OneRD Guaranteed Loan Regulation

Published date14 July 2020
Citation85 FR 42494
Record Number2020-13991
SectionRules and Regulations
CourtRural Housing Service,Rural Utilities Service
Federal Register, Volume 85 Issue 135 (Tuesday, July 14, 2020)
[Federal Register Volume 85, Number 135 (Tuesday, July 14, 2020)]
                [Rules and Regulations]
                [Pages 42494-42580]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-13991]
                [[Page 42493]]
                Vol. 85
                Tuesday,
                No. 135
                July 14, 2020
                Part IIDepartment of Agriculture----------------------------------------------------------------------- Rural Utilities Service Rural Housing Service Rural Business-Cooperative Service-----------------------------------------------------------------------7 CFR Parts 1779, 3575, et al.OneRD Guaranteed Loan Regulation; Final Rule
                Federal Register / Vol. 85, No. 135 / Tuesday, July 14, 2020 / Rules
                and Regulations
                [[Page 42494]]
                -----------------------------------------------------------------------
                DEPARTMENT OF AGRICULTURE
                Rural Utilities Service
                Rural Housing Service
                Rural Business-Cooperative Service
                7 CFR Parts 1779, 3575, 4279, 4287, and 5001
                [Docket No. RUS-19-Agency-0030]
                RIN 0572-AC43
                OneRD Guaranteed Loan Regulation
                AGENCY: Rural Business-Cooperative Service, Rural Housing Service,
                Rural Utilities Service, USDA.
                ACTION: Final rule; request for comments.
                -----------------------------------------------------------------------
                SUMMARY: The Rural Business-Cooperative Service, Rural Housing Service,
                and the Rural Utilities Service, agencies of the Rural Development
                mission area within the U.S. Department of Agriculture (USDA),
                hereinafter collectively referred to as the Agency, are proposing a
                unified guaranteed loan platform for enhanced delivery of four of its
                existing guaranteed loan programs: Community Facilities (CF)
                administered by the Rural Housing Service; Water and Waste Disposal
                (WWD) administered by the Rural Utilities Service; and, Business and
                Industry (B&I) and Rural Energy for America (REAP) administered by the
                Rural Business-Cooperative Service. Collectively, these four Rural
                Development's guaranteed loan programs work to assist in building and
                maintaining sustainable rural communities. This rule incorporates new
                and revised provisions intended to simplify, improve, expand and
                enhance the delivery of the four guaranteed loan programs. These
                provisions include, among others, clearly defining specific project
                eligibility criteria, revising the requirements for lenders to
                participate in the programs, and streamlining the documentation
                requirements for submission of guaranteed loan applications.
                DATES:
                 Effective date: This final rule is effective October 1, 2020.
                 Comment date: Comments are due September 14, 2020.
                ADDRESSES: You may submit comments, identified by docket number RUS-19-
                Agency-0030 and Regulatory Information Number (RIN) number 0572-AC43
                through https://www.regulations.gov.
                 Instructions: All submissions received must include the Agency name
                and docket number or RIN for this rulemaking. All comments received
                will be posted without change to https://www.regulations.gov, including
                any personal information provided.
                 Docket: For access to the docket to read background documents or
                comments received, go to https://www.regulations.gov.
                FOR FURTHER INFORMATION CONTACT: Thomas P. Dickson, Regulations
                Management Division Team 2, Rural Development Innovation Center, U.S.
                Department of Agriculture, 1400 Independence Ave. SW, Stop 1522,
                Washington, DC 20250; telephone 202-690-4492; email
                [email protected].
                SUPPLEMENTARY INFORMATION:
                Table of Contents for Preamble
                I. Abbreviations
                II. Background
                 A. Rural Development's Mission.
                 B. Composition of the OneRD Guaranteed Loan Program
                 1. Community Facilities Guaranteed Loan Program
                 2. Water and Waste Disposal Guaranteed Loan Program
                 3. Business and Industry Guaranteed Loan Program
                 4. Rural Energy for America Program
                 5. Similarities Between the Four Guaranteed Loan Programs
                III. Basis and Purpose
                IV. Discussion of the Rule
                 A. Organization of the Rule
                 B. Delivery of the OneRD Guaranteed Loan Program
                 C. Changes of Note
                V. Public Participation and Discussion of Comments From Listening
                Sessions
                VI. Regulatory Impact Analyses
                 A. Executive Orders 12866 and 113563
                B. Unfunded Mandates Reform Act
                 C. Environmental Impact Statement
                 D. Executive Order 12988, Civil Justice Reform
                 E. Executive Order 13132, Federalism
                 F. Regulatory Flexibility Act Certification
                 G. Executive Order 12372, Intergovernmental Consultation
                 H. Executive Order 13175, Consultation and Coordination With
                Indian Tribal Governments
                 I. Programs Affected
                 J. Catalog of Federal Domestic Assistance
                 K. Paperwork Reduction Act and Recordkeeping Requirements
                 L. E-Government Act Compliance
                 M. Civil Rights Impact Analysis
                I. Abbreviations
                CDE Community Development Entity
                CFDA Catalog of Federal Domestic Assistance
                CFR Code of Federal Regulations
                CONAct Consolidated Farm and Rural Development Act
                FCRA Federal Credit Reform Act of 1990
                FDIC Federal Deposit Insurance Corporation
                FIRREA Financial Institutions Reform, Recovery and Enforcement Act
                of 1989
                FR Federal Register
                FSRIA Farm Security and Rural Investment Act of 2002
                GAAP Generally accepted accounting principles
                GPO Government Printing Office
                ICBA Independent Community Bankers of America
                LNG Loan Note Guarantee
                NEPA National Environmental Policy Act
                NMTC New Markets Tax Credit
                OGC Office of General Counsel
                OMB Office of Management and Budget
                OneRD OneRD Guaranteed Loan Program
                PER Preliminary Engineering Reports
                QALICB Qualified Active Low Income Community Business
                RD Rural Development
                REAP Rural Energy for America Program
                RFA Regulatory Flexibility Act
                RMA Risk Management Association
                SAM System for Award Management
                Sec. Section
                TBSE Tangible Balance Sheet Equity
                UMRA Unfunded Mandates Reform Act 1995
                U.S.C. United States Code
                USDA U.S. Department of Agriculture
                USPAP Uniform Standards of Professional Appraisal Practice
                II. Background
                 Through this regulation, Rural Development (RD) is consolidating
                and standardizing the rules associated with making and servicing of
                four guaranteed loan programs. The new regulation eliminates existing
                regulations in six areas: 7 CFR part 3575, subpart A which is the
                existing regulation for making and servicing Community Facilities (CF)
                guaranteed loans; 7 CFR part 1779 which is the existing regulation for
                making and servicing Water and Waste Disposal (WWD) guaranteed loans; 7
                CFR part 4279, subparts A and B which are the existing regulations for
                making Business and Industry (B&I) guarantee loans; 7 CFR part 4280,
                subpart B which is the existing regulation for making Rural Energy for
                America (REAP) guarantee loans; and, 7 CFR 4287 subpart B which is the
                existing regulation for servicing B&I and REAP guarantee loans. This
                regulation replaces those removed sections with the OneRD guarantee
                loan regulation (``OneRD''), a unified regulation for making and
                servicing the four guaranteed loan programs, codified at 7 CFR 5001. To
                ensure that the drafting of OneRD was a customer-centric process, the
                Agency invited public input through six listening sessions and a Human
                Experience Lab. The public participation provided input on ways to
                simplify, improve, enhance and expand the delivery of the four
                guarantee programs. Through this process, the Agency identified eight
                broad areas of
                [[Page 42495]]
                improvement on which to focus its efforts: Community impact; Agency
                staff training and empowerment; enabling technology; USDA-lender
                relationship; simplicity and consistency; speed of approval process;
                communication and transparency; and marketing and outreach. Comments
                and Agency responses to comments received are provided in section V.
                Public Participation and Discussion of Comments from Listening
                Sessions.
                A. Rural Development's Mission
                 By statutory authority, Rural Development is an advocate for rural
                America, administering a multitude of programs, ranging from housing
                and community facilities to infrastructure and business development.
                The Agency's mission is to increase economic opportunity and improve
                the quality of life in rural communities by providing the leadership,
                infrastructure, capital, and technical support that enables rural
                communities to prosper.
                 To achieve its mission, the Agency provides financial support,
                including loan guarantees, direct loans and grants, and technical
                assistance to enhance the quality of life and provide the foundation
                for economic development in rural areas. This final rule with comment
                addresses the use of a unified guaranteed loan regulation for four
                programs to support Rural Development's mission. The regulation
                implements changes to current guarantee practices to make the processes
                and procedures consistent across the four programs. As a loan-making
                agency, Rural Development is exempt from prior notice and comment (5
                U.S.C. 553(a)(2)) to implement policies and procedures governing loan
                programs. Nevertheless, we are providing the public the opportunity to
                comment on the requirements found in this Final Rule. During the
                comment period, the Agency will host listening sessions and the
                schedule will be available on the website. Comments received will be
                considered and addressed in a future rulemaking.
                B. Composition of the OneRD Guaranteed Loan Program
                 This section briefly describes the scope of each of the four
                individual programs with regard to eligible projects, borrowers, and
                lenders, application processes, guarantee and loan terms, and how the
                four programs are combined into a unified guaranteed loan platform.
                 (1) Community Facilities Guaranteed Loan Program. The CF guaranteed
                loan program guarantees loans to develop essential community facilities
                in rural areas and towns with a population of up to 50,000, depending
                on the level of appropriated funding for a respective fiscal year. Loan
                funds may be used to construct, enlarge, extend or otherwise improve
                essential community facilities including health care, public safety,
                and public services. Eligible borrowers include public entities, such
                as municipalities, counties, special-purpose districts, Indian tribes,
                and not-for-profit corporations who are unable to obtain commercial
                credit at reasonable rates and terms without the Federal Government's
                guarantee.
                 (2) Water and Waste Disposal Guaranteed Loan Program. The Water and
                Waste Disposal Guaranteed Loan program guarantees loans to construct,
                enlarge, extend or otherwise improve water and waste disposal systems,
                including wastewater treatment, solid waste disposal, and storm
                drainage, in rural areas and in cities and towns with a population of
                up to 50,000. Eligible borrowers include public entities, such as
                municipalities, counties, special-purpose districts, and Indian tribes,
                as well as not-for-profit corporations and tribal governments who are
                unable to obtain commercial credit at reasonable rates and terms
                without the Federal Government's guarantee.
                 (3) Business and Industry Guaranteed Loan Program. The B&I
                Guaranteed Loan program guarantees loans that further job creation and
                stimulate rural economies by providing financial backing for rural
                businesses. Eligible borrowers include cooperatives, corporations,
                partnerships, trusts or other profit or not-for-profit entities, Indian
                tribes, municipalities, counties, or other political subdivisions of a
                state.
                 (4) Rural Energy for America Program. The Rural Energy for America
                Program is a guaranteed loan program, providing loan guarantees for the
                purchase and installation of renewable energy systems, energy
                efficiency improvements and energy efficient equipment. Eligible
                borrowers include farmers, ranchers, and rural small businesses.
                 (5) Similarities Between the Four Guaranteed Loan Programs. While
                each program has some different requirements based on statutory
                authorizations (e.g., borrower and project eligibility, necessary
                documentation, and funding limits), the same basic framework for making
                loan guarantees applies to each of the programs.
                 In accordance with rural area definition and reservation
                requirements found at 7 U.S.C. 1991(a) and 7 U.S.C. 1926(a)(24),
                projects must be located in any area of a state not in a city or town
                that has a population of more than 50,000 inhabitants, 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.
                 Lenders requesting loan guarantees from the Agency under
                OneRD must meet the definition of either a regulated lending entity or
                a non-regulated lending entity as specified in Sec. 5001.130.
                 A borrower works with a lender to obtain a loan for a
                project eligible under one or more of the four programs, providing the
                lender with necessary information on the borrower and the project.
                 A lender evaluates borrower and project eligibility and
                performs a detailed credit evaluation and, as applicable, an economic
                or financial analysis of the project to ensure that the borrower will
                be able to repay the loan.
                 A lender applies to the Agency for a loan guarantee and
                submits the credit evaluation for the project and borrower, and all
                required application documentation.
                 The Agency reviews each guaranteed loan application
                package in accordance with the OneRD program requirements and approves
                or denies the guarantee. Subject to the availability of funds, each
                approved package is provided a conditional commitment for a loan
                guarantee.
                 Each lender is responsible for the origination and
                servicing of its guaranteed loan portfolio and for working with the
                Agency, as necessary, to resolve borrower issues (such as default).
                 Using this framework allows the Agency to support rural economic
                development effectively and efficiently through loan guarantees and
                combines the four programs into one unified guaranteed loan program in
                OneRD.
                III. Basis and Purpose
                 As noted earlier, prior to implementation of this final rule, the
                four guaranteed loan programs origination and servicing processes
                appeared in separate regulations and required users to become familiar
                with the individual provisions. The four loan programs share many
                common elements and the Agency has reviewed opportunities to increase
                commonalities among processes to improve efficiency and customer
                experience while maintaining the distinct purposes of the authorized
                programs.
                 The four guaranteed loan programs and their respective regulations
                combined under this final rule
                [[Page 42496]]
                developed over time and, in some respects, independently of each other.
                A review of these programs and their regulations, individually and
                collectively, has identified four key operational issues that this
                final rule aims to resolve. These issues and the OneRD regulation's
                approach related to them are as follows:
                 Increased Efficiency: Many lenders and, in some cases, borrowers,
                seek loan guarantees under more than one of the four RD loan guarantee
                programs, for example, a small town builds a senior day center with a
                CF loan guarantee, and then adds solar panels through a REAP loan
                guarantee. Therefore, under the current conditions, they are required
                to learn multiple, similarly regulated, but differently operated, loan
                guarantee programs. For lenders, the benefit of using a program must be
                worth the cost of investing in learning and adapting to its rules, thus
                if the bulk of a lender's business is in one program, any differences
                may disincentivize, through decreased efficiency and increased costs,
                the use of the other programs should the opportunity arise.
                 Under this final rule, the Agency expects that lenders (and to a
                lesser extent borrowers) will find all four loan guarantee programs
                easier and more efficient to use because (1) a single set of forms and
                application process is used for the four programs being consolidated,
                (2) the common elements for origination, processing, and servicing have
                been consolidated into a single part of this final rule, and (3) this
                final rule relies more on common lending practices, which may reduce
                the lender's and borrower's costs. Consolidating requirements is
                expected to reduce burden for lenders, borrowers, and the Agency's
                staff, easing delivery and increasing efficiency. Additionally, those
                borrowers who may only utilize one of the guaranteed programs will
                benefit when the Agency is better able to leverage scarce IT resources
                for improvements to the application system.
                 Overall, a common platform like the OneRD regulation is expected to
                be easier to administer, improve consistency and thus customer
                experience, and reduce Agency and lender risk. Internally, OneRD will
                reduce the time, effort, and training necessary to guarantee a loan,
                especially through efficiencies realized through common forms, rules,
                and information technology platforms. With OneRD, internal management
                controls will improve through standardized servicing and oversight.
                Common elements assist lenders in managing a diverse portfolio while
                meeting Federal requirements. Uniform processes facilitate electronic
                commerce between the Agency and its customers.
                 Improved Flexibility: Maintaining separate sets of basic
                requirements for different loan guarantee programs creates
                inflexibilities, including the burden of ensuring new crosscutting
                requirements are incorporated into separate regulations or
                incorporating new efficiencies where they apply. Additionally, the
                single regulation allows for the addition of other loan guarantee
                programs without having to build a completely new structure and instead
                only incorporating any unique factors into the existing OneRD
                regulation. General provisions, which apply to all guaranteed loan
                programs, are contained in subpart A of the final rule and additional
                guaranteed loan programs can be added as needed in the remaining or new
                subparts. Additionally, each of the four subparts corresponding to the
                four programs includes an introductory section describing requirements
                that apply to the specific program.
                 Efficient use of Agency Resources: Previously, the separate
                programs did not encourage a streamlined and cross-program use of
                Agency resources. For programs that issued fewer guarantees, staff
                might lack familiarity with the applicable regulations and commercial
                lender practices and standards, creating inconsistencies in delivery as
                the program was relearned for each loan. For programs that issued many
                guarantees, staff might experience significant workloads that could be
                alleviated by cross-trained colleagues. The Agency has worked to make
                consistent its approach to evaluating risk relative to the program,
                industry, and conditions applicable to the loan guarantee. This final
                rule allows the Agency to more effectively utilize its resources via
                implementation of a OneRD model, which emphasizes consistency, reliance
                on lender expertise, refocusing time spent on loan processing to time
                spent servicing clients, and increasing access to its programs by
                eliminating regulatory redundancy.
                 Improved Risk Management: In developing a portfolio of loan
                guarantees, consideration must be given to credit risk management. The
                ``5 Cs of Credit'': character; capacity; capital; collateral; and,
                conditions are industry recognized credit evaluation standards. OneRD
                emphasizes that the lender's credit evaluation relies on the
                professional judgement of the lender and their review of the credit
                factors in determining risk. These credit factors, while implied in the
                existing regulations are now defined and specific Agency standards are
                provided at Sec. 5001.202(a) and (b). Providing a single set of credit
                evaluation factors with defined meanings improves consistency in Agency
                reviews which improves response and delivery times.
                 In addition to credit risk management, institutional risk
                management has been addressed and codified. Institutional risk, in this
                regulation, refers to the quality of the lender seeking the loan
                guarantee. Currently, each program area has its own set of criteria
                that lending entities must meet to be determined eligible. A lending
                entity can be eligible under one program but not another which creates
                confusion and inefficiencies for all parties. By implementing one
                defined, comprehensive set of criteria across all four programs to
                assess lender performance, the unified guaranteed loan platform allows
                the Agency to improve its management of lenders participating in these
                programs and provide a one-stop shop for lenders. With this final rule,
                the Agency implements lender eligibility criteria based on the status,
                regulated or non-regulated, of the lending entity. These criteria are
                in 7 CFR 5001.130 through 5001.132, which discuss lender eligibility
                requirements, the lender's agreement, and maintenance of approved
                lender status.
                 Agency operational risk refers to internal weaknesses that can
                occur in administering separate guaranteed loan programs using a
                variety of regulations that require unique sets of processes and
                procedures. OneRD uses commonalities, consistency in regulatory
                language, and integration of information management systems to reduce
                Agency operational risk. The use of electronic reporting and
                standardized forms also allows the Agency to manage its portfolio of
                outstanding guaranteed loans better.
                 Ultimately, the OneRD guarantee loan regulation provides a
                framework to ensure consistent implementation of the four guaranteed
                loan programs and full utilization of all four guarantee programs for
                the benefit of rural communities.
                IV. Discussion of the Rule
                A. Organization of the Rule
                 To help the public locate existing regulatory provisions found in
                the new rule, the Agency provides the following table showing new
                sections and subparts under the OneRD Guaranteed Loan program and where
                the information and requirements were previously located.
                [[Page 42497]]
                 Table 1--OneRD Guaranteed Loan Program CFR Sections and Subparts
                ------------------------------------------------------------------------
                 OneRD section No. and title Current section Nos. and titles
                ------------------------------------------------------------------------
                 Subpart A--General Provisions
                ------------------------------------------------------------------------
                Sec. 5001.1 General.
                Sec. 5001.2 Structure of Regulation.
                Sec. 5001.3 Definitions.............. B&I: Sec. 4279.2 Definitions
                 and abbreviations.
                 REAP: Sec. 4280.103
                 Definitions.
                 CF: Sec. 3575.2 Definitions.
                 WWD: Sec. 1779.2 Definitions.
                Sec. 5001.4 Exception authority...... B&I: Sec. 4279.15 Exception
                 authority.
                 REAP: Sec. 4280.104 Exception
                 authority.
                 CF: Sec. 3575.17 Exception
                 authority.
                 WWD: Sec. 1779.17 Exception
                 authority.
                Sec. 5001.5 Appeal and review rights. B&I: Sec. 4279.16 Appeals.
                 REAP: Sec. 4280.105 Review or
                 appeal rights.
                 CF: Sec. 3575.13 Appeals.
                 WWD: Sec. 1779.13 Appeals.
                Sec. 5001.6 General Lender B&I: Sec. 4279.30 Lenders'
                 responsibilities. functions and
                 responsibilities.
                Sec. 5001.7 Agency special
                 initiatives.
                Sec. 5001.8 Approvals, regulations, B&I: Sec. 4279.1
                 and forms. Introduction.
                 REAP: Sec. 4280.107 Statute
                 and regulation references.
                 CF: Sec. 3570.257 Statute and
                 regulation references.
                Sec. 5001.9 Standards for Financial B&I: Sec. 4279.137 Financial
                 information. statements.
                 REAP: Sec. 4280.132 Financial
                 statements.
                ------------------------------------------------------------------------
                 Subpart B--Eligibility Provisions
                ------------------------------------------------------------------------
                Sec. 5001.101 Introduction.
                Sec. 5001.102 Project eligibility-- B&I: Sec. 4279.113 Eligible
                 general. uses of funds.
                 REAP: Sec. 4280.113 Project
                 eligibility.
                 CF: Sec. 3575.20 Eligibility.
                 WWD: Sec. 1779.20
                 Eligibility.
                Sec. 5001.103 Eligible Community CF: Sec. 3575.24 Eligible
                 Facility (CF) Projects and loan purposes; Sec. 3575.20
                 requirements. Eligibility.
                Sec. 5001.104 Eligible Water and WWD: Sec. 1779.24 Eligible
                 Waste Disposal (WWD) Projects and loan purposes; Sec. 1779.20
                 requirements. Eligibility.
                Sec. 5001.105 Eligible Business and B&I: Sec. 4279.113 Eligible
                 Industry (B&I) Projects and uses of funds.
                 requirements.
                Sec. 5001.106 Eligible Rural Energy REAP: Sec. 4280.128 Project
                 for America Program (REAP)--Renewable eligibility.
                 Energy System (RES) Projects and
                 requirements.
                Sec. 5001.107 Eligible Rural Energy REAP: Sec. 4280.128 Project
                 for America Program (REAP)--Energy eligibility.
                 Efficiency Improvement (EEI) Projects
                 and requirements.
                Sec. 5001.108 Rural Energy for
                 America Program (REAP)--Energy
                 Efficient Equipment and Systems (EEE)
                 Projects and requirements.
                Sec. 5001.115 Ineligible Projects B&I: Sec. 4279.117 Ineligible
                 General. purposes and entity types.
                 CF: Sec. 3575.25 Ineligible
                 loan purposes.
                 WWD: Sec. 1779.25 Ineligible
                 loan purposes.
                Sec. 5001.116 Ineligible CF Projects. CF: Sec. 3575.25 Ineligible
                 loan purposes.
                Sec. 5001.117 Ineligible WWD Projects WWD: Sec. 1779.25 Ineligible
                 loan purpose.
                Sec. 5001.118 Ineligible B&I Projects B&I: Sec. 4279.117 Ineligible
                 purposes and entity types.
                Sec. 5001.119 Ineligible REAP
                 Projects.
                Sec. 5001.121 Eligible uses of loan B&I: Sec. 4279.113 Eligible
                 funds. uses of funds.
                 REAP: Sec. 4280.114 RES and
                 EEI grant funding.
                 CF: Sec. 3575.24 Eligible
                 loan purposes.
                 WWD: Sec. 1779.24 Eligible
                 loan purposes.
                Sec. 5001.122 Ineligible uses of loan B&I: Sec. 4279.210 Project
                 funds. eligibility requirements; Sec.
                 4279.117 Ineligible purposes
                 and entity types.
                 REAP: Sec. 4280.114 RES and
                 EEI grant funding.
                 CF: Sec. 3575.24 Eligible
                 loan purposes; Sec. 3575.25
                 Ineligible loan purposes.
                 WWD: Sec. 1779.25 Ineligible
                 loan purposes.
                Sec. 5001.126 Borrower eligibility... B&I: Sec. 4279.108 Eligible
                 borrowers.
                 REAP: Sec. 4280.127 Borrower
                 eligibility.
                 CF: Sec. 3575.20 Eligibility.
                 WWD: Sec. 1779.20
                 Eligibility.
                Sec. 5001.127 Borrower ineligibility B&I: Sec. 4279.117 Ineligible
                 conditions. purposes and entity types.
                 REAP: Sec. 4280.109
                 Ineligible Applicants,
                 borrowers, and owners.
                Sec. 5001.130 Lender eligibility B&I: Sec. 4279.29 Eligible
                 requirements. lenders.
                 REAP: Sec. 4280.125(b).
                 CF: Sec. 3575.27 Eligible
                 lenders.
                 WWD: Sec. 1779.27 Lenders.
                [[Page 42498]]
                
                Sec. 5001.131 Lender's Agreement..... B&I: Sec. 4279.29 Eligible
                 lenders.
                 REAP:.
                 CF: Sec. 3575.64 Issuance of
                 Lender's Agreement, Loan Note
                 Guarantee, and Assignment
                 Guarantee Agreement.
                 WWD: Sec. 1779.64 Issuance of
                 Lender's Agreement, Loan Note
                 Guarantee, and Assignment
                 Guarantee Agreement.
                Sec. 5001.132 Maintenance of approved B&I: Sec. 4279.29 Eligible
                 Lender status. lenders.
                Sec. 5001.140 Cooperative Stock/ B&I: Sec. 4279.115
                 Cooperative equity. Cooperative stock/cooperative
                 equity.
                Sec. 5001.141 New Markets Tax Credit. B&I: Sec. 4279.116 New
                 Markets Tax Credit program.
                ------------------------------------------------------------------------
                 Subpart C--Origination Provisions
                ------------------------------------------------------------------------
                Sec. 5001.201 General origination B&I: Sec. 4279.30 Lenders'
                 requirements. functions and
                 responsibilities.
                Sec. 5001.202 Evaluation of Credit B&I: Sec. 4279.30 Lenders'
                 Underwriting. functions and
                 responsibilities; Sec.
                 4279.131 Credit quality.
                 REAP: Sec. 4280.131 Credit
                 quality.
                 WWD: Sec. 1779.47 and Sec.
                 1779.48 Collateral.
                Sec. 5001.203 Appraisals............. B&I: Sec. 4279.144
                 Appraisals.
                 REAP: Sec. 4279.144
                 Appraisals.
                Sec. 5001.204 Personal, partnership, B&I: Sec. 4279.132 Personal
                 and corporate guarantees. and corporate guarantees.
                 REAP: Sec. 4280.134 Personal
                 and corporate guarantees.
                Sec. 5001.205 General monitoring B&I: Sec. 4279.167 Planning
                 requirements. and performing development.
                 REAP: Sec. 4279.167 Planning
                 and performing development.
                 CF: Sec. 3575.42 Design and
                 construction requirements;
                 Sec. 3575.12 Inspections;
                 Sec. 3575.63 Conditions
                 precedent to issuance of the
                 Loan Note Guarantee.
                 WWD: Sec. 1779.12
                 Inspections; Sec. 1779.42
                 Design and construction
                 requirements.
                Sec. 5001.206 Compliance with USDA B&I: Sec. 4279.167 Planning
                 Departmental Regulations, Policies, and performing development.
                 and other Federal laws. REAP: Sec. 4280.36 Other laws
                 that contain compliance
                 requirements for these
                 Programs; Sec. 4280.36 Other
                 laws that contain compliance
                 requirements for these
                 Programs.
                 CF: Sec. 3575.42 Design and
                 construction requirements.
                 WWD: Sec. 1779.42 Design and
                 construction requirements.
                Sec. 5001.207 Environmental B&I: Sec. 4279.59
                 responsibilities. Environmental requirements;
                 Sec. 4279.167 Planning and
                 performing development.
                 REAP: Sec. 4280.36 Other laws
                 that contain compliance
                 requirements for these
                 Programs.; Sec. 4280.41
                 Environmental review of the
                 application.; Sec. 4280.124
                 Construction planning and
                 performing development.
                 CF: Sec. 3575.9 Environmental
                 review requirements.
                 WWD: Sec. 1779.9
                 Environmental review
                 requirements.
                Sec. 5001.208 Conflicts of Interest.. REAP: Sec. 4280.106 Conflict
                 of interest.
                 CF: Sec. 3575.27 Eligible
                 lenders.
                 WWD: Sec. 1779.27 Lenders.
                ------------------------------------------------------------------------
                 Subpart D--Guarantee Application Provisions
                ------------------------------------------------------------------------
                Sec. 5001.301 Beginning the
                 application process.
                Sec. 5001.302 Preliminary eligibility B&I: Sec. 4279.161 Filing
                 review. preapplications and
                 applications.
                 CF: Sec. 3575.52 Processing.
                 WWD: Sec. 1779.52 Processing.
                Sec. 5001.303 Applications for loan B&I: Sec. 4279.261
                 guarantee. Application for loan guarantee
                 content.
                 CF: Sec. 3575.52(b)
                 Applications.
                 WWD: Sec. 1779.52(b)
                 Applications.
                Sec. 5001.304 Specific Application CF: Sec. 3575.47 Economic
                 Requirements for Community Facility feasibility requirements.
                 Projects.
                Sec. 5001.305 Specific Application WWD: Sec. 1779.42 Design and
                 Requirements for Water and Waste construction requirements;
                 Disposal Projects. Sec. 1779.47 Economic
                 feasibility requirements.
                Sec. 5001.306 Specific Application B&I: Sec. 4279.161 Filing
                 Requirements for Business and Industry preapplications and
                 Projects. applications.
                Sec. 5001.307 Specific Application REAP: Sec. 4280.137
                 Requirements for Rural Energy for Application and documentation.
                 America Program Projects.
                Sec. 5001.315 Application evaluation B&I: Sec. 4279.260 Guarantee
                 and award provisions. applications--general.
                 REAP: Sec. 4280.110 General
                 Applicant, application, and
                 funding provisions.
                 CF: Sec. 3575.53 Evaluation
                 of application.
                 WWD: Sec. 1779.53 Evaluation
                 of application.
                Sec. 5001.316 Community Facility CF: Sec. 3575.53 Evaluation
                 Project priority point system and of application.
                 reservation of funds.
                Sec. 5001.317 Water and Waste
                 Disposal Project priority points
                 system.
                Sec. 5001.318 Business and Industry B&I: Sec. 4279.166 Loan
                 Project priority points system. priority scoring.
                [[Page 42499]]
                
                Sec. 5001.319 Rural Energy for REAP: Sec. 4280.135 Scoring
                 America Program Project priority RES and EEI Guaranteed Loan-
                 points system. only applications.
                ------------------------------------------------------------------------
                 Subpart E--Loan and Guarantee Provisions
                ------------------------------------------------------------------------
                 Loan Provisions
                ------------------------------------------------------------------------
                Sec. 5001.401 Interest rate B&I and REAP: Sec. 4279.125
                 provisions. Interest rates; Sec.
                 4279.233 Interest rates.
                 CF: Sec. 3575.33 Interest
                 rates.
                 WWD: Sec. 1779.33 Interest
                 rates.
                Sec. 5001.402 Term length, loan B&I and REAP: Sec. 4279.126
                 schedule, repayment. Loan terms.
                 CF: Sec. 3575.34 Terms of
                 loan repayment.
                 WWD: Sec. 1779.34 Terms of
                 loan repayment.
                Sec. 5001.403 Lender fees............ B&I: Sec. 4279.120 Fees and
                 charges; Sec. 4279.231 Fees.
                 REAP: Sec. 4280.129
                 Guaranteed loan funding.
                 CF: Sec. 3575.29 Fees and
                 charges by lender.
                 WWD: Sec. 1779.29 Fees and
                 charges by lender.
                Sec. 5001.406 Loan amounts........... B&I: Sec. 4279.119 Loan
                 guarantee limits.
                 REAP: Sec. 4280.129
                 Guaranteed loan funding.
                Sec. 5001.407 Percent of guarantee... B&I: Sec. 4279.119 Loan
                 guarantee limits.
                 REAP: Sec. 4280.129
                 Guaranteed loan funding.
                 CF: Sec. 3575.30 Loan
                 guarantee limitations.
                 WWD: Sec. 1779.30 Loan
                 guarantee limitations.
                Sec. 5001.408 Sale or assignment of B&I: Sec. 4279.75 Sale or
                 Guaranteed Loan. assignment of guaranteed loan;
                 Sec. 4279.223 Sale or
                 assignment of guaranteed loan.
                 CF: Sec. 3575.65 Lender's
                 sale or assignment of the
                 guaranteed portion of loan.
                 WWD: Sec. 1779.65 Lender's
                 sale or assignment of the
                 guaranteed portion of loan.
                ------------------------------------------------------------------------
                 Guarantee Provisions
                ------------------------------------------------------------------------
                Sec. 5001.450 General................ B&I: Sec. 4279.72 Conditions
                 of guarantee.
                 REAP: Sec. 4280.131 Credit
                 quality.
                 CF: Sec. 3575.3 Full faith
                 and credit; Sec. 3575.4
                 Conditions of guarantee.
                 WWD: Sec. 1779.3 Full faith
                 and credit; Sec. 1779.4
                 Conditions of guarantee.
                Sec. 5001.451 Conditional Commitment. B&I: Sec. 4279.173 Loan
                 Approval and obligating funds.
                Sec. 5001.452 Loan closing and B&I: Sec. 4279.181 Conditions
                 conditions precedent to issuance of precedent to issuance of the
                 Loan Note Guarantee. Loan Note Guarantee; Sec.
                 4279.281 Conditions precedent
                 to issuance of Loan Note
                 Guarantee.
                 REAP: Sec. 4280.142
                 Conditions precedent to
                 issuance of loan note
                 guarantee.
                 CF: Sec. 3575.63 Conditions
                 precedent to issuance of the
                 Loan Note Guarantee.
                 WWD: Sec. 1779.63 Conditions
                 precedent to issuance of the
                 Loan Note Guarantee.
                Sec. 5001.453 Issuance of the B&I: Sec. 4279.181 Conditions
                 guarantee. precedent to issuance of the
                 Loan Note Guarantee; Sec.
                 4279.281 Conditions precedent
                 to issuance of Loan Note
                 Guarantee.
                 REAP: Sec. 4280.142
                 Conditions precedent to
                 issuance of loan note
                 guarantee.
                 CF: Sec. 3575.63 Conditions
                 precedent to issuance of the
                 Loan Note Guarantee; Sec.
                 3575.64 Issuance of Lender's
                 Agreement, Loan Note
                 Guarantee, and Assignment
                 Guarantee Agreement.
                 WWD: Sec. 1779.63 Conditions
                 precedent to issuance of the
                 Loan Note Guarantee; Sec.
                 1779.64 Issuance of Lender's
                 Agreement, Loan Note
                 Guarantee, and Assignment
                 Guarantee Agreement.
                Sec. 5001.454 Guarantee fee.......... B&I: Sec. 4279.120 Fees and
                 charges; Sec. 4279.231 Fees.
                 REAP: Sec. 4280.126 Guarantee/
                 annual renewal fee.
                 CF: Sec. 3575.29 Fees and
                 charges by lender.
                 WWD: Sec. 1779.29 Fees and
                 charges by lender.
                Sec. 5001.455 Periodic Guarantee B&I: Sec. 4279.120 Fees and
                 Retention fee. charges; Sec. 4279.231 Fees.
                 REAP: Sec. 4280.126 Guarantee/
                 annual renewal fee.
                Sec. 5001.456 Other fees............. B&I: Sec. 4279.120 Fees and
                 charges.
                Sec. 5001.457 Changes prior to loan B&I: Sec. 4279.174 Transfer
                 closing. of lenders; Sec. 4279.280
                 Changes in borrower.
                 REAP: Sec. 4279.174 Transfer
                 of lenders; Sec. 4279.280
                 Changes in borrower.
                Sec. 5001.458 Other Federal, State, CF: Sec. 3575.43 Other
                 and local requirements. Federal, State, and local
                 requirements.
                 WWD: Sec. 1779.43 Other
                 Federal, State, and local
                 requirements.
                [[Page 42500]]
                
                Sec. 5001.459 Replacement of Loan B&I: Sec. 4279.84 Replacement
                 Note Guarantee and Assignment of document; Sec. 4279.226
                 Guarantee Agreement. Replacement of document; Sec.
                 4279.84 Replacement of
                 document; Sec. 4279.226
                 Replacement of document.
                 REAP: Sec. 4279.84
                 Replacement of document; Sec.
                 4279.226 Replacement of
                 document; Sec. 4279.84
                 Replacement of document; Sec.
                 4279.226 Replacement of
                 document.
                 CF: Sec. 3575.73 Replacement
                 of loss, theft, destruction,
                 mutilation, or defacement of
                 Loan Note Guarantee or
                 Assignment Guarantee
                 Agreement.
                 WWD: Sec. 1779.73 Replacement
                 of loss, theft, destruction,
                 mutilation, or defacement of
                 Loan Note Guarantee or
                 Assignment Guarantee
                 Agreement.
                ------------------------------------------------------------------------
                 Subpart F--Servicing Provisions
                ------------------------------------------------------------------------
                Sec. 5001.501 General................ B&I: Sec. 4287.107 Routine
                 servicing.
                 REAP: Sec. 4287.107 Routine
                 servicing.
                 CF: Sec. 3575.69 Loan
                 servicing.
                 WWD: Sec. 1779.69 Loan
                 servicing.
                Sec. 5001.502 Oversight and B&I: Sec. 4279.217 Oversight
                 monitoring. and monitoring.
                 REAP: Sec. 4287.107 Routine
                 servicing.
                Sec. 5001.503 Project completion REAP: Sec. 4280.143
                 requirements. Requirements after project
                 construction.
                Sec. 5001.504 Financial reports...... B&I and REAP: Sec.
                 4287.107(d) Borrower financial
                 reports.
                 CF: Sec. 3575.69 Loan
                 servicing.
                 WWD: Sec. 1779.69 Loan
                 servicing.
                Sec. 5001.505 Collateral inspection B&I: Sec. 4287.113 Release of
                 and release. Collateral.
                 REAP: Sec. 4287.113 Release
                 of Collateral.
                 CF: Sec. 3575.12 Inspections;
                 Sec. 3575.69 Loan servicing.
                 WWD: Sec. 1779.12
                 Inspections; Sec. 1779.69
                 Loan servicing.
                Sec. 5001.506 Loan transfers and B&I: Sec. 4287.134 Transfer
                 assumptions. and Assumption.
                 REAP: Sec. 4287.134 Transfer
                 and Assumption.
                 CF: Sec. 3575.88 Transfers
                 and assumptions.
                 WWD: Sec. 1779.88 Transfers
                 and assumptions.
                Sec. 5001.507 Lender transfer........ B&I: Sec. 4279.174 Transfer
                 of lenders; Sec. 4279.279
                 Transfer of Lenders.
                Sec. 5001.508 Mergers................ CF: Sec. 3575.89 Mergers.
                 WWD: Sec. 1779.89 Mergers.
                Sec. 5001.509 Servicing fees......... B&I: Sec. 4279.120 Fees and
                 charges.
                 REAP: Sec. 4287.334 Transfer
                 and Assumption.
                Sec. 5001.510 Subordination of lien B&I: Sec. 4287.123
                 position. Subordination of lien
                 position.
                 REAP: Sec. 4287.323
                 Subordination of lien
                 position.
                Sec. 5001.511 Repurchases from B&I: Sec. 4279.78 Repurchase
                 Holders. from holder; Sec. 4279.225
                 Repurchase from Holder.
                 REAP: Sec. 4279.78 Repurchase
                 from holder; Sec. 4279.225
                 Repurchase from Holder.
                 CF: Sec. 3575.78 Repurchase
                 of loan.
                 WWD; Sec. 1779.78 Repurchase
                 of loan.
                Sec. 5001.512 Additional expenditures CF: Sec. 3575.84 Additional
                 and loans. loans or advances.
                 WWD: Sec. 1779.84 Additional
                 loans or advances.
                Sec. 5001.513 Interest rate changes.. B&I: Sec. 4287.112 Interest
                 rate changes.
                 REAP: Sec. 4287.112 Interest
                 rate changes.
                 CF: Sec. 3575.80 Interest
                 rate changes after loan
                 closing.
                 WWD: Sec. 1779.80 Interest
                 rate changes after loan
                 closing.
                Sec. 5001.514 Lender failure......... B&I: Sec. 4287.136 Lender
                 failure.
                 REAP: Sec. 4287.136 Lender
                 failure.
                Sec. 5001.515 Default by Borrower.... B&I: Sec. 4287.145 Default by
                 Borrower.
                 REAP: Sec. 4287.145 Default
                 by borrower.
                 WWD: Sec. 1779.75 Defaults by
                 borrower.
                Sec. 5001.516 Protective Advances.... B&I: Sec. 4287.156 Protective
                 Advances.
                 REAP: Sec. 4287.156
                 Protective advances.
                 CF: Sec. 3575.83 Protective
                 advances.
                 WWD: Sec. 1779.83 Protective
                 advances.
                Sec. 5001.517 Liquidation............ B&I: Sec. 4287.157
                 Liquidation.
                 REAP: Sec. 4287.157
                 Liquidation.
                 CF: Sec. 3575.81 Liquidation.
                 WWD: Sec. 1779.81
                 Liquidation.
                Sec. 5001.519 Bankruptcy............. B&I: Sec. 4287.170
                 Bankruptcy.
                 REAP: Sec. 4287.170
                 Bankruptcy.
                 CF: Sec. 3575.85 Bankruptcy.
                 WWD: Sec. 1779.85 Bankruptcy.
                Sec. 5001.520 Litigation.
                [[Page 42501]]
                
                Sec. 5001.521 Loss calculations and B&I: Sec. 4287.158
                 payment. Determination of loss and
                 payment.
                 REAP: Sec. 4287.158
                 Determination of loss and
                 payment.
                 CF: Sec. 3575.34 Terms of
                 loan repayment; Sec. 3575.81
                 Liquidation; Sec. 3575.94
                 Determination and payment of
                 loss.
                 WWD: Sec. 1779.34 Terms of
                 loan repayment; Sec. 1779.42
                 Design and construction
                 requirements; Sec. 1779.81
                 Liquidation; Sec. 1779.94
                 Determination and payment of
                 loss.
                Sec. 5001.522 Future recovery........ B&I: Sec. 4287.169 Future
                 Recovery.
                 REAP: Sec. 4287.169 Future
                 Recovery.
                 CF: Sec. 3575.95 Future
                 recovery.
                 WWD: Sec. 1779.95 Future
                 recovery.
                Sec. 5001.523 Property acquired by CF: Sec. 3575.90 Disposition
                 the Lender. of acquired property.
                 WWD: Sec. 1779.90 Disposition
                 of acquired property.
                Sec. 5001.524 Termination of Loan B&I: Sec. 4287.180
                 Note Guarantee. Termination of Guarantee.
                 REAP: Sec. 4287.180
                 Termination of Guarantee.
                 CF: Sec. 3575.96 Termination
                 of Loan Note Guarantee.
                 WWD: Sec. 1779.96 Termination
                 of Loan Note Guarantee.
                ------------------------------------------------------------------------
                 As noted in table 1 above, this final rule is divided into six
                major subparts:
                 (1) Subpart A contains general provisions that are applicable to
                each guaranteed loan made under 7 CFR part 5001, except as may be
                otherwise indicated. Topics covered include definitions; exception
                authority; appeal and review rights; general lender responsibilities;
                special initiatives; approvals, regulations, and forms; and standards
                for financial information.
                 (2) Subpart B contains provisions for determining project,
                borrower, and lender eligibility. It also contains a list of ineligible
                projects, both general and program specific, and a set of conditions
                that would make an otherwise eligible borrower ineligible. This subpart
                addresses the lender's agreement, along with provisions associated with
                a lender maintaining its approved lender status. This subpart also
                addresses specific project requirements for the Business and Industry,
                Community Facility, and Water and Waste Disposal guaranteed loan
                programs, and Renewable Energy System Projects, Energy Efficiency
                Improvement Projects and Energy Efficient Equipment and Systems
                projects under REAP.
                 (3) Subpart C contains provisions for origination requirements,
                credit evaluations and underwriting, appraisals, guarantees, monitoring
                requirements, compliance with other laws, environmental
                responsibilities, and conflicts of interest.
                 (4) Subpart D contains application provisions for a loan guarantee
                under this part, including preliminary eligibility reviews and
                applications, application evaluation, and application award processes.
                This subpart also includes more specific application requirements and
                priority point systems for Community Facility, Water and Waste
                Disposal, Business and Industry, and REAP projects.
                 (5) Subpart E contains loan and guarantee provisions. Loan
                provisions cover interest rates, term length, loan schedule, repayment,
                lender fees, loan amounts, percentage of guarantee, eligible and
                ineligible uses of loan funds, and sale or assignment of a guaranteed
                loan. Guarantee provisions cover the conditional commitment, loan
                closing and conditions precedent to issuing the loan note guarantee
                (LNG), the issuance of the LNG, periodic retention and other fees,
                replacement of documents, reorganizations, and other legal
                requirements.
                 (6) Subpart F contains provisions for servicing the loan guaranteed
                under this part, including oversight, monitoring, and reporting
                requirements, and project completion requirements. Servicing topics
                covered include audits and financial reports, collateral, loan transfer
                and assumption, lender transfer, mergers, servicing fees, subordination
                of lien position, repurchases, additional expenditures and loans,
                interest rate changes, lender failure and borrower default, protective
                advances, liquidation, bankruptcy, litigation, loss calculations and
                payments, future recovery, property acquired by the lender, and
                termination of the LNG.
                 Lastly, we included appendices with information about financial
                feasibility studies and reports and technical reports for Renewable
                Energy Systems and Energy Efficiency Improvement projects under various
                project cost thresholds.
                B. Delivery of the OneRD Guaranteed Loan Program
                 While each of the four loan programs remain substantially the same
                under OneRD, the way they will be delivered to the Agency's customers
                has changed to improve consistency, accountability and transparency. In
                delivering OneRD, the Agency will publish Federal Register notices
                annually containing specific information associated with the guaranteed
                loan programs, such as fee amounts, or project priorities based on
                Agency initiatives. Additional programs that may become part of OneRD
                in the future will also be announced via Federal Register notice and
                this rule will be amended to incorporate those additional programs.
                 The following paragraphs address OneRD by examining the delivery
                mechanisms and include a discussion of the Federal Register notices
                that will be used as part of the implementation of the unified
                platform.
                 Eligibility. Under OneRD, four basic types of eligibility are
                identified in subpart B: Project eligibility, eligible use of loan
                funds, borrower eligibility, and lender eligibility.
                 Project eligibility is based on the proposed project
                benefiting a rural area, on the ability of the activity to be funded to
                meet the requirements of the applicable program, on meeting a minimum
                set of project criteria, and, when applicable, on the boundaries of the
                proposed service area meeting a nondiscrimination criterion. Projects
                that do not meet these criteria would be ineligible under OneRD. In
                addition, these criteria cannot be voided under the exception authority
                provided in this final rule. The applicable project eligibility
                requirements, located in Sec. Sec. 5001.102 through 5001.108 of this
                final rule, remain essentially unchanged for each of the four loan
                programs. However, some differences are discussed in section III of
                this preamble. One of the most important differences discussed is that
                OneRD uses three
                [[Page 42502]]
                minimum project financial conditions to reduce project risk by
                screening out those projects less likely to achieve a level of success.
                These three financial conditions establish minimum requirements for
                debt-service coverage ratio, cash equity or community support, and
                loan-to-value ratio. While the four loan programs currently address
                cash equity or community support, separately, they do not have
                requirements associated with debt-service coverage ratios and loan-to-
                value ratios. By specifying these project financial conditions in this
                final rule, borrowers and lenders can determine a project's eligibility
                for a loan guarantee early in the process.
                 In addition to identifying eligible projects, this final rule
                identifies specific projects and purposes that are not eligible to
                receive a loan guarantee. The Agency assembled this list based on
                analyses of its current portfolio and historic loan defaults as well as
                the list of ineligible projects and purposes identified in the existing
                regulations for the four loan programs.
                 Borrower eligibility is based on the borrower meeting the
                common requirements outlined in Sec. 5001.126(a) as well as the
                program-specific requirements of Sec. 5001.126(b) through (e). This
                final rule also identifies borrowers who would be categorically
                ineligible in Sec. 5001.127. In terms of eligible and ineligible
                entities, there is little change under OneRD compared to the four
                current programs.
                 Lender eligibility is based on the criteria provided in
                Sec. 5001.130. Requirements to be an approved lending participant vary
                for regulated and non-regulated lending entities.
                 Regulated lending entities, listed at Sec. 5001.130(b)(1) through
                (9), who are subject to supervision and credit examination by an
                applicable agency of the United States or a state, who meet the
                requirements of Sec. 5001.130(a), are eligible to receive a loan
                guarantee without additional documentation being sent to the Agency.
                The list of regulated lending entities as well as requirements is
                essentially the same as that in the four existing regulations with one
                exception. The language, ``. . . or were created specifically by state
                statute and operated under the direct supervision of a state government
                authority'' were added to allow the issuance of loan guarantees to
                state bond banks or state bond pools better clarifying the status of
                these entities. Previous language listed these entities; however,
                restricting eligibility to lending entities to those ``. . . subject to
                supervision and credit examination by the applicable agency . . .''
                effectively made them ineligible as they are quasi-state agencies and
                not, in most cases, subject to credit examination. State bond banks and
                state bond pools have approached the Agency numerous times and have
                been declined due to the limiting language.
