.
                 (2) All requirements of the letter of conditions have been met.
                 (3) There has been no material adverse change in the intermediary's
                financial condition, nor any other material adverse change in the
                intermediary, for any reason, during the period of time from the
                Agency's loan approval to loan closing regardless of the cause or
                causes of the change and whether or not the change or causes of the
                change were within the intermediary's control. Any material adverse
                change must be explained by the intermediary. The Agency, at its sole
                discretion, will consider any such change and determine if it is
                significant enough to prevent the loan closing or disbursement of IRP
                loan funds to the intermediary.
                 (4) There are no claims or liens of laborers, materialmen,
                contractors, subcontractors, suppliers of machinery and equipment, or
                other parties pending against the security of the intermediary, and
                that no suits are pending or threatened that would adversely affect the
                security of the intermediary when the security instruments are filed.
                 (5) Certification that the intermediary has received Agency staff
                training on how to distinguish a required environmental review from a
                categorical exclusion in accordance with Sec. 4274.305(b).
                 (b) The Agency will consider all requested changes submitted in
                writing to the Agency but will only approve changes that do not
                materially affect the IRP project, its capacity, employment, original
                projections, or credit factors.
                Sec. 4274.347-Sec. 4274.350 [Reserved]
                Sec. 4274.351 Loan approval and obligating funds.
                 (a) The loan will be considered approved on the date that the
                obligation of funds document (Form RD 1940-1, Request for Obligation of
                Funds), is signed by the Agency. Agency IRP loans not closed within six
                months of approval by the Agency will be deobligated and the loan funds
                will no longer be available to the intermediary.
                 (b) An obligation of funds established for an intermediary may be
                transferred by the Agency to a different (substituted) intermediary
                provided:
                [[Page 72171]]
                 (1) The substituted intermediary is eligible to receive the
                assistance approved for the original intermediary;
                 (2) The substituted intermediary bears a close and genuine
                relationship to the original intermediary; and
                 (3) The need for and scope of the project and the purposes for
                which Agency IRP loan funds will be used remain substantially
                unchanged.
                Sec. 4274.352 Loan documentation for ultimate recipients.
                 (a) Agency IRP loans. Prior Agency concurrence is required when an
                intermediary makes loans to an ultimate recipient from its Agency IRP
                loan funds (this applies to each Agency IRP loan received). A request
                for Agency concurrence in approval of a proposed loan to an ultimate
                recipient, whether made directly or through a loan participation
                purchase, must contain or comply with, as appropriate, the items
                identified in paragraph (b)(1) through (5) of this section and must
                include information listed in the IRP Revolving Loan Fund File
                Checklist, on the Agency website at the USDA Rural Development
                Intermediary Relending Program website:
                 (1) Certification by the intermediary that:
                 (i) The ultimate recipient is eligible for the loan;
                 (ii) The loan is for an eligible purpose;
                 (iii) Agency IRP loan funds are not more than 75 percent of the
                total project costs;
                 (iv) The loan complies with all applicable statutes and
                regulations;
                 (v) The ultimate recipient is unable to finance the proposed
                project through commercial credit or other Federal, State, or local
                programs at reasonable rates and terms; and
                 (vi) The intermediary and its principal officers (including
                immediate family) hold no legal or financial interest or influence in
                the ultimate recipient, and the ultimate recipient and its principal
                officers (including immediate family) hold no legal or financial
                interest or influence in the intermediary. The interest and influence
                of a cooperative member when the intermediary is a cooperative is an
                allowable exception to this paragraph.
                 (2) A completed and executed request for environmental information
                on a form provided by the Agency for projects that meet the criteria
                for a NEPA review categorical exclusion, NEPA environmental assessment
                or NEPA environmental impact statement in accordance with Sec.
                4274.305(b)(2).
                 (3) All comments obtained in accordance with Sec. 4274.305(a)
                regarding intergovernmental consultation (if required).
                 (4) Copies of sufficient material from the ultimate recipient's
                application and the intermediary's related files to allow the Agency to
                determine the:
                 (i) Name, address, DUNS number, Federal ID number, and North
                American Classification System (NAICS) Code of the ultimate recipient;
                 (ii) Loan purpose;
                 (iii) Interest rate and term;
                 (iv) Location, nature, and scope of the project being financed;
                 (v) Uses and sources of funds; and
                 (vi) Nature and lien priority of the collateral.
                 (5) Such other information as the Agency may request.
                 (b) Revolved IRP loan funds. An intermediary may use revolved funds
                to make loans to ultimate recipients in accordance with Sec.
                4274.320(b) without obtaining prior Agency concurrence as required in
                Sec. 4274.352(a) and are also exempted from completion of items
                required by paragraphs (a)(2) and (3) of this section.
                Sec. 4274.353-Sec. 4274.359 [Reserved]
                Karama Neal,
                Administrator, Rural Business-Cooperative Service.
                [FR Doc. 2021-27522 Filed 12-20-21; 8:45 am]
                BILLING CODE 3410-XY-P
                

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