                 A non-regulated lending entity that seeks to become an approved
                lender must submit a written request to the Agency. The request must
                address the criteria listed at Sec. 5001.130(c)(1) and (2).
                 To address the unique situation of providing capital on tribal
                trust lands, the Agency has added a category of ``non-regulated lending
                entities servicing tribal trust lands'' at Sec. 5001.130(d). This
                designation provides a modified set of criteria that must be met to
                become an approved lending entity but restricts lending activity to
                tribal trust lands only. Any lending activity proposed outside of
                tribal trust lands requires the lending entity to apply and meet the
                requirements of Sec. 5001.130(c)(1) and (2).
                 Approved lender status for all non-regulated lending entities will
                last for not more than five years
                 Currently, each guarantee program has a separate and distinct
                process of approving lenders so that a lender approved to originate a
                B&I loan is not approved to originate a CF loan and vice versa. This
                creates confusion and adds an additional burden to lenders wishing to
                participate in multiple guarantee programs. The process described
                streamlines the approval process for lenders by providing one unified
                approach that approves them for all four guarantee programs. The Agency
                believes this approach will expand program usage by enabling lenders to
                participate in programs they may not have otherwise been participating
                in due to the additional cost and time of being approved.
                 Guaranteed loan approval. Under the four loan programs, the Agency
                views proper loan origination as a responsibility of the lender. OneRD
                reinforces the concept of negligent loan origination throughout this
                Part to help lenders understand the importance of conducting proper
                credit analysis and sound loan origination. The policy regarding
                negligence in the origination and servicing of loans is found in Sec.
                5001.521(d). The Agency anticipates that the clarification for
                negligent loan origination will reduce loan defaults through improved
                loan origination. However, in the event of a default, this regulation
                provides the Agency remedies for negligent loan origination and
                servicing, up to and including a total reduction of the loss claim
                payable. However, in the event of loan default, loss claims paid under
                the guarantee will be collected from the lender, as stated in Sec.
                5001.521.
                 With OneRD, the Agency has standardized, to the extent possible,
                the types of information to be included in the loan guarantee
                application, although some additional information is required by some
                of the programs described in subpart B of this final rule. In general,
                the information associated with a loan guarantee application under
                subpart D of OneRD is not significantly different from that originally
                required under the existing regulations.
                 The main difference in the application for a loan guarantee under
                OneRD is the amount of supporting documentation that is required to be
                submitted with or accompany the application for certain projects.
                Project risk will drive the amount of documentation required versus
                total project cost thresholds, which were utilized in previous
                regulations.
                 The Agency will examine the lender's analysis of the project, the
                technical merit, any business plans or feasibility studies required,
                and environmental information. If the Agency disapproves the
                application, the lender and borrower have the right to appeal the
                decision per 7 CFR 1900, subpart B.
                 Servicing. Once RD approves a loan guarantee, the lender is
                responsible for servicing the entire loan. The lender's servicing
                responsibilities under the provisions of OneRD, including those
                regarding negligent servicing, are essentially the same as are
                currently required under the four loan programs. This information is in
                subpart F.
                 Oversight and monitoring. Under OneRD, as under the four loan
                programs, the Agency conducts all oversight and monitoring activities
                necessary to ensure that lenders are originating, and servicing Agency
                guaranteed loans in a manner consistent with lender and Agency
                standards. These activities include, but are not limited to, conducting
                lender visits and meetings and requiring various reports and
                notifications as discussed throughout subpart C. There are a few
                differences in these activities under OneRD compared to those
                previously required under the four loan programs. Sections II.1 through
                II.4 of this preamble discuss each program in detail.
                 The Agency also uses this oversight and monitoring to ensure that
                lenders maintain the qualification criteria for being an Agency-
                approved lender.
                 Managing Risks. As noted earlier in this preamble, the Agency has
                incorporated into the provisions of OneRD certain features to help
                manage project, operational, and institutional
                [[Page 42503]]
                risks, and loss exposure. Those various provisions are discussed in
                detail in section III of this preamble.
                 Federal Register notices. To implement OneRD, the Agency will
                publish at least one Federal Register notice each year. Each annual
                notice will address the following items as necessary:
                 Funding Availability. RD will issue notices each year specifying
                the amount of funds available for OneRD guarantees. Notices may also
                include the following information, should there be change from prior
                notices:
                 [ctrcir] Maximum loan amounts. The Agency will identify in the
                Federal Register notice the maximum loan amount per loan guarantee that
                will be available under each of the four guaranteed loan programs
                within OneRD.
                 [ctrcir] Percent of Loan Guarantee. The maximum guarantee is 90
                percent of eligible guaranteed loan loss pursuant to statutory
                authority. The Agency will set annually a guarantee percentage by
                program that will apply to loans guaranteed within each program. The
                Agency will announce annual guarantee percentages for each program by
                publishing a notice in the Federal Register in accordance with Section
                5001.10. The annual guarantee percentage may be set at or below the
                maximum allowed authorized by statute. The annual guarantee percentage
                will take current Federal credit policy into consideration and may be
                set at or below the maximum allowed authorized by statute.
                 [ctrcir] Fees. The Agency will identify the fees, including but not
                limited to, the initial guarantee fee rate and the renewal fee that
                will be used for the fiscal year for each program in an annual notice
                published in the Federal Register.
                 [ctrcir] Priority Scoring. The Agency will identify in the Federal
                Register notice the scoring criteria (e.g., Agency priorities) that
                will be used, if necessary, to allocate funds when funds are
                insufficient to cover all funding requests within a program.
                 Additionally, if there are any changes to the OneRD Guaranteed Loan
                Program, this rule will be amended accordingly.
                C. Changes of Note
                 The Agency has identified changes, including, but not limited to
                lender eligibility, and annual notice contents throughout section III
                and IV. Additional items, considered major changes, not addressed
                elsewhere include:
                 The Agriculture Improvement Act of 2018 (Pub. L. 115-334)
                amended the definition of rural and rural area in the Consolidated Farm
                and Rural Development Act (Pub. L. 92-419) for the CF and WWD guarantee
                programs to align the population limit with B&I and REAP. The
                definition of rural and rural area, which is unchanged for the B&I and
                REAP programs, is any area of a state not in a city or town that has a
                population of more than 50,000 inhabitants 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; it is codified in this regulation at Sec.
                5001.3. This definition is subject to reservation requirements for the
                CF Program found at 7 U.S.C. 1926(a)(24).
                 To align the Agency's guarantee programs purposes with its
                customer's needs, the Agency will allow refinancing as an eligible
                project purpose. Included in the regulation is the ability to refinance
                lender, other lender and federally guaranteed, including Agency, debt.
                There are specific thresholds that must be met for debt to be
                considered for refinancing. Refinancing may allow a lender to improve
                an applicant's cash flow position or obtain a more favorable lien
                position, but the Agency does not anticipate frequent use of this
                provision. For a request for refinancing to be eligible for a loan
                guarantee, it must meet the requirements of Sec. 5001.102(d)(1)
                through (5) as well as those in the applicable program sections
                Sec. Sec. 5001.103 through 5001.108. This change expands funding
                options for refinancing for some programs and creates a consistent
                approach for guaranteeing loans for debt refinancing across all four
                programs. Additionally, as CF and WWD direct loans have a statutory
                ``graduation'' requirement per 7 CFR 1942(b)(5) and 7 CFR 1780.1(c)
                Refinancing provides a ``stepping stone'' for those direct borrowers
                that may wish to refinance their direct Agency debt but may not meet
                all the requirements of a commercial lender without a guarantee.
                 Recognizing that equity serves a valuable role in providing
                stability against unforeseen changes to cash flow or profitability and
                is one of the five factors in credit analysis, the OneRD regulation at
                Sec. 5001.105(d) removes the B&I program's requirement for tangible
                balance sheet equity and replaces it with a requirement for sufficient
                equity for all businesses. The tangible balance sheet equity
                requirement and calculation is not common in the lending community and
                created confusion. The OneRD regulation provides a 10 percent equity
                position for a typical existing business and a capital injection based
                on projected revenue for new businesses. This change removes a
                cumbersome calculation for lenders and aligns the Agency with current
                industry practices.
                 New Markets Tax Credit (NMTC) provisions are included at
                Sec. 5001.141. Currently, NMTC requirements are only codified in the
                B&I regulation at Sec. 4279.116 even though projects in other programs
                may be eligible to participate. By incorporating NMTC requirements into
                the OneRD regulation, the Agency ensures a standardized approach to
                project, borrower and lender eligibility.
                 The Agency, recognizing that the lender is familiar with
                and understands the nature of the collateral being offered for their
                guarantee loan request, and has removed the collateral discounting
                requirements currently found at Sec. 4279.131(b)(1)(i) through (iv) in
                favor of a lender driven process at Sec. 5001.202(b)(4)(ii). The
                lender will rely on discounts that are consistent with sound loan-to-
                discounted value practices while ensuring that adequate security exists
                for the guaranteed loan. Satisfactory justification of the discounting
                factors used must be provided to the Agency. The change will simplify
                the discounting process and allow the lender to customize the discount
                for each loan. Placing the collateral discounting responsibility on the
                lenders and requiring them to justify their discounting factor is a
                better alternative than a `strict' standard as currently in the B&I
                regulation. For example, currently in the B&I program to meet our
                collateral requirements, equipment can be valued no greater than 70%
                and real estate no greater than 80% of its value which is generally
                considered standard discounting factors. However, these stated factors
                may be too low for some collateral and too high for others. Therefore,
                OneRD allows some subjectivity, as requested by the lenders, and we
                will rely on the proper training of our staff to recognize when
                collateral is not discounted on sound discounting practices.
                 The Agency currently allows the issuance of the loan note
                guarantee prior to project completion in the B&I program only. OneRD,
                at Sec. 5001.205(e)(2), expands this option to CF, WWD and REAP. There
                are additional construction contract, contractor performance and lender
                monitoring (Sec. 5001.205(e)(2)(i) through (viii)), and reporting
                (Sec. 5001.205(f)) requirements and fees (Sec. 5001.454(c))
                associated with this opportunity; however, when requested and approved,
                issuing the LNG prior to construction completion allows the lender the
                [[Page 42504]]
                flexibility to conduct one loan closing for a project involving both
                construction and long-term financing.
                 Currently for CF and WWD guarantee projects, preliminary
                architectural and engineering reports (PAR and PER respectively) or
                plans must be approved by the lender and concurred on by the Agency.
                The Agency provides at Sec. 5001.205(a) the removal of that
                requirement and allows the lender to provide engineering or
                architectural documentation that meets the level of detail the lender
                would typically require for a standard commercial loan. The Agency will
                provide assistance to clarify any Agency requirements; however, no
                technical oversight or recommendations as to the technical feasibility
                of the project will be provided. This change will reduce time and
                expenses incurred by the borrower to produce planning documents as well
                as reducing processing time as the Agency will rely on the state's
                regulatory agency's review and permitting process rather than their
                own, duplicative, review.
                 Currently each of the four programs included in the OneRD
                regulation have separate term limit requirements with B&I having the
                most prescriptive. The Agency provides at Sec. 5001.402 to allow the
                lender to establish and justify the guaranteed loan term for each
                individual loan. The term will be based on the justified useful
                economic life of the asset being financed, not to exceed 40 years, or
                limitations imposed by state statute, whichever is less. The Agency
                must concur with the term proposal. This change provides consistency
                between the programs and provides flexibility to the lender in
                proposing and setting the term of the loan based on their knowledge of
                the funding request.
                 In order to reduce portfolio risk, the OneRD regulation
                introduces, at Sec. 5001.406, maximum guaranteed loan amounts to the
                CF and WWD programs. The guaranteed loan limits for B&I and REAP are
                statutory and remain unchanged from previous regulations.
                 [cir] The four programs included in the OneRD regulation currently
                have separate maximum guarantee percentages. The OneRD regulation, at
                Sec. 5001.407, sets the maximum guarantee at 90 percent of eligible
                guaranteed loan loss across the four programs. However, the Agency will
                set annually a guarantee percentage by program that will apply to loans
                guaranteed within each program for the fiscal year. The Agency will
                announce annual guarantee percentages for each program by publishing a
                notice in the Federal Register in accordance with Sec. 5001.10. The
                annual guarantee percentage may be set at or below the maximum allowed
                authorized by statute This change provides consistency and certainty
                for lenders and gives the Agency the flexibility necessary to
                effectively manage its portfolio. Although the guarantee percentage may
                vary from program to program, the guarantee percentage will be the same
                for all loan guarantees within a program for the year. The annual
                guarantee percentage will take current Federal credit policy into
                consideration and may be set at or below the maximum allowed authorized
                by statute. This will provide certainty for program participants and
                consistency across program offices.
                 To ensure lender responsibility and commitment throughout
                the life of the loan, the Agency has increased the minimum retention
                percentage from 5 percent to 7.5 percent of the unguaranteed portion of
                the loan amount at Sec. 5001.408(a)(3)(i).
                 At Sec. 5001.454, Sec. 5001.455 and Sec. 5001.456 the Agency
                discusses and provides guidance on the various fees and charges that
                are currently in place or will be implemented with OneRD, at Sec.
                5001.454 and Sec. 5001.455 or that may be implemented in the future,
                at Sec. 5001.456. The OneRD sections outline the types of fees that
                may be charged and whether those fees may be passed on to the borrower;
                however, OneRD does not provide the fee amount. The Agency will
                establish actual fee amounts and provide to the public in an annual
                notice published in the Federal Register. The fee to be charged and the
                fee rate may vary by program. The agency may establish higher fees for
                larger loans. By defining the fees that may be charged in the
                regulation, and including the specific fee amounts in an annual Federal
                Register publication, the Agency is provided the flexibility to
                implement administration or congressionally mandated changes quickly
                and better respond to changes in its portfolio.
                 The Agency, at Sec. 5001.454 adds maximum guarantee fee level for
                each of the OneRD programs. The Agency feels that setting a maximum
                fee, above which a technical change to the rule is required, provides
                flexibility to raise fees within a reasonable range without creating a
                barrier to participation. As with the fee itself, the maximum fee
                varies by program to account for differences in risk by sector and
                business models of various project types.
                V. Public Participation and Discussion of Comments From Listening
                Sessions
                 The Agency has worked to develop a regulation that is customer
                driven and simplifies the processes involved with loan guarantees. From
                the application to servicing, the Agency critically reviewed every
                process to draft this final rule. The Agency hosted listening sessions
                throughout the West, South, Midwest, and Northeast regions with a focus
                on improving customer experience with RD's loan guarantee programs. In
                addition, RD held a National listening session in Washington, DC, and a
                virtual listening session for Tribal communities. From those sessions,
                the Agency collected 314 comments and consistently heard that customers
                were looking for a more streamlined and refined process. The Agency
                appreciates all comments and has considered suggestions from each
                commenter.
                 The following sections discuss each comment and the Agency's
                responses, organized by subpart of the new regulations with each
                section organized by comment paragraph and then Agency response
                paragraph. Sections with multiple comments will continue the comment/
                response paragraph pairing format until all comments for that section
                are addressed. Comments are as received from listening session
                participants. The Agency has done its best to interpret the context and
                meaning of each comment or question.
                Subpart A--General Provisions
                Definitions
                 One commenter asked for a definition of affiliates for B&I loan
                documentation. The commenter's interpretation of the current
                regulations is to obtain financial statements for any affiliate of the
                borrower, regardless of the ownership percentage. The commenter then
                said that there should be a threshold of 50 percent or more ownership
                to be considered an affiliate.
                 Agency's Response: Per Sec. 5001.3, this final rule defines an
                affiliate as a person or entity with control over the borrower, with no
                specific ownership percentage identified.
                Definition of Rural and Population Limits
                 The Agency received comments asking to standardize rural population
                standards and definition across all programs.
                 Agency's Response: The Agricultural Improvement Act of 2018
                expanded the population limit for the CF and WWD guarantee programs, in
                agreement with this comment. The new population
                [[Page 42505]]
                limits have been incorporated into OneRD, so all four guarantee
                programs now have the same definition of rural and rural area.
                Subpart B--Eligibility Provisions
                Program Specific Requirements and Concerns
                 One commenter asked if Risk Management Association (RMA) statements
                are required for the B&I guaranteed loan program. The commenter added
                that lenders do not analyze RMA statements and questioned if RMA
                statements were necessary as a result.
                 Agency's Response: The Agency uses the RMA information as an
                industry comparison to the borrower's financial statements. However,
                the Agency does not require that lender submit RMA statements as part
                of the application. The regulation states that spreadsheets and
                analysis of the financial statements are accepted in a credit
                evaluation if they comply with industry standards. Standards for
                financial information are also discussed in Sec. 5001.9.
                Eligibility
                 The Agency received several comments with concerns about
                eligibility for OneRD guaranteed loans programs. We divided the
                comments into subcategories regarding eligibility for borrowers,
                lenders, loan purposes, and projects, and respond point by point.
                Borrowers
                 Commenters discussing eligibility for guaranteed loan borrowers
                recommended the Agency revise or simplify its ``credit elsewhere''
                requirements. One commenter said that the Small Business
                Administration's version of credit elsewhere requirements is better
                tailored to rural markets.
                 Agency's Response: In accordance with 7 U.S.C. 1983, the Agency has
                a statutory requirement for the CF and WWD program to document that the
                applicant is unable to obtain the required credit from private,
                commercial, or cooperative sources at reasonable rates and terms
                without the RD loan guarantee. The lender also has a responsibility to
                evaluate and certify to the Agency that it would not make the loan
                without a guarantee (Community Facilities and Water and Waste Disposal
                Programs only). The Agency considered the commenters' remarks in
                developing the regulation and accompanying guidance to address the
                proper analysis and documentation of this eligibility criterion.
                 One commenter asked if Alaska Native Corporations are considered
                Tribal governments.
                 Agency's Response: Under the OneRD Guarantee regulation, applicant
                eligibility will vary from program to program based on the authority
                provided by Congress. Based on the definition of Indian tribe at 25
                U.S.C. 5304(e), if the Alaska Native Corporation is defined in or
                established pursuant to the Alaska Native Claims Settlement Act (43
                U.S.C. 1601 et seq.) they would meet the definition of Indian tribe and
                potentially be eligible.
                Lenders
                 Regarding the Community Facilities and Water and Waste Disposal
                programs, one commenter said that for non-regulated lenders, the Agency
                should ``issue a statement of good standing so new application is not
                needed'' and, ``if no loss claim is made, process an automatic
                renewal.'' Another commenter said that Rural Development should
                consider using Aeris Ratings (formerly the Community Development
                Financial Institution Assessment and Rating System) for outside credit
                examination of non-regulated entities like the B&I Guaranteed Loan
                program.
                 Agency's Response: Under the OneRD Guarantee regulation, the
                approval and renewal process for non-regulated entities will be the
                same across all programs. Currently, Rural Development does not allow
                an automatic renewal as suggested by the commenter, but the regulation
                does provide a streamlined renewal process for non-regulated lenders
                that meet certain thresholds. Regarding the suggestion from the second
                commenter, Rural Development already considers Aeris to be an approved
                credit examination entity and does accept the use of Aeris to evaluate
                outside credit of non-regulated entities.
                Projects
                 Some comments suggested the Agency eliminate, modify, or clarify
                how projects will ``primarily serve rural areas'' in the Community
                Facilities program.
                 Agency's Response: 7 U.S.C. 1926(a)(1) under which the Community
                Facilities guarantee program operates authorizes assistance to entities
                ``primarily serving'' rural businesses and other rural residents.
                Therefore, in addition to the location of the facility (i.e., rural
                area) we must also determine who is being served by the facility or
                service in order to determine eligibility. While we cannot eliminate
                this provision due to statutory requirements, as was suggested by one
                commenter, more clarity on meeting this eligibility criterion has been
                provided.
                Loan Purposes
                 Some comments received inquired about refinancing Community
                Facility loans. One comment specifically recommended the Agency allow
                refinancing of over more than 50 percent on Community Facilities loans.
                 Agency's Response: In the CF program.
                Maintenance of Approved Lender Status: Preferred Lenders
                 There were comments in the docket regarding a preferred lender
                program. The commenters suggested adding a preferred lending program to
                the OneRD program. One commenter noted that under a preferred lender
                program ``banks that use USDA lending can be put in SBA categories.''
                Another commenter added that a preferred lender program should contain
                ``uniform requirements across all programs.''
                 Agency's Response: The Agency has determined that it will not
                implement a preferred lender program with this regulation. As the
                regulation covers varying types of eligible projects, it would be
                difficult to develop a common preferred lender program. We want to
                encourage lenders of all sizes and capacities to utilize the program
                and ensure funds are available to all to the extent possible, and a
                preferred lender program may affect our ability to fund projects with
                smaller lenders. The OneRD regulation provides consistent lender
                eligibility criteria for the guaranteed loan programs. The Agency also
                added a new provision for non-regulated lenders providing loans to
                entities located on Tribal Trust lands. Rural Development monitors
                lenders for liquidity and reviews their guaranteed loan quality and
                activity on a regular basis.
                Lender Participation
                 The Agency received one comment regarding lender participation in
                OneRD. The commenter said that this final rule should not disadvantage
                small lenders. Instead, the commenter said the Agency should ensure the
                maximum number of lenders use the programs so that the maximum number
                of rural communities are served via these loan programs under OneRD.
                The commenter added that maximizing the number of lenders using the
                program rather than promoting fewer, larger lenders will result in a
                ``broad base of support for the program from stakeholders.''
                 Agency's Response: The Agency wishes to maximize the number of
                [[Page 42506]]
                lenders using the programs and therefore, the OneRD final rule looks to
                increase application efficiency, which will benefit all lenders
                regardless of size.
                New Markets Tax Credit
                 A commenter expressed concern that a 7-year foreclosure forbearance
                period makes it difficult to pair lender programs with New Market Tax
                Credit (NMTC) benefits, particularly for community banks. Another
                commenter said that banks would like to use the ``B&I guarantee product
                on the leverage loan piece of the NMTC structure''.
                 Agency's Response: OneRD allows a leveraged lender in the NMTC
                leveraged equity structure of that transaction to receive guaranteed
                loans. The 7-year forbearance agreement is protection for the NMTC
                investor, typical of all NMTC transactions, and must be factored as a
                credit risk by the lender in their analysis.
                 Regarding another commenter's concern about recognizing forbearance
                limitations, we added a provision to OneRD that the sub-Community
                Development Entity (sub-CDE) must include in its operating agreement
                that the investor fund entity has approval rights to certain loan
                servicing actions by the sub-CDE lender. The intention of this addition
                is to allow the guaranteed loan lender the ability to monitor any
                forbearance or servicing actions by the sub-CDE lender and protect
                their interests in the project.
                 One commenter indicated that requiring a lender upfront to state
                its plan to allow for debt forgiveness could create NMTC compliance
                issues. Qualified Low-Income Community Investments must meet the ``true
                debt'' requirement under Internal Revenue Service rules. Another
                commenter wanted the Agency to address the impact of unwinding the NMTC
                structure at the end of the 7-year compliance period based on a
                reference in the regulations. The commenter wanted clarification that
                the unwind plan could include the transfer of the guaranty between debt
                instruments.
                 Agency's Response: The Agency has taken into consideration the two
                comments related to sub-CDE. With this regulation, we have added a
                provision that the sub-CDE must include in its operating agreement that
                the investor fund entity has approval rights to certain loan servicing
                actions by the sub-CDE lender. We have also eliminated the requirement
                to provide an exit strategy for the NMTC investor.
                 Another commenter said regulations in 7 CFR 4279.126(a) that
                require that loan terms must be equal in length create issues because
                the B-note is usually longer than the A-note in NMTC projects.
                 Agency's Response: The provision referenced by the commenter
                requires that the maturity and related payment schedule of the lender's
                guaranteed loan to the borrower must be no longer than the maturity and
                related payment schedule of the sub-CDE's loan to the Qualified Active
                Low Income Community Business (QALICB) funded by the direct tracing
                method in a leveraged equity structure. This requirement allows a
                smooth transfer and assumption of the leveraged lender's loan, if
                necessary, and retains the guarantee. The regulation does not require
                equal terms between the two loans from the CDE to the QALICB, see Sec.
                5001.141.
                Subpart C--Origination Provisions
                Environmental Responsibilities
                 The Agency received some comments regarding National Environmental
                Policy Act (NEPA) requirements to apply for a OneRD loan guarantee.
                Most of the commenters suggested that environmental reporting slows
                down the process of application approval because of its complexity. One
                commenter noted that the Agency provides sufficient guidance on
                environmental reporting, but now lenders need to hire a consulting firm
                to get the loan approved, citing a $15,000 fee that needs to be paid up
                front. Another commenter added that the Agency's environmental
                requirements for New Markets Tax Credits (NMTC) ``are more stringent
                and time intensive than the other financing entities, which often
                include multiple banks.'' A commenter recommended the USDA revert to
                completing this requirement in-house, which was supported by another
                commenter who said the previous environmental regulations were ``much
                less costly and didn't take as long to approve'' and asked if a
                National Office review of the project would be possible if the State
                Office evaluation is delayed. A commenter said that it would be ``more
                appropriate for the lender to have the flexibility to run environmental
                lien searches and have questionnaires completed by the borrowers to
                determine what environmental risks are present.'' Overall, the
                commenter did not believe a blanket Phase 1 requirement is the best way
                to address environmental risks.
                 Agency's Response: The Agency's environmental policies and
                procedures regulation (7 CFR 1970) has decreased the number of
                Environmental Assessments required and has reduced the time to complete
                environmental reviews across all programs. A few programs have seen an
                increase in the level of environmental review. Environmental site
                assessments that are not part of compliance with NEPA are completed
                only when the Agency will finance real estate and are a risk management
                decision made on a case-by-case basis by the agency and offer
                protection to the lender, borrower, and agency. RD is continually
                evaluating and implementing ways to improve efficiency of all
                environmental review and will continue to do so.
                Standards for Financial Information
                 One commenter shared concern that onerous costs include
                environmental reports and account financials.
                 Agency's Response: Environmental compliance is statutory, and
                compliance has been improved through the expanded capability to provide
                a categorical exclusion for eligible projects. The list of categorical
                exclusions can be found at 7 CFR 1970.53 and 1970.54. The list of
                projects referenced in Sec. 5001.102 ``Project eligibility--general''
                will often fall under Sec. Sec. 1970.53 (which may require additional
                information) and 1970.54 (which will always require an environmental
                report) list of categorical exclusions. We encourage lenders and
                borrowers to work with RD staff to ensure that any environmental
                reports are focused on projects and impacts that need analysis and not
                pay for assessments related to projects and impacts that are
                unnecessary. Standards for financial information in Sec. 5001.9
                provide flexibility to provide financial information that is prepared
                and submitted in accordance with accounting practices acceptable to the
                Agency. They include, but are not limited to, GAAP and the industry's
                standard accounting practices.
                Origination and Credit Evaluations
                 Two commenters suggested that the Agency should consider using tax
                returns as a more consistent approach to analyze underwriting and as
                the basis of historical financial statement for B&I guaranteed loans.
                 Agency's Response: Standards for financial information as noted in
                Sec. 5001.9 provides flexibility to provide financial information that
                is prepared and submitted in accordance with accounting practices
                acceptable to the Agency. Those include, but are not limited to, GAAP
                and the industry's standard accounting practices. Tax returns often
                include accelerated depreciation and other tax treatments that impact a
                borrower's balance sheet,
                [[Page 42507]]
                or they are too generally summarized and do not contain details about
                the description of assets (e.g., fixed assets and liabilities).
                 The Agency received some comments about lender autonomy and
                responsibilities during the application process. Some commenters said
                that there are too many offices involved in the approval process, and
                that the Agency must allow the lender to be the primary point of
                contact, especially regarding credit analysis and underwriting.
                 Agency's Response: The Agency respects the role of the lender and
                their relationship to the borrower and has established a process that
                is respectful of that relationship. The Agency has streamlined and
                standardized its credit risk evaluation and continues to review its
                policies.
                 One commenter suggested methods for lender responsibility and
                commitment during the application process for OneRD. The commenter said
                that the application process should clearly outline the responsibility
                of the lender and timeline and review process of the Agency. Not only
                should the lender be responsible for underwriting the project, the
                lender should be required to keep ``skin in the game'' for the life of
                the project. The commenter closed with suggesting that encouraging a
                commitment to deep rural customer relationships has been a hallmark of
                USDA programs, and should continue to be encouraged with a new lending
                partner.
                 Agency's Response: The OneRD regulation defines lender and Agency
                roles. The Agency will also be providing training to lenders and field
                staff on their individual roles and responsibilities including time
                frames. The Agency is developing an electronic application intake
                system, which will communicate with the lender as the application
                progresses through each phase of processing. The desire is that the
                electronic system will help provide a consistent processing timeframe
                and enhance the lender's relationship with the Agency. The minimum
                retention percentage has been increased to 7.5 percent of the
                unguaranteed portion of the loan amount from 5% at Sec.
                5001.408(a)(3)(i). By raising the percentage to 7.5%, which is a
                nominal increase, we believe that this will help ensure lender
                responsibility and commitment throughout the life of the loan. Other
                lender responsibilities are outlined in Sec. 5001.6 ``General Lender
                responsibilities.''
                 A commenter asked if it was possible for a company working on a
                OneRD project to use tax credit programs for building marine
                transportation vessels that transport agricultural resources.
                 Agency's Response: OneRD will help leverage Agency programs to suit
                the needs of the credit. Due to OneRD and tax credit program
                requirements, each structure is reviewed independently to ensure
                eligibility and compliance; therefore, the Agency cannot comment on a
                specific project's eligibility.
                Appraisals
                 The Agency received three comments regarding appraisal process for
                OneRD loans. One commenter suggested that appraisal reviews conducted
                by a Certified General Appraiser should not require additional review
                by USDA. Another commenter said that to use market value, appraisals
                would need to be done ``as-is,'' and not as an ongoing concern value. A
                third commenter recommended that the Agency should provide lenders with
                a list of approved appraisers so that two appraisals are unnecessary.
                 Agency's Response: We agree that qualified and licensed appraisers
                provide valuable insight to asset value. The Agency requires appraisals
                to meet the Financial Institution Reform, Recover, and Enforcement Act
                (FIRREA) and Uniform Standards of Professional Appraisal Practice
                (USPAP) requirements, and the lender to provide an independent review
                of the appraisal--both of which are also required by banking
                regulators. The regulation requires real estate appraisals when the
                value of the collateral exceeds $500,000 or the current limitation
                under the Financial Institutions Reform, Recovery and Enforcement Act
                Public Law 101-73, 103 Stat. 183 (1989).
                Tangible Balance Sheet Equity Requirements
                 The Agency received comments about current Tangible Balance Sheet
                Equity (TBSE) requirements for B&I guaranteed loans. For B&I guaranteed
                loans, one commenter suggested the Agency allow NMTC Equity to serve as
                a TBSE for easier leveraging of NMTC investment with Community
                Facilities and other Rural Development project financing. Other
                comments suggested simply revising TBSE requirements or providing
                additional options outside of TBSE requirements, such as market-based
                financial statements ``based on current appraised value'' or using tax
                returns ``with verifications for financial information.'' One commenter
                said eliminating the TBSE requirement would benefit lenders because
                ``[n]o other lender uses this practice and it creates a huge distortion
                of market asset value.''
                 Agency's Response: Equity serves a valuable role in providing
                business stability against unforeseen changes to cash flow or
                profitability and is one of the five factors of credit analysis. The
                OneRD regulation of the B&I program will require sufficient equity for
                an existing business, stated as a 10-percent balance sheet equity
                position or capital investment into the project to at least 10 percent
                of the project cost for a typical business, with criteria for issuance
                of an exception to the minimum equity requirement. Typical new
                businesses will have the option of meeting equity requirements by
                contributing either 20 percent balance sheet equity or injection of
                capital equal to at least 25 percent of the project costs.
                USDA Partnerships
                 We received two comments about USDA partnerships. A commenter
                requested the Agency continue to create Memorandums of Understanding
                with guaranteed loan programs across the government. The commenter
                added that these partnerships ``will help create greater flexibility
                for lenders, which ultimately helps their customers.''
                 Agency's Response: The Agency agrees with this comment and has
                participated in an MOU with the Small Business Administration since
                2018. This is a focus of OneRD's outreach plans. However, the process
                for engaging in a Memorandum of Understanding is separate from the
                rulemaking process.
                Subpart D--Guarantee Application Provisions
                Application Evaluation
                 One commenter stated that the B&I application process is cumbersome
                and recommended that the Agency use bank-provided information to meet
                Rural Development application financial requirements instead.
                 Agency's Response: The Agency must obtain information to enable it
                to expeditiously complete its review process and ensure compliance with
                statutory and regulatory requirements. While receipt of the information
                is required, the format for presenting that information to the Agency
                is not specified and may include lender's documents and forms.
                Reservation of Funds
                 One commenter suggested the Agency allow lenders to request
                reservation of funds for loans in progress to ensure they obtain the
                guarantees.
                 Agency's Response: The Agency reviews the pipeline of applications
                on a regular basis but is not authorized to
                [[Page 42508]]
                hold funds for a specific project. Project awards will continue to be
                made with available funds only after credit approval by the Agency. The
                Agency reviews applications as they are received; however, depending on
                the completeness of the application or the complexity of the proposal,
                applications may not receive conditional commitments in that same
                order. This is especially common near the end of a federal fiscal year
                when the value of applications received exceeds the funds remaining.
                The Agency does not propose a reservation of funds process as that
                could potentially ``tie up'' funding for a reserved application that
                might or might not be ready to obligate to the detriment of an
                application that is complete and ready to move forward.
                Feasibility Studies
                 Seven comments were received pertaining to the Agency's process in
                conducting feasibility studies. All of the comments had some type of
                recommendation on how to revise the feasibility study requirements,
                such as increasing the length of the validity period, specifying
                requirements to the intended industry or business, being more flexible
                for third-party feasibility studies, requiring third-party feasibility
                studies only on requests over $10 million and providing more resources
                for compliance.
                 Agency's Response: This final rule provides consistency in the
                application of the feasibility study requirements across all four
                programs. The Agency will rely upon the lender's analysis of the five
                feasibility study components provided in the lender's analysis,
                borrower's business plan, or other project information, to determine a
                basis for successful repayment of the guaranteed loan. Projects not
                adequately documented and that pose a higher risk to the Agency will be
                subject to the requirements of a third-party feasibility study. The
                requirements will vary depending on items such as the nature of the
                project, the project's impact to the borrower's operation and financial
                stability, size of guarantee loan request, borrower history, market
                conditions, collateral, and other factors.
                Guarantee Thresholds
                 The Agency received comments about the threshold for guarantees on
                an eligible loan. The comments suggested that all programs under OneRD
                should have a maximum guarantee of 90 percent of eligible loans like
                the Community Facilities guaranteed loan.
                 Agency's Response: The Agency has considered various approaches to
                bring uniformity across all four programs in the maximum amount of loan
                guarantee percentages established in the OneRD Guarantee regulation.
                Consideration was given to statutory authority that limits some
                program's options. The maximum guarantee is 90 percent of eligible loan
                loss. The annual guarantee percentage will take current Federal credit
                policy into consideration and may be set at or below the maximum
                allowed authorized by statute. The Agency will announce, annually,
                guarantee percentages for each program by publishing a notice in the
                Federal Register.
                Priority Scoring
                 The Agency received comments suggesting changes to OneRD's priority
                point system. One commenter suggested priority points for loans of more
                than $1 million, and a second commenter requested more guidance on
                priority scoring.
                 Agency's Response: We have considered the commenter's suggestion to
                add priority points for loans of more than $1 million. Loan size, where
                larger guarantee loan requests receive greater priority over smaller
                guarantee loan requests, is not a priority factor the Agency will use
                in any of its OneRD Guarantee programs. However, priority factors may
                change. Any changes will be published in a Federal Register notice.
                 Regarding the second commenter's concern, this final rule provides
                consistent language as it relates to the purpose and use of assigning
                points in order to prioritize guarantee loan awards for funding.
                Priority points are assigned to all applications and play an important
                role when funds requested by otherwise potentially successful
                applications and guarantee loan requests exceed the lending authority
                of guarantee funds available. Due to the varying purposes of each
                guarantee program within OneRD Guarantee, there are differences in each
                program's priorities. For example, the B&I Guarantee Program focuses on
                creating jobs, while the Water and Environmental Program focuses on
                providing safe reliable drinking water.
                Application Evaluation
                 One commenter suggested that, for small loans under $100,000, the
                Agency should consider a less detailed application. Another commenter
                suggested the Agency provide a short application form for small loans
                under $1 million to $2 million in size. The commenter also said the
                Agency should have one ``Master application'' for the overall single
                platform.
                 Agency's Response: The Agency has created a single application for
                all four programs, which we believe will streamline the process for
                lenders. B&I has provisions for loans of less than $600,000 to provide
                a lower document application, if they meet certain criteria; however,
                there is not an overall ``low doc'' application process as loan size is
                not necessarily an indicator of project complexity or risk. The Agency
                is developing an on-line application process that they believe will
                streamline the process further.
                 One commenter expressed concern about the Agency's need for due
                diligence to mitigate risk.
                 Agency's Response: The Agency relies on the lender's due diligence
                and underwriting to mitigate credit risk and performs a secondary
                review of the loan to assure credit quality and regulatory adherence.
                The Agency also monitors the lender's guaranteed loan portfolio to
                evaluate the borrower's loan performance and timely lender reporting.
                The Agency believes that OneRD provides a balance between the lender's
                and the Agency's needs.
                Application Award Process
                 One commenter asked the Agency to not require System for Award
                Management (SAM) registration for guaranteed loans based on the
                commenter's understanding that other Federal guarantee programs do not
                require SAM registration for guaranteed loans. Another commenter
                suggested eliminating the need for SAM registration, specifically for
                Rural Energy for America Program (REAP). The commenter said that SAM
                registration inhibits the number of small applications because the REAP
                program is inaccessible for areas that do not have internet access.
                 Agency's Response: The Agency acknowledges this concern; however
                SAM requirements are outside the scope of this rulemaking.
                Approval Authority
                 The Agency received comments about allowing more State, district,
                and county offices to approve loan applications. One commenter
                recommended that the Agency allow county, district, or State Offices to
                approve all loans that are smaller in size. Another commenter suggested
                having various levels within Rural Development approve loans of certain
                dollar amounts and categories and provided the example of Water and
                Waste Disposal Loan Guarantee of less than $5 million could be approved
                by the local Rural Development office, while a loan of greater than $5
                million would need to be approved by the National Office. A comment
                suggested that there could be an option for lenders
                [[Page 42509]]
                to send loan approvals to the National Office if there have been
                approval issues at the local office. The reasoning for this option is
                that it would help to keep local projects locally controlled but allow
                for a lender to move projects up the chain if necessary. A commenter
                suggested that the multiple levels of loan review done between the
                state and National Office are duplicative and time-consuming. Two more
                levels of review are done after the state offices have reviewed and
                approved the loans. This is duplicative, time consuming, and prevents
                timely approval.
                 Agency's Response: The Agency's internal operations, such as loan
                approval authority, are governed by a separate regulation and not part
                of this regulatory process; however, the comments will be taken under
                advisement.
                Preliminary Engineering Report (PERs)
                 The Agency received comments requesting a change to the PER (also
                referred to as engineering reports or engineering documentation) review
                process. Some comments suggested the Agency allow expedited PER reviews
                for guaranteed Water and Environmental Program loans, such as Water and
                Waste Disposal. One commenter explained, ``The lender is making the
                loans and has credit policies in place to make sound loans. Consulting
                engineers are licensed, and the projects are regulated by their state
                and local agencies so additional review by RD is not needed.'' Another
                commenter said ``that the Agency should provide a waiver of engineering
                or architectural reports for small equipment type only projects like
                solar panel installation, waterflow meters, and lift stations'', while
                another commenter suggested the Agency not require PER reviews for
                loans under $1 million in size. Some commenters added that PER reviews
                are a barrier to potential lenders who want to use USDA lending
                programs.
                 Agency's Response: The Agency requires project information as part
                of its application review process; however, it has scaled back the
                specific information requested and leaves the level of detail required
                for the planning documents to the lender. Section 5001.305(a) discusses
                the details that must be included in a lender's engineering
                documentation. The Agency will, if requested, provide assistance on
                Agency requirements and regulations but will not provide technical
                oversight or recommendations. In the event of default, the Agency may
                review the planning documents as part of the loss claim process. If it
                is determined that the project was not designed utilizing accepted
                engineering practices, the loss claim may be reduced.
                Subpart E--Loan and Guarantee Provisions
                Underwriting
                 One commenter suggested the Agency consider credit quality of
                borrowers applying to OneRD, adding that borrowers in high default
                industries are still being approved by the Agency.
                 Agency's Response: The Agency resolves these issues by reviewing
                each application for credit quality and monitoring its loan portfolio
                to mitigate industry concentrations. It is the intent of OneRD to
                assist the lender in preparing and the Agency in reviewing all
                applications based on sound lending practices, even those in high
                default or risk industries.
                 Regarding automation and application processing, one commenter
                suggested that the Agency share underwriting expertise between States
                to reduce the learning curve for loan specialists in understanding many
                different industries and business types.
                 Agency's Response: The commenter's suggestion describes an existing
                process. Throughout this final rule, we state the responsibilities of
                State and National Offices. Agency field staff can readily use the
                National Office for support and analysis of industries unfamiliar to
                them. OneRD lays out credit evaluation factors for the lender and staff
                instructions and training will assist the processing staff in
                evaluating the credit factors and the risk of each credit factor.
                 One commenter said that the Agency should establish regulatory
                thresholds for loan reviews based on the funding amount requested, and
                that small amounts should have less regulatory burden.
                 Agency's Response: The Agency has considered this comment. The
                Agency is obligated to continue to review all loans for statutory and
                regulatory compliance; however, we have streamlined the application
                process and believe that it will improve the process for all
                applications, not just small ones.
                Capital and Secondary Market Concerns
                 The Agency received many comments about how capital and secondary
                market concerns affect the implementation of OneRD. Most comments
                expressed concern about the Agency's focus on its Community Facilities
                Direct Loan Program. One commenter said the ``current over-emphasis by
                USDA on the Community Facilities Direct Loan program has become a very
                real threat to the continued viability of the Community Facilities
                Guaranteed Loan program'' and recommended ``strengthening'' the
                Community Facilities Guaranteed Loan Program to ``increase the
                participation of the banking industry in these types of loans.''
                 Agency's Response: The intent of the OneRD Guarantee program is to
                increase the usage of the Agency's guarantee programs and provide
                needed capital in rural areas. The new regulation and streamlined
                application process should encourage more lender participation. With
                respect to the Community Facilities Direct loan program, the Agency is
                required by statute to consider the availability of commercial credit
                at reasonable rates and terms for each direct loan applicant. We
                routinely review the ``other credit'' requirement with staff and train
                them on the proper analysis and documentation to support the Agency's
                decision. The Agency welcomes the participation of lenders to finance
                community facility projects either with or without a guarantee in
                conjunction with a direct loan.
                 One commenter said that for B&I guaranteed loans, stoppage of
                interest at 90 days dissuades secondary markets from working with
                lenders and causes reluctance on the part of lenders to work with
                borrowers on workout agreements; thus, increasing work for USDA.
                 Agency's Response: The Agency is, under certain circumstances,
                increasing the 90-day interest termination date to 180-days (see Sec.
                5001.450(g)(1) for specific criteria) to allow lenders time for
                development of a restructuring plan. Lenders would retain the option to
                repurchase the loan guarantee from a Holder to allow for debt
                servicing, including restructuring of the loan.
                 One commenter suggested providing a ``separate section'' in the
                regulation for loans that involve the capital markets or
                ``underwritten'' deals. The commenter said that providing a separate
                section would allow these loans to be made as they always have been
                made but would also allow borrowers and lenders to ``take advantage of
                the lower rates and better terms in the capital markets'' accordingly.
                 Agency's Response: This comment appears to relate to the
                Biorefinery, Renewable Chemical, and Biobased Product Manufacturing
                Assistance Program (Section 9003) that was included in this regulation
                at the time of the listening sessions. Due to significant differences
                between this program and the CF, WWD, B&I and REAP programs, the
                Section 9003 program was removed from consideration in this rule. The
                only other capital markets items in this regulation are for investors
                in the New
                [[Page 42510]]
                Markets Tax Credit program which has a separate section, Sec.
                5001.141, in the OneRD regulation.
                 One commenter suggested the Agency allow an Assignment Guarantee
                Agreement to be assigned to a trustee for the benefit of investors. The
                commenter said this would ``increase participation in guarantee
                programs and capital markets.''
                 Agency's Response: The Agency acknowledges this comment for
                consideration. The Agency must ensure that the Lender or Holder retains
                ownership of the loan. While Lenders can assign all or part of the
                guaranteed portion of the loan and Holders can reassign the note in
                full, this final rule does not allow for further subdivision of the
                loan. The OneRD regulation removes the limit on the number of
                promissory notes that may be assigned. The regulation does not limit
                the number of holder transfers that can occur on the maximum of the
                five notes, though the Agency must be notified when transferred.
                 One commenter recommended the Agency rate the secondary market debt
                and include rating agencies in its analysis discussions to create a
                global market instead of a local market.
                 Agency's Response: The secondary market has provided analysis of
                the commenter's suggestion. The process of rating secondary market debt
                would be outside of USDA's oversight as we work directly with the
                Lender making the loan, who then choses to engage or not engage the
                secondary market.
                Subsidy Rates
                 The Agency received comments about balancing subsidy rates within
                the OneRD programs. One commenter suggested the Agency balance higher
                subsidy rates versus lower level of funding, while another commenter
                said that the subsidy rate factor ``is low and on the decline.''
                 Agency's Response: Sec. 6418 of the 2018 Farm Bill mandated the
                Secretary of Agriculture to use lender fees to charge and collect
                various amounts to bring down the costs of subsidies for guaranteed
                loans under Section 333 of the CONAct. However, the fees must not act
                as a bar to participation, nor be inconsistent with current practices
                in the marketplace. The Secretary was directed to conduct a study of
                several guaranteed lending programs to determine the appropriate fee
                structure, as a result. Therefore, this final rule implements the 2018
                Farm Bill's requirements regarding guaranteed loan fees.
                 One commenter asked the Agency to share additional information
                regarding the program's subsidy rates.
                 Agency's Response: The Federal Credit Reform Act of 1990 (FCRA)
                requires agencies to estimate the cost to the government of extending
                or guaranteeing credit. Agencies generally update--or re-estimate--
                subsidy costs annually to reflect both actual loan performance and
                changes in expected future loan performance. More information on this
                can be found in Part 5 of OMB Circular A-11, ``Preparation, Submission
                and Execution of the Budget.''
                 A commenter recommended the Agency consider expressly allowing
                leverage loans to be made on an interest-only basis for up to 7 years.
                The commenter's reasoning is that ``such loans could provide for a
                `balloon' payment at the end of that period to make up for the
                amortization that would otherwise have occurred during that period.''
                The commenter said that ``assurance that the funds would be available
                when needed to make that balloon payment could be provided, at least in
                substantial part, by reserves established at the Project Loan level, or
                perhaps by other means.'' The commenter added that in some NMTC
                transactions, ``amortization of leverage loans is accomplished by
                having another (subordinate) Leverage Lender make advances to the
                Investment Fund during the compliance period, which the Investment Fund
                uses to make amortization payments on the primary (senior) leverage
                loan.'' The commenter reasoned that, in these situations, ``the total
                amount of debt of the Investment Fund remains constant--the junior
                leverage loan balance just increases as the senior leverage loan
                decreases.'' The commenter expressed uncertainty as to whether the
                solution provided would be reasonable in the case of USDA guaranteed
                loans, ``partly due to the complication of having subordinated debt,
                and partly due to the fact that the source of funds is not directly
                related to the underlying Project Loan or the performance of the
                underlying project,'' and added that, rather, ``it would depend on the
                credit evaluation of the junior leverage lender.''
                 Agency's Response: OneRD includes a provision allowing interest-
                only payments by a borrower pursuant to an interest-only term not to
                exceed 7 years on a loan made under a NMTC structure if the lender
                requires: (1) A debt payment reserve fund or sinking fund in an amount
                equal to the guaranteed loan's principal amortization that would have
                otherwise applied to the loan if equally amortized payments were
                collected during the seven year term, and (2) such reserve funds or
                sinking funds are applied to the guaranteed loan as an additional
                payment of principal to the guaranteed loan at the end of the interest-
                only term.
                Funding Availability
                 The Agency received comments about funding availability and
                managing community resources.
                 Some commenters expressed a lack of confidence in terms of program
                availability, which prevents lenders from committing resources.
                 Agency's Response: The Agency receives funding through
                Congressional appropriations, and subsidy rates establish the level of
                program funding available. Program revenues, delinquency rate, losses,
                anticipated revenues and other factors affect these subsidy rates. The
                use of Continuing Resolutions instead of a full fiscal year budget also
                affects when funds are available to the program areas.
                 Another commenter suggested increasing flexibility on the ability
                to shift funding between Rural Development loan programs.
                 Agency's Response: The ability to transfer funds within a program
                are established by statute and moving funds from one guaranteed loan
                program to another program requires statutory authorization and
                Congressional approval. Therefore, the Agency cannot approve loan
                program transfers without the requisite authority and congressional
                approval.
                 One commenter wanted the Agency to allow the approval and issuance
                of Conditional Commitments, which would be subject to funding
                availability to help when funding runs out at the end of the fiscal
                year and projects are waiting for funding obligations.
                 Agency's Response: Issuing a Conditional Commitment prior to
                funding availability is not authorized under law.
                 A commenter suggested additional guidance for lenders from the
                Agency regarding funding situations and the scoring model.
                 Agency's Response: The availability of program funding is
                communicated to field staff on a weekly basis. Priority scoring is
                essential to determine worthy projects when programs have limited
                funding, with projects being funded from the highest to lowest scores
                using the amount of available funds. State Offices are made aware of
                this process before enactment.
                Loan Threshold
                 One commenter asked the Agency to consider increasing the current
                cap of
                [[Page 42511]]
                $25 million on REAP, as it is often too low for larger projects.
                 Agency's Response: The $25 million cap on REAP is statutory;
                therefore, the cap cannot be increased by the OneRD final rule.
                Subpart F--Servicing Provisions
                Loan Note Guarantee Construction
                 The Agency received comments discussing the effects of OneRD on LNG
                construction projects.
                 Some commenters suggested that, for the Community Facilities and
                Water and Environmental Programs, the Agency follow the B&I guaranteed
                loan system by issuing the LNG at the closing and signing process or
                during construction instead of at the end of construction. One
                commenter said that this would create a ``clearer path for holders if
                default occurs'' and another commenter said this change would ``help
                smaller lenders mitigate construction risk.'' Other commenters
                supported the upfront guarantee for some of OneRD's programs.
                 Agency's Response: The Agency will provide a consistent approach
                across all programs under OneRD Guarantee to allow for the issuance of
                the LNG during construction. As this poses more risk to the Agency, it
                will be mitigated with additional lender documentation and enhanced
                lender oversight along with a lower guarantee percent and additional
                lender fee.
                 Of the comments the Agency received specifically about LNG fees,
                most of the commenters asked to lower the fees, or to remove them
                altogether. One commenter said that the current 3-percent fee is too
                high and asked the Agency to consider reverting to a 1-percent fee that
                ``resulted in great impact and turned the economy around.'' A commenter
                suggested that continuing servicing fees will negatively impact
                borrowers. Other recommendations included raising fees on the largest
                RD loans while lowering fees on the smaller sized loans; providing fee
                waivers for loan guarantees in excess of $5 million that promote fresh
                fruits and vegetables; and reducing initial and annual fees to match
                the REAP program, which has an initial fee of 1 percent and annual fees
                of 0.25 percent, while the B&I program has fees of 3 percent initially
                and 0.50 percent annually.
                 Agency's Response: The 2018 Farm Bill requires the Agency to
                ``charge and collect from the lender fees in such amounts as to bring
                down the costs of subsidies . . .'' The Agency is reviewing its fee
                structure for all the programs included in the proposed regulation to
                ensure it meets the requirements set out by Congress.
                 A commenter asked if this new rule will look at one overall
                guarantee fee or if it will still be based on the specific program.
                Another commenter asked if the Agency puts the model in the
                calculation, could the public see how these fees are calculated so they
                can also comment on those calculations.
                 Agency's Response: Subsidies will still be set individually for
                each program and are internal operations decisions. Therefore, we are
                not adding a one-size-fits-all fee structure to this final rule.
                Federal credit polices stipulate that fees should be set at levels that
                minimize default and other subsidy costs of the loan guarantee, while
                supporting achievement of the program's policy objectives.
                LNG Validity
                 One comment suggested providing registration or official Government
                approval on the LNG to evidence the validity of the document.
                 Agency's Response: The Agency has a form to address certification
                of approval--currently Form RD 4279-7, ``Certificate of Incumbency and
                Signature.'' This form can be requested by the lender or secondary
                market holder.
                Servicing Requirements
                 One commenter suggested streamlining servicing requirements for
                loans that are performing.
                 Agency's Response: OneRD has streamlined servicing requirements to
                include lender discretion regarding submitting annual financial
                statements for loans totaling $600,000 or less. Furthermore, frequency
                of borrower visits is not mandated, but this final rule states
                ``periodic borrower visits'' are required.
                 One commenter asked that the Agency provide in the sub-CDE
                operating agreement that, in all decisions and actions with respect to
                the servicing and enforcement of the Project Loan, the sub-CDE will do
                so in compliance with the requirements imposed upon a ``lender'' under
                the regulations. The commenter reasoned that the leverage lender might
                also be engaged as the servicing agent for the Project Loan, so that it
                could be involved in the servicing and enforcement of the Project Loan
                (although due to limitations under the NMTC program, it would not be
                permitted to control such matters). According to the commenter, such
                contractual rights and obligations could provide the basis on which a
                Leverage Lender could be treated as able to carry out its
                responsibilities as a ``Lender'' under the Guaranty Program, despite
                the limitations described above. However, the commenter added that, for
                any such approach to work, the regulations would need to recognize that
                responsibilities of the ``Lender'' regarding its ``loan'' can only be
                carried out indirectly through the sub-CDE.
                 Agency's Response: This final rule includes a provision that the
                sub-CDE operating agreement allows the investor fund entity approval
                rights with respect to certain loan servicing actions undertaken by the
                sub-CDE in their loan to the QALICB.
                 The same commenter as above said that, consistent with the ``look-
                through'' provisions in 7 CFR 4279.126(a), the Agency should base the
                determination of loss on (1) the amount realized from foreclosure and
                collection at the Project Loan level and (2) a hypothetical
                distribution of the proceeds to the Investment Fund and then the
                leverage lender. The commenter suggested that the guaranty payment
                would be made to the Leverage Lender based on that determination. The
                commenter said if this approach is acceptable to USDA, the Agency
                should clarify the regulations to reflect this.
                 Agency's Response: A determination of loss is made after
                liquidation of all assets. The lender must identify the borrower's
                assets in a liquidation plan, and then account for all liquidation
                proceeds when requesting payment of a guaranteed loan loss. The asset
                of an investor fund entity is its ownership interest in the sub-CDE;
                thus, any proceeds paid to the sub-CDE, including and liquidation of
                the QALICB assets in a default situation, become assets of the sub-CDE,
                and should be used to reduce any investment balance owed to the
                investor fund entity.
                 The same commenter then said that there is nothing in the
                regulations that recognizes the forbearance limitations, to which
                leverage loans are almost universally subject.
                 Agency's Response: The forbearance agreement is typical of a NMTC
                transaction and must be considered as a credit factor by the lender. A
                provision has been added to OneRD that the sub-CDE must include in its
                operating agreement that the investor fund entity has approval rights
                to certain loan servicing actions by the sub-CDE lender. The intention
                of this addition is to allow the guaranteed loan lender the ability to
                monitor any forbearance or servicing actions by the sub-CDE lender and
                protect their interests in the project.
                [[Page 42512]]
                Collateral Requirements
                 The Agency received comments regarding collateral requirement
                concerns. One commenter said that while Community Facilities loans are
                the most flexible, B&I's loans are the most restrictive. Another
                commenter suggested that the Agency adopt FDIC supervisory requirements
                on collateral value (primarily on real estate) for consistent
                collateral measurement, while another commenter recommended a similar
                approach instead of maximum requirements set in B&I regulation, adding
                that lenders can be more conservative if necessary (i.e., if
                ``specialized equipment'' is involved.).
                 Agency's Response: The Agency took the comment under consideration
                and has changed its collateral discounting procedures. Lenders will
                discount collateral consistent with sound loan-to-discounted value
                practices as long as adequate security still exists for the guaranteed
                loan. Satisfactory justification of the discounts being used must be
                provided as part of the application package. This change will allow the
                lender to customize the discount for each loan, which will enhance the
                customer experience of both the lender and applicant.
                 One commenter suggested that if the non-guaranteed portion of the
                loan is more than the required 5-percent Lender of Record hold, that
                portion should have additional or separate credit enhancements, such as
                a Letter of Credit, another guarantee, or collateral. The commenter
                added that this would allow smaller and more rural bank lenders to
                participate in larger loans in their communities and the non-guaranteed
                portion of the loan can be more easily be sold, traded, or held in the
                secondary capital markets.
                 Agency's Response: The Agency partially agrees. Currently, lenders
                can assign the loan guarantee to other parties and may participate the
                unguaranteed portion of the loan to other lenders or entities, so long
                as the lender of record retains a minimum of 5 percent of the loan
                amount. This will continue under the OneRD regulation except that the
                minimum amount retained by the lender is raised to 7.5 percent of the
                loan amount. To the commenter's request that separate credit
                enhancement be allowed on non-guaranteed loan portions over the minimum
                retention amount, the Agency specifically prohibits separate collateral
                for the guaranteed and unguaranteed portions of the guaranteed loan or
                requiring compensating balances or certificates of deposit as that
                reduces or possibly eliminates the lender's exposure on the
                unguaranteed portion of the guaranteed loan.
                General OneRD Comments
                New Online System
                 Many commenters suggested the Agency create more online application
                resources and recommended that Rural Development keep up with the
                technological advances and industry software that is available on the
                market for the financial service industry. One commenter specified
                using ``a program similar to Farmer Mac's online application process,
                the Mortgagebot program, software solutions used by Moody Analytics and
                Wolters Kluwer, the Finastra program.'' Furthermore, commenters said
                there should be an online application system that would ``streamline
                loan making process, reduce approval time, and save time and money for
                lenders and RD.'' Some commenters requested the Agency use a secure,
                encrypted, cloud-based system to upload documents for the application.
                One commenter, a lender, asked for ``electronic signatures'' to add to
                security.
                 Agency's Response: We agree that our application process should be
                modernized, and that this modernization will save time and money for
                both the lender and the Agency. With this final rule, the Agency is
                developing an online application system--one system for all four
                programs included in the OneRD Guaranteed Loan regulation. The system
                will automate the application, obligation, loan closing, and servicing
                of the guarantee process. The system is being designed to improve the
                Lender experience by addressing concerns related to efficiency,
                transparency, and consistency that exist in the guarantee programs
                today. The new online platform will be used by all Rural Development
                offices that process guarantee loan applications under this final rule
                establishing the OneRD Guaranteed Loan program. This will save time and
                money for both the lender and the Agency as noted in the commenter's
                remarks.
                 Additionally, the Agency is engaged in evaluating online platforms
                to address the needs of the guarantee program requirements. The Agency
                acknowledges remarks regarding ease of uploading, network support, and
                bandwidth. These factors are being considered in the online solution.
                 We acknowledge the request to allow the online system to be
                accessible to multiple people within the lender's organization. The
                system will be designed with this feature while still maintaining the
                necessary security and integrity of the system.
                 The new online application system will have a system that automates
                the application process, including the ability to upload supporting
                application documents into a secure shared system, acknowledging
                commenters who suggested a cloud-based system. The online platform will
                have a secure and accessible storage system that will be used by all
                lenders and Rural Development processing offices. Application forms
                will be designed to work across all four programs associated with the
                OneRD Guarantee Loan program and will be generated through the online
                system. This method should address the commenter's request for a format
                that is flexible and specific to the project. Only information relevant
                for the application will be entered by the lender.
                 Rural Development will accept electronic signatures when a wet
                signature is not required. At any time during the online application
                process, the lender will have access to a Rural Development local
                representative to assist them. It is not the intent of the online
                application system to replace one-on-one contact between Rural
                Development and its customers, but for that contact to be about more
                substantive issues.
                 Regarding communication with applicants, one commenter suggested
                the Agency provide a verbal confirmation of eligibility. Another
                commenter inquired about a notice of interest determination letter.
                 Agency's Response: The Agency's new online application system will
                allow the lender to view applications in process and track their
                status. The system will automatically notify the lender when the Agency
                reaches a key decision point (i.e., application is complete,
                application is approved, etc.). The system will also generate
                correspondence documents to the lender including an interest
                determination letter, also known as a preliminary review letter.
                 Three commenters discussed the need to improve information on the
                USDA website regarding guaranteed loan programs under OneRD. Two
                commenters suggested revising, updating, and streamlining the USDA
                website to improve information about lending requirements across all
                programs. The third comment recommended adding a ``chat'' feature to
                quickly assist site visitors.
                 Agency's Response: The OneRD project includes development of a new
                online portal for lenders to input loan application information and
                service
                [[Page 42513]]
                their guaranteed loans. In addition, borrowers may use the website to
                research available programs, but they will not be allowed to upload an
                application because the lenders are the Rural Development customer for
                purposes of Guarantee programs. The application process will guide
                lenders to what information is required for their specific project,
                allow them to upload information, and information will also be uploaded
                to the Rural Development legacy systems to ensure consistency of the
                information.
                 At this time, we are not considering adding a ``chat'' feature due
                to the implementation and operating costs of that feature. However,
                phone numbers for offices in the project state will be readily
                available to the user. The application portal will also have a link to
                the guaranteed loan regulations located in 7 CFR part 5001.
                 Some comments were directed toward the current RDApply online
                application system for the Water and Environmental program. Some
                suggestions included improving the online application process to remove
                the burden of paperwork and uploading documents. Others recommended
                posting USDA deadlines and status updates for application processing
                within RDApply and offering direct contact with a representative.
                 Agency's Response: These comments referring to the current RDApply
                online application system currently used by the Water and Environmental
                Programs were considered as the Agency identifies system requirements
                for the OneRD Guarantee online application system. The OneRD Guarantee
                online application system will be developed specifically for lenders
                making application for a OneRD guarantee loan request. This new online
                application system will allow the lender to view applications in
                process and track their status. In addition, the system will
                automatically notify the lender when the Agency reaches a key decision
                point (i.e., application is complete, application is approved, etc.).
                The online system is accessible to multiple people within the lender's
                organization but maintains the necessary security and integrity of the
                system.
                 As stated earlier, at any time during the online application
                process, the lender will have access to an RD local representative to
                assist them. Again, we note that it is not the intent of the online
                application system to replace one-on-one contact between RD and its
                customers.
                 The Agency received comments asking the Agency to develop a
                decision tree to assist customers to determine whether to pursue a loan
                guarantee or a direct loan. One commenter added that the decision tree
                should require RUS to ``encourage private or cooperative lenders to
                finance rural and waste disposal facilities'' based on the Consolidated
                Farm and Rural Development Act (CONAct) requirement from the 2014 Farm
                Bill.
                 Agency's Response: The Agency understands the commenters' concern
                to provide the applicant with program eligibility criteria early in the
                application stage. The Agency understands the second commenter's
                concern to adhere to the CONAct requirements as well. While we support
                the development of a decision tree as suggested, this tool would be
                better utilized in an online application format for the Community
                Facilities and Water and Environmental direct loan programs.
                 The Agency received comments that suggested we follow the Small
                Business Administration's (SBA) ``10-tab system'' to process loans more
                efficiently. Generally, commenters wanted faster decisions on loans and
                clear and timely communication.
                 Agency's Response: As stated earlier, the Agency engaged the
                services of a contractor to assist in evaluating online platforms to
                address the needs of the guarantee program requirements. The Agency's
                new online application system will improve the lender experience by
                addressing concerns related to efficiency, transparency, and
                consistency that exist in the guarantee programs today. The Agency
                evaluated the SBA system in the development of the new online system.
                 Some commenters expressed concern about rural access to high-speed,
                broadband internet, which may hinder access to OneRD's new online
                application system.
                 Agency's Response: While the regulation requires the use of an
                online application system, the Agency is aware that not all lenders
                will have the capacity to use an online application system and will
                allow, on a case-by-case basis, the submission of paper application
                packages.
                 One commenter said that not all States accept electronic forms,
                which would be an issue when uploading documents for the OneRD online
                application.
                 Agency's Response: The Agency's proposed online application system
                will be used by all Rural Development offices that process guarantee
                loan applications under this final rule.
                Uniformity of New System and Streamlined Processes
                 The Agency received comments regarding concerns about transparency
                and complications and inconsistencies during loan processing and
                approval. Some of the commenters expressed concern that ease and speed
                of processing differs between State Offices and when applicants use
                more than one RD loan program. One commenter suggested the Agency
                develop a standardized closing process checklist to outline all
                requirements to issue an LNG and solve this issue.
                 Agency's Response: In addition to addressing concerns related to
                efficiency, transparency, and consistency that exist in the guarantee
                programs today, Rural Development has established common processing
                timeframes. Staff training will be a significant part of the OneRD roll
                out process and consistency will be a common message. The Agency will
                create and provide checklists to field staff to ensure a consistent
                process across states. The implementation of an on-line application
                portal will also improve consistency between offices.
                 Rural Development acknowledges the third commenter's concern that
                the Agency not re-underwrite the lender's package. It is the intent of
                OneRD Guarantee that the Agency apply a consistent approach to the
                review of the lender's guarantee request to determine the funding
                recommendation made by the lender is acceptable and meets the
                regulations based on the lender's credit evaluation. The Agency will
                further train staff to address this issue.
                 The Agency acknowledges remarks about general inconsistencies as
                well and will consider what internal communication methods it should
                use in the future to support the OneRD Guarantee program, so all
                processing offices hear a consistent message from each OneRD Guarantee
                program area.
                 One commenter suggested the Agency streamline or simplify the draw
                process, which appears to be a comment on the Water and Waste Disposal
                direct loan program.
                 Agency Response: For guarantee loans, the Agency should be
                minimally involved with construction draws. There are additional
                requirements for draws during the construction phase if the loan note
                guarantee is issued prior to the completion of construction and if a
                project combines Agency direct and guarantee funding, the more
                stringent direct requirements will prevail.
                 The Agency received additional comments asking to streamline the
                application process so that it is easier
                [[Page 42514]]
                and faster to close loans. Some commenters cited removing the PER
                requirement again, while others asked for a more ``clear and concise''
                application. One commenter suggested that a ``brief project description
                and budget should be sufficient for guaranteed program.'' Another
                commenter added that ``additional items needed for individual States
                should be included as part of the Conditional Commitment items needed
                prior to issuing the Loan Note Guarantee (LNG).'' One comment said that
                the ``10-day response time for application process should be
                shortened.''
                 Agency's Response: As part of the initial rollout of the proposed
                regulation, the Agency is implementing a completely new application
                intake system. The new system will allow us to monitor closely
                application submission and processing times and provide consistent
                application package content across offices and programs. The proposed
                intake system will also provide full service for lenders, negating the
                requirement to log into different systems for different aspects of the
                guarantee. See Agency response on PERs under subpart D. In addition,
                the proposed regulation has pared down the requirements of an
                application package to program determined essentials. Ultimately, the
                proposed changes will streamline the application process.
                 One commenter recommended that the Agency use Regional Coordinators
                to handle concerns with processing and help lenders navigate the
                process to ensure a quick turnaround. The commenter's concern stems
                from projects in some states that ``are not processed quickly'' and
                ``if regional coordinators could serve as mediators for lenders, the
                process would flow more smoothly.''
                 Agency's Response: The Agency has considered this comment.
                Unfortunately, this is an internal operations item and cannot be
                addressed through regulatory means.
                 One commenter asked if the OneRD Guaranteed Loan processing time
                will be as lengthy as it has been in the past.
                 Agency's Response: OneRD's goal is to streamline the application,
                processing, and servicing requirements for all loan programs within
                OneRD, and ultimately provide consistency among Rural Development
                guaranteed loan programs. The electronic system the Agency is
                developing will increase efficiencies for customers as well as Agency
                staff.
                Transparency
                 One commenter recommended the Agency improve communication
                throughout the application process so that information can be passed to
                borrowers. Another commenter wanted the Agency to increase transparency
                during the approval process. A third commenter suggested improving the
                speed of the approval process across all programs to enhance
                transparency.
                 Agency's Response: The Agency agrees. Staff training will emphasize
                continuing lender communication. The proposed electronic application
                process will improve communication with the lender and navigation of
                the Agency's approval process.
                OneRD's Scope--Inclusion of Other Programs
                 One commenter suggested the Agency include telecom
                (Telecommunications Infrastructure Loan Program) and electric (Electric
                Infrastructure Loan Program) as ``rural utilities.''
                 Agency's Response: RD chose the programs included in this rule
                based on the commonalities in their current statutory authorization and
                regulatory implementation. The Agency may add other programs in the
                future.
                Rulemaking Process
                 The Agency received comments about its rulemaking process. Most of
                the commenters were concerned about the public's ability to provide
                input regarding this final rule, suggesting that the Agency publish a
                proposed or interim rule instead of this final rule. Others suggested
                providing more opportunities for the public, specifically lenders, to
                engage with the Agency before publishing this final rule. One commenter
                was concerned that the Office of General Counsel (OGC) had not yet
                approved the OneRD program and this final rule.
                 Agency's Response: The Agency decided to publish OneRD Guarantee as
                a final rule with comment. The Agency published a notice in the Federal
                Register on September 5, 2018 (83 FR 45091) announcing five listening
                sessions to be held with stakeholders in month of September 2018. The
                purpose of the listening session was to gather public input on how to
                simplify, improve, and enhance the delivery of our guarantee programs.
                The Agency recorded all listening session comments. Stakeholders were
                also given the opportunity to submit comments to an email box. All
                comments have been reviewed and were taken into consideration as this
                final rule was being drafted. This final rule is being published in the
                Federal Register with a 60-day comment period. During this period, the
                public can view the entire final rule and provide comment. All comments
                will be addressed and, if warranted, will result in modifications to
                this final rule prior to its effective date. This method of publishing
                a final rule with comments will help realize the benefits of a
                consolidated regulation quicker than would be achieved by first
                publishing a proposed rule. In addition, this final rule followed the
                Agency's clearance process, which included OGC review.
                OneRD Marketing and Training
                 The Agency received comments requesting training programs regarding
                loan guarantees and additional guidance for offices and lenders for the
                various programs under OneRD.
                 Most commenters asked for lender training and coordination with
                State Offices. The commenters also suggested that the Agency should
                continue to strengthen the RD programs under OneRD.
                 Agency's Response: The Agency agrees and has addressed these
                concerns along with this final rule. The Agency will be holding
                training sessions with RD staff prior to the effective date. Training
                needs will continue to be assessed after the OneRD Guarantee final rule
                is in effect. The regulation process includes training of not only the
                Agency's area and State Offices but also lenders. Implementing an
                online application and processing system should help alleviate
                inconsistencies that exist in the program today. We are confident that,
                with the publication of this final rule, new coordination amongst
                programs will occur as well.
                Program Launch and Delivery
                 Some comments discussed the accessibility and rollout of the OneRD
                program. Most commenters suggested that the Agency avoid creating a
                more centralized regional office model. Commenters added that, while it
                may be cost effective to regionalize offices, keeping State Offices in
                place helps to maintain efficiency. One commenter suggested support for
                state-level staff involvement. Other commenters suggested that the
                Agency add more staff and training in certain industries to assist
                staff in other states who have never processed certain types of loans.
                However, two commenters did recommend decentralizing offices.
                 Agency's Response: The Agency is looking at all possible options on
                how best to deliver all programs. We note that the regulation process
                includes training of not only the Agency's area and State Offices but
                also lenders.
                 One commenter said that a lack of responsiveness is burdensome to
                the Agency's current processes, resulting in
                [[Page 42515]]
                a lack of a uniform interpretation of OneRD.
                 Agency's Response: The Agency appreciates the comment provided.
                While the new regulation will outline items to be reviewed, the level
                of risk associated with individual loans will always vary to the point
                that some require much more review than others do. The Agency will be
                providing training to the staff administering the programs and will
                emphasize the importance of thorough review of the lender's
                underwriting.
                 One commenter supported the concept of repackaging current Water
                and Waste Disposal Direct Loans and converting those loans to
                guaranteed loans.
                 Agency's Response: This final rule will provide one platform across
                the main Rural Development guarantee programs. We expect that this will
                increase usage of all the programs by providing a common application
                and processing base. The Agency cannot repackage existing direct WWD
                loans and convert them to guaranteed loans at this time; however,
                direct loan borrowers are required to pursue ``graduation'' to
                commercial credit when it appears they are able. Refinancing direct
                Agency WWD loans is an eligible loan purpose under the guarantee
                program and borrowers are encouraged to take advantage of that
                provision.
                Mission
                 There were two comments regarding OneRD's mission. One commenter
                said that the mission should be to provide capital to rural America.
                 Agency's Response: Under this final rule, OneRD works to provide
                easier, customer-friendly access and increase lender participation,
                which will lead to greater access to capital in rural America.
                Difference Between Statutory vs. Regulatory Requirements
                 One commenter asked for clarifications as to the difference between
                what is considered statutory and what is considered regulatory.
                 Agency's Response: Statutory requirements are those passed by
                Congress for each program, while the Agency writes regulations to
                interpret statutes and provide additional details for program delivery.
                Out of Scope
                 The Agency received some comments that we cannot address with this
                final rule because they are outside the scope of this final rule, but
                we have considered them. Some commenters asked questions regarding the
                direct loan programs, such as the possibility of a graduation or income
                requirement for direct loans.
                 Agency's Response: Direct loan programs, graduation requirements,
                and income data sources for determining loan/grant eligibility of the
                direct loan program are not within the scope of this final rule.
                 One commenter inquired about a separate bank account requirement.
                 Agency's Response: The comment is related to the Community
                Facilities Direct loan program and is not within the scope of this
                final rule.
                 A commenter suggested that the Agency does not need a loan program.
                Instead, banks should issue the loans operated by USDA.
                 Agency's Response: The OneRD Guarantee Loan program addresses bank
                loans guaranteed by USDA and does not change how loans are distributed.
                 Finally, a commenter asked about OneRD's impact on lenders.
                 Agency's Response: At the time of comment, the regulation had not
                been released, so no ``unintended consequences'' had been identified.
                While the Agency does not believe there will be any unintended
                consequences, we do believe there will be many benefits for lenders to
                having a consolidated regulation. This rule will provide a ``one stop''
                shop for everything from eligibility to loss claims in any of the four
                programs. OneRD will provide clarity on what are the common
                requirements and what is needed for only a specific program, this
                should make it easier to apply for a guarantee. While the four
                guaranteed programs will remain independent, since they will share a
                common platform, it will allow lenders to move more easily from program
                to program and expand their lending into other programs.
                 While the rule provides guidance, it moves, in many areas, from
                dictating form and lender procedures to relying on lender specific and
                industry standard lending policies and practices, which allows the
                lender to spend less time on form and more time on the details of loan
                making. The regulation clarifies Agency requirements, such as when
                appraisals or feasibility studies are required, which reduces the time
                lenders must spend determining applicability or worse, revising or
                completely redoing a document that was completed incorrectly.
                 Most of all, the rule provides, where allowable, consistency
                between the four programs. This allows the Agency to provide a more
                consistent experience for lenders and borrower saving everyone time and
                frustration.
                VI. Regulatory Impact Analysis
                A. Executive Orders 12866 and 13563
                 Executive Orders 12866 and 13563 direct agencies to assess all
                costs and benefits of available regulatory alternatives and, if
                regulation is necessary, to select regulatory approaches to maximize
                net benefits (including potential economic, environmental, public
                health and safety effects, distributive impacts, and equity). Executive
                Order 13563 emphasizes the importance of quantifying both costs and
                benefits, of reducing costs, of harmonizing rules, and of promoting
                flexibility.
                 This rule has been determined to be significant and was reviewed by
                the Office of Management and Budget under Executive Order 12866. In
                accordance with Executive Order 12866, the Agency conducted a
                Regulatory Impact Analysis, outlining the costs and benefits of
                implementing this program in rural America. The complete analysis is
                available in Docket No. RUS-19-Agency-0030. This analysis consists of a
                statement of need for a unified Rural Development (RD) guaranteed loan
                program, a baseline description of the current status of the four
                guaranteed loan programs administered by RD that are being consolidated
                under the unified RD guaranteed loan program, a summary of the
                provisions of the unified guaranteed loan program and alternative
                approaches that were considered, a list of the affected parties, and an
                analysis of the benefits and costs.
                 Much of the analysis is necessarily descriptive of the anticipated
                effects of this final rule. Benefits are described qualitatively, with
                some indication of the relative potential size. Most of the costs are
                quantified. Consequently, the analysis does not provide the exact
                magnitude of the resulting benefits and costs. Despite this, RD expects
                this final rule will provide cost savings and net benefits compared to
                the current situation by improved program and Agency management of the
                risks associated with the guaranteed loans that will be made under the
                unified guaranteed loan program.
                B. 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 sections 202 and 205 of the UMRA.
                [[Page 42516]]
                C. Environmental Impact Statement
                 This final rule has been reviewed in accordance with 7 CFR part
                1970 ``Environmental Program.'' Rural Development has determined that
                this action was 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.
                D. Executive Order 12988, Civil Justice Reform
                 This final rule has been reviewed under Executive Order 12988
                (Civil Justice Reform). The Agency has determined that this rule meets
                the applicable standards provided in section 3 of the Executive order.
                In addition, all State and local laws and regulations that conflict
                with this rule will be preempted. No retroactive effect will be given
                to this rule.
                E. Executive Order 13132, Federalism
                 The policies contained in this final rule do not have a 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
                rule impose substantial direct compliance costs on state and local
                governments. Therefore, consultation with the states is not required.
                F. Regulatory Flexibility Act Certification
                 The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally
                requires an agency to prepare a regulatory flexibility analysis of any
                rule subject to notice and comment rulemaking requirements under the
                Administrative Procedure Act (``APA'') or any other statute. This rule,
                however, is not subject to the APA under 5 U.S.C. 553(a)(2) and 5
                U.S.C. 553(b)(3)(A) nor any other statue.
                G. Executive Order 12372, Intergovernmental Consultation
                 This final rule is excluded from the scope of Executive Order 12372
                (Intergovernmental Consultation), which may require a consultation with
                State and local officials. See the final rule related notice entitled,
                ``Department Programs and Activities Excluded from Executive Order
                12372'' (50 FR 47034).
                H. 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
                Government. 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 the RD to ensure
                quality consultation is provided.
                I. Programs Affected
                 The Catalog of Federal Domestic Assistance (CFDA) numbers assigned
                to this program are CFDA 10.760, Water and Waste Disposal Systems for
                Rural Communities; CFDA 10.766, Community Facilities Loans and Grants;
                10.768, Business and Industry Loans; and CFDA 10.775, Renewable Energy
                Systems and Energy Efficiency Improvements Program.
                J. Catalog of Federal Domestic Assistance
                 The CFDA numbers assigned to the 4 programs within this rule are:
                10.766 for Community Facility Programs, 10.760 for Water and Waste
                Disposal Programs, 10.768 for Business and Industry Programs and 10.868
                for Rural Energy for America Program. The Catalog is available on the
                internet at https://beta.sam.gov. The SAM.gov 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 CFDA 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 http://bookstore.gpo.gov.
                K. Paperwork Reduction Act and Recordkeeping Requirements
                 In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
                Chapter 35, as amended), RD invites comments on this information
                collection for which approval from the Office of Management and Budget
                (OMB) will be requested. These requirements have been approved by
                emergency clearance under OMB Control Number 0572-0155. Upon approval
                of this new final rule information collection package, RD will
                discontinue the following information collection packages: Community
                Facility Program (OMB No. 0570-0137), Water and Waste Disposal Program
                (OMB No. 0570-0122), Business and Industry Program, (OMB No. 0570-
                0069), and Renewable Energy Systems and Energy Efficiency Improvements
                Program, (OMB No. 0570-0067).
                 Comments must be received by September 14, 2020.
                 Comments are invited on (a) whether the collection of information
                is necessary for the proper performance of the functions of the Agency,
                including whether the information will have practical utility; (b) the
                accuracy of the Agency's estimate of burden including the validity of
                the methodology and assumption used; (c) ways to enhance the quality,
                utility and clarity of the information to be collected; and (d) ways to
                minimize the burden of the collection of information on those who are
                to respond, including through the use of appropriate automated,
                electronic, mechanical, or other technological collection techniques on
                other forms of information technology.
                 Title: 7 CFR 5001, OneRD Guarantee Loan Program.
                 OMB Control Number: 0572-0155.
                 Abstract: Rural Development is implementing a new consolidated
                guaranteed loan platform. The new guaranteed loan platform would
                combine the following four existing guaranteed loan regulations into a
                consolidated rule: (1) The Community Facility Program, (2) the Water
                and Waste Disposal Program, (3) the Business and Industry Program, and
                (4) the Renewable Energy Systems and Energy Efficiency Improvements
                Program under Title IX, Section 9006 of the Farm Security and Rural
                Investment Act of 2002 (FSRIA 2002). These programs provide loan
                guarantees for a
                [[Page 42517]]
                variety of projects intended to improve the economies of rural America.
                 The information required under this final rule is similar to much
                of the information currently being required under the four separate
                regulations. Under those four separate regulations, the current
                information being collected is approved under OMB control numbers 0570-
                0067, 0570-0069, 0572-0122, and 0575-0137. The final rule, however,
                requests some new information from lenders. The two primary examples
                are: (1) Lenders are required to supply information to Rural
                Development to be approved for participation in the program, and (2)
                lenders are required to more frequently report loans that are in
                default. On the other hand, the final rule does not include certain
                information previously requested. This is most evident for the
                Renewable Energy Systems and Energy Efficiency Improvements guaranteed
                loan program, where, under the final rule, technical reports are
                required only for higher cost renewable energy systems projects. This
                is because renewable energy projects of less than $200,000 are less
                complex, so the technical reports for these projects have only marginal
                value, and the energy audit requirements from energy efficiency
                improvement projects are sufficient so that separate technical reports
                also have only marginal value. The final rule creates a single set of
                common forms that lenders can use across all four programs, thereby
                creating efficiencies in reporting. On balance, the information
                requested to support the consolidated program is estimated to reduce
                burden and cost to lenders and borrowers compared to the information
                requested to support all four individual guaranteed loan programs
                combined.
                 As noted in the preceding paragraph, the information requirements
                contained in this final rule require information from lenders and
                borrowers. Rural Development requires this information to make prudent
                lending decisions regarding the eligibility of projects, borrowers, and
                lenders, to reduce the risks associated with making loan guarantees, to
                ensure compliance with the final rule and relevant statutory
                requirements, to ensure that the funds obtained from the Federal
                Government are used appropriately, and to effectively monitor the
                borrowers and lenders to protect the financial interests of the Federal
                Government. In summation, this collection of information is necessary
                to implement the consolidated guaranteed loan provisions in this final
                rule.
                 The following estimates are based on the average over the first 3
                years the program is in place.
                 Estimate of Burden: Public reporting burden for this collection of
                information is estimated to average 3.42 hours per response.
                 Respondents: Rural developers, farmers and ranchers, rural
                businesses, public bodies, local governments, lenders.
                 Estimated Number of Respondents: 740.
                 Estimated Number of Responses per Respondent: 17.
                 Estimated Number of Responses: 12,380.
                 Estimated Total Annual Burden (hours) on Respondents: 50,242.
                 Copies of this information collection may be obtained from Thomas
                P. Dickson, Regulatory Division Team 2, Rural Development Innovation
                Center, U.S. Department of Agriculture, 1400 Independence Ave. SW, Stop
                1522, Washington, DC 20250; telephone, 202-690-4492; email,
                [email protected]
                 All responses to this information collection and recordkeeping
                notice will be summarized and included in the request for OMB approval.
                All comments will also become a matter of public record.
                L. E-Government Act Compliance
                 Rural Development is committed to complying with the E-Government
                Act of 2002, which requires Government agencies in general to provide
                the public the option of submitting information or transacting business
                electronically to the maximum extent possible.
                M. Civil Rights Impact Analysis
                 Rural Development has reviewed this final rule in accordance with
                USDA Regulation 4300-4, Civil Rights Impact Analysis,'' to identify any
                major civil rights impacts this final rule might have on program
                participants on the basis of age, race, color, national origin, sex or
                disability. After review and analysis of this final rule and available
                data, it has been determined that based on the analysis of the program
                purpose, application submission and eligibility criteria, issuance of
                this final rule will not likely adversely nor disproportionately impact
                very low, 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.
                List of Subjects
                7 CFR Part 1779
                 Loan programs, Waste treatment and disposal, Water supply.
                7 CFR Part 3575
                 Loan programs-agriculture.
                7 CFR Part 4279
                 Loan programs-business, Reporting and recordkeeping requirements,
                Rural areas.
                7 CFR Part 4287
                 Loan programs-business, Reporting and recordkeeping requirements,
                Rural areas.
                7 CFR Part 5001
                 Business and industry, Community facility, Energy efficiency
                improvement, Loan programs, Renewable energy, Rural areas, Rural
                development, Water and waste disposal.
                 For the reasons set forth in the preamble, under the authority at 5
                U.S.C. 301 and 7 U.S.C. 1989, Chapters XVII, XXXV, and XLII of title 7
                of the Code of Federal Regulations are amended and Chapter L is
                established as follows:
                Chapter XVII--Rural Utilities Service, Department of Agriculture
                PART 1779--[REMOVED AND RESERVED]
                0
                1. Under the authority of 5 U.S.C. 301 and 7 U.S.C. 1989, remove and
                reserve part 1779, consisting of Sec. Sec. 1779.1 through 1779.100.
                Chapter XXXV--Rural Housing Service, Department of Agriculture
                PART 3575--[REMOVED AND RESERVED]
                0
                2. Under the authority of 5 U.S.C. 301 and 7 U.S.C. 1989, remove and
                reserve part 3575, consisting of Sec. Sec. 3575.1 through 3575.100.
                CHAPTER XLII--Rural Business-- Cooperative Service and Rural Utilities
                Service, Department of Agriculture
                PART 4279--GUARANTEED LOANMAKING
                0
                3. The authority citation for part 4279 continues to read as follows:
                 Authority: 5 U.S.C. 301; 7 U.S.C. 1989.
                Subpart A--[Removed and Reserved]
                0
                4. Remove and reserve subpart A, consisting of Sec. Sec. 4279.1
                through 4279.100.
                [[Page 42518]]
                Subpart B--[Removed and Reserved]
                0
                5. Remove and reserve subpart B, consisting of Sec. Sec. 4279.101
                through 4279.200.
                PART 4287--SERVICING
                0
                6. The authority citation for part 4287 continues to read as follows:
                 Authority: 5 U.S.C. 301; 7 U.S.C. 1932(a); 7 U.S.C. 1989.
                Subpart B--[Removed and Reserved]
                0
                7. Remove and reserve subpart B, consisting of Sec. Sec. 4287.101
                through 4287.200.
                PART 5001--GUARANTEED LOANS
                0
                8. Add chapter L, consisting of part 5001 to subtitle B, to read as
                follows:
                Chapter L--Rural Business--Cooperative Service, Rural Housing Service,
                and Rural Utilities Service, Department of Agriculture
                PART 5001--GUARANTEED LOANS
                Subpart A--General Provisions
                Sec.
                5001.1 General.
                5001.2 Structure.
                5001.3 Definitions.
                5001.4 Exception authority.
                5001.5 Appeal and review rights.
                5001.6 General Lender responsibilities.
                5001.7 Agency's special initiatives.
                5001.8 Approvals, regulations, and forms.
                5001.9 Standards for financial information.
                5001.10 Federal Register notices and amendments.
                5001.11-5001.99 [Reserved]
                5001.100 OMB control number.
                Subpart B--Eligibility Provisions
                5001.101 Introduction.
                5001.102 Project eligibility--general.
                5001.103 Eligible CF projects and requirements.
                5001.104 Eligible WWD projects and requirements.
                5001.105 Eligible B&I projects and requirements.
                5001.106 Eligible REAP--Renewable Energy System (RES) projects and
                requirements.
                5001.107 Eligible REAP--Energy Efficiency Improvement (EEI) projects
                and requirements.
                5001.108 Eligible REAP--Energy Efficient Equipment and Systems (EEE)
                projects and requirements.
                5001.109-5001.114 [Reserved]
                5001.115 Ineligible projects--general.
                5001.116 Ineligible CF projects.
                5001.117 Ineligible WWD projects.
                5001.118 Ineligible B&I projects.
                5001.119 Ineligible REAP projects.
                5001.120 [Reserved]
                5001.121 Eligible uses of loan funds.
                5001.122 Ineligible uses of loan funds.
                5001.123-5001.125 [Reserved]
                5001.126 Borrower eligibility.
                5001.127 Borrower ineligibility conditions.
                5001.128-5001.129 [Reserved]
                5001.130 Lender eligibility requirements.
                5001.131 Lender's agreement.
                5001.132 Maintenance of approved lender status.
                5001.133-5001.139 [Reserved]
                5001.140 Cooperative stock/cooperative equity.
                5001.141 New Markets Tax Credit.
                5001.142-5001.200 [Reserved]
                Subpart C--Origination Provisions
                5001.201 General origination requirements.
                5001.202 Lender's credit evaluation.
                5001.203 Appraisals.
                5001.204 Personal, partnership, and corporate guarantees.
                5001.205 General project monitoring requirements.
                5001.206 Compliance with USDA Departmental Regulations, Policies,
                and other Federal laws.
                5001.207 Environmental responsibilities.
                5001.208 Conflicts of interest.
                5001.209-5001.300 [Reserved]
                Subpart D--Guarantee Application Provisions
                5001.301 Beginning the application process.
                5001.302 Preliminary eligibility review.
                5001.303 Applications for loan guarantee.
                5001.304 Specific application requirements for CF projects.
                5001.305 Specific application requirements for WWD projects.
                5001.306 Specific application requirements for B&I projects.
                5001.307 Specific application requirements for REAP projects.
                5001.308-5001.314 [Reserved]
                5001.315 Application evaluation and award provisions.
                5001.316 CF project priority point system and reservation of funds.
                5001.317 WWD project priority points system.
                5001.318 B&I project priority points system.
                5001.319 REAP project priority points system.
                5001.320-5001.400 [Reserved]
                Appendix A to Subpart D of Part 5001--Feasibility Study Components
                Appendix B to Subpart D of Part 5001- Financial Feasibility Reports
                Appendix C to Subpart D of Part 5001--Technical Reports for Energy
                Efficiency Improvement (EEI) Projects with Total Project Costs of
                more than $80,000
                Appendix D to Subpart D of Part 5001--Technical Reports for
                Renewable Energy System (RES) Projects with Total Project Costs of
                Less Than $200,000 but More Than $80,000
                Appendix E to Subpart D of Part 5001--Technical Reports for
                Renewable Energy System (RES) Projects with Total Project Costs of
                $200,000 and Greater
                Subpart E--Loan and Guarantee Provisions
                Loan Provisions
                5001.401 Interest rate provisions.
                5001.402 Term length, loan schedule, repayment.
                5001.403 Lender fees.
                5001.404-5001.405 [Reserved]
                5001.406 Guaranteed loan amounts.
                5001.407 Percent of guarantee.
                5001.408 Participation or assignment of guaranteed loan.
                5001.409-5001.449 [Reserved]
                Guarantee Provisions
                5001.450 General.
                5001.451 Conditional commitment.
                5001.452 Loan closing and conditions precedent to issuance of loan
                note guarantee.
                5001.453 Issuance of the loan note guarantee.
                5001.454 Guarantee fee.
                5001.455 Periodic guarantee retention fee.
                5001.456 Other fees.
                5001.457 Changes prior to loan closing.
                5001.458 Other Federal, State, and local requirements.
                5001.459 Replacement of loan note guarantee and assignment guarantee
                agreement.
                5001.460-5001.500 [Reserved]
                Subpart F--Servicing Provisions
                5001.501 General.
                5001.502 Oversight and monitoring.
                5001.503 REAP RES or EEI project completion requirements.
                5001.504 Financial reports.
                5001.505 Collateral inspection and release.
                5001.506 Loan transfers and assumptions.
                5001.507 Lender Transfer.
                5001.508 Mergers.
                5001.509 Servicing fees.
                5001.510 Subordination of lien position.
                5001.511 Repurchases from holders.
                5001.512 Additional expenditures and loans.
                5001.513 Interest rate changes.
                5001.514 Lender failure.
                5001.515 Default by borrower.
                5001.516 Protective advances.
                5001.517 Liquidation.
                5001.118 [Reserved]
                5001.519 Bankruptcy.
                5001.520 Litigation.
                5001.521 Loss calculations and payment.
                5001.522 Future recovery.
                5001.523 Property acquired by the lender.
                5001.524 Termination of loan note guarantee.
                5001.525-5001.600 [Reserved]
                 Authority: 5 U.S.C. 301; 7 U.S.C. 1926(a); 7 U.S.C. 1932(a); and
                7 U.S.C. 8107.
                Subpart A--General Provisions
                Sec. 5001.1 General.
                 (a) This part contains the regulations for Community Facilities,
                Water and Waste Disposal, Business and Industry, and Rural Energy for
                America Program loans guaranteed by the Agency and applies to lenders,
                holders, borrowers, and other parties involved in making, guaranteeing,
                holding, servicing, and liquidating such loans. The loan guarantee
                programs covered by this regulation are more fully described as:
                 (1) Community Programs Guaranteed Loans (5 U.S.C. 301 and 7 U.S.C.
                1989) as authorized by Section 306(a)(1) of the
                [[Page 42519]]
                Consolidated Farm and Rural Development Act, 7 U.S.C. 1926(a)(1), as
                administered by the Rural Housing Service (RHS), herein after referred
                to as CF.
                 (2) Water and Waste Disposal Program Guaranteed Loans (5 U.S.C.
                301, 7 U.S.C. 1989, and 16 U.S.C. 1005) as authorized by Section
                306(a)(1) of the Consolidated Farm and Rural Development Act, 7 U.S.C.
                1926(a)(1), as administered by the Rural Utilities Service (RUS),
                herein after referred to as WWD.
                 (3) Business and Industry Guaranteed Loans (7 U.S.C. 1932) as
                authorized by Section 310B, Business and Industry Direct and Guaranteed
                Loans, of the Consolidated Farm and Rural Development Act, 7 U.S.C.
                1932, as administered by the Rural Business-Cooperative Service (RBCS),
                herein after referred to as B&I.
                 (4) Rural Energy for America Program Guaranteed Loans (5 U.S.C.
                301, and 7 U.S.C. 8107) as authorized by Section 9007, Title IX of the
                Food, Conservation, and Energy Act of 2008, as administered by the
                Rural Business-Cooperative Service (RBCS), herein after referred to as
                REAP.
                 (b) The applicability of the provision of this part for processing
                and approving applications and for servicing guaranteed loans depend on
                when a complete application is received. The Agency will process and
                approve applications, and service guaranteed loans according to the
                provisions of this part for all complete guaranteed loan applications
                that it receives on or after October 1, 2020, including guaranteed loan
                applications submitted under any of the programs whose authorization is
                identified in this section. All complete Applications received before
                October 1, 2020 will be processed and awarded and guaranteed loans
                serviced in accordance with the existing regulatory provisions in
                effect at the complete application date for the program under which the
                Application was submitted.
                Sec. 5001.2 Structure.
                 This part is divided into six subparts as described in paragraphs
                (a) through (f) of this section. The provisions are applicable to each
                guaranteed loan made under this part, except as may be otherwise
                indicated. This part also contains several appendices as identified in
                paragraph (g) of this section.
                 (a) Subpart A. Subpart A contains provisions that are applicable to
                each guaranteed loan made under this part, except as may be otherwise
                indicated. Topics covered include definitions; exception authority;
                appeal and review rights; general lender responsibilities; special
                initiatives; approvals, regulations, and forms; and standards for
                financial information.
                 (b) Subpart B. This subpart contains provisions for determining
                project, borrower, and lender eligibility that are applicable to each
                guaranteed loan made under this part. It also contains a list of
                eligible and ineligible uses of loan funds, ineligible Projects and
                conditions that would make an otherwise eligible borrower ineligible.
                The lender's agreement is addressed as well as maintenance of approved
                lender status.
                 (c) Subpart C. This subpart contains provisions for general
                origination requirements, credit evaluation, appraisals, various types
                of guarantees, monitoring requirements, compliance with other laws,
                environmental responsibilities, and conflicts of interest that are
                applicable to each guaranteed loan made under this part.
                 (d) Subpart D. This subpart contains provisions relating to
                applications for a Loan Guarantee under this part, including
                preliminary eligibility reviews, the application process, Application
                evaluation, and the application award processes that are applicable to
                each Guaranteed Loan made under this part.
                 (e) Subpart E. This subpart contains loan and guarantee provisions
                that are applicable to each guaranteed loan made under this part. Loan
                provisions cover interest rates, term length, loan schedule, repayment,
                lender fees, loan amounts, percentage of guarantee, and sale or
                assignment of a guaranteed loan. Guarantee provisions cover the
                conditional commitment, conditions precedent to issuing the loan note
                guarantee, the issuance of the loan note guarantee, guarantee and other
                fees, replacement of documents, borrower reorganizations, and other
                legal requirements.
                 (f) Subpart F. This subpart applies to provisions for servicing the
                loans guaranteed under this part, including oversight, monitoring and
                reporting requirements and project completion requirements that are
                applicable to each guaranteed loan made under this part, except as may
                be otherwise indicated. Servicing topics covered include audits and
                financial reports; collateral; loan transfers and assumptions; lender
                transfers; mergers; servicing fees; subordinations of lien position;
                repurchases; additional expenditures and loans; interest rate changes;
                lender failures; borrower defaults; protective advances; liquidation;
                bankruptcy; litigation; loss calculations and payments; future
                recovery; property acquired by the lender; and termination of the loan
                note guarantee.
                 (g) Appendices. These appendices provide specific information on
                various reports associated with applying for a loan guarantee under
                this part.
                Sec. 5001.3 Definitions.
                 The following definitions are applicable to the capitalized terms
                used in this part.
                 Administrator means the Administrator of the Rural Housing Service,
                the Rural Utilities Service, or the Rural Business-Cooperative Service
                (or the applicable Service's successor), as applicable, within the
                Rural Development mission area of the U.S. Department of Agriculture
                (USDA).
                 Affiliates means persons who control or have the power to control
                another entity, or a third party or parties that control or have the
                power to control both.
                 Agency means USDA Rural Development, which includes the Rural
                Housing Service; the Rural Utilities Service; and the Rural Business-
                Cooperative Service or their successors.
                 Agricultural producer means a person, including non-profits,
                directly engaged in the production of agricultural products through
                labor management and operations, including the cultivating, growing,
                and harvesting plants and crops (including farming); breeding, raising,
                feeding, or housing of livestock (including ranching); forestry
                products; hydroponics; nursery stock; or aquaculture, whereby 50
                percent or greater of their gross income is derived from the
                operations. The percentage is calculated as the average of gross
                agricultural operations income of the concern divided by the gross non-
                farm income of the concern for the five most recent years. If the
                concern has been operation for less than 60 months but for at least 12
                months, use average gross agricultural operations income and gross non-
                farm income for as long as the concern has been in operation.
                 Agricultural production means 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.
                 Anaerobic digester means a renewable energy system that uses animal
                waste or other renewable biomass and may include other organic
                substrates to produce biogas that is sold in a gaseous or compressed
                liquid state or used to produce thermal or electrical energy.
                 Applicant lender debt means an existing debt owed by a borrower to
                the
                [[Page 42520]]
                same lender that is applying for or has received the Agency guarantee.
                 Appraisal surplus means the excess between the market value of an
                asset and its cost or depreciated book value when the market value is
                higher.
                 Architectural report means a report, prepared by a professional,
                licensed architect, or other qualified party that describes the
                existing situation, analyzes alternatives and proposes a specific
                course of action from an architectural perspective.
                 Arm's length transaction means a transaction in which the buyer and
                seller act independently and have no relationship to each other. The
                concept of an arm's length transaction allows the market to ensure that
                both parties in the deal are acting in their own self-interest and are
                not subject to any pressure or duress from the other party.
                 Assignment guarantee agreement means a signed, Agency-approved
                agreement between the Agency, the lender, and the holder setting forth
                the terms and conditions of an assignment of a guaranteed portion of a
                loan.
                 Biofuel means a fuel derived from renewable biomass.
                 Biogas means a gaseous fuel (including landfill and sewage waste
                treatment gas) derived from the degradation and decomposition of
                renewable biomass.
                 Bond means a form of debt security in which the authorized issuer
                (borrower) owes the bond holder (lender) a debt and is obligated to
                repay the principal and interest (coupon) at a later date(s)
                (maturity). An explanation of the type of bond and other bond
                stipulations must be attached to the bond issuance.
                 Borrower means the person that borrows, or seeks to borrow, money
                from the lender (including any party or parties liable for the
                guaranteed loan except guarantors) through a loan guaranteed under this
                part.
                 Business plan means a comprehensive document that clearly describes
                the borrower's ownership structure and management experience including,
                if applicable, discussion of a parent company, any subsidiaries and
                affiliates of the borrower and discussion of how the borrower will
                operate the proposed project. If a business or industry is in decline
                or financial distress, the business plan must describe in detail how
                the project differs from the current industry trends or improves the
                borrower's financial position.
                 Byproduct means an incidental or secondary product, regardless of
                whether it has a readily identifiable commercial use or value,
                generated under normal operations of the proposed Project that can be
                reasonably measured and monitored.
                 Certificate of incumbency means an Agency-approved form used to
                validate authenticity of Agency representatives' signature and title.
                 Collateral means the asset(s) pledged by the borrower to the lender
                as security for the guaranteed loan.
                 Commercially available means a system that meets the requirements
                of either paragraph (1) or (2) of this definition.
                 (1) A domestic or foreign system that:
                 (i) Has both a proven and reliable operating history and proven
                performance data for at least one year specific to the use and
                operation to the proposed application;
                 (ii) Is based on established design and installation procedures and
                practices and is replicable;
                 (iii) Has professional service providers, trades, large
                construction equipment providers, and labor who are familiar with
                installation procedures and practices;
                 (iv) Has proprietary and balance of system equipment and spare
                parts that are readily available;
                 (v) Has service that is readily available to properly maintain and
                operate the system; and
                 (vi) Has an existing established warranty that is valid in the
                United States for major parts and labor; or
                 (2) A domestic or foreign system that has been certified by a
                recognized industry organization whose certification standards are
                acceptable to the Agency.
                 Complete application means an application that contains all parts
                necessary for the Agency to determine borrower and project eligibility,
                the financial feasibility and technical merit of the project, and
                contains sufficient information to determine a priority score for the
                application, if applicable.
                 Conditional commitment means an Agency-approved form in which the
                Agency agrees that, in accordance with applicable provisions of the
                program regulations contained in this part and related forms, it will
                execute the loan note guarantee, subject to the conditions and
                requirements specified in applicable provisions of the program
                regulations contained in this part and in the conditional commitment
                itself.
                 Conflict of interest means a situation in which a person has
                personal, professional, or financial interests that prevent, or appears
                to prevent the person from acting impartially. For purposes of this
                part, conflict of interest also includes, but is not limited to:
                 (1) A person acting as a compensated agent of the borrower and the
                lender on the same guaranteed loan,
                 (2) Distribution or payment of guaranteed loan funds to an
                individual owner, partner, stockholder, or member of the borrower, or
                to a beneficiary or immediate family member of the borrower;
                 (3) Refinancing debt that is owned by a loan packager, broker, or
                referral agent or its affiliates.
                 Cooperative means an entity that is legally chartered by the State
                in which it operates as a cooperatively-operated business, or an entity
                that is not legally chartered as a cooperative but is owned and
                operated for the benefit of its members, with returns of residual
                earnings paid to such members on the basis of patronage.
                 Credit evaluation means the analysis and evaluation by the lender
                of the credit factors associated with each application to ensure loan
                repayment through the use of credit documentation procedures and an
                underwriting process that is consistent with industry standards and the
                lender's written policy and procedures.
                 Debt Collection Improvement Act means the Debt Collection
                Improvement Act of 1996, 31 U.S.C. 3701 et seq.
                 Debt service coverage ratio means the ratio obtained when taking
                earnings before interest, taxes, depreciation, and amortization less
                reasonably expected replacement capital expenditures divided by the
                annual debt service (principal and interest payments) of the borrower.
                 Default means the condition that exists when a borrower is in non-
                compliance under the terms of any of the promissory notes, the loan
                agreements, security documents, program regulations, or other documents
                evidencing or collateralizing the loan. Default can be a monetary or
                non-monetary default.
                 Deficiency judgment means a monetary judgment rendered by a court
                of competent jurisdiction after foreclosure and liquidation of all
                collateral securing the loan.
                 Delinquency means a situation that exists when a scheduled loan
                payment on a guaranteed loan made under this part is more than 30
                calendar days past due and cannot be cured within the next 30 calendar
                days.
                 Departmental regulations means the regulations of the Agency's
                Office of Chief Financial Officer (or successor office) as codified in
                2 CFR chapter IV.
                 Eligible project costs means those expenses approved by the Agency
                for the project as eligible uses of funds.
                [[Page 42521]]
                 Energy assessment means an Agency-approved report assessing energy
                use, cost, and efficiency by analyzing energy bills and surveying the
                target building and/or equipment sufficiently to provide an Agency-
                approved energy assessment.
                 Energy assessor means a qualified consultant who has at least 3
                years of experience and completed at least five energy assessments or
                energy audits on similar type projects and who adheres to generally
                recognized engineering principles and practices.
                 Energy audit means a comprehensive report that meets an Agency-
                approved standard prepared by an energy auditor or an individual
                supervised by an energy auditor that documents current energy usage;
                recommended potential improvements (typically called energy
                conservation measures) and their costs; energy savings from these
                improvements; dollars saved per year; and simple payback. The
                methodology of the energy audit must meet professional and industry
                standards. The final energy audit must be validated and signed off by
                the energy auditor who conducted the audit or by the supervising energy
                auditor of the individual who conducted the audit, as applicable.
                 Energy auditor means a qualified consultant that meets one of the
                following criteria:
                 (1) A certified energy auditor certified by the Association of
                Energy Engineers;
                 (2) A certified energy manager certified by the Association of
                Energy Engineers;
                 (3) A licensed professional engineer in the State in which the
                audit is conducted with at least 1 year of experience and who has
                completed at least two similar type energy audits; or
                 (4) An individual with a 4-year engineering or architectural degree
                with at least three years of experience and who has completed at least
                five similar type energy audits.
                 Energy efficiency improvement (EEI) means improvements to or
                replacement of an existing building or systems, or equipment that
                reduces measurable energy consumption on an annual basis.
                 Energy efficient equipment and systems (EEE) means equipment or
                systems for agricultural production or processing that exceed any of
                the following standards:
                 (1) Energy efficiency building codes, if available;
                 (2) Federal or State energy efficiency standards, if available;
                 (3) Energy efficiency standards determined appropriate by the
                Secretary. If no codes or standards described in paragraphs (1) through
                (3) of this definition apply to the EEE proposed, then the Secretary
                shall require such equipment or system to meet the same efficiency
                measurement as the most efficient available equipment or system in the
                market and the Secretary shall not provide such a loan guarantee for
                the purchase and installation of any energy efficient equipment or
                system unless more than one type of such equipment or system is
                available in the market.
                 Engineering documentation means a document, normally prepared by
                the borrower's consulting engineer or other qualified party, that
                describes the existing system, analyzes alternatives, and proposes a
                specific course of action from an engineering perspective.
                 Essential community facility means a public improvement, operated
                on a non-profit basis, needed for the orderly development of a rural
                community where the rural community is a city or town, or its
                equivalent county or multi-county area. The term ``facility'' refers to
                both the physical structure financed, and the resulting service
                provided to rural residents or rural businesses. Facilities may
                include, but are not be limited to, courthouses, community centers,
                libraries, firehouses, health care, education, transportation, and
                industrial parks. An industrial park consists of land and the necessary
                access ways and utilities to the site, but not improvements erected on
                such site.
                 Existing business means a business that has been in operation for
                at least one full year. The following will be treated as existing
                businesses provided there is not a significant change in operations of
                the existing business: Mergers by an existing business with a new or
                existing businesses, a change in the business name, or a new business
                and an existing business applying as co-borrowers,
                 Farmer or rancher cooperative means an entity that is owned and
                controlled by agricultural producers and that is incorporated, or
                otherwise recognized by the State in which it operates as a
                cooperatively-operated business or an entity that is not legally
                chartered as a cooperative but is owned and operated for the benefit of
                its members, with returns of residual earnings paid to such members on
                the basis of patronage.
                 Feasibility study means a report including an opinion or finding
                conducted by an independent qualified consultant(s) evaluating the
                economic, market, technical, financial, and management feasibility of
                the proposed project or operation in terms of its expectation for
                success as outlined in appendix A to subpart D of this part.
                 Federal debt means debt owed to the Federal Government that is
                subject to collection under the Debt Collection Improvement Act.
                 Federal fiscal year means the 12-month period beginning October 1
                of each year and ends on September 30 of the following year; it is
                designated by the calendar year in which it ends.
                 Final loss claim means the Agency's payment of a final settlement
                amount with the lender after the collateral is liquidated or after
                settlement and compromise actions have been completed and as further
                set forth in Sec. 5001.521(d)(3)(e).
                 Financial feasibility means the ability of a project to achieve
                sufficient income, credit, and cash flow to financially sustain the
                project over the long term and meet all debt obligations.
                 Future recovery means funds to be collected by the lender after a
                final loss claim is processed as set forth in Sec. 5001.522.
                 Geothermal direct generation means a system that uses thermal
                energy directly from a geothermal source.
                 Geothermal electric generation means a system that uses thermal
                energy from a geothermal source to produce electricity.
                 Guaranteed loan means a loan made and serviced by a lender for
                which the Agency and lender have entered into a lender's agreement and
                for which the Agency has issued a loan note guarantee. Unless otherwise
                specified, guaranteed loan refers to a loan that the Agency has
                guaranteed under this Part.
                 Guarantor means a person giving assurance to the Agency under an
                Agency-approved written agreement that the borrower's obligations will
                be fulfilled and promising repayment of a guaranteed loan if the
                borrower should default.
                 Holder means a person, other than the lender, who owns all or part
                of the guaranteed portion of the guaranteed loan with no servicing
                responsibilities.
                 Hospital. (1) For the purpose of refinancing rural hospital debt in
                accordance with Sec. 5001.102(d)(5), hospital means the following
                types of facilities defined in the Social Security Act, Section 1861
                (42 U.S.C. 1395x):
                 (i) Hospital (section 1861(e)).
                 (ii) Psychiatric hospital (section 1861(f)).
                 (iii) Long-term care hospital (section 1861(ccc)); and shall also
                include the following other provider types defined in the Social
                Security Act, Section 1861 (42 U.S.C. 1395x):
                 (A) Critical access hospital (section 1861(mm)(1)).
                 (B) Religious nonmedical health care institution (section
                1861(ss)(1)).
                [[Page 42522]]
                 (2) The Agency will use the applicant provider's CMS Certification
                Number (CCN) to verify the applicant provider is listed as a
                ``Hospital'' for the ``Provider or Supplier Type'' category on the
                Centers for Medicare and Medicaid Services' Quality Certification and
                Oversight Reports (QCOR) website https://qcor.cms.gov/index_new.jsp.
                 Hybrid means a combination of two or more renewable energy
                technologies that are incorporated into a unified system to support a
                single project.
                 Hydroelectric source means a renewable energy system producing
                electricity using various types of moving water including, but not
                limited to, diverted run-of-river water, in-stream run-of-river water,
                and in-conduit water.
                 Hydrogen project means a system that produces hydrogen derived from
                renewable biomass or water using wind, solar, ocean (including tidal,
                wave, current, and thermal), geothermal, or hydroelectric sources; or
                that uses hydrogen derived from renewable biomass or water using wind,
                solar, ocean (including tidal, wave, current, and thermal), geothermal
                or hydroelectric sources as an energy transport medium in the
                production of mechanical or electric power or thermal energy.
                 Immediate family(ies) means 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, sibling, aunt,
                uncle, grandparent, grandchild, niece, nephew, or first cousin.
                 Indian tribe means the term as defined in 25 U.S.C. 5304(e).
                 In-house expenses means expenses associated with activities that
                are routinely the responsibility of a lender's internal staff,
                including in-house lawyers, or its agents and that are normally
                incurred for administration of the loan. In-house expenses include, but
                are not limited to, employees' salaries, staff lawyers, travel, and
                overhead.
                 Inspector means a qualified consultant who has at least 3 years of
                experience and has completed at least five inspections on similar type
                projects.
                 Insurance means a means of protection from financial loss by which
                a company provides a guarantee of compensation for a specified loss,
                damage, illness, or death in return for payment of a premium.
                 Intangible assets means an asset that lacks physical substance.
                This includes, but is not limited to, copyrights, patents, capitalized
                franchise fees, goodwill, customer lists, software, organizational
                expenses, loan closing expenses, social media assets, and bond fees.
                 Interconnection agreement means a contract containing the terms and
                conditions governing the interconnection and parallel operation of the
                borrower's electric generation equipment and the utility's electric
                power system or a borrower's biogas production system and a gas
                pipeline.
                 Interest means an amount paid by a borrower to a lender as a form
                of compensation for the use of money. When money is borrowed, interest
                is typically paid over a certain period of time (typically months or
                years) to the lender as percentage of the principal amount owed. The
                term interest does not include default charges, penalty interest, or
                late payment fees.
                 Interest termination date means the date on which no further
                interest will be payable by the Agency under the loan note guarantee.
                 Interim financing means a temporary or short-term loan made with
                the clear intent when the loan is made that it will be repaid through
                another loan that provides permanent financing. Interim financing is
                frequently used to pay construction and other costs associated with the
                proposed project, with permanent financing to be obtained after project
                completion.
                 Lender means a lending entity that the Agency has approved to
                originate, service, and collect payments on loans guaranteed under this
                part.
                 Lender's agreement means the Agency-approved form of contract
                between the Agency and the lender setting forth the lender's guaranteed
                loan responsibilities.
                 Liquidation expenses means costs directly associated with the
                liquidation of collateral, including, without limitation, costs
                associated with preparing collateral for sale (e.g., repairs and
                transport), the sale (e.g., advertising, public notices, auctioneer
                expenses, and foreclosure fees), and conducting appraisals. Legal fees
                are considered liquidation expenses provided that the fees are
                reasonable as determined by the Agency and cover legal issues
                pertaining to the liquidation that could not be properly handled by the
                lender and its in-house legal staff. Liquidation expenses do not
                include in-house expenses.
                 Loan agreement means the agreement between the borrower and lender
                containing the specified terms and conditions of the guaranteed loan
                and the responsibilities of the borrower and lender.
                 Loan classification means the process by which loans are examined
                and categorized by the probability of default and degree of potential
                loss in the event of default.
                 Loan documents mean the loan agreement, promissory note, mortgage/
                deed of trust, and other security documents entered into by the
                borrower and the lender in connection with the guaranteed loan.
                 Loan note guarantee means the Agency-approved form containing the
                terms and conditions of the guarantee of an identified guaranteed loan.
                 Loan packager means a person, including a loan referral agent,
                broker, or an agent other than the borrower or lender that prepares a
                guaranteed loan application on behalf of the borrower or lender.
                 Local government means a county, municipality, town, township,
                village, or other unit of general government below the State level. The
                term also includes Tribal governments when tribal lands are within the
                service area.
                 Local owner means an individual who owns any portion of an entity
                that is the eligible borrower and whose primary residence is located
                within the normal commuting area of the guaranteed loan project.
                 Locally or regionally produced agricultural food product means any
                agricultural food product that is raised, produced, and distributed in
                the locality or region in which the final product is marketed, so that
                the distance the product is transported is less than 400 miles from the
                origin of the product, or within the State in which the product is
                produced. Food products could be raw, cooked, or a processed edible
                substance, beverage, or ingredient used or intended for use or for sale
                in whole or in part for human consumption.
                 Market value means the most probable price that an asset should
                bring in a competitive and open market under all conditions requisite
                to a fair sale, the buyer and seller, each acting prudently,
                knowledgeably, and assuming the price is not affected by undue
                stimulus. Implicit in this definition is the consummation of a sale as
                of a specified date and the passing of title from seller to buyer under
                conditions whereby--
                 (1) Buyer and seller are typically motivated;
                 (2) Both parties are well informed or well advised, and each acting
                in what he or she considers his or her own best interest;
                 (3) A reasonable time is allowed for exposure in the open market;
                 (4) Payment is made in terms of cash in U.S. dollars or in terms of
                financial arrangements comparable thereto; and
                 (5) The price represents the normal consideration for the property
                sold unaffected by special or creative financing or sales concessions
                granted by anyone associated with the sale.
                [[Page 42523]]
                 Matching funds means those project funds required by 7 U.S.C. 8107
                to be eligible to receive the guaranteed loan. Funds provided by the
                borrower in excess of matching funds are not matching funds.
                 Material adverse change means any change in circumstances
                associated with a guaranteed loan, including, without limitation, any
                change in the purpose of the loan, the borrower's financial condition
                or collateral that, individually or in the aggregate, have jeopardized,
                or could be reasonably expected to jeopardize, the borrower's repayment
                of the guaranteed loan.
                 Monetary default means a failure to make a scheduled or required
                payment on a guaranteed loan.
                 Multi-note system means an option for the lender to provide one
                promissory note for the unguaranteed portion and a separate promissory
                note(s) for the guaranteed portion of the loan. All promissory notes
                must reflect the same payment terms.
                 National Appeals Division (NAD) means the division of the United
                States Department of Agriculture pursuant to 7 CFR part 11.
                 Natural resource value-added product means a product derived from
                any naturally occurring resource, including agricultural resources,
                that is further processed to add value or used to generate energy or
                renewable energy.
                 Negligent loan origination means the failure of a lender to perform
                those services or actions that a reasonably prudent lender would
                perform in originating its own portfolio of loans that are not
                guaranteed. The term includes the concepts of failure to act, not
                acting in a timely manner, and acting in a manner contrary to the
                manner in which a reasonably prudent lender would act.
                 Negligent loan servicing means the failure of a lender to perform
                those services that a reasonably prudent lender would perform in
                servicing (including liquidation of) its own portfolio of loans that
                are not guaranteed. The term includes the concepts of failure to act,
                not acting in a timely manner, and acting in a manner contrary to the
                manner in which a reasonably prudent lender would act.
                 New business means a business that has been in operation for less
                than one full year, including a new enterprise or new affiliate of an
                existing business moving or expanding into a new location involving new
                market or labor areas.
                 Non-monetary default means a situation where a borrower is not in
                compliance with the covenants or requirements of the loan documents,
                program requirements or loan.
                 Non-regulated lending entity means a lending entity that is not
                subject to supervision and examination by an agency of the United
                States or a State; or a lending entity created specifically by State
                statute and operating under the direct supervision of a State
                government authority.
                 Ocean energy means energy created by use of various types of moving
                water in the ocean and other large bodies of water (e.g., Great Lakes)
                including, but not limited to, tidal, wave, current, and thermal
                changes.
                 Off-take agreement means the terms and conditions governing the
                sale and transportation of products produced by the borrower and sold
                to another party.
                 Otherwise improve means, but is not limited to, the following:
                 (1) The purchase of necessary equipment that will itself provide an
                essential service to the rural community, such as vehicles, emergency
                and medical equipment, telecommunication equipment, computers, water
                meters and pumps;
                 (2) The purchase of equipment necessary to maintain, protect,
                operate, or use the eligible facility or service;
                 (3) The purchase of existing eligible facilities, when necessary,
                to either improve or prevent a loss of service provided the price paid
                for the facility is fair and reasonable and not directly related to the
                dollar amount of any debt to be retired by the seller; and
                 (4) Payment of tap fees and other utility connection charges as
                provided in utility purchase contracts.
                 Parity means a lien position whereby two or more separate lending
                entities or separate loans share a security interest of equal priority
                in collateral.
                 Participation means the sale of an interest in a loan by the lead
                lender to one or more participating lenders wherein the lead lender
                retains the note, collateral securing the note, and all responsibility
                for managing and servicing the loan. Participants have credit risk and
                are dependent upon the lead lender for protection of their interests in
                the loan. The relationship is typically formalized by a participation
                agreement between the lenders. The participant lender(s) and the
                borrower have no rights or obligations to one another.
                 Passive investor means an equity investor who does not actively
                participate in management and operation decisions of the borrower or
                any affiliate of the borrower as evidenced by a contractual agreement.
                 Person means an individual or entity organized under the laws of a
                State or a Tribe.
                 Power purchase agreement means the terms and conditions governing
                the sale and transportation of electricity produced by the borrower to
                another party.
                 Professional service means services used by the borrower for
                planning and developing a project, including, but not limited to,
                appraisals, architectural services, surveys, environmental impact
                analyses, implementing mitigation measures, and establishing or
                acquiring property rights. Such services are generally rendered by
                persons licensed or certified by States or accreditation associations,
                such as architects, engineers, accountants, attorneys, or appraisers,
                and those rendered by loan packagers, but not including loan finders.
                 Project means the activity identified by a lender in its
                application for a loan guarantee for which the guaranteed loan funds
                will be used.
                 Promissory note means the legal instrument evidencing debt executed
                by the borrower to a lender with stipulated repayment terms. The term
                promissory note includes bonds and other related debt instruments
                issued by the lender to a borrower.
                 Protective advance means an advance made by the lender for the
                purpose of preserving and protecting the collateral where the borrower
                has failed to, and will not or cannot, meet its obligations to protect
                or preserve collateral. Protective advances include, but are not
                limited to, advances for property taxes, rent, hazard and flood
                insurance premiums, emergency repairs and annual assessments that
                protect the collateral. Legal and accounting fees are not a protective
                advance.
                 Public body means a state, county, city, township, incorporated
                town or village, borough, authority, district, or other political
                subdivision of a State, or Indian tribe.
                 Qualified consultant(s) means an independent third-party person
                possessing the knowledge, expertise, and experience to perform the
                specific task required.
                 Rated power means the maximum amount of energy that can be created
                at any given time.
                 Refurbished means a piece of equipment or renewable energy system
                that has been brought into a commercial facility, thoroughly inspected,
                and worn parts replaced and has a warranty that is approved by the
                Agency or its designee.
                 Regulated lending entity means a lending entity that is subject to
                [[Page 42524]]
                supervision and examination by an agency of the United States or a
                State; or a lending entity created specifically by State statute and
                operating under the direct supervision of a State government authority.
                 Renewable biomass means--
                 (1) Materials, pre-commercial thinning, or invasive species from
                National Forest System land or public lands (as defined in Section 103
                of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702))
                that--
                 (i) Are by-products of preventive treatments that are removed to
                reduce hazardous fuels; to reduce or contain disease or insect
                infestation; or to restore ecosystem health;
                 (ii) Would not otherwise be used for higher-value products; and
                 (iii) Are harvested in accordance with applicable law and land
                management plans and the requirements for old-growth maintenance,
                restoration, and management direction of paragraphs (2), (3), and (4)
                of subsection (e) of section 102 of the Healthy Forests Restoration Act
                of 2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of
                section 102; or
                 (2) Any organic matter that is available on a renewable or
                recurring basis from non-Federal land or land belonging to an Indian or
                Indian tribe that is held in trust by the United States or subject to a
                restriction against alienation imposed by the United States, including
                the following items:
                 (i) Renewable plant material (including feed grains, other
                agricultural commodities, other plants and trees, and algae); and
                 (ii) Waste material (including crop residue, other vegetative waste
                material (including wood waste and wood residues), animal waste and
                byproducts (including fats, oils, greases, and manure), and food and
                yard waste).
                 Renewable energy means energy derived from--
                 (1) A wind, solar, renewable biomass, ocean (including tidal, wave,
                current, and thermal), geothermal or hydroelectric source; or
                 (2) Hydrogen derived from renewable biomass or water using an
                energy source described in paragraph (1) of this definition.
                 Renewable energy site assessment means a report providing
                information regarding and recommendations for the use of commercially
                available renewable energy technologies in the borrower's operation.
                The report must be prepared by a qualified consultant for the specific
                energy system and project proposed.
                 Renewable energy system (RES) means a system that produces usable
                energy from a Renewable Energy source and may include:
                 (1) Distribution components necessary to move energy produced by
                such system to the initial point of sale; and
                 (2) Other components and ancillary infrastructure of such system,
                such as a storage system; however, such system may not include a
                mechanism for dispensing energy at retail.
                 Report of loss means an Agency-approved form used by lenders when
                reporting a financial loss under a guaranteed loan.
                 Retrofitting means a modification to an existing building or
                installed equipment that incorporates a function or feature(s) not
                included in the original design when built or for the replacement of
                existing components with components that improve the original design
                and does not affect original warranty if the warranty is still in
                existence.
                 Rural and rural area means 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 5 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
                Agency's website at https://www.rd.usda.gov/onerdguarantee, 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
                [[Page 42525]]
                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 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.
                 Rural small business means a small business that is located in a
                rural area or that can demonstrate the proposed project for which
                assistance is being applied for under this part is located in a rural
                area.
                 Service area means the area identified to be served.
                 Significant ties means, as determined by the agency, a facility
                under private control will carry out a public purpose and continue to
                primarily serve rural areas for CF projects (not applicable to public
                bodies and Federally Recognized Tribes) as evidenced by the following:
                Association with or control by a public body or bodies; or Broadly
                based membership and controlled primarily by members residing in the
                project service area. Membership must be open without regard to race,
                color, religion, national origin, sex, age, disability, sexual
                orientation, or marital or familial status.
                 Simple payback means the estimated simple payback of a project
                funded under this part as calculated using paragraph (1), (2), or (3),
                as applicable, of this definition.
                 (1) Energy efficiency improvement projects simple payback = (Total
                Project Costs) / (Dollar value of energy saved).
                 (i) Energy saved will be determined by subtracting the projected
                energy (determined by the method in paragraph (1)(i)(B) of this
                definition) to be consumed from the historical energy consumed
                (determined by the method in paragraph (1)(i)(A) of this definition),
                and converting the result to a monetary value using a constant value or
                price of energy (determined by the method in paragraph (1)(i)(C) of
                this definition).
                 (A) Actual energy used in the original building and/or equipment,
                as applicable, prior to the EEI project, must be based on the actual
                average annual total energy used in British thermal units (BTU) over
                the most recent 12, 24, 36, 48, or 60 consecutive months of operation.
                 (B) Projected energy use if the proposed EEI project had been in
                place for the original building and/or equipment, as applicable, for
                the same time period used to determine that actual energy use under
                paragraph (1)(i)(A) of this definition.
                 (C) Value or price of energy must be the actual average price paid
                over the same time period used to calculate the actual energy used
                under paragraph (1)(i)(A) of this definition.
                 (ii) Energy efficiency improvement projects simple payback does not
                allow EEI to monetize benefits other than the dollar amount of the
                energy savings the agricultural producer or rural small business
                realizes as a result of the improvement.
                 (2) Renewable energy systems projects simple payback = (total
                project costs) / (dollar value of energy units replaced, credited,
                sold, or used and fair market value of byproducts as applicable in a
                typical year).
                 (i) Value of energy replaced will be calculated based on the
                borrower entity's historical energy consumption with actual average
                price paid for the energy replaced, following the methodology outlined
                in paragraph (1)(i) of this definition.
                 (ii) Value of energy credited or sold will be calculated based on
                the amount of energy units to be sold at the proposed rate per unit, as
                documented in utility net metering or crediting policies and/or a
                purchase agreement.
                 (iii) If proposed energy will be used in a new facility, value of
                energy used will be calculated based on the amount of energy units to
                be used at the documented price per unit of conventional fuel
                alternative.
                 (iv) Value of byproducts produced by and used in the project or
                related enterprises should be documented at the fair market value to be
                received for the byproducts in a typical year.
                 (v) Renewable energy systems projects simple payback does not
                include any one-time benefits such as but not limited to construction
                and investment-related benefits, nor credits which do not provide
                annual income to the project, such as tax credits.
                 (3) Energy efficiency equipment and systems projects simple payback
                = (total project costs) / (dollar value of efficiency savings).
                Efficiency savings will be determined by subtracting the annual value
                of energy to be consumed by the proposed energy efficient equipment
                from the annual value of energy that a conventional equipment
                alternative would have consumed. Adequate documentation must be
                provided for all consumption estimates and values utilized in the
                calculation.
                 Small business means:
                 (1) An entity or utility, as applicable, as further defined in
                paragraphs (1)(i) through (iv) and meeting the requirements in
                paragraph (2) of this definition. With the exception of the entities
                identified in this paragraph, all other non-profit entities are not
                small businesses for the purposes of REAP program eligibility:
                 (i) A private for-profit entity, including a sole proprietorship,
                partnership, or corporation;
                 (ii) A cooperative (including a cooperative qualified under section
                501(c)(12) of the Internal Revenue Code);
                 (iii) An electric utility (including a Tribal or governmental
                electric utility) that provides service to rural consumers and operates
                independent of direct government control; or
                 (iv) A Tribal corporation or other Tribal business entities that
                are chartered under Section 17 of the Indian Reorganization Act (25
                U.S.C. 477) or have similar structures and relationships with their
                Tribal governments and are acceptable to the Agency. The Agency will
                determine the small business status of such Tribal entity without
                regard to the resources of the Tribal government; and
                 (2) An entity that meets Small Business Administration (SBA) size
                standards in accordance with 13 CFR part 121 and criteria of 13 CFR
                121.301 as applicable to financial assistance programs, including
                paragraph (2)(i) or (ii) of this section. The size of the concern alone
                and the size of the concern combined with other entity(ies) it controls
                or entity(ies) it is controlled by, must not exceed the size standard
                [[Page 42526]]
                thresholds designated for the industry in which the concern alone or
                the concern and its controlling entity(ies), whichever is higher, is
                primarily engaged.
                 (i) The concern's tangible net worth is not in excess of $15
                million and average net income (excluding carry-over losses) for the
                preceding two completed fiscal years is not in excess of $5.0 million;
                or
                 (ii) The size of the concern does not exceed the SBA size standard
                thresholds designated for the industry in which it is primarily
                engaged, as measured by number of employees or annual receipts.
                Industry size standard designations to be utilized are listed in the
                SBA's table of size standards found in 13 CFR 121.201. Number of
                employees and annuals receipts are calculated as follows:
                 (A) Number of employees is calculated as the average number of all
                individuals employed by a concern on a full-time, part-time, or other
                basis, based upon numbers of employees for each of the pay periods for
                the preceding completed 12 calendar months. If a concern has not been
                in business for 12 months, the average number of employees is used for
                each of the pay periods during which it has been in business.
                 (B) Annual receipts are calculated as average total income plus
                cost of goods sold for the five most recent years. If a concern has
                been in operation for less than 60 months, average annual receipts for
                as long as the concern has been in operation are used.
                 State means any of the 50 States of the United States, the
                Commonwealth of Puerto Rico, the District of Columbia, the U.S. Virgin
                Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana
                Islands, the Republic of Palau, the Federated States of Micronesia, and
                the Republic of the Marshall Islands.
                 State bond banks and State bond pools mean an entity authorized by
                the State to issue State debt instruments and use the funds received to
                finance eligible projects under this part.
                 Steady state operating level means that there is an adequate and
                consistent supply of the applicable renewable energy resource(s) for
                the project, both on a short-term (current) and long-term basis, and
                the renewable energy system and process(es) are operating at projected
                capacity, consistently yielding an adequate quantity and quality of
                renewable energy.
                 Subordination means the reduction of the lender's lien priority on
                certain assets pledged by the borrower to secure payment of the
                guaranteed loan to a position junior to, or on parity with, the lien
                position of another loan.
                 Total eligible project costs means the sum of all eligible project
                costs.
                 Total project costs means the sum of all costs associated with a
                completed project.
                 Transfer and assumption means the Agency-approved conveyance by a
                borrower to an assuming borrower of the assets, collateral, and
                liabilities of the borrower in return for the assuming borrower's
                binding promise to pay the outstanding debt.
                 Underserved communities mean communities (including urban or rural
                communities and Indian tribal communities) that have limited access to
                affordable, healthy foods, including fresh fruits and vegetables, in
                grocery retail stores or farmer-to-consumer direct markets and that
                have either a high rate of hunger or food insecurity or a high poverty
                rate as reflected in the most recent decennial census or other Agency-
                approved census.
                 Uniform Standards of Professional Appraisal Practice (USPAP) means
                the appraisal standards promulgated by the Appraisal Standards Board of
                the Appraisal Foundation.
                 Used equipment means any equipment that has been used and is
                provided in an ``as is'' condition.
                 Useful life means estimated durations of utility placed on a
                variety of assets, including buildings, machinery, equipment, vehicles,
                electronics, and furniture. Useful life estimations terminate at the
                point when assets are expected to become obsolete, require major
                repairs, or cease to deliver economical results.
                 Veteran means a person who served in the active military, naval, or
                air service and was discharged or released therefrom under conditions
                other than dishonorable as defined in 38 U.S.C. 101(2).
                 Waste disposal means sanitary sewer (treatment and collection),
                solid waste, or storm drainage facilities.
                 Working Capital means current assets available to support a
                business' operations and growth. Working capital is calculated as
                current assets less current liabilities.
                Sec. 5001.4 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. 5001.5 Appeal and review rights.
                 Borrowers, lenders, and holders may have appeal or review rights
                for Agency decisions made under this part. Agency decisions that are
                adverse to the individual participant are appealable, while matters of
                general applicability are not subject to appeal; however, such
                decisions are reviewable for appealability by the National Appeals
                Division (NAD). All appeals will be conducted by NAD and will be
                handled in accordance with 7 CFR part 11.
                 (a) The borrower, lender, and holder can appeal any Agency decision
                that directly and adversely affects them.
                 (1) For an adverse decision that affects the borrower, the lender
                and borrower must jointly execute a written request for appeal of an
                adverse decision made by the Agency.
                 (2) An adverse decision that affects only the lender can be
                appealed by the lender only.
                 (3) An adverse decision that affects only the holder can be
                appealed by the holder only.
                 (b) In cases where the Agency has denied or reduced the amount of
                final loss payment to the lender, the adverse decision can be appealed
                only by the lender.
                 (c) A decision by a lender adverse to the interest of the borrower
                is not a decision by the Agency, even if it was concurred in by the
                Agency, and therefore cannot be reviewed for appealability or appealed
                to NAD.
                Sec. 5001.6 General lender responsibilities.
                 (a) Lenders are responsible for originating and servicing loans
                guaranteed by the Agency under this part in accordance with the
                provisions of this part and, for those guaranteed loans issued under
                one of the guaranteed loan programs identified in Sec. 5001.1(a)(1)
                through (4), with the provisions of the applicable guaranteed loan
                program. Any action or inaction on the part of the Agency does not
                relieve the lender of its responsibilities.
                 (b) Lenders can contract for services, but such contracting does
                not relieve a Lender from its responsibilities as identified in this
                part or, where applicable, in the applicable guaranteed loan program
                identified in Sec. 5001.1.
                 (c) If a lender fails to comply with the requirements of this part,
                the Agency may reduce any loss payment in accordance with the lender's
                agreement and loan note guarantee.
                Sec. 5001.7 Agency's special initiatives.
                 Applicants submitting applications that support the implementation
                of strategic or special initiatives are encouraged to review the
                Agency's
                [[Page 42527]]
                annual notice to determine if their projects are eligible for receiving
                priority for projects. These projects may also support the
                implementation of strategic economic development and community
                development plans on a multi-jurisdictional and multi-sectoral basis in
                accordance with section 6401 of the Agricultural Improvement Act of
                2018 (Pub. L. 115-334).
                Sec. 5001.8 Approvals, regulations, and forms.
                 (a) When Agency approval or concurrence is required, it must be in
                writing and must be obtained prior to the action for which approval or
                concurrence is required is taken.
                 (b) All references to statutes and regulations include any and all
                successor statutes and regulations.
                 (c) All references to forms include any and all predecessor and
                successor forms as specified by the Agency.
                 (d) Copies of all regulations and forms referenced in this part can
                be obtained through the Agency and from the Agency's website at https://www.rd.usda.gov/onerdguaranteed.
                Sec. 5001.9 Standards for financial information.
                 (a) All financial information (e.g., financial statements, balance
                sheets, financial projections, and income statements) must be prepared
                and submitted in accordance with accounting practices acceptable to the
                Agency. Such practices can include, but are not limited to, Generally
                Accepted Accounting Principles (GAAP) and the industry's standard
                accounting practice.
                 (b) For sole proprietorships and other situations where business
                assets are held personally, financial statements must be prepared using
                only the assets and liabilities directly attributable to the
                applicant's project. Assets, plus any improvements, must be valued at
                the lower of cost or market value.
                Sec. 5001.10 Federal Register notices and amendments.
                 Rural Development will issue annual Federal Register notices each
                year specifying the amount of funds available under this part for OneRD
                guarantees. Notices may also include the following information
                applicable to projects specifically funded under a particular notice:
                Maximum loan amounts, fees, and priority scoring for discretionary
                points.
                Sec. Sec. 5001.11-5001.99 [Reserved]
                Sec. 5001.100 OMB control number.
                 The report and recordkeeping requirements contained in this part
                have been approved by the Office of Management and Budget and have been
                assigned OMB control number 0572-0155.
                Subpart B--Eligibility Provisions
                Sec. 5001.101 Introduction
                 This subpart addresses the eligibility provisions for projects,
                borrowers, and lenders. This subpart also includes provisions for
                projects involving the purchase of cooperative stock or cooperative
                equity, the conversion of businesses to cooperatives or Employee Stock
                Ownership Plans (ESOP), and New Markets Tax Credits (NMTC).
                 (a) Project eligibility. Sections 5001.102 through 5001.108
                identify requirements for projects to be eligible to receive a loan
                guarantee under this part. Section 5001.115 identifies types of
                projects that are not eligible for a loan guarantee under this part.
                The Agency will not issue a loan guarantee under this part for any
                project that does not meet the applicable eligibility criteria as
                specified.
                 (b) Borrower eligibility. Section 5001.126 identifies the types of
                borrowers that are eligible to receive a loan guarantee for their
                projects under this part. The types of borrowers eligible to receive
                loan guarantees for their Projects vary based on the guaranteed loan
                program they are applying under and that guaranteed loan program's
                authorizing statute as set forth in Sec. 5001.1. Section 5001.127
                identifies conditions that would make an otherwise eligible borrower
                ineligible for receiving a loan guarantee for its project under this
                part.
                 (c) Lender eligibility. Section 5001.130 identifies the
                requirements for a lending entity to be an eligible lender under this
                part. Section 5001.131 addresses the lender's agreement, which each
                approved lender must execute with the Agency in order to originate and
                service guaranteed loans under this part. Section 5001.132 addresses
                provisions necessary for a lender to maintain its approved lender
                status.
                 (d) Cooperative stock/cooperative equity/conversions. Section
                5001.140 identifies requirements associated with issuing loan
                guarantees in connection with the purchase of cooperative stock,
                transferable stock shares, and cooperative equity and for the
                conversions of businesses to either cooperatives or Employee Stock
                Ownership Plans (ESOP).
                 (e) New Markets Tax Credits. Section 5001.141 identifies the
                requirements specific to guaranteed loans involving projects that
                include NMTC available under the NMTC program authorized by the U.S.
                Department of the Treasury.
                Sec. 5001.102 Project eligibility--general.
                 To be eligible for a loan guarantee under this part, a project must
                meet the requirements specified in this section and those in the
                applicable section in Sec. Sec. 5001.103 through 5001.108.
                 (a) Service area. For projects with a defined service area, the
                boundaries for the proposed service area must be chosen in such a way
                that no user or area will be excluded because of race, color, religion,
                sex, marital status, age, disability, or national origin. This does not
                preclude financing or constructing:
                 (1) Projects in phases (each phase must be financially sustainable
                without consideration of future phases) when it is not practical to
                finance or construct the entire project at one time; and
                 (2) Projects where it is not economically feasible to serve the
                entire service area, provided the economic feasibility is determined on
                the basis of the entire system or facility and not by considering the
                cost of separate extensions to, or parts thereof.
                 (b) Location. A project must be located in a State and meet the
                rural or rural area requirements of the applicable section in
                Sec. Sec. 5001.103 through 5001.108.
                 (c) Tax-exempt financing. The agency is prohibited from
                guaranteeing a project funded with tax-exempt financing. In cases where
                a project involves both tax-exempt and taxable financing, the portion
                of the project that involves taxable financing is eligible to receive a
                loan guarantee if that portion of the project is separate and distinct
                from the part that is financed by the tax-exempt obligation, and the
                guaranteed loan is not essential to issuance of the tax-exempt
                obligation.
                 (d) Debt refinancing. The Agency can guarantee loans for debt
                refinancing as described in paragraphs (d)(1) through (5) of this
                section. An eligible debt refinancing project is:
                 (1) Refinancing of debt on one or more loans owed to another
                creditor;
                 (2) Refinancing of debt owed to the applicant lender or any part
                thereof provided that the applicant lender debt being refinanced does
                not exceed 50 percent of the total use of funds in the new aggregated
                federally-guaranteed debt, the applicant lender debt being refinanced
                is in a current status for the past six months and the new guaranteed
                loan is providing better rates or repayment terms. The current status
                cannot be achieved by the lender forgiving the borrower's debt or by
                servicing actions that impact the borrower's repayment schedule; or
                 (3) Refinancing of debt owed directly to the Federal Government or
                that is federally-guaranteed, including any
                [[Page 42528]]
                guaranteed debt owed to the applicant lender, when a refinance of this
                debt is consistent with sections 333 and 306(a)(24)(C) of the
                Consolidated Farm and Rural Development Act (as amended by the
                Agricultural Act of 2018, Pub. L. 115-334). Such guaranteed debt shall
                not be included in the amount of applicant lender debt when calculating
                the maximum percentage of the total use of funds in the new guaranteed
                loan as stated in paragraph (d)(2) of this section.
                 (4) When the refinancing is in accordance with paragraphs (d)(1)
                through (3) of this section, the following requirements must be met:
                 (i) The Agency has determined that the project is viable and debt
                refinancing is necessary to improve cash flow;
                 (ii) The debt is reflected on the borrower's balance sheet and the
                original loan funds were used for project-eligible purposes.
                Refinancing of existing of lines of credit is considered an eligible
                purpose for debt refinancing in the B&I program;
                 (iii) For loans where debt refinancing is a majority purpose of the
                guaranteed loan, the borrower must demonstrate historical actual cash
                available to provide a total debt service coverage ratio of not less
                than 1.1 times its new debt service requirements or that the borrower's
                current financial performance demonstrates it has corrected or
                recovered from impacts or issues adversely effecting its past financial
                performance.
                 (5) Refinancing of debt incurred by a rural hospital to preserve
                access to a health service when the refinancing will meaningfully
                improve the financial position of the hospital. The debt can be
                existing Agency direct loan debt, Agency guaranteed debt, or another
                lender's debt. Loan requests to refinance rural hospital debt must
                demonstrate that the new amount of annual debt repayment on the debt
                being refinanced will be less than the existing amount of annual debt
                repayment and provide a total debt service coverage ratio of 1.1 to 1.0
                based on historical cash flow. To calculate the ratio, the new debt
                service amount will include annual capital expense reserve and annual
                debt repayment reserve requirements.
                Sec. 5001.103 Eligible CF projects and requirements.
                 For a CF projects to be eligible for a loan guarantee under this
                part, it must meet the criteria specified in Sec. 5001.102 and this
                section and be for a borrower eligible to submit an application for the
                project in accordance with Sec. 5001.126.
                 (a) Type of project. The project must be for the construction,
                enlargement, extension, or to otherwise improve an essential community
                facility. Essential community facilities include, but are not limited
                to:
                 (1) Health care facilities and services, including but not limited
                to hospitals;
                 (2) Fire, rescue, and public safety facilities and services;
                 (3) Community, public, social, educational, or cultural facilities
                or services;
                 (4) Transportation facilities such as streets, bridges, roads,
                ports, and airports;
                 (5) Utility projects such as hydroelectric generating facilities
                and related connecting systems and appurtenances; supplemental and
                supporting structures for other rural electrification or telephone
                systems including facilities such as headquarters, office buildings,
                storage facilities, and maintenance shops when not eligible for RUS
                financing; natural gas distribution systems; and recycling or transfer
                centers or stations.
                 (6) Telecommunications end-user equipment as it relates to public
                safety, medical, or educational telecommunications links when not
                eligible for RUS financing;
                 (7) Water infrastructure facilities such as levees, dams,
                reservoirs, inland waterways, canals, and irrigation systems;
                 (8) The purchase and installation of renewable energy systems for
                use by an essential community facility when:
                 (i) The renewable energy system will help defray the cost of
                facility operation over the life of the system;
                 (ii) The renewable energy system will improve the borrower's
                ability to provide the underlying essential community service, such as
                providing backup facilities or extending fuel supplies of backup
                facilities;
                 (iii) The borrower does not, and will not, have any contract to
                sell power generated by the renewable energy system; however, receiving
                credit for excess production is permitted;
                 (iv) The borrower does not anticipate, and has no plan for,
                generation of more energy than it will use in a consecutive 12-month
                period. The borrower may receive credits from a utility for energy
                production that happens to exceed facility usage during a particular
                month;
                 (v) The renewable energy system is commercially available with
                proven operating history specific to the proposed application; and
                 (vi) The borrower provides a technical report as part of the
                financial feasibility study in accordance with Sec. 5001.307(e) (1)
                and (2), as applicable of subpart D.
                 (9) Land acquisition and necessary site preparation including
                access ways and utility extensions to and throughout an industrial park
                site; and
                 (10) Community parks, community activity centers, and similar types
                of facilities that are an integral part of the orderly development of a
                community (meaning a development that is addressing a need in the
                community). Recreational components including, but not limited to,
                playground equipment of an otherwise non-recreational eligible
                community facility such as childcare, educational, or health care
                facilities are also eligible.
                 (b) Public use. All facilities financed under the provisions of
                this section will be for public use.
                 (1) To demonstrate availability for public use, the borrower may
                not restrict use of or membership to its facility or service based on
                race, color, religion, sex, national origin, age, disability, sexual
                orientation, or marital or familial status.
                 (i) However, 7 CFR 15a.215(b) provides that the membership
                practices of the Young Men's Christian Association (YMCA), the Young
                Women's Christian Association (YWCA), the Girl Scouts, the Boy Scouts,
                and Camp Fire Girls are exempt from open membership practices on the
                basis of sex.
                 (ii) If membership or admission is customarily required to access
                and use the facility or service, any individual who applies for
                membership or admission must be given membership, admitted, or be
                placed on a waiting list to join as space becomes available on a first-
                come, first-served basis. This does not preclude an essential community
                facility from having a threshold admission requirement, such as a
                college or university requiring their applicants to have a certain
                grade point average before they are considered for admission. The
                standard must be applied consistently to all applicants and be common
                to the industry.
                 (c) Project location. The project must be located in a rural area
                as defined in Sec. 5001.3 of this part, except that utility projects
                serving both rural and non-rural areas are eligible for a loan
                guarantee regardless of project location. For such utility projects,
                the Agency will guarantee the rural area portion of the project and
                only the portion of the project necessary to provide the essential
                services to rural areas. The part of the facility located in a non-
                rural area must be necessary to provide the essential services to rural
                areas. The availability of funds for CF projects is contingent on its
                rural area population
                [[Page 42529]]
                and the reservation of funds outlined in Sec. 5001.316(e).
                Sec. 5001.104 Eligible WWD projects and requirements.
                 For a WWD project to be eligible for a loan guarantee under this
                part, it must meet the criteria specified in Sec. 5001.102 and this
                section and be for a borrower eligible to submit an application for the
                project in accordance with Sec. 5001.120.
                 (a) Type of project. The project must be for one or more of the
                following:
                 (1) To construct, enlarge, extend, or otherwise improve the
                following types of facilities:
                 (i) Drinking water facilities;
                 (ii) Sanitary sewage facilities;
                 (iii) Solid waste disposal facilities; or
                 (iv) Storm wastewater disposal facilities.
                 (2) Purchase of equipment to operate, maintain, or protect
                facilities.
                 (b) Public use. The project must be for a public purpose.
                 (c) Project location. The project must be located in a rural area
                as defined in Sec. 5001.3 of this part. For utility service projects
                serving both rural and non-rural areas the Agency will guarantee only
                the portion of the project necessary to provide the essential services
                to rural areas.
                 (d) Service area. (1) The project must be installed to serve any
                user within the Service Area who desires service and can be feasibly
                and legally served.
                 (2) The lender must determine that, when feasible and legally
                possible, inequities within the project's service area for the same
                type service proposed will be remedied by the borrower on, or before,
                completion of the project. Inequities are defined as unjustified
                variations in availability, adequacy, or quality of service. User rate
                schedules for portions of existing systems or facilities that were
                developed under different financing, rates, terms, or conditions do not
                necessarily constitute inequities.
                Sec. 5001.105 Eligible B&I projects and requirements.
                 For a B&I project to be eligible for a loan guarantee under this
                part, it must meet the criteria specified in Sec. 5001.102 and this
                section and be for a borrower eligible to submit an application for the
                project in accordance with Sec. 5001.126.
                 (a) Purpose. The purpose of the project must be to improve,
                develop, or finance business, industry, and employment and improve the
                economic and environmental climate in rural communities; the
                conservation, development, and use of water for aquaculture purposes;
                and reducing reliance on nonrenewable energy resources through
                development and construction of solar energy and other renewable energy
                systems.
                 (b) Type of project. The project must be for one or more of the
                uses described in paragraphs (b)(1) through (22) of this section.
                 (1) Purchase and development of land, buildings, and associated
                infrastructure for commercial or industrial properties, including
                expansion or modernization.
                 (2) Business acquisitions, start-ups, and expansions if jobs will
                be created or saved. A business acquisition is considered the
                acquisition of an entire business, not a partial stock acquisition in a
                business. However, acquisition or change of ownership between existing
                owners is an eligible project when the remaining owner(s) held their
                ownership and actively participated in the business operation for at
                least the past 24 months and the selling owner will not retain any
                ownership interest in the business directly or indirectly including
                through other entities or trusts or property rights.
                 (3) Purchase and installation of machinery and equipment.
                 (4) Startup costs, working capital, inventory, and supplies in the
                form of a permanent working capital term loan.
                 (5) Pollution control and abatement.
                 (6) Purchase of membership, stocks, bonds, or debentures necessary
                to obtain a loan from a member owned lending institution provided the
                purchase is required for all their borrowers and is the minimum amount
                required.
                 (7) Agricultural production, when not eligible for Farm Service
                Agency (FSA) farm loan programs assistance and when it is part of an
                integrated business also involved in the processing of agricultural
                products. Any agricultural production considered for guaranteed loan
                financing must be owned, operated, and maintained by the business
                receiving the guaranteed loan.
                 (i) The agricultural production portion of any loan must not exceed
                50 percent of the total loan or $5 million, whichever is less.
                 (ii) This paragraph does not preclude financing the following types
                of businesses:
                 (A) Commercial nurseries engaged in the production of ornamental
                plants, 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;
                 (B) Forestry, which includes businesses primarily engaged in the
                operation of timber tracts, tree farms, forest nurseries, harvesting of
                forest products, and related activities, such as reforestation;
                 (C) The growing or harvesting of mushrooms;
                 (D) The growing of hydroponics;
                 (E) The boarding and/or training of animals;
                 (F) Commercial fishing; and
                 (G) Production of algae and aquaculture, including conservation,
                development, and utilization of water for aquaculture.
                 (8) Tourist and recreation facilities, including hotels, motels,
                bed and breakfast establishments, and resort trailer parks and
                campgrounds.
                 (9) Educational or training facilities.
                 (10) CF projects consistent with Sec. 5001.103 when not eligible
                for financing through Rural Housing Service or Community Facilities
                programs.
                 (11) Industries undergoing adjustment from terminated Federal
                agricultural price and income support programs or increased competition
                from foreign trade.
                 (12) Constructing or equipping facilities for lease to private
                businesses engaged in commercial or industrial operations.
                 (13) Financing for mixed-use properties involving both commercial
                business and residential space is authorized, provided that not less
                than 50 percent of the business's projected revenue will be generated
                from business use.
                 (14) Leasehold improvements when the lease contains no reverter
                clauses or restrictive clauses that would impair the use or value of
                the property as security for the loan. The term of the lease must be
                equal to or greater than the term of the loan, unless otherwise
                mitigated by the lender and approved by the Agency.
                 (15) Projects that process, distribute, aggregate, store, and/or
                market locally or regionally produced agricultural food products to
                support community development and farm and ranch income.
                 (i) Subject to each of the following, projects may be located in
                non-rural areas as well as in rural areas if the project:
                 (A) Expands or preserves the availability of staple food in
                underserved areas with moderate and low-income populations by
                maintaining or increasing the number of retail or institutional outlets
                that offer an assortment of healthy perishable foods and staple food
                items;
                 (B) The project will create or retain quality jobs for low-income
                residents of the community;
                 (C) A significant amount of the food is locally or regionally
                produced and sold; and
                 (D) Includes an appropriate agreement with retail and institutional
                clients to
                [[Page 42530]]
                inform consumers that they are purchasing or consuming locally or
                regionally produced agricultural food products.
                 (ii) The Agency will give funding priority to projects that provide
                a benefit to underserved communities in accordance with Sec.
                5001.318(d)(5) of this part.
                 (16) The purchase of cooperative stock by individual farmers or
                ranchers in a farmer or rancher cooperative or the purchase of
                transferable cooperative stock in accordance with Sec. 5001.140(a) and
                (b); or the purchase of stock in a business by employees forming an
                ESOP or worker cooperative in accordance with Sec. 5001.140(d).
                 (17) The purchase of preferred stock or similar equity issued by a
                cooperative or a loan to a fund that invests primarily in cooperatives
                in accordance with Sec. 5001.140(c).
                 (18) Loans to cooperatives:
                 (i) Guaranteed loans to eligible cooperative may be made in
                principal amounts up to $40 million if the project is located in a
                rural area, the cooperative facility being financed provides for the
                value-added processing of agricultural commodities, and the total
                amount of guaranteed loans exceeding $25 million does not exceed 10
                percent of the funds available for the fiscal year. Guaranteed loans in
                excess of $25 million in accordance with this provision may only be
                approved by the Secretary, whose authority may not be redelegated.
                 (ii) Guaranteed loans to eligible cooperative may also be made in
                non-rural Areas provided:
                 (A) The primary purpose of the guaranteed loan is for a facility to
                provide value-added processing for agricultural producers that are
                located within 80 miles of the facility;
                 (B) The borrower satisfactorily demonstrates that the primary
                benefit of the guaranteed loan will be to provide employment for rural
                residents;
                 (C) The principal amount of the guaranteed loan does not exceed $25
                million; and
                 (D) The total amount of guaranteed loans guaranteed under this
                paragraph does not exceed 10 percent of the funds available for the
                fiscal year.
                 (iii) An eligible cooperative may refinance an existing B&I
                guaranteed loan if the existing loan is current and performing, the
                existing loan is not and has not been in monetary default or the
                collateral has not been converted, and there is adequate security and
                collateral for the new guaranteed loan.
                 (19) Taxable corporate bonds when the bonds are fully amortizing
                and comply with all provisions of this part, bond proceeds were used
                for an eligible purpose in this part, and the lender as bond holder
                retains the percent of the bond in accordance with Sec. 5001.408(3)(i)
                of this part. The bonds must be fully secured with collateral in
                accordance with Sec. 5001.202(b)(4) of this part. The bonds must only
                provide for a trustee when the trustee is totally under the control of
                the lender. The bonds must provide no rights to bond holders other than
                the right to receive the payments due under the bond. For instance, the
                bonds must not provide for bond holders replacing the trustee or
                directing the trustee to take servicing actions, such as accelerating
                the bonds. In accordance with Sec. 5001.127(f), convertible bonds are
                not eligible under this paragraph due to the potential conflict of
                interest of a lender having an ownership interest in the borrower. An
                explanation of the type of bond and other bond stipulations must be
                attached to the bond.
                 (i) The bond issuer must obtain the services and opinion of an
                experienced bond counsel, who must present a legal opinion stating that
                the bonds are legal, valid, and binding obligations of the issuer and
                that the issuer has adhered to all applicable laws.
                 (ii) The bond holder (lender) must purchase all the bonds issued
                pursuant to the guaranteed and comply with all Agency regulations.
                There must be a bond purchase agreement between the issuer and the bond
                holder. The bond purchase agreement must contain similar language to
                that required in a loan agreement and must not conflict with this part.
                The bond holder is responsible for all servicing of the guaranteed loan
                evidenced by the bond, although the bond holder may contract for
                servicing assistance, including contracting with a trustee who remains
                under the lender's total control.
                 (20) Nursing homes and assisted living facilities where constant
                medical care is provided and available onsite to the residents.
                Independent living facilities are not eligible in accordance with Sec.
                5001.118(a).
                 (21) Development and construction of RES, including modification of
                existing systems that are commercially available and that are not
                otherwise eligible under REAP, or if funding is and not available in
                the eligible REAP.
                 (22) Integrated processing equipment and systems, such as
                biorefineries, renewable energy systems, and chemical manufacturing
                facilities, must utilize commercially available technology, equipment,
                and systems and demonstrate technical merit. The Agency will evaluate
                the following areas in making the technical merit determination:
                 (i) Qualifications of the project team;
                 (ii) Agreements and permits;
                 (iii) Resource assessment;
                 (iv) Design and engineering;
                 (v) Project development;
                 (vi) Equipment procurement and installation; and
                 (vii) Operations and maintenance.
                 (c) Facility location. The project must be located in a rural area,
                except for loans to cooperative in accordance with paragraph
                (b)(18)(ii) of this section and for loans to local foods projects in
                accordance with paragraph (b)(15)(i) of this section where such
                projects may also be located in non-rural areas. For an eligible
                project that located in both rural and non-rural areas, the Agency will
                guarantee only the amount necessary to finance that portion of the
                project located in the eligible rural area.
                 (d) Capital and equity. Borrowers are required to have sufficient
                capital or equity to mitigate the ongoing financial and operational
                risks of the business. Balance sheet equity will be determined based
                upon current and projected borrower financial statements. The following
                capital and equity requirements must be met at the time of lender's
                closing of the guaranteed loan.
                 (1) Existing businesses must meet one of the following
                requirements:
                 (i) A minimum of 10 percent balance sheet equity (including
                subordinated debt when subject to a standstill agreement), or a maximum
                debt-to-balance sheet equity ratio of 9 to 1, at loan closing;
                 (ii) A 10 percent or more of total eligible project costs, borrower
                investment of equity or other funds into the project including grants
                or subordinated debt when subject to a standstill agreement;
                 (iii) Balance sheet equity includes owner-contributed capital of
                ten percent or more of total fixed assets (net total fixed assets plus
                depreciation.)
                 (2) New businesses with sales contract(s) with proceeds in an
                amount adequate to meet debt service and the term of the sales
                contract(s) are at least equal to the term of the guaranteed loan, and
                subject to Agency acceptance of the credit worthiness of the
                counterparty, the borrower must meet one of the following requirements:
                 (i) A minimum of 10 percent balance sheet equity (including
                subordinated debt when subject to a standstill agreement), or a maximum
                debt-to-balance sheet equity ratio of 9 to 1 at loan closing; or
                 (ii) Borrower investment of equity or other funds (including
                subordinated debt when subject to a standstill agreement and grants)
                into the project in
                [[Page 42531]]
                an amount of 10 percent or more of total eligible project cost;
                 (3) New businesses with a project involving construction and when
                the lender will request the loan note guarantee prior to completion of
                construction must meet one of the following requirements:
                 (i) A minimum of 25 percent balance sheet equity at guaranteed loan
                closing; or
                 (ii) Borrower investment of equity or other funds into the project
                in an amount of 25 percent or more of total eligible project cost;
                 (4) All other borrowers that are new businesses must meet one of
                the following requirements:
                 (i) A minimum of 20 percent balance sheet equity, or a maximum
                debt-to-equity ratio of 4 to 1, at guaranteed loan closing, or;
                 (ii) Borrower investment of equity or other funds into the project
                in an amount of 25 percent or more of total eligible project cost;
                 (5) Variances in capital and equity requirements:
                 (i) Increases. The Agency may increase the capital or equity
                requirement specified under paragraphs (d)(1) through (4) of this
                section for guaranteed loans the Agency determines carry a higher risk.
                In determining whether a project or guaranteed loan carries a higher
                risk, the Agency will consider the current status of the industry,
                concentration of the industry in the Agency's portfolio, collateral
                coverage, value of personal or corporate guarantees, cash flow, and
                contractual relationships with suppliers and buyers; credit rating of
                the borrower; and the strength of the feasibility study and experience
                of management. The Agency may also increase the capital or equity
                requirement for new businesses using integrated processing equipment
                and systems such as biorefineries, renewable energy systems, chemical
                manufacturing facilities, and businesses producing new products to sell
                into new and emerging markets.
                 (ii) Reductions. The Agency may reduce the minimum equity
                requirement for an existing business when personal or corporate
                guarantees are obtained in accordance with Sec. 5001.204 of this part;
                and all pro forma and historical financial statements indicate the
                business to be financed meets or exceeds the median quartile (as
                identified in the Risk Management Association's Annual Statement
                Studies or similar publication) for the current ratio, quick ratio,
                debt-to-worth ratio, and debt service coverage ratio.
                 (6) Certification: The lender must certify that, as of the date the
                guaranteed Loan was closed, its credit analysis indicated that the
                borrower had sufficient capital or equity to mitigate the financial and
                operational risks of the business, and that the borrower met the
                minimum equity required by the Agency in its conditional commitment, or
                that the minimum borrower capital contribution toward project costs, as
                applicable and required by the Agency, was met. A copy of the
                borrower's loan closing balance sheet must be included with the
                lender's certification.
                 Table 1 to Sec. 5001.105(d)--Capital Equity Requirements Summary
                ----------------------------------------------------------------------------------------------------------------
                 Borrower must meet one of the following at the time of the
                 closing of the guaranteed loan:
                 -----------------------------------------------------------------
                 Balance sheet equity
                 Borrower Borrower investment includes owner
                 Percent balance as percent of total contributed capital
                 sheet equity: eligible project as percentage of
                 cost: total fixed assets:
                
                ----------------------------------------------------------------------------------------------------------------
                Existing Business............................. >=10 >=10 >=10
                Borrowers that are new businesses with sales >=10 >=10 N/A
                 contract(s) adequate to meet debt service and
                 the term of the sales contract(s) are at
                 least equal to the term of the guaranteed
                 loan.........................................
                Borrowers that are new businesses for a >=25 >=25 N/A
                 project involving construction and the lender
                 will request the loan note guarantee prior to
                 completion of construction...................
                All other borrowers that are new businesses... >=20 >=25 N/A
                ----------------------------------------------------------------------------------------------------------------
                Sec. 5001.106 Eligible REAP--Renewable Energy System (RES) projects
                and requirements.
                 For a REAP RES Project to be eligible for a loan guarantee under
                this part, it must meet the criteria specified in Sec. 5001.102(a)
                through (c) and in paragraphs (a) through (e) of this section and be
                for a borrower eligible to submit an application for the project in
                accordance with Sec. 5001.126. If taxable bonds are utilized as debt
                instruments the provisions of Sec. 5001.105(b)(19) must be met.
                 (a) The project must be for--
                 (1) The purchase of a new or existing RES;
                 (2) The purchase of a refurbished RES; or
                 (3) The retrofitting of an existing RES.
                 (4) For the purposes of this section, only those hydroelectric
                sources with a rated power of 30 megawatts or less are an eligible RES.
                 (b) The RES project must use commercially available technology.
                 (c) The RES project must be located in a rural area unless the
                borrower is an agricultural producer and the application supports the
                production, processing, vertical integration, or marketing of
                agricultural products. If the agricultural producer's operation is in a
                non-rural area, then the application can only be for RES components
                that are:
                 (1) Directly related to, and their use and purpose is limited to
                the agricultural production operation, such as vertically integrated
                operations; and
                 (2) Part of and co-located with the agricultural production
                operation.
                 (d) Where a residence is closely associated with an agricultural
                operation or rural small business to be served by the RES project, 50
                percent or more of the energy to be generated by the RES project must
                be used by the agricultural operation or rural small business. This
                provision must be documented with the application and can be
                demonstrated using either of the methods identified in paragraphs
                (d)(1) and (2) of this section.
                 (1) Provide a renewable energy site assessment or other
                documentation and calculations that demonstrate based on historical
                energy use that 50 percent or more of the energy to be produced by the
                RES project will be used in the agricultural operation or rural small
                business. This includes documentation on historical residential energy
                use. The
                [[Page 42532]]
                Agency may request additional data to determine residential versus
                business or agricultural operation usage. The actual percentage of
                energy determined to benefit the rural small business or agricultural
                operation will be the basis to determine eligible project costs.
                 (2) The borrower may install or elect to conditionalize funding
                upon the installation of a device (such as a second meter) that results
                in 100 percent of the energy generated by the RES Project to be used
                only by the agricultural operation or rural small business.
                 (e) The RES project must have technical merit. The Agency will use
                the information provided in the technical report submitted with the
                application (see Sec. 5001.307(e) of this part) to determine if the
                project has technical merit. In making this determination, the Agency
                may engage the services of other Government agencies or other
                recognized industry experts in the applicable technology field, at its
                discretion, to evaluate the technical report.
                 (1) Technical report areas. When making its technical merit
                determination, the Agency will evaluate the technical report using the
                areas specified in paragraphs (e)(1)(i) through (iii) of this section
                as applicable.
                 (i) RES projects with total project costs of $80,000 or less. For
                these projects, the Agency will evaluate the following areas in making
                the technical merit determination:
                 (A) Project description;
                 (B) Resource assessment;
                 (C) Project economic assessment; and
                 (D) Qualifications of key service providers.
                 (ii) RES projects with total project costs of less than $200,000,
                but more than $80,000. For these projects, the Agency will evaluate the
                following areas in making the technical merit determination:
                 (A) Project description;
                 (B) Resource assessment;
                 (C) Project economic assessment;
                 (D) Project construction and equipment; and
                 (E) Qualifications of key service providers.
                 (iii) RES projects with total project costs of $200,000 and
                greater. For these projects, the Agency will evaluate the following
                areas in making the technical merit determination:
                 (A) Qualifications of the project team;
                 (B) Agreements and permits;
                 (C) Resource assessment;
                 (D) Design and engineering;
                 (E) Project development;
                 (F) Equipment procurement and installation; and
                 (G) Operations and maintenance.
                 (2) Pass/pass with conditions/fail assignments. The Agency will
                assign each area of the technical report, as specified in paragraph
                (e)(1) of this section, a ``pass,'' ``pass with conditions,'' or
                ``fail.'' An area will receive a ``pass'' if the information provided
                for the area has no weaknesses and meets or exceeds any requirements
                specified for the area. An area will receive a ``pass with conditions''
                if the information provided for the area has minor weaknesses which
                could be conditioned and reasonably resolved by the borrower.
                Otherwise, if the information provided for the area is conclusively
                deemed to be a major weakness, the area will receive a fail.
                 (3) Determination. The Agency will compile the results for each
                area of the technical report to determine if the Project has technical
                merit.
                 (i) A project whose technical report receives a ``pass'' in each of
                the applicable areas will be considered to have ``technical merit.''
                 (ii) A project whose technical report receives a ``pass with
                conditions'' in one or more the applicable areas will be considered to
                have ``conditional technical merit.''
                 (iii) A project whose technical report receives a ``fail'' in any
                one area will be considered to be ``without technical merit.''
                 (4) Further processing of applications. A project that is
                determined to have ``technical merit'' or ``conditional technical
                merit'' is eligible for further consideration for funding. Projects
                with ``conditional technical merit'' would be subject to funding
                conditions that would need to be met to ensure full technical merit
                prior to completion of the project. A project that is determined to be
                ``without technical merit'' is not eligible to compete for funding.
                Sec. 5001.107 REAP--Energy Efficiency Improvement (EEI) projects and
                requirements.
                 For a REAP EEI project to be eligible for a loan guarantee under
                this part, it must meet the criteria specified in Sec. 5001.102(a)
                through (c) and also specified in paragraphs (a) through (d) of this
                section and be for a borrower eligible to submit an application for the
                project in accordance with Sec. 5001.126. If taxable bonds are
                utilized as debt instruments the provisions of Sec. 5001.105(b)(19)
                must be met.
                 (a) The EEI project must use less energy on an annual basis than
                the original building and/or equipment that it will improve or replace
                as demonstrated in an energy Assessment or energy Audit as applicable.
                 (1) If the project's total project cost is greater than $80,000,
                the energy assessment must be conducted by an energy auditor, an energy
                assessor, or an individual supervised by either an energy assessor or
                energy auditor. The final energy assessment must be validated and
                signed by the energy assessor, the energy auditor who conducted the
                energy assessment, or by the supervising energy assessor or energy
                auditor of the individual who conducted the assessment, as applicable.
                 (2) If the project's total project cost is $80,000 or less, the
                energy assessment may be conducted in accordance with paragraph (a)(1)
                of this section or by a person that has at least 3 years of experience
                and completed at least five energy assessments or energy audits on
                similar type projects. Eligible EEI include, but are not limited to:
                 (1) Efficiency improvements to existing RES; and
                 (2) Construction of a new building only when the new building is
                used for the same purpose as the existing building and if, based on an
                energy assessment or energy audit, as applicable, it is more cost
                effective to construct a new building that will use less energy on
                annual basis than to improve the energy efficiency of the existing
                building.
                 (b) The EEI project must be for a commercially available
                technology.
                 (c) The EEI project must be located in a rural area unless the
                borrower is an agricultural producer and the Application supports the
                production, processing, vertical integration, or marketing of
                agricultural products. If the agricultural producer's operation is in a
                non-rural area, then the application can be for only EEI components
                that are:
                 (1) Directly related to and have a use and purpose limited to an
                agricultural production operation such as vertically integrated
                operations; and
                 (2) Part of and co-located within the agricultural production
                operation.
                 (d) The EEI project must have technical merit. The Agency will use
                the information provided in the technical report submitted with the
                application (see Sec. 5001.307(e)) to determine whether the project
                has technical merit. In making this determination, the Agency may, at
                its discretion, engage the services of other Government agencies or
                other recognized industry experts in the applicable technology field to
                evaluate and rate the technical report.
                 (1) Technical report areas. When making its technical merit
                determination, the Agency will evaluate the technical report using the
                areas
                [[Page 42533]]
                specified in paragraphs (d)(1)(i) and (ii) of this section as
                applicable.
                 (i) EEI project with total project costs of $80,000 or less. For
                these projects, the Agency will evaluate the following areas to
                determine the technical merit:
                 (A) Project description;
                 (B) Qualifications of EEI provider(s); and
                 (C) Energy assessment (or energy audit if applicable).
                 (ii) EEI projects with total project costs of greater than $80,000.
                For these projects, the Agency will evaluate the following areas to
                determine the technical merit:
                 (A) Project information;
                 (B) Energy assessment (or energy audit as applicable); and
                 (C) Qualifications of the contractor or installers.
                 (2) Pass/pass with conditions/fail assignments. The Agency will
                assign each area of the technical report, as specified in paragraph
                (d)(1) of this section, a ``pass,'' ``pass with conditions,'' or
                ``fail'' according to provisions of Sec. 5001.106(e)(2).
                 (3) Determination. The Agency will compile the results for each
                area of the technical report to determine if the project has technical
                merit in accordance with provisions of Sec. 5001.106(e)(3).
                 (4) Further processing of applications. Projects will be further
                processed in accordance with provisions of Sec. 5001.106(e)(4).
                Sec. 5001.108 Eligible REAP--Energy Efficient Equipment and Systems
                (EEE) projects and requirements.
                 For a REAP EEE project to be eligible for a loan guarantee under
                this part, it must meet the criteria specified in Sec. 5001.102(a)
                through (c) and in paragraphs (a) through (d) of this section and be
                for a borrower that is an agricultural producer eligible to submit an
                application for the project in accordance with Sec. 5001.126. If the
                borrower plans to use taxable bonds as debt instruments the provision
                Sec. 5001.105(b)(19) must be met.
                 (a) The project must be for the purchase and installation of energy
                efficient equipment or systems for agricultural production or
                processing that exceed the following standards:
                 (1) Energy efficiency building codes, if available;
                 (2) Federal or State energy efficiency standards, if available; and
                 (3) Other energy efficiency standards determined appropriate by the
                Secretary.
                 (i) If no codes or standards described in such subparagraph apply
                to the energy efficient equipment or system to be purchased or
                installed pursuant to such subparagraph, the Secretary shall require,
                to the maximum extent practicable, such equipment or systems to meet
                the same efficiency measurements as the most efficient available
                equipment or system in the market; and
                 (ii) The Secretary shall not provide such a loan guarantee for the
                purchase or installation of any energy efficient equipment or system
                unless more than one type of such equipment or system is available in
                the market.
                 (b) The EEE project must be for commercially available technology.
                 (c) The EEE project must have technical merit as certified by the
                vendor/installer. An application that does not include said
                certification will be deemed incomplete and therefore is not eligible
                to compete for funding.
                Sec. Sec. 5001.109-5001.114 [Reserved]
                Sec. 5001.115 Ineligible projects--general.
                 The Agency will not issue a loan guarantee under this part for any
                of the projects identified in this section, unless otherwise noted. The
                following are ineligible projects for the CF, WWD, B&I and REAP
                programs:
                 (a) Any investment or arbitrage, or any speculative real estate
                investment other than cooperative stock, transferable stock,
                cooperative equity in accordance with Sec. 5001.140 and NMTC projects
                in accordance with Sec. 5001.141.
                 (b) Golf courses and golf course infrastructure, including par-3
                and executive golf courses; racetracks or facilities for the conduct of
                races by animals, professional or amateur drivers or jockeys; for-
                profit zoos or safaris; and publicly-owned or non-profit amusement
                parks, water parks, and similar recreational type facilities inherently
                commercial in nature and primarily used for recreational purposes.
                 (c) Motion pictures and theatrical productions.
                 (d) Funding of political or lobbying activities.
                 (e) Guaranteeing loans made by other Federal agencies, lines of
                credit, or lease payments.
                 (f) Projects that the Agency determines create, directly or
                indirectly, a conflict of interest.
                 (g) Properties to be used for primarily commercial rental when the
                borrower has no control over tenants and services offered, except for
                industrial-site infrastructure development.
                 (h) Projects that utilize technology, equipment, or systems that
                are not commercially available.
                 (i) Projects that will violate the requirements of 7 CFR part 1970,
                or any statutes or Executive Orders regarding environmental
                requirements.
                 (j) Projects used primarily for the purpose of housing Federal,
                State, or quasi-Federal agencies, unless it is typical of the area for
                communities to provide this space.
                 (k) Community antenna television and radio services or facilities.
                 (l) Telephone systems.
                 (m) New combined sanitary and storm water sewer facilities.
                 (n) Owner-occupied housing or self-storage facilities.
                 (o) Loans on which the interest is excludable from income under
                current or a successor statute of the Internal Revenue Code. Funds
                generated through the issuance of tax-exempt obligations cannot be used
                to purchase the guaranteed portion of any Agency guaranteed loan and an
                Agency guaranteed loan cannot serve as collateral for a tax-exempt
                issue.
                 (p) Residential EEI projects.
                 (q) Except as provided in Sec. 5001.106(d), residential RES
                projects.
                 (r) Loans supporting inherently religious activities, such as
                worship, religious instruction, proselytization, or to pay costs
                associated with acquisition, construction, or rehabilitation of
                structures for inherently religious activities, including the financing
                of multi-purpose facilities where religious activities will be among
                the activities conducted. However, religious organizations may
                participate in projects eligible for funding under section 306(a)(24)
                of the Consolidated Farm and Rural Development Act, 7 U.S.C.
                1926(a)(24), provided they do not use Agency assistance for inherently
                religious activities in accordance with 7 CFR part 16, ``Equal
                Opportunity for Religious Organizations.''
                Sec. 5001.116 Ineligible CF projects.
                 The following are ineligible projects for the CF program only:
                 (a) For industrial park sites, the financing of on-site utility
                systems or business and industrial buildings.
                 (b) Inherently commercial enterprises: This type of project is
                typically operated by a private enterprise with an essential
                characteristic to produce profits. This term does not include projects
                operated by private enterprises on a not-for-profit basis that provide
                education, childcare, geriatric care, or health care to rural
                communities. Inherently commercial enterprises include but are not
                limited to grocery stores; television and radio services or facilities;
                that portion of a water and/or waste disposal facility normally
                provided by a business or industrial user; and telecommunication
                facilities or services, including
                [[Page 42534]]
                broadband or fiber network services that do not meet the requirements
                of Sec. 5001.103(a)(6);
                 (c) Projects where construction is completed prior to filing an
                application with the Agency. This restriction applies to construction
                completed by or for the borrower and does not preclude the purchase or
                acquisition of a building constructed by an independent third party or
                refinancing of debt in accordance with Sec. 5001.102(d).
                 (d) Projects where the borrower acts to circumvent the regulations
                provided in this subpart, causing the borrower or project being
                eligible when, previously, the borrower or project was ineligible.
                 (e) Projects involving the purchase of existing facilities in which
                the transaction's purpose is to primarily retire the debt of the seller
                in order for the seller to continue to use the facility at a lower
                cost.
                Sec. 5001.117 Ineligible WWD projects
                 The following are ineligible projects for the WWD programs only:
                 (a) That portion of a project normally provided by a business or
                industrial user, such as wastewater pretreatment.
                 (b) Provided the existing borrower has the capacity to provide
                adequate service to their service territory, guaranteed loan funds may
                not be used to take away customers or service areas of existing USDA
                WWD Program direct or guaranteed loan borrowers. The requirements and
                limitations of 7 U.S.C. 1926(b) only apply to this section.
                 (c) Projects where the borrower acts to circumvent the regulations
                provided in this subpart, causing the borrower or project being
                eligible when, previously, the borrower or project was ineligible.
                 (d) Projects involving the purchase of existing facilities in which
                the transaction's purpose is to primarily retire the debt of the seller
                in order for the seller to continue to use the facility at a lower
                cost.
                Sec. 5001.118 Ineligible B&I projects
                 The following are ineligible projects for the B&I program only:
                 (a) The financing of timeshares, residential trailer parks,
                apartments, duplexes, or other residential housing where the primary
                purpose is independent housing except as authorized in Sec.
                5001.105(b)(8), or housing development sites except as authorized in
                Sec. 5001.105(b)(1).
                 (b) Projects eligible for funding under B&I that are in excess of
                $1 million that would either:
                 (1) Likely result in the transfer of jobs from one area to another
                and increase direct employment by more than 50 employees. However, this
                limitation is not to be construed to prohibit assistance for the
                expansion of an existing business entity through the establishment of a
                new branch, affiliate, or subsidiary of such entity if the
                establishment of such branch, affiliate, or subsidiary will not result
                in an increase in unemployment in the area of original location or in
                any other area where such entity conducts business operations. An
                exception is when there is reason to believe that such branch,
                affiliate, or subsidiary is being established with the intention of
                closing down the operations of the existing business entity in the area
                or its original location or in any other area where it conducts such
                operations; or
                 (2) Increase direct employment by more than 50 employees, which is
                calculated to or likely to result in an increase in the production of
                goods, materials, commodities, or the availability of services or
                facilities in the area when there is not sufficient demand for such
                goods, materials, commodities, services, or facilities to employ the
                efficient capacity of existing competitive commercial or industrial
                enterprises, unless such financial or other assistance will not have an
                adverse effect upon existing competitive enterprises in the area.
                 (3) The financing of timeshares, residential trailer parks,
                apartments, duplexes, or other residential housing where the primary
                purpose is independent housing except as authorized in Sec.
                5001.105(b)(8), or housing development sites except as authorized in
                Sec. 5001.105(b)(1).
                Sec. 5001.119 Ineligible REAP projects.
                 Owner occupied bed and breakfasts are ineligible projects in the
                REAP program.
                Sec. 5001.120 [Reserved]
                Sec. 5001.121 Eligible uses of loan funds.
                 Guaranteed loan funds can only be used for the items specified in
                this section.
                 (a) CF projects. Guaranteed loan funds for an essential CF project
                receiving a loan guarantee under Sec. 5001.1 may be used to pay the
                expenses identified in paragraphs (a)(1) through (3) of this section.
                 (1) When necessary to ensure the successful operation or protection
                of the project authorized in Sec. 5001.103, subpart B:
                 (i) Costs for the construction or relocation of public buildings,
                roads, bridges, fences, utilities, or to make other public
                improvements; and
                 (ii) Costs for the relocation of private buildings, roads, bridges,
                fences, or utilities, and other private improvements.
                 (2) To pay the cost of conduit, such as pipe, tube, or tile for
                protecting electric wires or cables, and its installation in
                conjunction with financing facilities authorized in Sec. 5001.103,
                subpart B, when the cost of the conduit is less than 25 percent of the
                total project cost. The Borrower must be the owner of the conduit. The
                conduit must be installed at the time of project construction and must
                be for public use.
                 (3) When necessary as part of a guaranteed loan to finance a
                project:
                 (i) Guarantee fees, as determined under Sec. 5001.454;
                 (ii) Lender fees, as provided in Sec. 5001.403;
                 (iii) Professional service fees and charges provided the Agency
                agrees that the amounts are reasonable and customary in the area;
                 (iv) Interest on guaranteed loans until the facility is self-
                supporting, but not for more than three years; interest on guaranteed
                loans secured by general obligation bonds until tax revenues are
                available for payment, but not for more than two years; and interest on
                interim financing;
                 (v) Costs of acquiring interests in land, rights (e.g., water
                rights, leases, and permits), rights-of-way, and other evidence of land
                or water control necessary for development of the project;
                 (vi) Costs of purchasing or renting equipment necessary to install,
                maintain, extend, protect, operate, or utilize facilities;
                 (vii) Obligations for construction worked performed prior to filing
                an Application with the Agency. Construction work must not be started
                (and obligations for such work or materials must not be incurred)
                before the conditional commitment is issued. If there are compelling
                reasons for proceeding with construction before the conditional
                commitment is issued, lenders may request Agency approval to pay such
                obligations and not jeopardize receipt of a loan guarantee from the
                Agency. Such request must comply with the following conditions:
                 (A) Provide conclusive evidence that the contract was entered into
                without intent to circumvent the Agency regulations, including but not
                limited to 7 CFR part 1970;
                 (B) Modify the outstanding contract to conform to the provisions of
                this part. When this is not possible, modifications will be made to the
                extent practicable and, at a minimum, the contract must comply with all
                State and local laws and regulations as well as statutory
                [[Page 42535]]
                requirements and Executive Orders related to the Agency guarantee.
                 (C) When construction is complete and it is impracticable to modify
                the contract, the borrower and lender must provide a certification by
                an engineer or architect that any construction performed complies fully
                with the plans and specifications; and
                 (D) The borrower and the contractor must have complied with all
                statutory and Executive Order requirements related to the Agency
                guarantee for construction already performed even though the
                requirements may not have been included in the contract documents.
                 (b) WWD projects. Guaranteed loan funds for a WWD project receiving
                a loan guarantee may be used to pay the expenses identified in
                paragraphs (b)(1) through (10) of this section when they are a
                necessary part of the WWD project.
                 (1) Guarantee fees, as determined under Sec. 5001.454.
                 (2) Lender fees, as provided in Sec. 5001.403.
                 (3) Professional service fees and charges provided the Agency
                approves the amounts as reasonable and customary in the area.
                 (4) Costs of acquiring interests in land, rights (e.g., water
                rights, leases, permits, rights-of-way), and other evidence of land or
                water control or protection necessary for development of the project.
                 (5) Purchasing or renting equipment necessary to install, maintain,
                extend, protect, or operate the project.
                 (6) Cost of additional borrower labor and other expenses necessary
                to install and extend service.
                 (7) Interest incurred during construction in conjunction with
                interim financing.
                 (8) Initial operating expenses, including interest, for a period
                ordinarily not exceeding one year when the borrower is unable to pay
                such expenses.
                 (9) The purchase of existing facilities when it is necessary either
                to improve service or prevent the loss of service.
                 (10) Purchase of equipment to operate, maintain, or protect
                facilities.
                 (c) B&I projects. Guaranteed loan funds for a project receiving a
                loan guarantee under Sec. 5001.1 may be used to pay the expenses
                identified in paragraphs (c)(1) through (12) of this section.
                 (1) Purchase and development of land, buildings, and associated
                infrastructure for commercial or industrial properties, including
                expansion or modernization.
                 (2) Business acquisitions provided that jobs will be created or
                saved. A business acquisition is considered the acquisition of an
                entire business, not a partial stock acquisition in a business.
                However, acquisition or change of ownership between existing owners is
                an eligible use of loan funds when the remaining owner(s) held their
                ownership and actively participated in the business operation for at
                least the past 24 months and the selling owner will not retain any
                ownership interest in the business directly or indirectly including
                through other entities or trusts or property rights.
                 (3) Purchase of machinery and equipment.
                 (4) Startup costs, working capital, inventory, and supplies in the
                form of a permanent working capital term loan.
                 (5) Pollution control and abatement.
                 (6) Takeout of interim financing: Guaranteeing a loan that provides
                for permanent, long-term financing after project completion to pay off
                a lender's interim loan will not be treated as debt refinancing
                provided that the lender submits a complete preapplication or
                application that proposes such interim financing prior to closing the
                interim loan. The borrower must take no action until the conclusion of
                the environmental review process prior to any action that would have an
                adverse effect on the environment or limit the choices of any
                reasonable alternatives to be considered by the Agency.
                 (7) Guarantee fees, as determined under Sec. 5001.454.
                 (8) Lender fees, as determined under Sec. 5001.403.
                 (9) Professional service fees and charges, provided the Agency
                approves the amounts as reasonable and customary in the area and fees
                for construction permits and licenses.
                 (10) Feasibility studies and business plans.
                 (11) Interest (including interest on interim financing) during the
                period before the first principal payment becomes due or when the
                facility becomes income producing, whichever is earlier.
                 (d) REAP projects. Guaranteed loan funds for a Project receiving a
                loan guarantee under REAP may be used to pay the expenses associated
                with the items identified in paragraphs (d)(1) through (14) of this
                section, provided such items are directly related to and their use and
                purpose are limited to the RES, EEI, or EEE project. The expenses
                associated with the items specified in paragraphs (d)(8) through (11)
                of this section cannot exceed more than ten percent of the loan amount.
                 (1) Purchase and installation of new or refurbished RES.
                 (2) Purchase and installation of energy efficient equipment and
                systems by eligible agricultural producers.
                 (3) Construction, retrofitting, replacement, and improvements.
                 (4) Energy efficiency improvements (EEI) identified by vendor/
                installer certification or in the applicable energy assessment or
                energy audit.
                 (5) Fees for construction permits and licenses, including fees
                required by an interconnection agreement.
                 (6) Guarantee fees, as determined under Sec. 5001.454.
                 (7) Professional service fees and charges related to the project,
                which may include non-deferred developer fees, provided the Agency
                approves the amounts as reasonable and customary in the area.
                 (8) Lender fees, as provided in Sec. 5001.403.
                 (9) Working capital, which may include interest on interim
                financing, debt reserves, rent payments, insurance, and packaging and
                origination fees.
                 (10) Land acquisition.
                 (11) Energy assessments, energy audits, technical reports, business
                plans, and feasibility studies completed and acceptable to the Agency,
                provided no portion was financed by any other Federal or State grant or
                payment assistance, including, but not limited to, a REAP energy audit
                or renewable energy development assistance grant.
                 (12) For an eligible RES project in which a residence is closely
                associated with the rural small business or agricultural operation, the
                installation of a second meter to separate the residence from the
                portion of the project that benefits the rural small business or
                agricultural operation, as applicable.
                 (13) Land, building, and equipment for an existing RES.
                 (14) Refinancing outstanding debt when--
                 (i) The original purpose of the debt being refinanced meets the
                eligible project requirements of Sec. 5001.106, Sec. 5001.107 or
                Sec. 5001.108, as applicable, of this part;
                 (ii) Debt being refinanced does not exceed 50 percent of the total
                use of funds in the new REAP guaranteed loan;
                 (iii) Refinancing is necessary to improve cash flow and viability
                of the project;
                 (iv) At the time of application, the loan being refinanced has been
                current for at least the past 6 months (unless such status is achieved
                by the lender forgiving the borrower's debt); and
                 (v) The lender is providing better rates or terms for the loan
                being refinanced.
                Sec. 5001.122 Ineligible uses of loan funds.
                 Projects that receive a loan guarantee under this part cannot use
                the
                [[Page 42536]]
                guaranteed loan funds for those expenses or purposes identified in
                paragraphs (a) through (m) of this section and for any other item the
                Agency identifies in accordance with Sec. 5001.10.
                 (a) Payment in excess of actual costs (e.g., profit, overhead,
                indirect costs, and wages to owners) incurred by the contractor or
                other service provider on a contract or agreement that has been entered
                into at less than an arm's length transaction or has a potential for a
                conflict of interest. In situations where there is common ownership or
                an otherwise closely-related company is being paid to do construction
                or installation work for a borrower, only documented costs associated
                with the construction or installation can be paid with guaranteed loan
                funds and cannot include any profit or wages to such related Person.
                 (b) Notwithstanding Sec. 5001.102(d), payment on any other Federal
                loan or debt.
                 (c) Payment of a Federal judgment, State or Federal tax lien, or
                other debt owed to the United States.
                 (d) Loan finder or broker fees.
                 (e) Refinancing debt that is owned by a loan packager or broker or
                their respective affiliates.
                 (f) For loans as specified under CF and WWD, costs normally
                provided by a business or industrial user (e.g., wastewater
                pretreatment).
                 (g) For loans as specified under CF and WWD, any portion of the
                cost of a project that does not serve a rural area.
                 (h) Rental for the use of equipment or machinery owned by the
                borrower.
                 (i) For purposes not directly related to operating and maintaining
                the project.
                 (j) Any EEI not identified in the applicable energy assessment or
                energy audit.
                 (k) Agricultural tillage equipment, used equipment, and vehicles
                are ineligible for loans as specified under REAP.
                 (l) Guaranteed loan funds cannot be used for the distribution or
                payment to a member of the immediate family of an owner, partner,
                stockholder, or member of the borrower except for a change in ownership
                of the business where the selling person does not retain an ownership
                interest and the Agency determines in writing the price paid to be
                reasonable based upon an independent appraisal. This prohibition does
                not apply to transfers of ownership for ESOPs or worker cooperatives,
                to cooperatives where the cooperative pays the member for product or
                services, or where member stock is transferred among members of the
                cooperative in accordance with Sec. 5001.140 of this part.
                 (m) For loans as specified under CF, initial operating expenses,
                short-term, working capital or operating loans; or annual recurring
                costs, including purchases or rentals that are generally considered to
                be operating and maintenance expenses.
                Sec. Sec. 5001.123-125 [Reserved]
                Sec. 5001.126 Borrower eligibility.
                 To be eligible for a loan guarantee under this part, a Borrower
                must meet the requirements specified in this section at the time of
                each guaranteed loan's approval and through issuance of the loan note
                guarantee. A borrower must meet the eligibility requirements specified
                in paragraph (a) of this section and in paragraphs (b) through (e), as
                applicable, of this section.
                 (a) Legal authority and responsibility. The borrower must have, or
                obtain before issuance of the loan note guarantee, the legal authority
                necessary to construct, operate, and maintain the proposed Project and
                services and to obtain, give security for, and repay the proposed loan.
                 (1) Operating, maintaining, and managing the facility. The borrower
                is responsible for operating, maintaining, and managing the facility
                and providing for its continued availability and use. The borrower will
                retain this responsibility even though the facility may be operated,
                maintained, or managed by a third party under contract, management
                agreement, or written lease. Leases may be used for certain projects
                when they are the only feasible way to provide the service or facility,
                are the customary practice to provide such service or facility within
                the industry or in the State, and provide for the borrower's management
                control of the Project. Contracts, management agreements, or written
                leases must not contain options or other provisions for transfer of
                ownership unless approved by the Agency.
                 (2) Co-borrowers. Except for CF guaranteed loans in situations
                where any business or affiliate is dependent upon another's operations
                and are effectively one business or rely upon one another for loan
                repayment, they must be co-borrowers, unless waived by the Agency in
                writing when the Agency determines that adequate justification exists
                to not require the entities to be co-borrowers. Both co-borrowers must
                meet all requirements in this part. If the operating entity is truly
                independent and not reliant on another operation to remain viable or
                repay the debt, the Agency will allow one entity to be the sole
                borrower.
                 (b) CF loan guarantees. To be eligible for a loan guarantee under
                CF, a borrower must meet the requirements identified in paragraphs
                (b)(1) through (4) of this section.
                 (1) Borrower type. Be a public body, including Indian tribes on
                Federal and State reservations and other federally recognized Indian
                tribes, or non-profit organization.
                 (i) Borrowers organized under the applicable State or Tribal for-
                profit corporation laws may be eligible if they will be operated on a
                not-for-profit basis for the duration of the guaranteed loan;
                 (ii) Single member not-for-profit corporations or not-for-profit
                corporations owned or substantially controlled by other corporations or
                associations are eligible if the member organization has significant
                ties with the project service area and provides a payment guarantee.
                 (2) Significant ties. Have significant ties with the project
                service area (not applicable to public bodies and federally recognized
                Tribes) as evidenced by the following:
                 (i) Association with or control by a public body or bodies; or
                 (ii) Broadly based membership and controlled primarily by members
                residing in the project service area. Membership must be open without
                regard to race, color, religion, national origin, sex, age, disability,
                sexual orientation, or marital or familial status.
                 (3) Credit elsewhere. In accordance with 7 U.S.C. 1983, certify in
                writing, subject to Agency verification, that the borrower is unable to
                finance the proposed project from their own resources or through
                commercial credit without a guarantee, at reasonable rates and terms. A
                loan guarantee will not be provided to borrowers who are able to obtain
                sufficient credit elsewhere to finance project costs at reasonable
                rates and terms, taking into consideration prevailing private and
                cooperative rates and terms in the community in or near where the
                borrower resides, for loans for similar purposes and periods of time,
                or to borrowers who are able to finance project costs from their own
                resources.
                 (4) Evidence of significant community support. In accordance with 7
                U.S.C. 2009h, the evidence shall be in the form of a certification of
                support for the project from each affected local government. The
                certification of support should include sufficient information to
                determine that the essential community facility will provide needed
                services to the community or communities and will have no adverse
                impact on other community facilities providing similar services.
                [[Page 42537]]
                 (c) WWD loan guarantees. To be eligible for a loan guarantee under
                WWD, a borrower must meet the requirements identified in paragraphs
                (c)(1) through (3) of this section.
                 (1) Borrower type. Be a public body, including Indian tribes on
                Federal and State reservations and other Federally recognized Indian
                tribes, or non-profit organization.
                 (2) Credit elsewhere. In accordance with 7 U.S.C. 1983, certify in
                writing, subject to Agency verification, that the borrower is unable to
                finance the proposed project from their own resources or through
                commercial credit without a guarantee, at reasonable rates and terms. A
                loan guarantee will not be provided to borrowers who are able to obtain
                sufficient credit elsewhere to finance project costs at reasonable
                rates and terms, taking into consideration prevailing private and
                cooperative rates and terms in the community in or near where the
                borrower resides, for loans for similar purposes and periods of time,
                or to borrowers who are able to finance project costs from their own
                resources.
                 (3) Evidence of significant community support. In accordance with 7
                U.S.C. 2009h, the evidence shall be in the form of a certification of
                support for the project from each affected local government.
                 (d) B&I loan guarantees. To be eligible for a loan guarantee under
                B&I, a borrower must meet the requirements specified in paragraphs
                (d)(1) through (4), as applicable, of this section.
                 (1) The borrower must be:
                 (i) A cooperative, corporation, partnership, or other legal entity
                organized and operated on a profit or nonprofit basis;
                 (ii) An Indian Tribe
                 (iii) A Public Body; or
                 (iv) An individual.
                 (2) The borrower must be engaged in or proposing to engage in a
                business. A business may include manufacturing, wholesaling, retailing,
                providing services, or other activities that will provide employment or
                improve the economic or environmental climate in rural communities.
                 (3) A borrower who is an individual must:
                 (i) Be a citizen of the United States;
                 (ii) Reside in the United States after being legally admitted for
                permanent residence and must provide a permanent green card as evidence
                of eligibility; or
                 (iii) Be a citizen or resident of the Republic of Palau, the
                Federated States of Micronesia, American Samoa, Guam, the Commonwealth
                of the Northern Mariana Islands, and the Republic of the Marshall
                Islands.
                 (4) A borrower must demonstrate, to the Agency's satisfaction, that
                guaranteed loan funds will remain in the United States and the Project
                being financed will primarily create new or save existing jobs for
                rural U.S. residents.
                 (e) REAP loan guarantees. To be eligible for a loan guarantee under
                REAP, a borrower must meet the requirements specified in paragraphs
                (e)(1) through (4) of this section.
                 (1) Type of borrower. The borrower must be either an agricultural
                producer or a rural small business.
                 (2) Ownership. The borrower must:
                 (i) Own the project; and
                 (ii) Own or control the site for the project at the time of
                application and for the term of the guaranteed loan.
                 (3) Revenues and expenses. The borrower must have available or be
                able to demonstrate, at the time of application, satisfactory sources
                of revenue in an amount sufficient to provide for the operation,
                management, maintenance, and any debt service of the project for the
                term of the loan. In addition, the borrower must control the revenues
                and expenses of the project, including its operation and maintenance.
                The borrower may employ a qualified consultant under contract to manage
                revenues and expenses of the project and its operation and/or
                maintenance.
                 (4) Matching funds. The borrower must demonstrate evidence of
                injection of matching funds in the project of not less than 25 percent
                of total eligible project costs. Passive third-party contributions are
                acceptable as matching funds for RES projects, including those raised
                from the sale of Federal tax credits.
                Sec. 5001.127 Borrower ineligibility conditions.
                 A potential borrower is ineligible for a guaranteed loan under this
                part as identified in paragraphs (a) through (g) of this section. The
                borrower remains ineligible until the condition causing ineligibility
                is resolved.
                 (a) An entity is ineligible if any of the conditions identified in
                paragraphs (a)(1) through (4) of this section applies to the borrower,
                any owner with more than 20 percent ownership interest in the borrower,
                or any owner with control of the borrower.
                 (1) There is an outstanding judgment obtained by the U.S. in a
                Federal Court (other than U.S. Tax Court).
                 (2) Delinquency on the payment of Federal income taxes.
                 (3) Delinquency on a Federal Debt.
                 (4) Debarment or suspension from receiving Federal assistance.
                 (b) An entity is ineligible if it derives more than 15 percent of
                its annual gross revenue (including any lease income from space or
                machines) from gambling activity, excluding State-authorized lottery
                proceeds or Tribal-authorized gaming proceeds, as approved by the
                Agency, conducted for the purpose of raising funds for the approved
                project.
                 (c) An entity is ineligible if it derives income from activities of
                a prurient sexual nature.
                 (d) An entity is ineligible if it derives income from illegal
                drugs, drug paraphernalia, or any other illegal product or activity as
                defined under Federal statute.
                 (e) An entity is ineligible under B&I projects if it is a
                charitable or fraternal organization. For purposes of this section, an
                organization that derives more than 10 percent of its annual gross
                revenue from tax deductible charitable donations, based on historical
                financial statements, is considered a charitable organization. Fees for
                services rendered or that are otherwise ineligible for deduction under
                the Internal Revenue Code are not considered tax deductible charitable
                donations.
                 (f) An entity is ineligible if its lender or any of the lender's
                officers has an ownership interest in the borrower or is an officer or
                director of the borrower with management control or where the borrower
                or any of its officers, directors, stockholders, or other owners have
                more than a five percent ownership Interest in the lender. Any of the
                lender's directors, stockholders, or other owners that are officers,
                directors, stockholders, or other owners of the borrower must be
                recused from any decision-making process associated with the guaranteed
                loan.
                 (g) A borrower is ineligible if it is a lending institution,
                investment institution, or insurance company with exception of REAP or
                projects for a fund that invests primarily in cooperatives in
                accordance with Sec. 5001.140, and NMTC projects in accordance with
                Sec. 5001.141.
                Sec. Sec. 5001.128-5001.129 [Reserved]
                Sec. 5001.130 Lender eligibility requirements.
                 To become a lender under this part, the lending entity must meet
                the requirements specified in paragraphs (a) through (d) of this
                section, as applicable, and become an approved participant in the
                Agency's electronic system. Paragraph (e) of this section contains
                provisions associated with lenders that have already been approved by
                the Agency under one of the guaranteed loan programs identified in
                Sec. 5001.1of this part. If not yet an Agency-approved lender, the
                lending entity must include with the application
                [[Page 42538]]
                a request for lender approval in accordance with this section.
                 (a) General. The lending entity must:
                 (1) Be domiciled in a State;
                 (2) Not be debarred or suspended by the Federal Government or be an
                affiliated person of such entity that was suspended or debarred;
                 (3) Inform the Agency if it is under a consent order, or similar
                constraint, from a Federal or State agency. The Agency will evaluate
                the lending entity's eligibility on a case-by-case basis, and assess
                the risk of loss posed by the consent order or similar constraint, as
                applicable;
                 (4) Maintain written standards of conduct covering conflicts of
                interest; and
                 (5) Maintain internal audit and management control systems to
                evaluate and monitor the overall quality of its loan origination and
                servicing activities.
                 (b) Regulated lending entities. Regulated lending entities
                identified in paragraphs (b)(1) through (9) of this section are
                eligible to receive a loan guarantee under this part without
                documentation to the Agency provided they are subject to supervision
                and credit examination by the applicable agency of the United States or
                a State, or were created specifically by State statute and operate
                under the direct supervision of a State government authority.
                 (1) Federal and State chartered banks.
                 (2) Farm Credit Bank of the Federal Land Bank and other Farm Credit
                System institutions with direct lending authority to make loans of the
                type guaranteed under this part.
                 (3) Bank for Cooperatives.
                 (4) Savings and Loan Associations.
                 (5) Savings banks.
                 (6) Mortgage companies that are part of a bank-holding company.
                 (7) The National Rural Utilities Cooperative Finance Corporation.
                 (8) Credit unions.
                 (9) State Bond Banks or State Bond Pools.
                 (c) Non-regulated lending entities. The Agency may approve a
                lending entity that does not meet the criteria of paragraph (b) of this
                section to become a lender for a period up to five years. Non-regulated
                lending entity eligibility will expire on January 31 of the fifth year
                after the date of Agency approval.
                 (1) Conditions. When the lending entity is a multi-tiered entity,
                the Agency will consider the lending entity in its entirety. In order
                to be approved as a lender, a non-regulated lending entity must:
                 (i) Have the legal authority to operate a lending program;
                 (ii) Be a financially sound institution that has a record of
                successfully originating at least five commercial loans annually
                totaling at least $1 million for each of the last three years, with the
                lending entity's commercial loan portfolio in last five years not
                exceeding:
                 (A) Six percent average delinquency of all commercial loans, and
                 (B) Three percent in commercial loan losses (based on the original
                principal loan amount);
                 (iii) Have and agree to maintain balance sheet equity in accordance
                with Section 5001.105(d) of this part of at least 10 percent of assets
                and sufficient funds available to disburse the guaranteed loans it
                proposes to approve within the first six months of being approved as a
                Lender;
                 (iv) Have and agree to maintain a line of credit issued by a
                regulated lending entity that is acceptable to the Agency;
                 (v) Agree to establish and maintain an Agency-approved loan loss
                reserve equal to one percent reserve of the unguaranteed portion of all
                guaranteed loans plus an amount equal to the identified anticipated
                losses.
                 (vi) Have written policies and procedures to ensure that internal
                credit controls provide adequate loan making and servicing guidance
                that adheres to Federal and State fair lending practices;
                 (vii) Document and assure to the Agency that the lending entity has
                the capacity to fulfill the lender functions and responsibilities
                identified in this part, including, but not limited to Sec. Sec.
                5001.201, 5001.202, 5001.207, and 5001.501.
                 (2) Written request. A non-regulated lending entity that seeks to
                become a lender must submit a written request to the Agency including
                the following information:
                 (i) The request must clearly define the multiple-entity
                organizational and control structure with a listing of each entity
                under its control, including any Community Development Entity (CDE)
                that may request guaranteed loans under Sec. 5001.141. In addition,
                the non-regulated lending entity must include each such sub-entity in
                their audited financial statements, commercial loan portfolio, and
                commercial loan performance statistics;
                 (ii) Bylaws;
                 (iii) Audited financial statements for the most recent fiscal year
                that evidences the required balance sheet equity and that the lending
                entity has available resources to successfully meet its
                responsibilities;
                 (iv) Auditor's most recent management letter and management's
                response;
                 (v) An interim financial statement dated within 90 days of the
                written request, if applicable;
                 (vi) A copy of any license, charter, State statute, or other third-
                party evidence of authority to engage in the proposed guaranteed loan
                making and servicing activities. If licensing by the State is not
                required, an attorney's opinion stating that licensing is not required
                and that the lending entity has the legal authority to engage in the
                proposed guaranteed loan making and servicing activities must be
                submitted;
                 (vii) The lender's loan classification scale including their loan
                classification criteria;
                 (viii) Information on lending experience, including--
                 (A) Length of time in the lending business;
                 (B) Range and volume of lending and servicing activities for the
                last five years, including a list of the industries for which it has
                provided financing;
                 (C) Status of its loan portfolio, including a summary of loans in
                the portfolio by current loan classification code, a list of any loans
                restructured or charged off in the previous five years, and the
                calculated delinquency and loss rates as outlined in paragraph
                (c)(1)(ii) of this section;
                 (D) Lending experience of management and loan officers, including
                staff organizational chart, including names and titles for senior
                staff;
                 (E) Largest sources of funds for the last five years and source of
                funds for the proposed guaranteed loans;
                 (F) Office location(s) and proposed lending area(s);
                 (G) An estimate of the number, size, and type of applications the
                lending entity will develop over the next six months; and
                 (H) Proposed Interest rate structure and loan fees, including any
                loan origination, loan preparation, and servicing fees.
                 (ix) Description of programs, financial, and non-financial products
                and services.
                 (x) Its lending policies including underwriting standards, credit
                analysis policies and procedures, and its problem credit management
                policies and procedures.
                 (xi) A third-party external loan origination, lending portfolio,
                and management review acceptable to the Agency conducted in the
                previous two years, or a copy of a credit examination less than two
                years old conducted under an approved credit examination criterion such
                as CAMELS.
                 (3) Approval or disapproval. The Agency will notify the non-
                regulated
                [[Page 42539]]
                lending entity whether its request to become a lender is approved or
                rejected. If the Agency rejects the request, the Agency will include in
                the notification the reason(s) for the rejection.
                 (4) Renewals. To maintain its status as an approved lender, the
                non-regulated lending entity must submit a request to the Agency for
                renewal of its approved lender status at least 60 calendar days prior
                to the expiration of the existing lender's agreement to be assured of a
                timely renewal. The lender must provide in this written request the
                information specified in paragraphs (c)(2)(i) and (iii) through (v) of
                this section; and
                 (i) A written update of any change in the persons designated to
                process and service Agency guaranteed loans or change in the operating
                methods used in the processing and servicing of loans since the
                original or last renewal date of lender status.
                 (ii) A description of how the lender is complying with each of the
                required criteria described in (c)(1) of this section and Sec.
                5001.501.
                 (iii) A new executed lender's agreement.
                 (iv) The Agency may require lenders with limited guaranteed loan
                activity over the previous five years, or a lender that has originated
                guaranteed loans with servicing issues or a loss to the Agency, to
                resubmit all the information required by paragraph (c)(2) of this
                section.
                 (d) Non-regulated lending entities serving tribal trust lands. The
                Agency may approve a lending entity serving tribal trust lands that
                does not meet the criteria of paragraph (b) or (c) of this section to
                become a lender for a five-year period. A non-regulated lending entity
                approved to originate and service guaranteed loans for projects located
                only on tribal trust lands is restricted to such areas. To make and
                service guaranteed loans not on tribal trust lands, the lending entity
                must meet the criteria of paragraph (b) or (c) of this section. When
                the lending entity is a multi-tiered entity, the Agency will consider
                the lending entity in its entirety for approval.
                 (1) Conditions. To be approved as a lender, a non-regulated lending
                entity serving only tribal trust lands must--
                 (i) Have the legal authority necessary to operate a lending program
                to borrowers located on tribal trust lands.
                 (ii) Meet the requirements of paragraph (c)(1) of this section, and
                prove to be a financially sound institution, as determined by the
                Agency, on a case by case basis, based on the Agency's risk assessment
                of the lending entity's capital, adequate liquidity, management
                capabilities, repayment ability, credit underwriting, balance sheet
                equity and other financial factors as determined appropriate. On a
                case-by-case basis, the Agency may reduce the loan origination
                requirements of paragraph (c)(1)(ii) of this section for lenders
                serving only projects located on tribal trust lands.
                 (2) Written request. A non-regulated lending entity serving tribal
                trust lands must submit a written request to the Agency that includes
                the following information:
                 (i) Documentation required by paragraph (c)(2) of this section;
                 (ii) Written certification that the lender intends to only
                originate guaranteed loans under the regulation for projects located in
                certain (or specified) tribal lands held in trust for tribes and for
                tribal members not in such tribal lands but are in their service area;
                 (iii) Bylaws; and
                 (iv) Lending experience of management and loan officers, including
                staff organizational chart, including names and titles for senior
                staff.
                 (3) Approval or disapproval. The Agency will notify the non-
                regulated lending entity servicing tribal trust land whether its
                request to become a lender is approved or rejected. If the Agency
                rejects the request, the Agency will include in the notification the
                reason(s) for the rejection.
                 (4) Renewals. To maintain its status as an approved lender, the
                non-regulated lending entity serving tribal trust land must submit a
                request to the Agency for renewal of its approved lender status at
                least 60 calendar days prior to the expiration of the existing lender's
                agreement to be assured of a timely renewal. The lender must provide in
                this written request the information specified in paragraphs (c)(2)(i)
                and (iii) through (v) of this section; and
                 (i) A written update of any change in the persons designated to
                process and service Agency guaranteed loans or change in the operating
                methods used in the processing and servicing of loans since the
                original or last renewal date of lender status.
                 (ii) A description of how the lender is complying with each of the
                required criteria described in (c)(1) of this section and Sec.
                5001.501.
                 (iii) A new executed lender's agreement.
                 (iv) The Agency may require lenders with limited guaranteed loan
                activity over the previous five years, or a lender that has originated
                guaranteed loans with servicing issues or a loss to the Agency, to
                resubmit all information required by paragraph (c)(2) of this section.
                 (e) Previously approved lenders. Lenders that have been previously
                approved by the Agency under one of the guaranteed loan programs
                identified in Sec. 5001.1(b)(1) through (4) of this part cannot
                originate new guaranteed loans after the effective date of this rule
                unless the lender is approved under the applicable conditions of
                paragraphs (a) through (d), as applicable, of this section.
                Sec. 5001.131 Lender's agreement.
                 When approved to participate as a lender under this part, the
                Lender must execute a lender's agreement before the Agency will issue a
                loan note guarantee. A new lender's agreement must be executed with any
                existing lender making new loans on or after October 1, 2020.
                Sec. 5001.132 Maintenance of approved lender status.
                 Continuation of approved lender status under this part is not
                automatic. Lenders may lose their approved lender status as described
                in paragraph (a) of this section. The Agency may also revoke a lender's
                status as an approved lender or debar the approved lender, as described
                in paragraph (b) of this section.
                 (a) Loss of approved lender status. A lender will lose its approved
                status if it--
                 (1) Fails to conform with the provisions of this part or the
                applicable guaranteed loan program identified in Sec. 5001.1 of this
                part;
                 (2) Has no outstanding guaranteed loans with the Agency for five
                consecutive years;
                 (3) A regulated lending entity fails to remain in good standing
                with its regulator;
                 (4) A non-regulated lending entity fails to renew its approval
                status 5 years from the date the Agency executes the lender's
                agreement.
                 (b) Revocation of approved status and debarment of lender. The
                Agency can revoke a lender's status as an approved lender at any time
                for cause as specified in the lender's agreement. A decision to revoke
                a lender's approved status will be made by the Agency and the lender
                will be notified in writing. Cause for revoking lender status includes,
                but is not necessarily limited to, the circumstances identified in
                paragraphs (b)(1) through (14) of this section.
                 (1) Guaranteed loans originated by the lender cause substantial
                financial loss to the Agency.
                 (2) Failure to maintain status as an approved lender under the
                applicable
                [[Page 42540]]
                regulations in effect when the lender obtained approved lender status.
                For lenders approved under this part, this means maintaining compliance
                with the requirements set forth in Sec. 5001.130.
                 (3) Conviction of the lender or any of its officers for criminal
                acts in connection with any loan transaction, whether or not the loan
                was guaranteed by the Agency.
                 (4) Violation of usury laws in connection with any loan transaction
                whether or not the loan was guaranteed by the Agency.
                 (5) Negligent loan origination.
                 (6) Knowingly submitting false information when requesting a loan
                guarantee or basing a loan guarantee request on information known to be
                false or which the lender should have known to be false.
                 (7) Failure to correct any Agency-cited deficiency in loan
                documents in a timely manner.
                 (8) Failure to provide for adequate construction planning and
                monitoring in connection with any guaranteed loan to ensure that the
                project will be completed with the available funds.
                 (9) Negligent loan servicing.
                 (10) Failure to obtain and maintain the required collateral for any
                guaranteed loan.
                 (11) Using guaranteed loan funds for purposes other than those
                specifically approved by the Agency in the conditional commitment or
                amendment thereof.
                 (12) Violation of any term of the lender's agreement.
                 (13) Failure to submit reports required by the Agency in a timely
                manner.
                 (14) Violation of applicable nondiscrimination laws, including, but
                not limited to, statutes, regulations, USDA Departmental Regulations,
                the USDA Non-Discrimination Statement, and the Equal Credit Opportunity
                Act. USDA's Non-Discrimination Statement is located on the Agency's
                website, see https://www.usda.gov/non-discrimination-statement. In
                addition to revoking the Lender's status, the Agency may debar a Lender
                in compliance with 2 CFR part 180.
                 (c) Servicing of outstanding loans. Any lender who loses its status
                as an approved Lender under any of the conditions identified in
                paragraph (a) or (b) of this section must reapply under the provisions
                of Sec. 5001.130 to be reinstated as an approved lender. A lender who
                loses its approved lender status must continue to service any
                outstanding guaranteed loans in conformance with the lender's agreement
                last in effect and the applicable regulation under which the lender
                became an approved lender. In addition, such lenders cannot submit
                requests for new loan guarantees.
                Sec. Sec. 5001.133-5001.139 [Reserved]
                Sec. 5001.140 Cooperative stock/cooperative equity.
                 Loan guarantees described in paragraphs (a) through (d) of this
                section are only available under B&I guaranteed loans.
                 (a) Cooperative stock purchase program. The Agency may guarantee
                loans for the purchase of cooperative stock by individual farmers or
                ranchers in a farmer or rancher cooperative established for the purpose
                of processing an agricultural commodity. The cooperative may contract
                for services to process agricultural commodities or otherwise process
                value-added agricultural products during the five-year period beginning
                on the operation startup date of the cooperative in order to provide
                adequate time for the planning and construction of the processing
                facility of the cooperative.
                 (1) The proceeds from the stock sale may be used to recapitalize,
                to develop a new processing facility or product line, or to expand an
                existing production facility. Guaranteed loan funds must remain in the
                cooperative from which stock was purchased, and the cooperative must
                not reinvest those funds into another entity.
                 (2) The maximum guaranteed loan amount is $600,000 and all
                applications will be processed in accordance with Sec. Sec. 5001.301
                through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as
                applicable.
                 (3) The maximum term of the guaranteed loan is seven years when the
                proceeds from the stock sale are used by the cooperative to
                recapitalize or are used for working capital. The maximum term
                allowable for final guaranteed loan maturity is limited to the
                justified useful life of the assets the cooperative purchases with the
                proceeds of the stock sale not to exceed 40 years or applicable State
                statutory limitations, whichever is less.
                 (4) The lender will, at a minimum, obtain a valid lien on the
                stock, an assignment of any patronage refund, and the ability to
                transfer the stock to another party, or any other right or ability
                necessary to liquidate and dispose of the collateral in the event of a
                default by the borrower.
                 (5) The lender must complete a written credit evaluation of each
                stock purchase loan and a complete credit evaluation of the cooperative
                prior to making its first stock purchase loan.
                 (6) The borrower may provide financial information in the manner
                that is generally required by commercial agricultural lenders.
                 (7) A feasibility study of the cooperative is required for startup
                cooperatives and may be required by the Agency for existing
                cooperatives when the cooperative's operations will be significantly
                affected by the proceeds that were generated from the stock sale.
                 (8) The Agency will conduct an appropriate environmental review on
                the processing facility and will not process individual applications
                for the purchase of stock until the environmental review on the
                cooperative processing facility is completed.
                 (b) Purchase of transferable stock shares. The Agency may also
                guarantee loans for the purchase of transferable stock shares of any
                type of existing cooperative, which would primarily involve new or
                incoming members. Such stock may provide delivery or some form of
                participation rights and may only be traded among cooperative members.
                 (1) The maximum loan amount is $600,000 and all applications will
                be processed in accordance with Sec. Sec. 5001.301 through 5001.303,
                5001.306, 5001.315, and 5001.318 of this part, as applicable.
                 (2) The maximum term of the loan is seven years.
                 (3) The lender will, at a minimum, obtain a valid lien on the
                stock, an assignment of any patronage refund, and the ability to
                transfer the stock to another party, or any other right or ability
                necessary to liquidate and dispose of the collateral in the event of a
                default by the borrower.
                 (4) The lender must complete a written credit evaluation of each
                stock purchase loan and a complete credit evaluation of the cooperative
                prior to making its first stock purchase loan.
                 (c) Cooperative equity security guarantees. The Agency may
                guarantee loans for the purchase of preferred stock or similar equity
                issued by a cooperative or may guarantee loans to a fund that invests
                primarily in cooperatives. In either case, the project must
                significantly benefit one or more entities eligible for assistance
                under B&I guaranteed loans.
                 (1) ``Similar equity'' is any special class of equity stock that is
                available for purchase by non-members and/or members and lacks voting
                and other governance rights.
                 (2) A fund that invests ``primarily'' in cooperatives is determined
                by its percentage share of investments in and loans to cooperatives. A
                fund portfolio must have at least 50 percent of its loans and
                investments in cooperatives to be
                [[Page 42541]]
                considered eligible for loan guarantees for the purchase of preferred
                stock or similar equity.
                 (3) The principal amount of the guaranteed loan cannot exceed $10
                million.
                 (4) The maximum term of the guaranteed loan is seven years when the
                proceeds are used by the cooperative for working capital and;
                 (i) In all other cases the maximum term of the guaranteed loan is
                equal to the lesser of the following but not exceeding 40 years:
                 (ii) The justified useful life of the funded project assets,
                 (iii) The maximum term under any applicable State statute; or
                 (iv) The specified holding period for redemption as stated by the
                stock offering.
                 (5) All borrowers purchasing preferred stock or similar equity must
                provide documentation of the terms of the offering that includes
                compliance with State and Federal securities laws and financial
                information about the issuer of the preferred stock to both the lender
                and the Agency.
                 (6) Issuer(s) of preferred stock must be a cooperative organization
                and must be able to issue preferred stock to the public that, if
                required, complies with State and Federal securities laws.
                 (7) The lender will, at a minimum, obtain a valid lien on the
                preferred stock, an assignment of any patronage refund, and the ability
                to transfer the stock to another party, or otherwise liquidate and
                dispose of the collateral in the event of a default by a borrower. For
                the purpose of recovering losses from guaranteed loan defaults, lenders
                may take ownership of all equities purchased with such loans, including
                additional shares derived from reinvestment of dividends.
                 (8) Shares of preferred stock that are purchased with guaranteed
                loan funds cannot be converted to common or voting stock.
                 (9) In the absence of adequate provisions for investors' rights to
                early redemption of preferred stock or similar equity, a borrower must
                request from a cooperative or fund issuing such equities a contingent
                waiver of the holding or redemption period in advance of share
                purchases. This contingent waiver provides that in the event a default
                by a borrower on a B&I guaranteed loan, the borrower waives any
                ownership rights in the stock, and the lender and Agency will then have
                the right to redeem the stock.
                 (10) Guaranteed loans for the purchase of preferred stock must be
                prepaid in the event a cooperative that issued the stock exercises an
                early redemption. If the cooperative enters into bankruptcy, to the
                extent the cooperative can redeem the preferred stock, the Borrower is
                required to repay the guaranteed loan from the redemption of the stock.
                 (d) Employee ownership succession. The Agency may guarantee loans
                for conversions of businesses to either cooperatives or ESOP within
                five years from the date of initial transfer of stock.
                 (1) The maximum loan amount is $600,000 and all applications will
                be processed in accordance with Sec. Sec. 5001.301 through 5001.303,
                5001.306, 5001.315, and 5001.318 of this part, as applicable.
                 (2) The maximum term is 10 years.
                 (3) The lender must, at a minimum, obtain a valid lien on the
                stock, an assignment of any patronage refund, and the ability to
                transfer the stock to another party, or otherwise liquidate and dispose
                of the collateral in the event of a default by a borrower.
                 (4) The lender must complete a written credit evaluation of each
                stock purchase loan and a complete credit evaluation of the cooperative
                or ESOP prior to making its first stock purchase loan.
                 (5) If a cooperative is organized, each selling owner becomes a
                member with special control rights to protect their stake in the
                business while a succession plan is implemented. At the completion of
                the stock transfer, selling owners may retain their membership in the
                cooperative provided that their control rights are the same as all
                other members. Any special covenants that selling owners may have held
                must be extinguished upon completion of the transfer.
                 (6) If an ESOP is organized for transferring ownership to
                employees, selling owner(s) may not retain ownership in the business
                after five years from the date of the initial transfer of stock.
                Sec. 5001.141 New markets tax credits.
                 The New Markets Tax Credit (NMTC) program is administered by the
                U.S. Department of the Treasury's (Treasury) Community Development
                Financial Institutions (CDFI) Fund with NMTC credits allocated to
                Treasury-certified Community Development Entities (CDEs) across the
                United States to make Qualified Equity Investments (QEIs) in low-income
                communities. NMTC related definitions and terms in this section are
                governed by section 45(D) of the Internal Revenue Code (26 U.S.C. 45D),
                and applicable Treasury regulations (26 CFR 1.45D-1). A CDE will
                generally establish a new subsidiary of a CDE (sub-CDE) for individual
                NMTC projects. Lenders and their borrowers with guaranteed loan
                Projects that include NMTC investments must comply with the provisions
                in this section. To be a lender for a guaranteed loan project that
                involves financing under the NMTC provisions, the lending entity must
                meet the applicable eligibility criteria in Sec. 5001.130. The Agency
                will not waive its servicing rights to a guaranteed loan or be a party
                to any forbearance agreement in conjunction with a NMTC project.
                 (a) Guaranteed Loans Directly to Qualified Active Low-Income
                Community Businesses (QALICB). (1) A lender that is CDE or sub-CDE
                under the direct control of a regulated lender or an approved non-
                regulated lender does not need to separately meet the requirements of
                Sec. 5001.130 to make a guaranteed loan directly to a qualified active
                low-income community business (QALICB).
                 (2) The provisions of Sec. 5001.121(c)(2) notwithstanding, a
                lender that is a CDE or sub-CDE may have an ownership interest in the
                borrower provided that each condition specified in paragraphs (a)(2)(i)
                through (iii) of this section is met.
                 (i) The lender does not have an ownership interest in the borrower
                prior to the application.
                 (ii) The lender does not take a controlling interest in the
                borrower.
                 (iii) The lender does not provide equity or take an ownership
                interest in a borrower at a level that would result in the lender
                owning 20 percent or more interest in the borrower.
                 (3) Notwithstanding Sec. 5001.115(f), a lender that is a CDE or
                sub-CDE taking an ownership interest in the borrower does not
                constitute a conflict of interest. The Agency will mitigate the
                potential for a conflict of interest by requiring appropriate loan
                covenants establishing, at a minimum, limitations on dividends and
                distributions of earnings in the loan agreement between the lender and
                borrower. The Agency will also ensure that the lender limits any
                waivers of loan covenants and future modifications of loan documents in
                compliance with this part.
                 (4) Guaranteed loans made by a lender directly to a QALICB must
                meet all other program and project eligibility requirements as
                specified in this part.
                 (5) For purposes of calculating borrower equity in compliance with
                Sec. 5001.105(d)(1), the CDE (or sub-CDE's) amount of the principal
                balance of the loan from NMTC investor funds that is subordinated to
                the guaranteed loan may be considered as equity.
                 (b) Guaranteed loans to a NMTC leveraged equity structure. Tax
                benefits
                [[Page 42542]]
                to a NMTC investor are based on the total amount of funds utilized in
                the project. The tax benefit calculation includes the sum of the
                investor's cash investment plus loan proceeds from a leveraged lender
                into a NMTC investor fund entity. The investor fund entity is generally
                a new entity established to make a qualified equity investment (QEI)
                into one or more CDEs or sub-CDEs to support a qualified low-income
                community investment (QLICI) to a QALICB. The investor fund entity,
                through its investment, has ownership rights in the sub-CDE that will
                be making secured QLICI loans to the QALICB. The provisions of Sec.
                5001.127(g) notwithstanding, either a leveraged lender entity lending
                to an investor fund entity, or an investor fund entity such as an
                investor partnership or investor limited liability corporation, may be
                an eligible borrower for a specific NMTC project as specified in
                paragraph (b)(1) of this section. For purposes of this section only,
                the stated term ``borrower'' in paragraphs (b)(1) through (13) of this
                section applies to both a leveraged lender entity or an investor fund
                entity as the guaranteed loan borrower in the NMTC project. Paragraphs
                (b)(2) through (13) of this section identify modifications to this part
                that apply when the eligible borrower is a leveraged lender entity or
                investor fund entity in a NMTC project.
                 (1) To be an eligible borrower using the leveraged equity structure
                of a NMTC project each condition identified in paragraphs (b)(1)(i)
                through (v) of this section must be met.
                 (i) The investor fund entity must be established for a single
                specific NMTC investment.
                 (ii) The lender is not an affiliate of the borrower.
                 (iii) When the borrower is a leveraged lender entity it must relend
                one hundred percent of the guaranteed loan funds to an investor fund
                entity. In all cases one hundred percent of the guaranteed loan funds
                are or will be invested by the investment fund entity in one or more
                sub-CDEs that will then be loaned directly to a QALICB through a direct
                tracing method, and such guaranteed loan funds are, or will be, used by
                the QALICB in accordance with the eligibility requirements in subpart B
                of this part. The QALICB's project must be the ultimate use of one
                hundred percent of the guaranteed loan funds.
                 (iv) The QALICB must meet the requirements of an eligible borrower
                as found in Sec. 5001.126.
                 (v) The sub-CDE operating agreement with the QALICB must include a
                provision that the guaranteed lender has approval rights with respect
                to any substantial loan servicing actions that may be taken by the sub-
                CDE regarding the collateral or repayment terms of their QLICI loans to
                the QALICB.
                 (2) The guaranteed loan amount and percentage of guarantee
                provisions found in Sec. Sec. 5001.406 and 5001.407 of this part,
                respectively, apply to the QALICB and not to the investor fund entity
                or leveraged lender entity, who would actually be the borrower as
                defined under this part.
                 (3) For purposes of calculating borrower equity in compliance with
                Sec. 5001.105(d)(1), the leveraged lender entity's note from the
                investor fund may be considered a tangible asset and when the lien
                associated with the sub-CDE's loan is subordinated, the principal
                balance of the sub-CDE's loan made to the QALICB from NMTC investor
                funds may be considered as equity.
                 (4) The loan terms found in Sec. 5001.402 of this part apply to
                both the borrower and the QALICB. The maturity and related payment
                schedule of the lender's guaranteed loan to the borrower must be no
                longer than the maturity and related payment schedule of the sub-CDE's
                loan to the QALICB. An Agency approved unequal or escalating schedule
                of principal and interest payments can be used for a NMTC loan. The
                lender may require additional principal repayment by a co-borrower,
                such as an owner or principal participant of the QALICB. The provisions
                of Sec. 5001.402(b)(3) notwithstanding, the Agency may consider
                interest-only payments by a borrower pursuant to an interest-only term
                not to exceed seven years on a loan made under an NMTC structure if the
                lender requires:
                 (i) A debt repayment reserve fund or sinking fund in an amount at
                least equal to the guaranteed loan's principal amortization that would
                have otherwise applied to the loan if equally amortized payments were
                collected during the seven year term; and
                 (ii) Such reserve funds or sinking funds are applied to the
                guaranteed loan as an additional payment of principal at the end of
                such interest-only term.
                 (5) Except for the collateral provisions, Sec. 5001.202(b)(4),
                Sec. 5001.202(b) of this part applies to both the lender's guaranteed
                loan to the borrower and the sub-CDE's loan to the QALICB. The
                collateral provisions found in Sec. 5001.202(b)(4) of this part apply
                only to the sub-CDE's loan to the QALICB.
                 (6) The personal, partnership and corporate guarantee provisions of
                Sec. 5001.204 of this part apply when the guaranteed loan borrower is
                a leveraged lender entity in a NMTC project. Guaranteed loans made
                directly to an investor fund entity as the borrower do not require a
                personal, partnership, or corporate guarantee from the investor fund
                entity's owner, who is the NMTC tax credit investor and considered a
                passive investor. The Agency shall obtain the personal, partnership or
                corporate guarantee from the QALICB ownership for a guaranteed loan to
                an investor fund entity in compliance with Sec. 5001.204, subject to
                the eligibility requirements of the NMTC program. The Agency may
                require additional personal, partnership or corporate guarantees if
                warranted by an Agency evaluation of potential financial risk.
                 (7) The insurance provisions of Sec. 5001.205(d) of this part
                apply only to the QALICB and the sub-CDE's secured loan to the QALICB.
                 (8) The financial report provisions of Section 5001.504 of this
                part apply to both the borrower and the QALICB.
                 (9) The application requirements found in subpart D to this part,
                as applicable, apply to both the borrower and the QALICB, including the
                application analysis and evaluation components of Sec. 5001.303. The
                Agency also requires submission of the loan terms and documents between
                the sub-CDE and QALICB. As part of the application completed by the
                lender, the documentation must include comparable industry information
                and a summary of the NMTC project's funding path and an explanation of
                the relationships between all parties in the NMTC transaction (an
                accompanying schematic is encouraged for complicated transactions).
                 (10) The environmental responsibilities specified in Sec. 5001.207
                of this part apply to the NMTC project.
                 (11) For any application that the Agency assigns a priority score,
                when assigning the priority score to a NMTC loan application, the
                Agency will score the project based on the entire NMTC structure and
                the QALICB's project as the ultimate use of guaranteed loan funds.
                 (12) The lender is responsible for ensuring that the NMTC project
                complies with the planning, performing, development and project
                monitoring provisions in Sec. 5001.205 of this part and the lender is
                also responsible for ensuring the NMTC project complies with all
                applicable Treasury NMTC requirements.
                 (13) Sections 5001.401 through 5001.408 of this part apply to both
                the borrower and the QALICB in a NMTC transaction.
                [[Page 42543]]
                Sec. Sec. 5001.142-5001.200 [Reserved]
                Subpart C--Orgination Provisions
                Sec. 5001.201 General origination requirements.
                 The lender is responsible for originating a guaranteed loan in
                accordance with the requirements of this part and in accordance with
                its internal origination policies and procedures to the extent they do
                not conflict with the requirements of this part. For each application,
                the lender must prepare a credit evaluation that is consistent with
                Agency standards found in this part. The Agency reserves the right to
                review the lender's credit evaluation and request additional
                information. Lender approval does not constitute Agency approval.
                Sec. 5001.202 Lender's credit evaluation
                 For each application, the lender must prepare a credit evaluation
                that is consistent with Agency standards found in this part.
                 (a) Lender's evaluation guidelines. The lender must conduct a
                credit evaluation using credit documentation procedures and
                underwriting processes that are consistent with generally accepted
                prudent lending practices for commercial, public and project financing
                and also consistent with the lender's own policies, procedures, and
                lending practices. The underwriting process must include a review of
                each loan for which a loan guarantee is being sought under this part.
                Applications involving affiliated entities must include a global credit
                evaluation and if applicable a global historical and projected debt
                service coverage analysis. Applications involving guarantor(s) must
                also include a global debt service coverage analysis of the
                guarantor(s) including the cash flow of the guarantor(s). In addition,
                the lender must review all applicable contracts, management agreements,
                and leases to determine they will not adversely affect either the
                borrower's repayment ability or the value of the collateral securing
                the guaranteed loan. The lender's evaluation must address any financial
                or other credit weaknesses of the borrower and project and discuss risk
                mitigation requirements imposed by the lender.
                 (b) Credit factors. In performing its credit evaluation, the lender
                must analyze all credit factors associated with each proposed
                guaranteed loan and apply its professional judgment to determine that
                the credit factors and guaranteed loan terms and conditions, considered
                in combination, ensure guaranteed loan repayment. Credit factors to be
                analyzed include, but are not necessarily limited to, those areas
                identified and defined in paragraphs (b)(1) through (5) of this
                section.
                 (1) Character. Those qualities that generally impel the borrower to
                meet its obligations as demonstrated by its credit history, including
                project and borrower debt structure and debt repayment ability. When
                applicable, an evaluation may include the character of persons with
                management control or a 20 percent or more ownership interest in the
                borrower. When the borrower's credit history or character is negative,
                the lender will provide satisfactory explanations to indicate that any
                problems are unlikely to recur. The ownership or membership structure
                of the project and borrower (including membership, sponsors, other
                equity investors), and the historical performance and experience of
                ownership and management specific to the project and industry. The
                historical performance and experience of any entities providing
                management or administrative services pursuant to contract should also
                be evaluated. For CF projects the commitment of the rural community or
                rural area to be served by the project should be evaluated. Borrower's
                management, and its for-profit, non-profit or governing board, as
                applicable, will be evaluated to ensure key management personnel are
                adequately trained and experienced.
                 (2) Capacity. A borrower's ability to produce sufficient cash to
                repay the guaranteed loan as agreed, including the feasibility and
                likelihood of the project and borrower to produce sufficient revenues
                to service the project's debt obligations over the life of the
                guaranteed loan and, when applicable, result in sufficient returns to
                investors to ensure successful repayment of the guaranteed loan. The
                lender shall address any economic safeguards of the project, including
                capital expenditure budgeting or reserve funds and other contingency
                reserve funds such as maintenance reserve funds or debt service reserve
                funds, intended to protect and safeguard the Agency and lender in the
                event of default. The lender must make all efforts to:
                 (i) Ensure that the borrower has adequate working capital,
                operating capital and reserves for capital expenditures, debt service,
                and maintenance as applicable; and
                 (ii) Structure or restructure debt so the borrower has adequate
                debt coverage, documenting as applicable the necessity of any debt
                refinancing. The evaluation will be supported by a cash flow analysis.
                 (3) Capital. The borrower must have the resources to adequately
                capitalize the project and demonstrate the ability to generate and
                maintain sufficient cash flow for its operations. The extent to which
                project costs are funded by the borrower in relation to project costs
                funded by the guaranteed loan or other Federal and non-Federal
                governmental assistance such as grants, tax credits, or other loans
                must be analyzed.
                 (4) Collateral. This criterion refers to the security pledged for
                the guaranteed loan. The lender is responsible for obtaining and
                maintaining proper and adequate collateral for the guaranteed loan. All
                collateral must secure the entire guaranteed loan. The lender is
                prohibited from taking separate collateral for the guaranteed and
                unguaranteed portions of the guaranteed loan or requiring compensating
                balances or certificates of deposit as a means of eliminating the
                lender's exposure on the unguaranteed portion of the guaranteed loan.
                Collateral can include, but is not limited to: General obligation
                bonds; revenue bonds; pledges of taxes or assessments; assignments of
                facility revenue and byproduct revenue, as well as other assets such as
                land, easements, rights-of-way, water rights, buildings, machinery,
                equipment, inventory; accounts receivable, other accounts, contracts,
                cash, assignments of leases and leasehold interests. Intangible assets
                may serve as collateral, provided they do not serve as primary
                collateral. For purposes of determining compliance with this
                requirement, leasehold improvements such as buildings and other
                structures on leased property are considered tangible assets and can
                serve as primary collateral. It is the lender's responsibility to
                obtain, document, file, record and take all actions necessary to
                properly perfect and maintain adequate collateral to protect the
                interests of the lender and the Agency.
                 (i) The lender must determine the market value of collateral as
                established by an appraisal in accordance with Sec. 5001.203.
                 (ii) The lender should discount collateral consistent with sound
                loan-to-discounted value practices which must be adequate to secure the
                guaranteed loan in accordance with this section. To assess collateral
                adequacy and appropriate levels of discounting, the lender should give
                consideration to the type, quality, location, marketability, and
                alternative uses of the collateral and the basis for the valuation of
                the collateral, e.g. collateral valued on a cost or replacement
                valuation or market or comparable sales valuation may require variance
                of discount factors. The lender must provide satisfactory justification
                of the discounts being used. Only under exceptional circumstances for
                WWD
                [[Page 42544]]
                projects with a loan guarantee under the provisions of Sec.
                5001.126(c) will the Agency guarantee a loan where the guaranteed loan
                amount is greater than the market value of the collateral.
                 (5) Conditions. This factor refers to the general business
                environment, including the regulatory environment affecting the
                business or industry, and status of the Borrower's industry.
                Consideration will be given to items listed below and, when applicable,
                the lender should submit supporting documentation (e.g., feasibility
                study, market study, preliminary architectural or engineering reports,
                etc.):
                 (i) Availability and depth of resource/feedstock market, strength
                and duration of purchase agreements and availability of substitutes;
                 (ii) Analysis of current and future market potential and off-take
                agreements, competition, type of project (service, product, or
                commodity based),
                 (iii) Energy infrastructure, availability and dependability,
                transportation and other infrastructure, and environmental
                considerations;
                 (iv) Technical feasibility including demonstrated performance of
                the technology and integrated processing equipment and systems,
                developer system performance guarantees, or technology insurance;
                 (v) Complexity of construction and completion, terms of
                construction contracts, experience and financial strength of the
                construction contractor or engineering, procurement, and construction
                (EPC) contractor;
                 (vi) Contracts and intellectual property rights, licenses, permits,
                and state and local regulations;
                 (vii) Creditworthiness of any counterparties, as applicable;
                 (viii) Industry-related public policy issues; and
                 (ix) Other criteria that the lender or Agency deems relevant to the
                project.
                 (6) Content. The credit evaluation must be sufficiently detailed to
                describe the proposed loan, business and project scenario and document
                that the proposed loan is sound. The credit evaluation must include:
                 (i) A written evaluation of each credit factor listed in paragraphs
                (b)(1) through (5) of this section and any additional factors as
                appropriate; and
                 (ii) A written evaluation of the feasibility study, business plan,
                technical report, and engineering and architectural reports, as
                applicable; and
                 (iii) Spreadsheets and analysis of the financial statements
                provided in accordance with Sec. 5001.303, with appropriate ratios and
                comparisons with industry standards (such as Dun & Bradstreet or the
                Risk Management Association). The spreadsheets should enable a reviewer
                to easily scan the data, spot trends, and make comparisons.
                 (iv) Financial projections deviating from historical financial
                performance must be substantiated and documented.
                 (v) Projected operational cash flow analysis on a quarterly basis
                for borrowers with seasonal cyclical cash flow.
                 (vi) Operational cash flow analysis on a quarterly basis from the
                current financial statements through start-up or occupancy for projects
                involving construction when lenders are requesting the loan note
                guarantee prior to completion of construction.
                Sec. 5001.203 Appraisals.
                 Appraisals of collateral are required as set forth in this section.
                The lender is responsible for ensuring that appraisal values adequately
                reflect the actual value of the collateral based on an arm's length
                transaction. Completed appraisals should be submitted when the
                application is filed. If the appraisal has not been completed when the
                application is filed, the lender must submit an estimated appraised
                value. Prior to the issuance of the loan note guarantee, the estimated
                value must be supported with an appraisal acceptable to the agency.
                 (a) Newly-acquired chattel. A bill of sale may be submitted to
                support the value of newly-acquired chattel.
                 (b) Existing chattel. The lender must obtain appraisal(s) for
                existing chattel collateral when its value exceeds $250,000.
                 (c) Real estate. The lender must obtain appraisals for real estate
                collateral when the value of the collateral exceeds $500,000 or the
                current limitation established under the Financial Institutions Reform,
                Recovery, and Enforcement Act (FIRREA) Public Law 101-73, 103 Stat. 183
                (1989). Real estate and chattels with a value below these thresholds
                must be evaluated in accordance with the lender's primary regulator's
                policies relating to appraisals and evaluations or, if the lender is
                not regulated, in accordance with normal banking practices and
                generally accepted methods of determining value.
                 (1) For construction projects, the lender must:
                 (i) Obtain the ``As Is'' market value and the ``prospective''
                market value as of the date of construction completion to determine the
                value of the real estate property, or
                 (ii) Obtain an income-based appraisal as of the date of completion
                to determine the value of revenues to be generated by the real estate.
                 (d) Appraisal standards. (1) Each real estate appraisal must be
                conducted by an independent qualified appraiser in accordance with the
                USPAP or successor standards. All real estate appraisals must meet the
                requirements contained in the FIRREA, and the appropriate guidelines
                contained in Standards 1 and 2 of the USPAP and be performed by a State
                Certified General Appraiser licensed in the state in which the real
                estate is located.
                 (2) Chattel appraisals must be conducted by an independent
                qualified appraiser and must be based on industry recognized standards
                and reflect the age, condition, and remaining useful life of the
                equipment.
                 (e) Interagency appraisal and evaluations guidelines.
                Notwithstanding any exemption that may exist for transactions
                guaranteed by a Federal Government agency, all appraisals obtained by
                the lender under this part must conform to the interagency appraisal
                and evaluations guidelines established by the lender's primary Federal
                or State regulator, if applicable.
                 (f) Environmental considerations. When the Agency will take a lien
                on real property, the real estate appraisals must include consideration
                of the potential effects from a release of hazardous substances or
                petroleum products or other environmental hazards on the market value
                of the collateral, as determined in accordance with the appropriate
                ASTM International Real Estate Assessment and Management environmental
                standards.
                 (g) Appraisal review report. The lender must submit its complete
                technical review of the appraisal in an appraisal review report
                prepared in compliance with USPAP Standards 3 and 4 to the Agency
                before guaranteed loan closing.
                 (1) Appraisals must not be more than one year old. However, the
                Agency may request a more recent appraisal in order to reflect more
                current market conditions.
                 (2) The lender must provide documentation that, in addition to the
                other requirements of this section pertaining to appraisers, the
                appraiser has the necessary experience and competency to appraise
                collateral.
                 (h) Appraisal fees. Unless otherwise stated in this part, appraisal
                fees or any other associated costs will not be paid by the Agency.
                Sec. 5001.204 Personal, partnership, and corporate guarantees.
                 The provisions of this section do not apply to passive investors.
                [[Page 42545]]
                 (a) Except as provided in paragraph (c) of this section, Agency-
                approved, unsecured personal, partnership, and corporate guarantees for
                the full term of the guaranteed loan and at least equal to the
                guarantor's percent interest or membership in the borrower times the
                guaranteed loan amount are required from any person or entity owning a
                20-percent or greater interest or membership in the borrower. In the
                event a portion of the borrower's ownership interest stock is sold or
                transferred, the Agency reserves the right to require personal or
                corporate guarantees from the new owners of a 20-percent or more
                interest in the borrower.
                 (b) When warranted by an Agency assessment of potential financial
                risk to the Government in accordance with the Federal Credit Reform Act
                of 1990 (FCRA), the Agency may require the following:
                 (1) Guarantees to be secured;
                 (2) Guarantees from any person or entity owning less than a 20-
                percent Interest or membership in the borrower; and
                 (3) Guarantees from persons whose ownership Interest in the
                borrower is held indirectly through intermediate or affiliated
                entities.
                 (c) Exceptions to the requirement for personal, partnership or
                corporate guarantees may be requested by the lender. The lender must
                document, to the Agency's satisfaction, that collateral, equity, cash
                flow, and profitability indicate an above-average ability of the
                borrower to repay the loan. The Agency will evaluate these requests on
                a case-by-case basis.
                 (d) Each guarantor must execute an Agency-approved guarantee form
                in addition to any guarantee form required by the lender.
                 (e) Any amounts paid by the Agency pursuant to a claim by a
                guaranteed program lender will constitute a Federal debt owed to the
                Agency by a guarantor of the loan, to the extent of the amount of the
                guarantor's guarantee.
                Sec. 5001.205 General project monitoring requirements.
                 In complying with the requirements of this section, the lender may
                rely on written materials and other reports provided by an independent
                engineer and other qualified consultants.
                 (a) Design requirements. The lender must ensure that all facilities
                constructed with guaranteed loan funds are:
                 (1) Designed using accepted architectural, engineering, and design
                practices, taking into consideration any Agency comments when the
                facility is being designed;
                 (2) Designed in conformance to applicable Federal, Tribal, State,
                and local codes and requirements; and
                 (3) Constructed to support operations at the level and quality
                contemplated by the borrower using accepted architectural and
                engineering practices.
                 (b) Rights-of-ways, easements, and property rights. The lender is
                responsible for ensuring that the borrower has:
                 (1) Obtained valid, continuous, and adequate rights-of-way and
                easements needed for the construction, operation, and maintenance of a
                project; and
                 (2) Obtained and recorded such releases, consents, or
                subordinations to such property rights from holders of outstanding
                liens or other instruments as may be necessary for the construction,
                operation, and maintenance of the project and to provide the required
                security.
                 (c) Permits, agreements, and licenses. It is the lender's
                responsibility to ensure the borrower obtains all permits, agreements,
                and licenses that are applicable to the project.
                 (d) Insurance. It is the lender's responsibility to ensure the
                borrower obtains and maintains borrower and project insurance in
                substance and amount similar to that ordinarily required by lenders in
                the industry.
                 (e) Construction monitoring requirements. The lender, or its
                designated agent, will monitor the progress of construction of the
                project and undertake the reviews and inspections necessary to ensure
                that construction conforms to applicable Federal, Tribal, State, and
                local code requirements and that construction proceeds in accordance
                with the plans, specifications, and contract documents.
                 (1) Construction inspections. The lender must notify the Agency of
                any scheduled field inspections during construction. The Agency may
                attend any field inspections the lender may conduct. Any Agency
                inspection, including those with the lender, are for the benefit of the
                Agency only (and not for the benefit of other parties in interest) and
                do not relieve any parties of interest of their responsibilities to
                conduct necessary inspections.
                 (i) On a case-by-case basis in the event that the Agency determines
                that there is additional risk to the government, the Agency may require
                the use of a qualified, independent inspector to inspect construction
                to ensure the project is being adequately built to meet the borrower's
                requirements of the borrower's approved project and comply with all
                applicable codes and legal requirements.
                 (2) Issuance of loan note guarantee prior to completion of the
                project. Except for projects utilizing non-proven technologies, the
                lender may request that the loan note guarantee be issued prior to
                construction or completion of a project. If the lender chooses to close
                the construction loan prior to completion of the project or project
                acquisition, the loan can only be sold on the secondary market after
                all funds have been disbursed for eligible project costs which have
                previously been incurred by the borrower. The lender's request will be
                considered by the Agency, who may require credit risk mitigation. An
                additional fee for issuance of the loan note guarantee prior to
                completion of the project will be assessed in accordance with Sec.
                5001.454(c) in subpart E. The lender must verify and include evidence
                of the following in its request:
                 (i) The promissory note specifying the full term of the note and
                containing the terms and conditions of each draw period;
                 (ii) The borrower and lender have entered into a contract with an
                independent disbursement and monitoring firm with a construction
                monitoring plan acceptable to and approved by the Agency;
                 (iii) The borrower and lender have agreed to a detailed timetable
                for the project with a corresponding budget of costs setting forth the
                parties responsible for payment. The timetable and budget will be
                confirmed as adequate for the planned development by a qualified
                independent consultant (e.g., the project architect or engineer) with
                demonstrated experience relating to the project's industry.
                 (iv) The borrower has entered into a firm, fixed-price construction
                contract with an independent general contractor with costs outlined in
                detail and terms specifying change order approvals, the agreed
                retainage percentage, and the disbursement schedule;
                 (v) Evidence the lender has properly vetted the financial
                feasibility and past performance of the contractor to show they are
                able to complete the project or that the lender has mitigated risk in
                the event the project is never completed, such as requiring a 100-
                percent performance/payment bond on the borrower's contractor to be
                maintained until the contractor is released from its obligation. The
                bonding agent must be listed on Treasury Circular 570;
                 (vi) Evidence, which the Agency at its sole discretion determines
                is satisfactory, that the lender has completed the due diligence
                necessary to confirm that the contractor is able to complete the
                project based on
                [[Page 42546]]
                information including but not limited to the financial statements and
                past performance of the contractor;
                 (vii) When applicable, the borrower has entered into a contract
                with an independent technology development firm guaranteeing the
                following: Completion of the project with the necessary technology to
                successfully run the project and system performance for projects that
                utilize integrated processing equipment and systems, such as
                biorefineries, renewable energy systems, and chemical manufacturing
                plants. The credit underwriting of the independent technology
                development firm must be satisfactory to and approved by the Agency;
                and;
                 (viii) Evidence, in form and substance satisfactory to the Agency,
                that there is sufficient contingency funding in place to handle
                unforeseen cost overruns without seeking additional guaranteed
                assistance.
                 (f) Reporting during construction. Regardless of when the loan note
                guarantee is issued, all lenders must report any problems in project
                development to the Agency within 15 calendar days of identifying the
                problem. If the loan note guarantee has been issued prior to
                construction or completion of the project, the lender must provide
                monthly construction reports that contain:
                 (1) Certifications for each draw request as follows:
                 (i) Certification by the independent engineer or qualified
                consultant to the Lender that the work referred to in the draw has been
                successfully completed; and
                 (ii) Certification by the borrower and independent engineer or
                qualified consultant that the guaranteed loan funds of the prior draw
                have been applied to eligible project costs in accordance with the draw
                request and that the contractors have delivered mechanics lien waivers
                in connection with such draw;
                 (2) List of invoices;
                 (3) Details regarding the borrower's equity, other funds, and
                guaranteed loan funds disbursed to date;
                 (4) Status of construction and inspection reports;
                 (5) Inspection reports; and
                 (6) Concerns, potential problems, cost overruns, etc.
                 (g) Use of guaranteed loan funds. The lender must ensure that:
                 (1) All borrower funds are utilized prior to guaranteed loan funds;
                 (2) Guaranteed loan funds are only used for eligible project costs
                in accordance with the purposes approved by the Agency in the
                conditional commitment and in accordance with the plans,
                specifications, and contract documents; and
                 (3) The project will be completed within the approved budget.
                 (h) Project completion. Once construction of the project is
                completed, the lender must obtain and have on file all mechanics lien
                waivers or releases from all contractors and materialmen. The lender
                will provide to the Agency:
                 (1) A copy of the notice of completion or similar document issued
                by the relevant jurisdiction;
                 (2) Certification that all funds were used for authorized purposes;
                and
                 (3) A written certification that the project will be used for its
                intended purpose and will meet the borrower's needs and guaranteed loan
                purposes in accordance with the application approved by the Agency.
                 (4) RES or EEI projects and projects that utilize integrated
                processing systems and equipment, such as biorefineries, renewable
                energy systems, and chemical manufacturing facilities, unless utilizing
                the provisions of paragraph (e)(2) of this section, must be
                constructed, installed, and operated as described in the technical
                report or on the vendor certification prior to disbursement of
                guaranteed loan funds. For RES, the system must be operating at the
                steady state operating level described in the technical report or on
                the vendor certification for a period of not less than 30 calendar
                days, unless this requirement is modified by the Agency, prior to
                disbursement of funds.
                Sec. 5001.206 Compliance with USDA Departmental Regulations,
                Policies, and other Federal laws.
                 (a) Departmental regulations. All projects receiving a loan
                guarantee under this part are subject to the provisions of USDA's
                Departmental Regulations, as applicable.
                 (b) Other Federal laws. Lenders and borrowers must comply with
                other applicable Federal laws including, but not limited to, Equal
                Employment Opportunities, Americans with Disabilities Act, Equal Credit
                Opportunity Act, and the Fair Housing Act.
                Sec. 5001.207 Environmental responsibilities.
                 Actions taken under this part must comply with 7 CFR part 1970. The
                Agency is responsible for ensuring that the requirements of the
                National Environmental Policy Act of 1969 (under 40 CFR part 1500) and
                related compliance actions, such as Section 106 of the National
                Historic Preservation Act (under 36 CFR part 800) and section 7 of the
                Endangered Species Act, are met. The Agency will complete the
                appropriate level of environmental review in accordance with 7 CFR part
                1970, ``Environmental Policies and Procedures.''
                 (a) Borrower and lender responsibilities. Both the borrower and
                lender must take into consideration the potential environmental impacts
                of the project at the earliest planning stages. The Agency recommends
                that the lender contact the Agency to determine environmental
                requirements as soon as practicable after deciding to apply for a
                guarantee under this part.
                 (1) Lender. The lender is responsible for becoming familiar and
                ensuring compliance with Federal environmental requirements. The lender
                must alert the Agency to any environmental issues related to a project
                or items that may require extensive environmental review. Proposals
                that minimize the potential of any project to adversely impact the
                environment must be developed and provided upon request by the Agency.
                 (2) The lender must ensure that the borrower has--
                 (i) Provided the necessary environmental information to enable the
                Agency to undertake its environmental review process in accordance with
                7 CFR part 1970, including the provision of all required Federal,
                State, and local permits;
                 (ii) Not taken any actions or incurred any obligations with respect
                to the project that would either limit the range of alternatives to be
                considered during the Agency's environmental review process or which
                would have an adverse impact on the environment, such as the initiation
                of construction. Taking any such actions or incurring any such
                obligations could result in project ineligibility; and
                 (iii) Complied with any environmental mitigation measures required
                by the Agency.
                 (b) Environmental reviews. The Agency must complete all required
                environmental reviews, identifying and addressing, as appropriate,
                disproportionately high and adverse human health or environmental
                effects on minority populations and low-income populations, in
                accordance with 7 CFR part 1970.
                 (1) The Agency may schedule a site visit if the Agency determines
                one is necessary in order to determine the scope of the environmental
                review.
                 (2) The Lender must assist in the collection of additional data
                when the Agency needs such data to complete its environmental review of
                the project and mitigation of environmental issues.
                [[Page 42547]]
                Sec. 5001.208 Conflicts of interest.
                 The lender must report all conflicts of interests, in writing, to
                the Agency.
                Sec. Sec. 5001.209-5001.300 [Reserved]
                Subpart D--Guarantee Application Provisions
                Sec. 5001.301 Beginning the application process.
                 (a) The lender must file applications and related documents through
                the Agency online application system located at https://www.rd.usda.gov/onerdguaranteed.
                 (b) The lender may complete either a request for preliminary
                eligibility review in accordance with Sec. 5001.302 or a full
                application in accordance with Sec. Sec. 5001.303 through 5001.307, as
                applicable, to begin the process for obtaining a guaranteed loan. The
                Agency encourages, but does not require, lenders to file requests for
                preliminary eligibility reviews in order to obtain Agency comments
                before submitting a full Application.
                Sec. 5001.302 Preliminary eligibility review.
                 (a) Contents. Except as otherwise indicated, each request for a
                preliminary eligibility review must contain the material identified in
                paragraphs (a)(1) through (3) of this section. This information may be
                submitted in a narrative format or utilizing the lender's preliminary
                lender's analysis or preliminary credit memo.
                 (1) Regardless of format, the lenders must provide the following
                information:
                 (i) Name of the proposed borrower and co-borrower(s) as applicable,
                organization type, address, contact person, email address, and
                telephone number;
                 (ii) Name of the proposed lender, address, telephone number,
                contact person, email address;
                 (iii) Amount of the guaranteed loan request; and if known, the
                percentage of guarantee requested; the proposed rates and terms of the
                guaranteed loan; and the source(s) of other funding;
                 (iv) If known, a description of collateral to be offered with
                estimated value(s), identity of guarantors, and the amount and source
                of equity, other capital, and matching funds to be contributed to the
                project; and
                 (v) A brief description of the project, its location, products or
                services provided, service area, and, as applicable, availability of
                raw materials and supplies.
                 (2) Sufficient information and documentation to enable the Agency
                to assess borrower, lender, and project eligibility, including
                summaries or spreadsheets of financial statements or audits,
                relationships and identity of any affiliates; and copies of
                organizational documents, organizational charts, and existing debt
                instruments.
                 (3) For REAP projects:
                 (i) Borrower information as outlined in Sec. 5001.307(a) and (b),
                and project information as outlined in Sec. 5001.307(c).
                 (ii) For REAP RES projects where a residence is located at or is
                closely associated with and shares an energy metering devise with a
                rural small business or agricultural operation, demonstration that 50
                percent or greater of the energy to be generated by the RES will
                benefit the rural small business or agricultural operation.
                 (b) Assessment. Based on the information submitted for the
                preliminary eligibility review, the Agency will make an informal
                assessment of the types of guarantee funding applicable to the request,
                and the eligibility of the borrower, project, and lender. The Agency
                will provide written informal comments. The assessment may change based
                on subsequently submitted information, is solely advisory in nature,
                does not obligate the Agency to approve a guarantee request, and is not
                considered a favorable or adverse decision by the Agency.
                Sec. 5001.303 Applications for loan guarantee.
                 The Agency will accept applications on a continuous basis. For each
                loan guarantee request, the lender must submit to the Agency a complete
                application that is in conformance with this section, and Sec. Sec.
                5001.304 through 5001.307, as applicable.
                 (a) Complete applications. Lenders must submit complete
                applications in order to be considered for loan guarantees. Lenders are
                encouraged to submit a complete application in a single package;
                however, the Agency may accept the environmental information required
                by the Agency and initiate and complete its environmental reviews in
                advance of receiving a complete application. If an application is
                incomplete, the Agency will notify the lender in writing of the items
                necessary to address the incomplete application. Upon receipt of a
                complete application, the Agency will complete its evaluation.
                 (b) Content. Lenders must provide an analysis of the scope of the
                project in relation to the borrower's overall operations. The
                application and lender's analysis should be supported by adequate
                documentation as applicable to the project and as listed in paragraph
                (c) of this section. The Agency reserves the right to request
                additional documentation to support the funding request. All complete
                applications must contain at a minimum:
                 (1) Agency-approved application form or system that includes all
                items noted in this section;
                 (2) Credit evaluation (conforming to Sec. 5001.202).
                 (3) Environmental information required by the Agency to conduct its
                environmental reviews (as specified in Sec. 5001.207(a)(2)(i)).
                 (4) Required financial statements including:
                 (i) Current Agency-acceptable balance sheet and year-to-date income
                statements of the borrower, and any guarantor(s) dated within 90 days
                of submission of the complete application;
                 (ii) Agency-acceptable historical balance sheet, income statements,
                and cash flow statements of the borrower, and any guarantor(s) for the
                lesser of the last three fiscal years or all years of operation; and
                 (iii) Projected balance sheets, income statements, and cash flow
                statements or a financial model starting from the current financial
                statements through a minimum of two years of the project performing at
                full operational capacity or stable operations. Based on the type of
                project or at the discretion of the Agency, financial projections or
                models may be required from current financial statements up to the end
                of the term of the guaranteed loan. Financial projections must be
                supported by a list of assumptions showing the basis for the
                projections. Projected financial statements must include a pro forma
                balance sheet projected for guaranteed loan closing.
                 (iv) The Agency may request additional financial statements,
                financial models, cash flow information, updated financial statements,
                and other related financial information to determine the financial
                feasibility of a project and evaluate the credit underwriting of
                borrower, its affiliates, and any guarantors.
                 (5) For all applications of $600,000 or greater, a draft loan
                agreement for the guaranteed loan that addresses the following:
                 (i) Repayment term and amortization provisions of the guaranteed
                loan;
                 (ii) Description of real property collateral, list of other
                collateral and identification of the lender's lien priority in the
                collateral;
                 (iii) A list of persons and entities guaranteeing payment of the
                guaranteed loan and their percentage of guarantee;
                 (iv) Type and frequency of borrower and guarantor financial
                statements to be required for the duration of the
                [[Page 42548]]
                guaranteed loan (guarantor statements must be updated at least
                annually);
                 (v) Prohibition against borrower assuming liabilities or
                obligations of others;
                 (vi) Limitations on borrower dividend payments and compensation of
                officers, owners and members of borrower;
                 (vii) Limitations on the purchase and sale of equipment and other
                fixed assets;
                 (viii) Restrictions concerning mergers, consolidations, or other
                circumstances including significant management changes and a limitation
                on selling the business, project, or guarantee loan collateral without
                the concurrence of the lender;
                 (ix) Maximum debt-to-net worth ratio, when required by the lender
                or by this part;
                 (x) Minimum debt service coverage ratio, when required by the
                lender or by this part;
                 (xi) A reserved section for any requirements imposed by the Agency
                in its conditional commitment;
                 (xii) A reserved section for any Agency environmental requirements;
                and
                 (xiii) A provision for the lender and the Agency to have reasonable
                access to the project and its performance information during the term
                of the guaranteed loan including the periodic inspection of the project
                by a representative of the lender or the Agency.
                 (6) Identify whether or not the borrower has a known relationship
                or association with an Agency employee. If there is a known
                relationship, identify each Agency employee with whom the borrower has
                a known relationship.
                 (7) At the time of the loan application, the lender must submit its
                loan classification and credit risk rating classification scale.
                 (c) Provisional content. The following items may also be required
                based on the type of project being financed or if deficiencies exist in
                the credit evaluation and more information is needed to adequately
                determine risk:
                 (1) Appraisals in accordance with Sec. 5001.203.
                 (2) Current credit reports or the equivalent on the borrower, any
                payment guarantors and any person or entity owning greater than a 20
                percent or more interest in the borrower or controls the borrower,
                except for passive investors and those corporations listed on a major
                stock exchange. A credit report or its equivalent are not required for
                elected and appointed officials when the borrower is a public body, or
                Indian Tribe, or for members of a non-profit organization. Credit
                reports must be submitted to the Agency for all applications for
                guaranteed loans in the amount of $200,000 or more. For lenders that
                are submitting smaller requests, the lender must keep the credit report
                on file with the lender's application.
                 (3) Feasibility study: If the Agency is unable to determine a basis
                for successful repayment of a guaranteed loan based on the
                documentation and analysis of the five feasibility study components
                provided in the lender's analysis, borrower's business plan, or other
                project information, or if the proposed project will have significant
                impacts on existing operations, the Agency may require an independent
                feasibility study. The elements of an acceptable feasibility study may
                vary by project scope and should be prepared by a qualified,
                independent third party using applicable elements of the project,
                including but not limited to those outlined in appendix A to subpart D
                of this part.
                 (4) Intergovernmental consultation comments in accordance with 2
                CFR part 415, subpart C, or successor regulation, unless exemptions
                have been granted by the State's single point of contact.
                 (5) Engineering documentation.
                 (6) Architectural reports.
                 (7) Energy audits or energy assessments in accordance with Sec.
                5001.107.
                 (8) Energy efficient equipment and systems data in accordance with
                Sec. 5001.108.
                 (9) Business plan: Unless the information is contained in the
                feasibility study or in the credit evaluation, a business plan should
                be submitted to show how the project will operate and remain viable.
                This requirement may be omitted when guaranteed loan funds are used
                exclusively for debt refinancing.
                 (10) If the application is for five or more residential units,
                including nursing homes and assisted-living centers, an Affirmative
                Fair Housing Marketing Plan that is in conformance with 7 CFR
                1901.203(c)(3).
                 (11) If the application is for financing of health care facilities,
                a certificate of need, if required by Federal or State law.
                 (12) Department of Labor form as noted in Sec. 5001.306(a)(1).
                 (13) Pro-forma balance sheet for closing as noted in Sec.
                5001.306(a)(2).
                 (14) SEC Form 10-K as noted in Sec. 5001.306(a)(4).
                 (15) Technical reports in accordance with Sec. 5001.307(e).
                 (16) Certification regarding credit elsewhere in accordance with
                Sec. 5001.126(b)(3) and (c).
                 (d) Application modification. Once a complete application is
                accepted by the Agency and prior to Agency award of a loan note
                guarantee, any modification to the application will be treated as a new
                Application and the Agency will process the information accordingly.
                The submission date of record for a modified application is the date
                the Agency receives the modified application information.
                Sec. 5001.304 Specific application requirements for CF projects.
                 In addition to the requirements specified in Sec. 5001.303 as
                applicable, a lender seeking a loan guarantee for a CF project must
                submit a financial feasibility report prepared by a qualified firm or
                individual acceptable to the Agency. All projects financed under this
                section must meet the financial feasibility requirements of this
                section and must be based on projected taxes, assessments, revenues,
                fees, or other sources of revenues in an amount sufficient to provide
                for project operation and maintenance, debt payments, and compliance
                with lender reserve requirements, when applicable. Other sources of
                revenue or existence of payment guarantors are particularly important
                in considering the feasibility of eligible recreation projects. The
                financial feasibility report must take into consideration any interest
                rate adjustment that may be instituted under the terms of the
                promissory note. Financial projections for projects that are assisted
                living facilities, skilled nursing facilities, or similar types of
                eligible residential facilities must be based on no more than 90
                percent occupancy. Utility projects dependent on user fees for debt
                repayment shall base their income and expense forecast on user
                estimates supported by either a state statute or local ordinance
                requiring mandatory hookup or signed and enforceable user agreements.
                If the primary use of the essential community facility is by a business
                and the success or failure of the facility is dependent on that
                business, then the economic viability of that business must also be
                assessed. For projects that include the purchase and installation of
                RES that meet the eligibility requirements of Sec. 5001.103(a)(8), a
                technical report on the RES as outlined in Sec. 5001.307(e)(1) and
                (2), as applicable, will be included with the applicable financial
                feasibility report. The type of financial feasibility report required
                will depend upon the size of the guaranteed loan, the collateral o
                securing the guaranteed loan, and the financial history of the
                borrower. The two types of financial feasibility report and when they
                are
                [[Page 42549]]
                required are described in paragraphs (a) and (b) of this section.
                 (a) Financial feasibility analysis. The financial feasibility
                analysis will be prepared by a qualified firm or individual who may be
                the lender. Financial feasibility analysis requirements are outlined in
                appendix B to subpart D of this part. The lender's credit evaluation
                may serve as the financial feasibility analysis provided it includes
                the items outlined in appendix B to subpart D of this part. A financial
                feasibility analysis will be required if any of the following
                circumstances exist:
                 (1) Guaranteed loans of $5 million or less;
                 (2) Guaranteed loans secured by a general obligation bond, or other
                tax supported income sufficient to pay the debt service for the life of
                the loan; or
                 (3) Borrowers with audited financial statements, if the last three
                years indicate the ability to pay all existing and new debt service.
                 (b) Financial feasibility study with examination opinion. The
                report must be prepared in accordance with the standards of attestation
                of the American Institute of Certified Public Accountants, and the
                preparer must have the requisite professional liability insurance in
                place. A financial feasibility study with examination opinion will be
                required for all guaranteed loans that do not meet the requirements for
                a financial feasibility analysis outlined in paragraph (a) of this
                section. The financial feasibility study with examination opinion will
                typically include the items outlined in appendix B to subpart D of this
                part.
                Sec. 5001.305 Specific application requirements for WWD projects.
                 In addition to the requirements specified in Sec. 5001.303, a
                lender seeking a loan guarantee for a WWD project must submit the
                documents specified in paragraphs (a) through (c) of this section.
                 (a) Engineering documentation. (1) Engineering documentation must
                meet the level of detail the lender would typically require for a
                standard commercial loan, and include, at a minimum, a description of
                the proposed project, a cost estimate, the number of residential and
                non-residential connections, and the population served. The lender may
                request assistance to clarify the Agency's requirements and
                regulations; however, the Agency does not provide technical oversight
                or recommendations as to the technical feasibility of the project.
                 (2) The lender must ensure that the project is designed utilizing
                accepted architectural and engineering practices and conforms to
                applicable Federal requirements (e.g. the seismic requirements of
                Executive Order 12699 (55 FR 835, 3 CFR, 1990 Comp., p. 269), the
                debarment requirements of 2 CFR part 417, American Iron and Steel
                (Section 746 of Title VII of the Consolidated Appropriations Act of
                2017), and the Copeland Anti-Kickback Act (18 U.S.C. 874)); State,
                local and Tribal codes and requirements; and facility plans or plans
                and specifications reviewed and approved by the applicable State, local
                and/or Tribal regulatory agency. The lender must also ensure that the
                planned project will be completed within the available funds and, once
                completed, will be suitable for the borrower's needs. Upon completion
                of the project, the lender must certify that all applicable Federal
                requirements were met.
                 (b) Feasibility considerations. All projects financed under this
                part must be based on projected taxes, assessments, revenues, fees, or
                other sources of revenues in an amount sufficient to provide for
                project operation and maintenance, any reserves required by the lender,
                and debt payment. The lender's financial credit analysis must take into
                consideration any interest rate adjustment that may be instituted under
                the terms of the loan note guarantee.
                 (c) Credit analysis requirements. In addition to the requirements
                of Sec. 5001.202, if the majority user of the system is a business and
                the financial success of the system is dependent on that business, then
                the economic viability of that business must be assessed.
                Sec. 5001.306 Specific application requirements for B&I projects.
                 In addition to the requirements specified in Sec. 5001.303, as
                applicable, a lender requesting a B&I loan guarantee must submit the
                information specified in paragraph (a) of this section if the
                guaranteed loan amount is more than $600,000, or in (b) of this section
                if the guaranteed loan amount is $600,000 or less.
                 (a) Applications requesting a guaranteed loan in an amount greater
                than $600,000. (1) The Agency is required to submit project information
                to the United States Department of Labor for their concurrence if the
                proposed guaranteed loan is in excess of $1,000,000.00 and will
                increase direct employment by more than 50 employees. The lender must
                provide sufficient project and demographic information to the Agency
                for completion of a Department of Labor review.
                 (2) A pro forma balance sheet projected for loan closing.
                 (3) The Agency may require a Feasibility Study when the lender's
                analysis, borrower's business plan, or project information is not
                sufficient to determine the technical feasibility, market feasibility,
                or economic viability of the project.
                 (i) For guaranteed loans greater than $1,000,000.00 to a new
                business, a feasibility study prepared by an independent qualified
                consultant acceptable to the Agency is required. The scope of the
                feasibility study will be determined by the Agency and is dependent on
                the complexity of the project and the borrower.
                 (ii) For loans of $1,000,000.00 or less to new and existing
                businesses, the Agency may require a feasibility study when the
                lender's analysis or other borrower information is not sufficient to
                determine the technical feasibility or economic viability of the
                project, or if the project will significantly affect the operations of
                a borrower who is an existing business and its historic cash flow.
                 (iii) A technical report is required for RES identified in Sec.
                5001.307(e) and for projects utilizing other integrated processing
                equipment and systems. The contents of the technical report must be
                consistent with the requirements of Sec. 5001.307(e)(1) and must
                provide sufficient detail to enable the Agency to determine technical
                merit. The report can be provided in the technical feasibility section
                of a feasibility study or in a separate technical report.
                 (4) For companies listed on a major stock exchange or subject to
                the Securities and Exchange Commission (SEC) regulations, a copy of
                their most recent SEC Form 10-K, ``Annual Report Pursuant to section 13
                or 15(d) of the Securities Exchange Act of 1934.''
                 (5) Current financial statements of affiliates.
                 (b) Applications requesting a guaranteed loan in an amount of
                $600,000 or less. Guaranteed loan applications may be processed under
                this paragraph (b) if the amount of the guaranteed loan does not exceed
                $600,000, provided the Agency determines that the lender's analysis,
                borrower's business plan, or other project or borrower information
                submitted by the lender is sufficient to determine the technical
                feasibility, market feasibility, and economic viability of the project.
                If any of the items in paragraphs (a)(1) through (4) of this section
                apply, the lender must collect the information and maintain it
                [[Page 42550]]
                in their file. A Lender may need to resubmit or modify an application
                if the application does not contain sufficient information for the
                Agency to make an informed loan approval decision.
                 (1) Lenders submitting applications under this paragraph (b) must
                include the following information:
                 (i) Narrative description of the project including the history of
                the borrower and adequacy of cash flow and borrower equity;
                 (ii) Required financial statements including a current Agency-
                acceptable balance sheet and year-to-date income statements;
                 (iii) Security available for the guaranteed loan including
                collateral and payment guarantees;
                 (iv) Strengths and weaknesses of the guaranteed loan and the
                Lender's need for the loan guarantee to mitigate specific risks.
                 (2) The lender may elect to not submit the following application
                documentation to the Agency, but must have the information available in
                its file for review:
                 (i) Narrative description of management capabilities and corporate
                structure of the borrower;
                 (ii) Environmental information for the project and any
                environmental reviews;
                 (iii) Agency-acceptable historical balance sheets and income
                statements of the borrower and its affiliates;
                 (iv) Financial statements of any personal, partnership, or
                corporate guarantors.
                Sec. 5001.307 Specific application requirements for REAP projects.
                 In addition to the requirements specified in Sec. 5001.303, a
                lender seeking a loan guarantee for a REAP project must submit the
                information identified below based on total project costs.
                 (a) Borrower eligibility information. (1) Eligible borrowers must
                meet the definition of agricultural producer or rural small business as
                defined in Sec. 5001.3. Agricultural producers seeking funding for a
                RES or EEI project may apply as either a rural small business or as an
                agricultural producer, provided they meet the applicable eligibility
                requirements. Agricultural producers seeking funding for an EEE project
                must be eligible and apply as an Agricultural Producer.
                 (2) The Borrower must provide the primary NAICS code applicable to
                the borrower's business concern and certify on the Agency approved
                application form or system that it meets the definition of agricultural
                producer or rural small business. The Agency reserves the right to
                request supporting documentation to verify borrower eligibility.
                 (b) Borrower description. Describe the ownership of the Borrower,
                including the information specified in paragraphs (b)(1) through (3) of
                this section, as applicable. Include a description of the Borrower's
                existing farm, ranch, or business operation, including how long the
                borrower has been in operation.
                 (1) Describe how the borrower meets the ownership and control
                requirements as identified in Sec. 5001.126(e)(2).
                 (2) For each entity(ies) the borrower controls or entity(ies) it is
                controlled by, provide a list of the individual owners with their
                contact information. Describe the relationship between the borrower and
                the other entity(ies), including percentage of ownership and control,
                management, passive investor ownership, and any products exchanged.
                Organizational charts to demonstrate the structure of the borrower
                should be submitted when available.
                 (3) Identify the ethnicity, race, and gender of the borrower.
                Identify if the borrower is a veteran. This information is optional and
                is not required for a complete application but may be used by the
                Agency to award priority points.
                 (c) Project information. Provide information concerning the project
                as a whole and its relationship to the borrower's operations,
                including:
                 (1) Identification as to whether the project is an RES, EEI, or EEE
                project. Include a description and the location of the project;
                 (2) Description of how the project will have a positive effect on
                resource conservation, public health, and the environment;
                 (3) Identification of the amount of funds and the source(s) of
                funds the borrower is proposing to use for the project. Provide written
                commitments for funds at the time the application is submitted to
                receive points under this scoring criterion.
                 (i) For project funding provided by the borrower, documentation may
                include bank statements that demonstrates availability of funds.
                 (ii) For project funding that comes from a third party, a
                commitment letter signed by an authorized official of the third party.
                The letter must be specific to the project and must identify the dollar
                amount of any loan or other funding and any applicable rates and terms.
                If the third-party commitment is for a loan, the commitment must be
                firm; a letter-of-intent or pre-qualification letter subject to
                underwriting requirements or contingencies is not acceptable.
                 (d) Feasibility study. For RES projects only, when deemed necessary
                by the lender or Agency, an analysis conducted in conformance with the
                definition of feasibility study found in Sec. 5001.3 and with
                applicable content in appendix A to subpart D of this part.
                 (e) Technical report. All eligible projects must have technical
                merit and provide information as identified in Sec. 5001.106(e), Sec.
                5001.107(d), or Sec. 5001.108(d) and (e)(1) through (3) of this
                section.
                 (1) Level of detail. Information provided must be in sufficient
                detail to enable the Agency to determine the technical merit of the
                project. Design drawings and process flowcharts are encouraged as
                exhibits. The technical report requirements can be provided in the
                technical feasibility section of a feasibility study, instead of
                completing a separate technical report.
                 (i) Sufficient information to enable the calculation of simple
                payback as defined in Sec. 5001.3;
                 (ii) For RES Projects, sufficient information to enable the
                calculation of the percentage of historical use of energy compared to
                the amount of renewable energy that will be generated once the project
                is operating at its steady state operating level. If the project is
                closely associated with a residence, satisfactory demonstration must be
                made that 50 percent or more of the projected renewable energy will
                benefit the agricultural operation or rural small business; and
                 (iii) Demonstrate that the RES, EEI, or EEE project will operate or
                perform over the project's useful life in a reliable, safe, and a cost-
                effective manner, which may include but is not limited to addressing
                project design, installation, operation, maintenance, and warranties.
                 (iv) In addition, the following technologies, must provide a
                technical report in accordance with paragraphs (e)(1)(v) through (viii)
                of this section, as applicable:
                 (A) Hydrogen;
                 (B) Ocean energy;
                 (C) Geothermal electric generation;
                 (D) Anaerobic digesters and biogas;
                 (E) Biomass;
                 (F) Hybrid applications;
                 (G) Renewable energy systems with storage components; and
                 (H) Energy efficiency improvements
                 (v) For total project costs in the amount of $80,000 or less, a
                technical report, as identified in Sec. 5001.303(c)(15), prepared in
                accordance with the following paragraphs, as applicable:
                 (A) EEI technical reports. Each EEI technical report submitted
                under this section must provide:
                 (1) A description of the proposed EEI, including its intended
                purpose;
                 (2) Vendor/Installer certification that the EEI project uses
                commercially available technology;
                [[Page 42551]]
                 (3) Vendor/Installer certified projections on the quantity of
                energy to be saved;
                 (4) Certification by vendor/installer that they are qualified to
                complete the project as intended;
                 (5) Vendor/installer certification that the EEI system will operate
                and perform over the project's useful life in a reliable and cost-
                effective manner; and
                 (6) An estimate of simple payback, including all calculations,
                documentation, and any assumptions.
                 (B) RES technical reports. Each RES technical report submitted
                under this section must provide:
                 (1) A description of the proposed RES project, including its
                intended purpose;
                 (2) Vendor/installer certified projections on energy to be replaced
                and/or generated, including the quality and availability of the
                renewable resource to the project; if there is a residence closely
                associated with the RES project, the historical amount of energy used
                by the residence and the historical amount of energy used by the
                agricultural operation or rural small business, as applicable, to
                satisfactorily demonstrate 50 percent or more of proposed generation
                will benefit the agricultural operation or rural small business;
                 (3) Vendor/installer certification that the RES project uses
                commercially available technology;
                 (4) Certification that the vendor/installer is qualified to
                complete the project as intended;
                 (5) Certification that the project will perform over its useful
                life in a reliable and cost-effective manner; and
                 (6) The projected financial performance of the project. The
                description must address total project costs, revenues accrued from the
                sale or crediting of energy, quantity and value of energy offset, and
                revenue from byproducts. Include applicable investment and other
                production incentives and indicate if they are one time or reoccurring
                incentives. Provide an estimate of simple payback, including all
                calculations, documentation, and any assumptions.
                 (C) EEE technical reports. Each EEE technical report submitted
                under this section, regardless of total project costs, must provide:
                 (1) A description of the proposed EEE and its intended purpose,
                including baseline data, specifications, and efficiency data;
                 (2) Vendor/Installer certification that the EEE project uses
                commercially available technology;
                 (3) Vendor/Installer certification of the proposed energy
                consumption quantity and price per unit of the energy efficiency
                equipment to be installed;
                 (4) Certification by vendor/installer that they are qualified to
                complete the project as intended;
                 (5) Vendor/installer certification that the EEE system will operate
                and perform over the project's useful life in a reliable and cost-
                effective manner; and
                 (6) An estimate of simple payback, including all calculations,
                documentation, and any assumptions.
                 (vi) For EEI guaranteed loan projects with total project costs
                greater than $80,000, the technical report identified in paragraph
                (e)(1)(v)(A) of this section applies, except that appendix C to subpart
                D of this part is to be followed to prepare the report.
                 (vii) For RES guaranteed loan projects with total project costs
                greater than $80,000 and up to but not including $200,000, the
                technical report identified in paragraph (e)(1)(v)(B) of this section
                applies, except that appendix D to subpart D of this part is to be
                followed to prepare the report.
                 (viii) For RES guaranteed loan projects with estimated total
                project costs of $200,000 or greater, the technical report identified
                in paragraph (e)(1)(v)(B) of this section applies, except that appendix
                E to subpart D of this part is to be followed to prepare the report.
                 (2) Modifications. If the technical report is prepared prior to the
                borrower's selection of a final design, equipment vendor, or
                contractor, or other significant decision, the borrower may modify the
                report and resubmit it to the Agency, provided that the overall scope
                of the project is not materially changed as determined by the Agency.
                Changes in the technical report may require additional environmental
                documentation in accordance with 7 CFR part 1970.
                 (3) Hybrid projects. If the application is for a hybrid project,
                technical reports must be prepared for each technology that comprises
                the hybrid project.
                Sec. Sec. 5001.308-5001.314 [Reserved]
                Sec. 5001.315 Application evaluation and award provisions.
                 (a) General. The Agency will evaluate all Applications according to
                the provisions of this part and may require the lender to obtain
                additional assistance in those areas where the lender does not have the
                necessary expertise to originate or service the guaranteed loan. For
                the purposes of this paragraph (a), ``those areas'' mean:
                 (1) The type and complexity of the financing (e.g., asset-based
                financing, cash flow financing, and bond financing); and
                 (2) Loans to borrowers engaged in industries where the lender has
                little or no origination and/or servicing experience.
                 (b) Evaluation and eligibility determinations. The Agency will
                review each application to make a formal determination as to: The
                eligibility of the borrower, lender, project, and guaranteed loan
                purpose and proposed use of funds; if there is a reasonable assurance
                of repayment ability; if sufficient collateral and equity exists; if
                the proposed guaranteed loan complies with all applicable statutes and
                regulations; and if the environmental review is complete.
                 (1) If the Agency's evaluation and determination in accordance with
                this paragraph (b) is favorable, the Agency will proceed in accordance
                with paragraph (c) of this section.
                 (2) If the Agency's evaluation and determination in accordance with
                this paragraph (b) is unfavorable, the Agency will notify the lender,
                in writing, as applicable, identifying the reason(s) for determining
                ineligibility and any applicable appeal or review rights. No further
                processing of the application will occur.
                 (c) Priority score. The Agency will score each eligible application
                based on the point system for the respective program identified in
                Sec. Sec. 5001.316 through 5001.319.
                 (1) Lenders must provide necessary information related to
                determining the score, if requested by the Agency. To the extent
                possible, lenders should consider the established priorities of the
                Agency when submitting projects for a loan guarantee. Higher scoring
                applications will receive first consideration for funding.
                 (2) The Agency may establish a minimum priority score for each
                guarantee program. The Agency will, if established, publish the minimum
                score in a document in the Federal Register. Applications that do not
                meet the applicable minimum score will compete with all other
                guaranteed loan applications for each specific program in a competition
                on the first business day of September of the Federal fiscal year in
                which the application is ready for funding.
                 (d) Funding selected applications. Each program identified in Sec.
                5001.1 will consider applications for funding in the order they are
                received by the Agency. If the Agency approves the application and
                guaranteed funds are available, the Agency will issue a conditional
                commitment to the lender in accordance with Sec. 5001.451 of subpart
                E. In the event total loan requests exceed the amount of funding
                available the
                [[Page 42552]]
                applications will be ranked for priority by each program. As
                applications are funded, the remaining guaranteed loan funding
                authority may be insufficient to fund the next highest scoring
                application or applications (where two or more applications receive the
                same priority score). The Agency will use the procedures described in
                paragraphs (d)(1) and (2) of this section as often as necessary to
                consider all applications as appropriate.
                 (1) If the remaining funds are insufficient to fund the next
                highest scoring application completely, the Agency will notify the
                lender and offer the lender the opportunity to accept the remaining
                funds. If the lender does not accept the offer, the Agency will process
                the next highest scoring application.
                 (2) If the remaining funds are insufficient to fund each
                application that receives the same priority score, the Agency will
                notify each lender and offer the lenders the opportunity to accept a
                prorated share of the remaining funds.
                 (3) Any lender offered less than the full amount requested under
                either paragraph (d)(1) or (2) of this section can either accept the
                funds available or request to compete in the next funding cycle. There
                is no assurance that the application(s) will be funded in a subsequent
                funding cycle.
                 (4) If a lender agrees to the lower loan guarantee amount offered
                by the Agency under either paragraph (d)(1) or (2) of this section, the
                lender must certify that the purpose(s) of the project can still be met
                at the lower funding level and must provide documentation that the
                borrower has obtained the remaining funds needed to complete the
                Project as originally proposed.
                 (e) Handling of ranked applications not funded. The Agency will
                withdraw from consideration ranked applications that have not received
                funding as follows:
                 (1) If an unfunded application has a priority score equal to or
                greater than any applicable minimum score, the Agency will retain the
                application for consideration in subsequent funding cycles. If the
                unfunded application is not selected for funding after 12 months,
                including the first month in which the application was considered, the
                Agency will withdraw the application from further funding
                consideration.
                 (2) If an unfunded application has a priority score less than any
                applicable minimum score, and remains unfunded after the competition
                held on the first business day of September of the fiscal year in which
                the application is ready for funding, the Agency will withdraw the
                application from further funding consideration.
                 (f) Commencement of the project. The borrower assumes all risks if
                the borrower purchases real property or equipment or starts
                construction of the project to be financed by a guaranteed loan after
                the complete application has been received by the Agency, but prior to
                the Agency's issuance of the conditional commitment and the lender and
                borrower's acceptance of the conditional commitment.
                 (g) Application withdrawal. During the period between the
                submission of an application and prior to issuance of the conditional
                commitment, the lender must notify the Agency, in writing, if the
                project is no longer viable or the borrower no longer is requesting
                financial assistance for the project. When the lender notifies the
                Agency, the Agency will rescind the selection and withdraw the
                application, as applicable.
                Sec. 5001.316 CF project priority point system and reservation of
                funds.
                 This section applies to CF projects seeking a loan guarantee.
                Paragraphs (a) through (d) of this section outline the criteria and
                amount of priority points that may be awarded to an application. The
                highest possible priority score is 55. Paragraph (e) of this section
                outlines the reservation of funds for projects located in rural areas
                of 20,000 population or less.
                 (a) Population priority. If the project will be located in a rural
                community having a population of less than 20,000--15 points.
                 (b) Project priority. If the project will construct, enlarge,
                extend or otherwise improve a public safety, health clinic, early
                education, primary or secondary education facility--10 points.
                 (c) Leveraging priority. If the applicant commits other funds to
                the project in the following percentages:
                (1) 50 percent or more-15 points
                (2) 20% up to 49%-10 points
                (3) 5% up to 19%-5 points
                 (d) Administrator priority. When guaranteed loan funds are
                requested from a National Office reserve, the Administrator may assign
                up to 15 points to address:
                 (1) Geographic distribution of funds;
                 (2) Emergency conditions caused by economic problems or natural
                disasters; or
                 (3) Initiatives that support the Agency's strategic plan.
                 (e)(1) Of the funds available each Federal fiscal year, as
                published on the Agency's website, the following amounts shall be
                reserved for projects in rural areas with a population of not more than
                20,000 inhabitants:
                 (i) 100 percent of the first $200,000,000 so made available;
                 (ii) 50 percent of the next $200,000,000 so made available; and
                 (iii) 25 percent of all amounts exceeding $400,000,000 so made
                available.
                 (2) On July 1 of each year, the Agency will evaluate the dollar
                amount of complete applications on hand for projects in rural areas
                with a population of not more than 20,000 inhabitants. The dollar
                amount of the complete applications will be subtracted from the
                reserved allocation identified in this paragraph (e) and the remaining
                amount will be made available through the end of the Federal Fiscal
                Year for projects in rural areas with a population of not more than
                50,000 inhabitants.
                Sec. 5001.317 WWD project priority points system.
                 This section applies to WWD projects seeking a loan guarantee. The
                highest possible priority point score is 150.
                 (a) Population priority. If the project will primarily serve a
                rural area having a population under 10,000, 20 points will be awarded.
                 (b) Health priorities. If the proposed project is:
                 (1) Needed to alleviate an emergency situation, correct
                unanticipated diminution or deterioration of a water supply, or to meet
                Safe Drinking Water Act requirements which pertain to a water system,
                25 points will be awarded;
                 (2) Required to correct inadequacies of a wastewater disposal
                system, or to meet health standards which pertain to a wastewater
                disposal system, 25 points will be awarded; or
                 (3) Required to meet administrative orders issued to correct local,
                State, or Federal solid waste violations, 15 points will be awarded.
                 (c) Service area priorities. An application is eligible to receive
                points under each of the categories identified in paragraphs (c)(1)
                through (3) of this section if the service area includes:
                 (1) An eligible area of long-term population decline according to
                the last three decennial censuses, 5 points will awarded.
                 (2) A rural county that has had 20 percent or more of its
                population living in poverty, as defined by the United States Census
                Bureau, for the last 30 years, 5 points will be awarded.
                 (3) For a city or county with a current unemployment rate, as
                determined by the Department of Labor, that is 125 percent of the
                State-wide rate or greater, 5 points will be awarded. For projects
                located in certain territories that may not have unemployment rates by
                [[Page 42553]]
                localities, if the applicant's proposed service area has an
                unemployment rate exceeding 125 percent of the national unemployment
                rate, 5 points will be awarded.
                 (d) Other priorities. Applications are eligible for points under
                each of the following priorities:
                 (1) If the proposed project will merge ownership, management, and
                operation of smaller facilities providing for more efficient management
                and economical service, 10 points will be awarded.
                 (2) If the proposed project will enlarge, extend, or otherwise
                modify existing facilities to provide service to additional rural
                areas, 10 points will be awarded.
                 (3) If the applicant is a public body or Indian tribe, 5 points
                will be awarded;
                 (4) If the amount funds committed to the project from sources other
                than Rural Development is:
                 (i) 50 percent or more, 15 points will be awarded;
                 (ii) 20 percent to 49 percent, 10 points will be awarded;
                 (iii) 5 percent to 19 percent, 5 points will be awarded;
                 (5) If the project will serve Agency identified target areas, 5
                points will be awarded;
                 (6) If the project primarily recycles solid waste products thereby
                limiting the need for solid waste disposal, 5 points will be awarded;
                and
                 (7) If the project will serve an area that has an unreliable
                quality or supply of drinking water, 10 points will be awarded.
                 (e) In certain cases, the approval official may award up to 15
                points to a project. The points may be awarded to projects in order to
                improve compatibility and coordination between WWD and other agencies'
                selection systems, to ensure effective RUS fund utilization, and to
                assist those projects that are the most cost effective. A written
                justification must be prepared and placed in the project file each time
                these points are assigned.
                 (f) National office priorities. The Administrator may assign up to
                15 additional points to account for items such as geographic
                distribution of funds, the highest priority projects within a state,
                and emergency conditions caused by economic problems or natural
                disasters. The Administrator may delegate the authority to assign the
                15 points to appropriate National Office staff.
                Sec. 5001.318 B&I project priority point system.
                 This section applies to B&I projects seeking a loan guarantee. When
                applications on hand have the same priority score, the Agency will give
                preference to applications involving guaranteed loans from veterans. A
                maximum of 105 points can be awarded.
                 (a) Population priority. If the project is located in an
                unincorporated area or in a city with a population under 25,000, 5
                points will be awarded.
                 (b) Location priority. An application is eligible to receive points
                under each of the categories identified in paragraphs (b)(1) through
                (3) of this section if the Project is located within:
                 (1) A distressed community in accordance with the Economic
                Innovation Group distressed community index. The list can be found on
                the Agency's website at: https://www.rd.usda.gov/onerdguarantee, 5
                points will be awarded.
                 (2) A rural county that has had 20 percent or more of its
                population living in poverty, as defined by the United States Census
                Bureau, for the last 30 years, 5 points will be awarded.
                 (3) For a city or county with a current unemployment rate, as
                determined by the Department of Labor, 125 percent of the State-wide
                rate or greater, 5 points will be awarded. For projects located in
                certain territories that may not have unemployment rates by localities,
                if the applicant's proposed service area has an unemployment rate
                exceeding 125 percent of the national unemployment rate, 5 points will
                be awarded.
                 (4) The boundaries of a federally recognized Indian Tribe's
                reservation, within Tribal trust lands, or within land owned by an
                Alaska Native Regional or Village Corporation as defined by the Alaska
                Native Claims Settlement Act, 5 points will be awarded.
                 (c) Guaranteed Loan features. An application is eligible to receive
                points under each of the categories identified in paragraphs (c)(1)
                through (4) of this section as follows:
                 (1) If the lender will price the guaranteed loan at an interest
                rate equal to or less than the equivalent of the Wall Street Journal
                published Prime Rate plus 1.5 percent, 5 points will be awarded.
                 (2) If the guaranteed loan is less than 60 percent of the total
                project cost, 5 points will be awarded.
                 (3) For guaranteed loans not requesting an exception under Sec.
                5001.456(c)(2), if the percentage of guarantee is 10 or more percentage
                points less than the maximum allowable, 5 points will be awarded.
                 (4) If the business is owned by a qualified veteran, 5 points will
                be awarded.
                 (d) High impact business development investment priorities. An
                application is eligible to receive points under each of the categories
                identified in paragraphs (d)(1) through (7) of this section below:
                 (1) If the industry is not already present in the local community,
                5 points will be awarded.
                 (2) If the business has 20 percent or more of its sales in
                international markets, 5 points will be awarded.
                 (3) If the business is locally owned and managed, 5 points will be
                awarded.
                 (4) If the business will produce a natural resource value-added
                product, 5 points will be awarded.
                 (5) If the business processes, distributes, aggregates, stores,
                and/or markets locally or regionally produced agricultural food
                products to underserved communities in accordance with Sec.
                5001.105(b)(15)(ii), 5 points will be awarded.
                 (6) If the business creates or saves a minimum of five jobs with an
                average wage exceeding 150 percent of the Federal minimum wage, 5
                points will be awarded.
                 (7) If the business offers a healthcare benefits package to all
                employees and pays at least 50 percent of the healthcare premium, 5
                points will be awarded.
                 (e) Administrative points. An application is eligible to receive
                points under paragraphs (e)(1) through (3) of this section.
                 (1) For projects awarded under State allocations the State Director
                may assign up to 10 additional points to an application to account for
                state-wide distribution of funds for natural disasters, local economic
                emergency conditions, community economic development strategies, State
                strategic plans, fundamental structural changes in a community's
                economic base, or projects that will fulfill an Agency special
                initiative.
                 (2) For projects requesting funds from the national reserve
                account, the State Director may request up to 10 administrative points
                from the Administrator.
                 (3) If an application is for a loan in excess of 10 million
                dollars, the Administrator may assign up to an additional 10 points to
                account for the nationwide geographic distribution of funds, or
                projects that will fulfill an Agency special initiative.
                Sec. 5001.319 REAP project priority point system.
                 This section applies to REAP projects seeking a loan guarantee. On
                a periodic basis, the Agency will compete each complete and eligible
                RES, EEI, and EEE application that is ready to be funded and whose
                priority score, as determined in this section, meets or exceeds the
                minimum priority score. Applications that do not meet the applicable
                [[Page 42554]]
                minimum score will be considered as provided in Sec. 5001.315(c)(2). A
                maximum score of 90 points is possible.
                 (a) Environmental benefits. The Agency will award up to 5 points
                under this criterion based on documentation in the application that the
                project will have a positive effect on resource conservation, public
                health, and the environment. If the project will have a positive impact
                on:
                 (1) All three impact areas, 5 points will be awarded;
                 (2) Any two of the three impact areas, 3 points will be awarded; or
                 (3) Any one of the three impact areas, 1 point will be awarded.
                 (b) Energy generated, replaced, saved, or percent efficiency. The
                Agency will award up to 25 points under this criterion. Each
                application is eligible for points under both paragraphs (b)(1) and (2)
                of this section.
                 (1) Quantity of energy generated or saved per RES/EEI loan amount
                requested, or percent efficiency of EEE project. The Agency will award
                up to 10 points under this sub-criterion. Points will be awarded for
                either the amount of renewable energy generation per dollar of loan
                amount requested, which includes those projects that are replacing
                energy usage with a renewable source; or the actual annual average
                energy savings over the most recent 12, 24, 36, 48, or 60 consecutive
                months of operation per dollar of guaranteed loan amount requested; or
                the percent efficiency of the EEE project. The Agency will not award
                points for more than one category.
                 (i) Renewable energy systems. The quantity of energy generated or
                replaced per guaranteed loan dollar requested will be determined by
                dividing the projected total annual energy generated or replaced by the
                RES or RES retrofit (minus energy for residential use), which will be
                converted to BTUs, by the guaranteed loan dollars requested. Points
                will be awarded under this sub-criterion based on the annual amount of
                energy generated or replaced (minus energy for residential use) per
                dollar of guaranteed loan amount requested for the RES project. The
                Agency will award up to 10 points as determined under paragraph
                (b)(1)(i)(A) and (B) of this section below. If the annual amount of
                energy generated per dollar of guaranteed loan amount requested
                calculated under paragraph (b)(1)(ii) of this section is:
                 (A) 50,000 BTUs or higher average annual energy generated or
                replaced per dollar of guaranteed loan amount requested or higher, 10
                points will be awarded; or
                 (B) Less than 50,000 BTUs annual energy generated or replaced per
                dollar of guaranteed loan amount requested, points will be awarded
                according to the result of taking the energy generated or replaced per
                guaranteed loan dollar requested / 50,000 x 10 points. The points
                awarded are rounded to the nearest hundredth of a point.
                 (ii) Energy efficiency improvements. The Agency will award up to 10
                points under this sub-criterion based on the average annual energy
                saved per dollar of guaranteed loan amount requested for the EEI
                project. The Agency will award up to 10 points as determined under
                paragraph (b)(1)(ii)(A) and (B) of this section.
                 (A) 50,000 BTUs or higher average annual energy saved per dollar of
                guaranteed loan amount requested, 10 points will be awarded; or
                 (B) Less than 50,000 BTUs average annual energy saved per dollar of
                guaranteed loan amount requested, points will be awarded according to
                the result of taking the energy generated per loan dollar requested /
                50,000 x 10 points. The points awarded are rounded to the nearest
                hundredth of a point.
                 (iii) Energy efficient equipment and systems. If the increased
                energy efficiency of the proposed equipment and systems is--
                 (A) 75 percent or greater, award 10 points;
                 (B) Less than 75 percent but equal to or greater than 50 percent,
                award 5 points;
                 (C) Less than 50 percent but equal to or greater than 25 percent,
                award 2.5 points; or
                 (D) Less than 25 percent, award 0 points.
                 (2) Quantity of energy replaced, generated, or saved, or percentage
                of energy efficiency. The Agency will award up to 15 points under this
                sub-criterion. Points will be awarded based on whether the project is
                for energy replacement, energy generation, or energy savings, or
                percentage of energy efficiency; points will not be awarded for more
                than one category.
                 (i) Energy replacement. The Agency will award points under this
                sub-criterion for an RES project based on the amount of energy replaced
                by the project compared to the amount of energy used by the applicable
                process(es) over a 12-month period. If the estimated energy produced is
                more than 150 percent of the energy used by the applicable process(es),
                the project will be scored as an energy generation project under
                paragraph (b)(2)(ii) of this section.
                 (A) Documentation for energy replacement. For a RES project to
                qualify as energy replacement, the borrower must provide documentation
                in its application on prior energy use incurred by the borrower.
                Proposed energy use, such as that attributed to an expansion, is not
                considered in the replacement calculation. For a RES project involving
                new construction and being installed to serve the new facility, the
                project can be classified as energy replacement only if the borrower
                can document prior energy use from a facility that is within plus or
                minus 10 percent of the size of the facility it is replacing. The
                estimated quantities of energy must be converted to either BTUs, watts,
                or similar energy equivalents to facilitate scoring.
                 (B) Calculation. Energy replacement is determined by dividing the
                quantity of renewable energy that the RES project is estimated would
                have been generated if it were in place over the most recent 12-month
                period by the quantity of energy actually consumed over the same period
                by the applicable energy process(es) that is(are) consuming energy.
                 (C) Awarding of points. Using the results from paragraph
                (b)(2)(ii)(B) of this section, if the percentage of energy replacement
                is--
                 (1) Greater than 50 percent, 15 points will be awarded;
                 (2) Greater than 25 percent, but equal to or less than 50 percent,
                10 points will be awarded; or
                 (3) Equal to or less than 25 percent, 5 points will be awarded.
                 (ii) Energy generation. If the RES project is intended for
                production of energy or is a proposed retrofitting of an existing RES
                which increases the amount of energy generated, the Agency will award
                10 points.
                 (iii) Energy saved. The Agency will award up to 15 points under
                this sub-criterion for an EEI project based on the percentage of
                estimated energy saved by the installation of the project as determined
                by the projections in the applicable energy assessment or energy audit.
                If the estimated energy expected to be saved over the same period used
                in the energy assessment or energy audit, as applicable, will be--
                 (A) 50 percent or greater, 15 points will be awarded;
                 (B) 35 percent up to, but not including 50 percent, 10 points will
                be awarded;
                 (C) 20 percent up to, but not including 35 percent, 5 points will
                be awarded; or
                 (D) Less than 20 percent, no points will be awarded.
                 (iv) Energy efficiency. If the percentage of energy efficiency is--
                 (A) Greater than 50 percent, 15 points will be awarded;
                [[Page 42555]]
                 (B) Greater than 25 percent, but equal to or less than 50 percent,
                10 points will be awarded; or
                 (C) Equal to or less than 25 percent, 5 points will be awarded.
                 (c) Commitment of funds. The Agency will award up to 15 points
                under this criterion based on the percentage of acceptable written
                commitment a borrower has from its other funding sources that are
                documented with a complete application.
                 (1) Calculation. The percentage of written commitment is calculated
                as follows: Percentage of written commitment = total amount of funds
                for which written commitments have been submitted with the application
                / Total amount of matching funds and other funds required.
                 (2) Awarding of points. Using the result from paragraph (c)(1) of
                this section, the Agency will award points as shown in paragraphs
                (c)(2)(i) through (iii) of this section.
                 (i) If the percentage of written commitments is 100 percent of the
                matching funds, 15 points will be awarded.
                 (ii) If the percentage of written commitments is less than 100
                percent, but more than 50 percent, points will be awarded as follows:
                ((Percentage of written commitments - 50 percent) / (50 percent)) x 15
                points, where points awarded are rounded to the nearest hundredth of a
                point.
                 (iii) If the percentage of written commitments is 50 percent or
                less, no points will be awarded.
                 (d) Previous grantees or borrowers. The Agency will award up to 15
                points under this criterion based on whether the borrower has received
                and accepted a REAP grant award under 7 CFR part 4280 or a guaranteed
                loan commitment under either this part or 7 CFR part 4280.
                 (1) If the borrower has never received and accepted a grant award
                under 7 CFR part 4280 or a guaranteed loan commitment under either this
                part or 7 CFR part 4280, 15 points will be awarded.
                 (2) If the borrower has not received and accepted a grant award
                under 7 CFR part 4280 or a guaranteed loan commitment under either this
                part or 7 CFR part 4280 within the previous two Federal fiscal years,
                10 points will be awarded.
                 (3) If the borrower has received and accepted a grant award under 7
                CFR part 4280 or a guaranteed loan commitment under either this part or
                7 CFR part 4280 within the previous two Federal fiscal years, no points
                will be awarded.
                 (e) Existing businesses. A maximum of 5 points will be awarded for
                an existing agricultural producer business or rural small business that
                meets the definition of existing business in Sec. 5001.3.
                 (f) Simple payback. A maximum of 15 points will be awarded for this
                criterion based on the simple payback of the project as defined in
                Sec. 5001.3. Points will be awarded for either RES, EEI, or EEE;
                points will not be awarded for more than one category.
                 (1) Renewable energy systems. If the simple payback of the project
                is--
                 (i) Less than 10 years, 15 points will be awarded;
                 (ii) 10 years up to but not including 15 years, 10 points will be
                awarded;
                 (iii) 15 years up to and including 25 years, 5 points will be
                awarded; or
                 (iv) Longer than 25 years, no points will be awarded.
                 (2) Energy efficiency improvements. If the simple payback of the
                project is:
                 (i) Less than 4 years, 15 points will be awarded;
                 (ii) 4 years up to but not including 8 years, 10 points will be
                awarded;
                 (iii) 8 years up to and including 12 years, 5 points will be
                awarded; or
                 (iv) Longer than 12 years, no points will be awarded.
                 (3) Energy efficient equipment and systems. If the simple payback
                of the project is--
                 (i) Less than 4 years, 15 points will be awarded;
                 (ii) 4 years up to but not including 8 years, 10 points will be
                awarded;
                 (iii) 8 years up to and including 12 years, 5 points will be
                awarded; or
                 (iv) Longer than 12 years, no points will be awarded.
                 (g) Administrator priority points. Under this criterion, the
                Administrator may award up to 10 points to an application based on the
                conditions specified in paragraphs (g)(1) through (5) of this section.
                Under no circumstances will an application receive more than 10 points
                under this criterion.
                 (1) The application is for an under-represented technology.
                 (2) Selecting the application helps achieve geographic diversity.
                 (3) The borrower is a member of an unserved or under-served
                population.
                 (i) The borrower is a veteran or veterans own 20 percent or more in
                interest in the borrower. In order to receive points, the borrower must
                sign a certification in its application to indicate that the borrower
                has veteran status; or
                 (ii) The borrower is a member of a socially disadvantaged group or
                members of socially disadvantaged group(s) own 20 percent or more in
                interest in the borrower socially disadvantaged groups are groups whose
                members have been subjected to racial, ethnic, or gender prejudice
                because of their identity as members of a group without regard to their
                individual qualities. In order to receive points, the application must
                include a statement to indicate that borrower is a member of a socially
                disadvantaged group.
                 (4) Selecting the application helps further a Presidential
                initiative or a Secretary of Agriculture priority.
                 (5) The proposed project is located in a federally declared
                disaster area. Declarations must be within the last 3 calendar years.
                 (6) The project is located in an area where 20 percent or more of
                its population is living in poverty, as defined by the United States
                Census Bureau; an underserved community; or an area which has
                experienced long-term population decline, or loss of employment.
                 (h) Unused funding. After each periodic competition, the Agency
                will roll any remaining guaranteed loan funding authority into the next
                competition. At the end of each Federal fiscal year, the Agency may
                elect at its discretion to allow any remaining multi-year funds to be
                carried over to the next Federal fiscal year rather than selecting a
                lower scoring application.
                Sec. Sec. 5001.320-5001.400 [Reserved]
                Appendix A to Subpart D of Part 5001--Feasibility Study Components
                BILLING CODE 3410-15-P
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                [[Page 42557]]
                [GRAPHIC] [TIFF OMITTED] TR14JY20.009
                [[Page 42558]]
                Appendix B to Subpart D of Part 5001-- Financial Feasibility Reports
                [GRAPHIC] [TIFF OMITTED] TR14JY20.010
                [[Page 42559]]
                [GRAPHIC] [TIFF OMITTED] TR14JY20.011
                BILLING CODE 3410-15-C
                Appendix C to Subpart D of Part 5001--Technical Reports for Energy
                Efficiency Improvement (EEI) Projects With Total Project Costs of More
                Than $80,000
                Technical Reports for Energy Efficiency Improvement (EEI) Projects With
                Total Project Costs of More Than $80,000
                 For all EEI projects with Total Project Costs of more than
                $80,000, provide the information specified in Sections A and D and
                in Section B or Section C, as applicable. If the application is for
                an EEI project with Total Project Costs of $80,000 or less, please
                see Sec. 5001.307 (e) for the technical report information to be
                submitted with your application.
                 If the application is for an EEI project with Total Project
                Costs of $200,000 and greater, you must conduct an Energy Audit
                (EA). However, if the application is for an EEI project with a Total
                Project Costs of less than $200,000, you may conduct either an
                Energy Assessment or an Energy Audit. Energy Audits that meet the
                American Society of Heating, Refrigeration and Air-Conditioning
                Engineers (ASHREA) Level II Energy Survey; Analysis and American
                National Standards Institute (ANSI); or American Society of
                Agricultural and Biological Engineers (ASABE)_S162 Standard for
                performing on farm Energy Audits will be considered by the Agency to
                be acceptable audits.
                Section A. Project Information
                 Describe how all the improvements to or replacement of an
                existing building and/or equipment meet the requirements of being
                Commercially Available. Describe how the design, engineering,
                testing, and monitoring are sufficient to demonstrate that the
                proposed project will meet its intended purpose, ensure public
                safety, and comply with applicable laws, regulations, agreements,
                permits, codes, and standards. Describe how all equipment required
                for the EEI(s) is available and able to be procured and delivered
                within the proposed project development schedule. In addition,
                present information regarding component warranties and the
                availability of spare parts.
                Section B. Energy Audit
                 If conducting an EA, provide the following information.
                 (1) Situation Report. Provide a narrative description of the
                existing building and/or equipment, its energy system(s) and usage,
                and activity profile. Also include average price per unit of energy
                (electricity, natural gas, propane, fuel oil, renewable energy,
                etc.) paid by the customer for the most recent 12 months, or an
                average of 2, 3, 4, or 5 years, for the building and equipment being
                audited. Any energy conversion should be based on use rather than
                source.
                 (2) Potential Improvement Description. Provide a narrative
                summary of the potential improvement and its ability to reduce
                energy consumption or improve energy efficiency, including a
                discussion of reliability and durability of the improvements.
                 (i) Provide preliminary specifications for critical components.
                 (ii) Provide preliminary drawings of project layout, including
                any related structural changes.
                 (iii) Identify significant changes in future related operations
                and maintenance costs.
                 (iv) Describe explicitly how outcomes will be measured.
                 (3) Technical Analysis. Give consideration to the interactions
                among the potential improvements and the current energy system(s).
                 (i) For the most recent 12 months, or an average of 2, 3, 4, or
                5 years, prior to the date the application is submitted, provide
                both the total amount and the total cost of energy used for the
                original building and/or equipment, as applicable, for each
                improvement identified in the potential project. In addition,
                provide for each improvement identified in the potential project an
                estimate of the total amount of energy that would have been used and
                the total cost that would have been incurred if the proposed project
                were in operation for this same time period.
                 (ii) Calculate all direct and attendant indirect costs of each
                improvement;
                 (iii) Rank potential improvements measures by cost-
                effectiveness; and
                 (iv) Provide an estimate of Simple Payback, including all
                calculations, documentation, and any assumptions.
                 (4) Qualifications of the Auditor. Provide the qualifications of
                the individual or entity which completed the Energy Audit.
                Section C. Energy Assessment
                 If conducting an Energy Assessment, provide the following
                information.
                 (1) Situation Report. Provide a narrative description of the
                existing building and/or equipment, its energy system(s) and usage,
                and activity profile. Also include average price per unit of energy
                (electricity, natural gas, propane, fuel oil, renewable energy,
                etc.) paid by the customer for the most recent 12 months, or an
                average of 2, 3, 4, or 5 years, for the building and equipment being
                evaluated. Any energy conversion shall be based on use rather than
                source.
                 (2) Potential Improvement Description. Provide a narrative
                summary of the potential improvement and its ability to reduce
                energy consumption or improve energy efficiency.
                 (3) Technical Analysis. Giving consideration to the interactions
                among the potential improvements and the current energy system(s),
                provide the information specified in paragraphs (3)(i) through (iii)
                of this appendix.
                 (i) For the most recent 12 months, or an average of 2, 3, 4, or
                5 years, prior to the date the application is submitted, provide
                both the total amount and the total cost of energy used for the
                original building and/or equipment, as applicable, for each
                improvement identified in the potential project. In addition,
                provide for each improvement identified in the potential project an
                estimate of the total amount of energy that would have been used and
                the total cost that would have been incurred if the proposed project
                were in operation for this same time period.
                 (ii) Document baseline data compared to projected consumption,
                together with any
                [[Page 42560]]
                explanatory notes on source of the projected consumption data. When
                appropriate, show before-and-after data in terms of consumption per
                unit of production, time, or area.
                 (iii) Provide an estimate of Simple Payback, including all
                calculations, documentation, and any assumptions.
                 (4) Qualifications of the Assessor. Provide the qualifications
                of the individual or entity that completed the assessment. If the
                Energy Assessment for a project with Total Project Costs of $80,000
                or less is not conducted by Energy Auditor or Energy Assessor, then
                the individual or entity must have at least 3 years of experience
                and completed at least five Energy Assessments or Energy Audits on
                similar type projects.
                Section D. Qualifications
                 Provide a resume or other evidence of the contractor or
                installer's qualifications and experience with the proposed EEI
                technology. Any contractor or installer with less than 2 years of
                experience may be required to provide additional information in
                order for the Agency to determine if they are qualified installer/
                contractor.
                Appendix D to Subpart D of Part 5001--Technical Reports for Renewable
                Energy System (RES) Projects With Total Project Costs of Less Than
                $200,000 but More Than $80,000
                Technical Reports for Renewable Energy System (RES) Projects With Total
                Project Costs of Less Than $200,000 but More Than $80,000
                 Provide the information specified in Sections A through D for
                each technical report prepared under this appendix. A Renewable
                Energy Site Assessment may be used in lieu of Sections A through C
                if the Renewable Energy Site Assessment contains the information
                requested in Sections A through C. In such instances, the technical
                report would consist of Section D and the Renewable Energy Site
                Assessment.
                 Note: If the Total Project Cost for the RES project is $80,000
                or less, this appendix does not apply. Instead, for such projects,
                please provide the information specified in Sec. 5001.307(e).
                Section A. Project Description
                 Provide a description of the project, including its intended
                purpose and a summary of how the project will be constructed and
                installed. Describe how the system meets the definition of
                Commercially Available. Identify the project's location and describe
                the project site.
                Section B. Resource Assessment
                 Describe the quality and availability of the renewable resource
                to the project. Identify the amount of Renewable Energy generated
                that will be generated once the proposed project is operating at its
                steady state operating level. If applicable, also identify the
                percentage of energy being replaced by the system.
                 If the application is for a Bioenergy Project, provide
                documentation that demonstrates that any and all woody biomass
                feedstock from National Forest System land or public lands cannot be
                used as a higher value wood-based product.
                Section C. Project Economic Assessment
                 Describe the projected financial performance of the proposed
                project. The description must address Total Project Costs, energy
                savings, and revenues, including applicable investment and other
                production incentives accruing from Government entities. Revenues to
                be considered shall accrue from the sale of energy, offset or
                savings in energy costs, byproducts, and green tags. Provide an
                estimate of Simple Payback, including all calculations,
                documentation, and any assumptions.
                Section D. Project Construction and Equipment Information
                 Describe how the design, engineering, testing, and monitoring
                are sufficient to demonstrate that the proposed project will meet
                its intended purpose, ensure public safety, and comply with
                applicable laws, regulations, agreements, permits, codes, and
                standards. Describe how all equipment required for the RES is
                available and able to be procured and delivered within the proposed
                project development schedule. In addition, present information
                regarding component warranties and the availability of spare parts.
                Section E. Qualifications of Key Service Providers
                 Describe the key service providers, including the number of
                similar systems installed and/or manufactured, professional
                credentials, licenses, and relevant experience. When specific
                numbers are not available for similar systems, estimations will be
                acceptable.
                Appendix E to Subpart D of Part 5001--Technical Reports for Renewable
                Energy System (RES) Projects With Total Project Costs of $200,000 and
                Greater
                Technical Reports for Renewable Energy System (RES) Projects With Total
                Project Costs of $200,000 and Greater
                 Provide the information specified in Sections A through G for
                each technical report prepared under this appendix. Provide the
                resource assessment under Section C that is applicable to the
                project. For hybrid projects, technical reports must be prepared for
                each technology that comprises the hybrid project.
                Section A. Qualifications of the Project Team
                 Describe the project team, their professional credentials, and
                relevant experience. The description shall support that the project
                team key service providers have the necessary professional
                credentials, licenses, certifications, and relevant experience to
                develop the proposed project.
                Section B. Agreements and Permits
                 Describe the necessary agreements and permits (including any for
                local zoning requirements) required for the project and the
                anticipated schedule for securing those agreements and permits. For
                example, Interconnection Agreements and Power Purchase Agreements
                are necessary for all Renewable Energy projects electrically
                interconnected to the utility grid.
                Section C. Resource Assessment
                 Describe the quality and availability of the renewable resource
                and the amount of Renewable Energy generated through the deployment
                of the proposed system. For all Bioenergy Projects, except Anaerobic
                Digesters Projects, complete Section C.3 of this appendix. For
                Anaerobic Digester Projects, complete Section C.6 of this appendix.
                 (1) Wind. Provide adequate and appropriate data to demonstrate
                the amount of renewable resource available. Indicate the source of
                the wind data and the conditions of the wind monitoring when
                collected at the site or assumptions made when applying nearby wind
                data to the site.
                 (2) Solar. Provide adequate and appropriate data to demonstrate
                the amount of renewable resource available. Indicate the source of
                the solar data and assumptions.
                 (3) Bioenergy/Biomass Project. Provide adequate and appropriate
                data to demonstrate the amount of renewable resource available.
                Indicate the type, quantity, quality, and seasonality of the
                Renewable Biomass resource, including harvest and storage, where
                applicable. Where applicable, also indicate shipping or receiving
                method and required infrastructure for shipping. For proposed
                projects with an established resource, provide a summary of the
                resource. Document that any and all woody biomass feedstock from
                National Forest System land or public lands cannot be used as a
                higher value wood-based product.
                 (4) Geothermal Electric Generation. Provide adequate and
                appropriate data to demonstrate the amount of renewable resource
                available. Indicate the quality of the geothermal resource,
                including temperature, flow, and sustainability and what conversion
                system is to be installed. Describe any special handling of cooled
                geothermal waters that may be necessary. Describe the process for
                determining the geothermal resource, including measurement setup for
                the collection of the geothermal resource data. For proposed
                projects with an established resource, provide a summary of the
                resource and the specifications of the measurement setup.
                 (5) Geothermal Direct Generation. Provide adequate and
                appropriate data to demonstrate the amount of renewable resource
                available. Indicate the quality of the geothermal resource,
                including temperature, flow, and sustainability and what direct use
                system is to be installed. Describe any special handling of cooled
                geothermal waters that may be necessary. Describe the process for
                determining the geothermal resource, including measurement setup for
                the collection of the geothermal resource data. For proposed
                projects with an established resource, provide a summary of the
                resource and the specifications of the measurement setup.
                 (6) Anaerobic Digester Project/Biogas. Provide adequate and
                appropriate data to demonstrate the amount of renewable resource
                available. Indicate the substrates
                [[Page 42561]]
                used as digester inputs, including animal wastes or other Renewable
                Biomass in terms of type, quantity, seasonality, and frequency of
                collection. Describe any special handling of feedstock that may be
                necessary. Describe the process for determining the feedstock
                resource. Provide either tabular values or laboratory analysis of
                representative samples that include biodegradability studies to
                produce gas production estimates for the project on daily, monthly,
                and seasonal basis. If an anerobic digester project, identify the
                type of operation (e.g., dairy, swine, layer, etc.), along with
                breed, herd population size and demographics, and the type of waste
                collection method and frequency information available. For the
                biogas produced, identify the type of digester (e.g., mixed, plug-
                flow, attached film, covered lagoon, etc.), if applicable, or the
                method of capture (landfill, sewage waste treatment, etc.) and
                treatment. Identify the system designer and determine the digester
                design assumptions such as the number and type of animals, the
                bedding type and estimated annual quantity used, the manure and
                wastewater volumes, and the treatment of digester effluent (e.g.,
                none, solids separation by screening, etc. with details including
                use or method of disposal).
                 (7) Hydrogen Project. Provide adequate and appropriate data to
                demonstrate the amount of renewable resource available. Indicate the
                type, quantity, quality, and seasonality of the Renewable Biomass
                resource. For solar, wind, or geothermal sources of energy used to
                generate hydrogen, indicate the renewable resource where the
                hydrogen system is to be installed. Local resource maps may be used
                as an acceptable preliminary source of renewable resource data. For
                proposed projects with an established renewable resource, provide a
                summary of the resource.
                 (8) Hydroelectric/Ocean Energy Projects. Provide adequate and
                appropriate data to demonstrate the amount of renewable resource
                available. Indicate the quality of the resource, including
                temperature (if applicable), flow, and sustainability of the
                resource, including a summary of the resource evaluation process and
                the specifications of the measurement setup and the date and
                duration of the evaluation process and proximity to the proposed
                site. If less than 1 year of data is used, a Qualified Consultant
                must provide a detailed analysis of the correlation between the site
                data and a nearby, long-term measurement site.
                 (9) Renewable Energy Systems with Storage Components. Provide
                adequate and appropriate data to demonstrate the amount of renewable
                resource available. Indicate the type, quantity, quality, and
                seasonality of the Renewable Energy resource, where applicable.
                Indicate the storage system specifications and the integrity of the
                system in conjunction with the renewable energy system it is
                integrated with, including application, size, lifetime, response
                time, capital and maintenance costs associated with the operation as
                well as the distribution of the stored resource(s).
                Section D. Design and Engineering
                 Describe the intended purpose of the project and the design,
                engineering, testing, and monitoring needed for the proposed
                project. The description shall support that the system will be
                designed, engineered, tested, and monitored so as to meet its
                intended purpose, ensure public safety, and comply with applicable
                laws, regulations, agreements, permits, codes, and standards. In
                addition, identify that all major equipment is Commercially
                Available, including proprietary equipment, and justify how this
                unique equipment is needed to meet the requirements of the proposed
                design. In addition, information regarding component warranties and
                the availability of spare parts must be presented.
                Section E. Project Development
                 Describe the overall project development method, including the
                key project development activities and the proposed schedule,
                including proposed dates for each activity. The description shall
                identify each significant historical and projected activity, its
                beginning and end, and its relationship to the time needed to
                initiate and carry the activity through to successful project
                completion. The description shall address Applicant project
                development cash flow requirements. Details for equipment
                procurement and installation shall be addressed in Section F of this
                Appendix. Applications should include a concise development schedule
                with timelines for activities.
                Section F. Equipment Procurement and Installation
                 Describe the availability of the equipment required by the
                system. The description shall support that the required equipment is
                available and can be procured and delivered within the proposed
                project development schedule. Describe the plan for site development
                and system installation, including any special equipment
                requirements. In all cases, the system or improvement shall be
                installed in conformance with manufacturer's specifications and
                design requirements, and comply with applicable laws, regulations,
                agreements, permits, codes, and standards.
                Section G. Operations and Maintenance
                 Describe the operations and maintenance requirements of the
                system, including major rebuilds and component replacements
                necessary for the system to operate as designed over its useful
                life. The warranty must cover and provide protection against both
                breakdown and a degradation of performance. The performance of the
                RES or EEI shall be monitored and recorded as appropriate to the
                specific technology.
                Subpart E--Loan and Guarantee Provisions
                Loan Provisions
                Sec. 5001.401 Interest rate provisions.
                 Interest rates, interest rate caps, and incremental interest rate
                adjustment limitations on a guaranteed loan are negotiated between the
                Lender and the borrower. The interest rate for a guaranteed loan can be
                either fixed or variable, or a combination thereof, as long as it is a
                legal rate. Interest rates cannot be more than those rates the lender
                customarily charges its borrowers for non-guaranteed loans in similar
                circumstances in the ordinary course of business. The Agency encourages
                each lender to use the secondary market and pass interest-rate savings
                on to the borrower.
                 (a) Different rates on guaranteed and unguaranteed portion of the
                guaranteed loan. It is permissible to have different interest rates on
                the guaranteed and unguaranteed portions of the loan.
                 (b) Variable interest rates. A variable interest rate must be an
                interest rate that is tied to a published base rate, as published in a
                national or regional financial publication, and is agreed to by the
                Agency.
                 (1) The variable interest base rate must be specified in the
                promissory note along with any interest factors (e.g., National Prime
                plus 1.0 percent).
                 (2) The lender may adjust the variable interest rate at different
                intervals during the term of the loan, but not more often than
                quarterly.
                 (3) The lender must incorporate, within the variable rate
                promissory note, a provision for adjustment of payment installments to
                fully amortize the loan by its maturity date.
                 (c) Multi-rates. When multi-rates are used, the lender must provide
                the Agency with the overall effective Interest rate for the entire
                loan.
                 (d) Interest rate changes. Any change in the base rate or fixed
                interest rate between issuance of the conditional commitment and the
                issuance of the loan note guarantee must be approved by the Agency.
                Approval of such a change must be shown as an amendment to the
                conditional commitment and must be reflected on the guaranteed loan
                closing report form.
                Sec. 5001.402 Term length, loan schedule, and repayment.
                 (a) Term length. The lender, with Agency concurrence, will
                establish and justify the guaranteed loan term based on the use of
                guaranteed loan funds, the useful economic life of the assets being
                financed and those used as collateral, and the borrower's repayment
                ability. The maximum term allowable for final guaranteed loan maturity
                is limited to the justified useful life of the project or assets used
                as collateral but may not exceed 40 years or limitations in the
                applicable State statute, whichever is less.
                 (b) Guaranteed loan schedule and repayment. The lender must
                structure repayment in consideration of the borrower's cash flow and in
                accordance with the provisions of this section and
                [[Page 42562]]
                the loan agreement. Scheduled guaranteed loan payments shall be made no
                less frequently than annually. In addition:
                 (1) Both the guaranteed and unguaranteed portions of the loan must
                be amortized over the same term.
                 (2) Guaranteed loans must require a periodic payment schedule that
                will retire the debt over the term of the loan without a balloon
                payment.
                 (3) If the promissory note provides for an interest-only period,
                interest must be paid at least annually starting on a date that is no
                more than one year from the date of the promissory note. The first full
                payment on the guaranteed loan including principal and interest must be
                due and payable within three years from the date of the promissory note
                or as soon as the project is operational and has begun to generate
                income, whichever occurs first.
                 (4) There must be no ``due-on-demand'' clauses without cause.
                Regardless of any ``due-on-demand'' with cause provision in a lender's
                promissory note, the Agency must concur in any acceleration of the
                guaranteed loan unless the basis for acceleration is monetary default.
                Sec. 5001.403 Lender fees.
                 (a) The lender may charge the borrower reasonable, routine, and
                customary charges and fees for the guaranteed loan provided they are
                similar to those charges the lender assesses other borrowers for the
                same type of loan not subject to a loan guarantee. The lender must
                document such fees in the application. The lender may also charge
                routine and customary prepayment penalties and late payment fees for
                the guaranteed loan, which must be stated in the guaranteed loan
                documents.
                 (b) Default charges, penalty interest, late payment fees, and
                additional interest expenses are not covered by the loan note guarantee
                and cannot be added to the principal or Interest due under any loan
                note guarantee in the event of a loss claim as prescribed in Sec.
                5001.521or a repurchase as prescribed in Sec. 5001.511.
                Sec. Sec. 5001.404-5001.405 [Reserved]
                Sec. 5001.406 Guaranteed loan amounts.
                 Applicable guaranteed loan amounts depend on the type of project
                and the source of its funding.
                 (a) CF projects. The maximum amount of a CF guaranteed loan that
                may be made to a borrower, including the guaranteed and unguaranteed
                portions of any CF guaranteed loans, the outstanding principal and
                interest balance of any existing CF guaranteed loans, and any new CF
                guaranteed loan that is the subject of an application must not exceed
                $100 million.
                 (b) WWD projects. The maximum amount of a WWD guaranteed loan that
                may be made to a borrower, including the guaranteed and unguaranteed
                portions of any WWD guaranteed loans, the outstanding principal and
                interest balance of any existing WWD guaranteed loans, and any new WWD
                guaranteed loan that is the subject of an application must not exceed
                $50 million.
                 (c) B&I projects. The maximum total amount of B&I guaranteed loans
                (including the guaranteed and unguaranteed portions of any B&I
                guaranteed loans, the outstanding principal and interest balance of any
                existing B&I guaranteed loans, and any new B&I guaranteed loan that is
                the subject of an application) that may be made to a borrower is
                limited to a maximum amount of $25 million. The Secretary, whose
                authority may not be redelegated, may approve, at the Secretary's
                discretion, guaranteed loans in excess of $25 million and up to $40
                million for rural cooperatives that process value-added agricultural
                commodities in accordance with Sec. 5001.105(b)(18)(i).
                 (d) REAP projects. The amount of a guaranteed loan that will be
                made available to an eligible project and borrower under this part will
                be at least $5,000 not to exceed 75 percent of eligible project costs.
                 (1) The maximum total amount of REAP guaranteed loans made to a
                borrower, including the guaranteed and unguaranteed portions of all
                REAP guaranteed loans, the outstanding principal and interest balance
                of any existing REAP guaranteed loans and the new REAP guaranteed loan
                that is the subject of an application, must not exceed $25 million.
                 (2) The total amount of funds available to agricultural producers
                for energy efficient equipment and systems will not exceed 15 percent
                of annual funds available to the program.
                Sec. 5001.407 Percentage of loan guarantee.
                 The percent of loan guaranteed may vary from program to program.
                The maximum guarantee is 90 percent of eligible guaranteed loan loss
                The Agency will set annually a guarantee percentage by program that
                will apply to loans guaranteed within each program. The annual
                guarantee percentage will take current Federal credit policy into
                consideration and may be set at or below the maximum allowed authorized
                by statute. The Agency will announce annual guarantee percentages each
                fiscal year by publishing a document in the Federal Register in
                accordance with Sec. 5001.10.
                Sec. 5001.408 Participation or assignment of guaranteed loan.
                 (a) General. The lender may participate or assign all or part of
                the guaranteed portion of the guaranteed loan on the secondary market
                subject to the conditions specified in paragraphs (a)(1) through (5) of
                this section or retain the entire guaranteed loan.
                 (1) Participation. The lender may obtain participation in the loan
                under its normal operating procedures; however, the lender must retain
                title to and possession of the promissory note(s) and retain the
                lender's interest in the collateral.
                 (2) Assignment. Any sale or assignment by the lender of the
                guaranteed portion of the loan must be accomplished in accordance with
                the conditions in the lender's agreement and the provisions of this
                section. The holders and the borrower have no rights or obligations to
                one another.
                 (3) Minimum retention by the lender. Minimum retention at all times
                must be from the unguaranteed portion of the loan and cannot be
                participated to another person.
                 (i) The lender must hold a minimum of 7.5 percent of the total loan
                amount.
                 (ii) The lender must retain its security interest in the collateral
                and retain the servicing responsibilities for the guaranteed loan.
                 (iii) The Agency can approve a reduction of the minimum retention
                requirement below the applicable percentage on a case-by-case basis
                when the lender establishes to the Agency's satisfaction that reduction
                of the minimum retention percentage is necessary to meet compliance
                with the lender's regulatory authority.
                 (4) Prohibition. The lender must not sell or participate any amount
                of the guaranteed or non-guaranteed portion of the loan to the
                borrower, to members of the borrower's immediate families, the
                borrower's officers, directors, stockholders, other owners, or to a
                parent company, an affiliate, or a subsidiary of the borrower.
                 (5) Secondary market. The lender must properly close their loan and
                fully disburse loan funds for the purposes intended prior to sale of
                the promissory note(s) or loan note guarantee on the secondary market.
                The lender can sell all or part of the guaranteed portion of the loan
                only if the loan is not in default.
                 (b) Lender's servicing fee to holder. The assignment guarantee
                agreement
                [[Page 42563]]
                must clearly state the guarantee portion of loan as a percentage and
                corresponding dollar amount of the guaranteed portion of the guaranteed
                loan it represents and the lender's servicing fee. The lender must
                maintain a minimum servicing fee of 50 basis points from any holder.
                The lender cannot charge the Agency a servicing fee and servicing fees
                are not eligible expenses for loss claim.
                 (c) Distribution of proceeds. The lender must apply all loan
                payments and collateral proceeds received to the guaranteed and
                unguaranteed portions of the loan on a pro rata basis. If multiple
                types of Agency guaranteed loans exist for the same project, these will
                also be paid on a pro rata basis.
                 (d) Promissory note(s). A loan note guarantee is issued to the
                lender for a specific promissory note(s) executed between the lender
                and the borrower. The lender must retain title to and possession of the
                guaranteed promissory note(s), retain the lender's interest in the
                collateral, and retain the servicing responsibilities for the
                guaranteed loan. The lender is prohibited from issuing any additional
                promissory notes at a later date for the same guaranteed loan.
                 (1) The lender may assign all or part of the guaranteed portion of
                the loan, including interest strips, to one or more holders by using an
                assignment guarantee agreement for each holder. The lender must
                complete and execute the assignment guarantee agreement and return it
                to the Agency for execution prior to holder execution.
                 (2) The lender or holder may request a certificate of incumbency
                and signature from the Agency.
                 (3) A holder, upon written notice to the lender and the Agency, may
                reassign the unpaid guaranteed portion of the loan, in full, sold under
                the assignment guarantee agreement. Holders can only reassign the
                complete block they have received and cannot subdivide or further split
                their interest in the guaranteed portion of a loan or retain an
                interest strip.
                 (4) Upon notification and completion of the assignment through the
                use of the assignment guarantee agreement, the assignee succeeds to all
                rights and obligations of the holder thereunder. Subsequent assignments
                require notice to the lender and Agency using any format, including
                that used by the Securities Industry and Financial Markets Association
                (formerly known as the Bond Market Association), together with the
                transfer of the original assignment guarantee agreement.
                 (5) The Agency will not execute a new assignment guarantee
                agreement to affect a subsequent reassignment.
                 (6) The Agency will not reissue a duplicate assignment guarantee
                agreement unless:
                 (i) The original was lost, stolen, destroyed, mutilated, or
                defaced; and
                 (ii) The reissue is made in accordance with Sec. 5001.459.
                 (e) Rights and liabilities. When a guaranteed portion of a loan is
                sold to a holder using an assignment guarantee agreement, the holder
                succeeds to all rights of the lender under the loan note guarantee to
                the extent of the portion purchased. The full, legal interest in the
                promissory note must remain with the lender, and the lender remains
                bound to all obligations under the loan note guarantee, lender's
                agreement, and Agency regulations applicable to the guarantee.
                 (1) A guarantee and right to require purchase in accordance with
                Sec. 5001.511 will be directly enforceable by a Holder notwithstanding
                any fraud or misrepresentation by the lender or any unenforceability of
                the loan guarantee by the lender, except for fraud or misrepresentation
                of which the holder had actual knowledge at the time it became the
                holder or in which the holder participates or condones.
                 (2) The lender must not represent a conditional commitment of
                guarantee as a loan guarantee.
                 (3) The lender must reimburse the Agency for any payments the
                Agency makes to a holder on the lender's behalf under the loan note
                guarantee, given the lender would not be entitled to the payments had
                they retained the entire interest in the loan.
                Sec. Sec. 5001.409-5001.449 [Reserved]
                Guarantee Provisions
                Sec. 5001.450 General.
                 (a) Full faith and credit. A loan note guarantee issued under this
                part constitutes an obligation supported by the full faith and credit
                of the United States and is incontestable except for fraud or
                misrepresentation of which a lender or holder has actual knowledge at
                the time it becomes such lender or holder, or which a lender or holder
                participates in or condones.
                 (b) Conditions of guarantee. A guaranteed loan under this part will
                be evidenced by a loan note guarantee issued by the Agency.
                 (1) The entire loan must be secured by the same collateral with
                equal lien priority for the guaranteed and unguaranteed portions of the
                loan. The unguaranteed portion of the guaranteed loan will neither be
                paid first nor given any preference or priority over the guaranteed
                portion. A parity or junior lien position in the guaranteed loan
                collateral may be considered on a case-by-case basis and must be
                approved by the Agency. The minimum security taken for the purchase of
                cooperative stock includes a lien on the stock acquired with loan
                funds, an assignment of any patronage refund and personal or corporate
                guarantees.
                 (2) The lender must remain mortgagee and secured party of record
                notwithstanding the fact that another party may hold a portion of the
                guaranteed loan.
                 (3) The lender will receive all payments of principal and interest
                on account of the entire guaranteed loan and must promptly remit to
                each holder and participant, if any, its pro rata share of any payment
                within 30 days of the lender's receipt thereof from the borrower.
                Holder or participant payments are determined according to their
                respective interest in the guaranteed loan, less only the lender's
                servicing fee.
                 (4) Any claim against a loan note guarantee or assignment guarantee
                agreement that is attached to, or relating to, a promissory note that
                provides for payment of interest-on-interest, default charges, penalty
                interest, or late payment fees will be reduced to remove such interest,
                fees and charges.
                 (5) The loan note guarantee is unenforceable by the lender to the
                extent that any loss is occasioned by:
                 (i) The violation of usury laws;
                 (ii) Use of guaranteed loan funds for unauthorized loan purposes in
                accordance with Sec. 5001.122 or to the extent that those funds are
                used for purposes other than those specifically approved by the Agency
                in its conditional commitment or amendment thereof;
                 (iii) Failure to obtain, perfect, document, and or maintain the
                required collateral or security position regardless of the time at
                which the Agency acquires knowledge thereof; and
                 (iv) Negligent loan origination or negligent loan servicing as
                determined and documented by the Agency.
                 (6) The Agency will guarantee payment as follows:
                 (i) To any holder, 100 percent of any loss sustained by the holder
                on the guaranteed portion of the guaranteed loan it owns and on
                interest due (as determined under paragraph (g) of this section) on
                such portion less any outstanding servicing fee.
                 (ii) To the lender: Any loss sustained by the lender on the
                guaranteed portion of the guaranteed loan, including principal and
                interest (as determined under paragraph (c) of this section) evidenced
                by the promissory note(s) or assumption agreements entered into in
                [[Page 42564]]
                connection with an Agency approved transfer and assumption, and secured
                advances for protection and preservation of collateral made with the
                Agency's authorization if applicable.
                 (c) Accrued interest payments. If a loan has been guaranteed by the
                Agency prior to October 1, 2020, the Agency will guarantee the lender
                and any holders accrued interest in accordance with the applicable
                regulations in effect for the respective program at the time the loan
                was guaranteed. For all guaranteed loans closed on or after October 1,
                2020, the Agency will guarantee accrued interest in accordance with
                paragraph (c)(1) or (2), as applicable, of this section.
                 (1) If the lender owns all or a portion of the guaranteed portion
                of the guaranteed loan or makes a protective advance, the Agency, in
                its sole discretion, may cover interest on the guaranteed portion for
                the 90 days from the most recent delinquency effective date, and up to
                a total of 180 days, only if:
                 (i) The lender, and not the Agency, has repurchased all holder
                interests in the guaranteed loan in accordance with Sec. 5001.511;
                 (ii) The lender is actively engaged in a credit resolution with the
                borrower to bring the account current or fully liquidate the collateral
                under the terms of a liquidation plan approved by the Agency; and
                 (iii) Concurrence for inclusion of the extended period of interest
                to the lender is received from the Agency.
                 (2) If the guaranteed loan has one or more holders, the lender will
                issue an interest termination letter to each holder establishing the
                termination date for interest accrual. The loan note guarantee will not
                cover interest to any holder accruing after 90 days from the date of
                the interest termination letter. The Agency at its sole discretion may
                notify each holder of the interest termination provisions if it is
                determined that lender correspondence to holders is in-adequate.
                Sec. 5001.451 Conditional commitment.
                 (a) Issuance. Upon selection of an application in accordance with
                Sec. 5001.315 in subpart D, the Agency will issue a conditional
                commitment to the lender, to be accepted by the lender and the
                borrower, containing conditions under which the Agency will issue a
                loan note guarantee.
                 (1) Upon acceptance of the conditional commitment, the lender
                agrees not to modify the scope of the project, overall facility
                concept, project purpose, use of guaranteed loan funds, or other terms
                and conditions without Agency written concurrence in accordance with
                paragraph (c) of this section.
                 (2) If the lender decides at any time after receiving a conditional
                commitment that it no longer wants a loan guarantee, the lender must
                immediately advise the Agency of the cancellation in writing. Upon
                written notification from the lender, the Agency will de-obligate the
                funds associated with the conditional commitment.
                 (b) Content. The conditional commitment will address information
                required for issuing a loan note guarantee, including but not limited
                to:
                 (1) Approved use of guaranteed loan funds (source and use of
                funds);
                 (2) Rates and terms of the loan;
                 (3) Loan agreement requirements;
                 (4) Loan closing requirements;
                 (5) Lender and borrower certifications;
                 (6) Collateral and lien position requirements; and
                 (7) Other requirements necessary to protect the Agency.
                 (c) Change requests. The lender can request, in writing, changes to
                the conditional commitment with justification. The Agency can deny,
                solely at its discretion, changes to the conditional commitment even if
                the changes are otherwise in compliance with this part. All changes to
                the conditional commitment must be documented by written amendment to
                the conditional commitment executed by all parties.
                 (d) Acceptance or withdrawal of conditional commitment. The lender
                and borrower must complete and sign the conditional commitment and
                return a copy to the Agency within 60 days. If the conditional
                commitment is not accepted by both the lender and borrower within 60
                days, the conditional commitment becomes null and void and the Agency
                will withdraw the conditional commitment and de-obligate the associated
                funds.
                 (e) Modification, and expiration of conditional commitment. The
                conditional commitment issued by the Agency will be effective for a
                period of 1 year or sufficient time to complete the guaranteed loan
                project prior to loan closing. The lender must submit a written request
                to the Agency to extend the conditional commitment at least 30 days
                prior to its expiration date and obtain Agency approval for the
                extension. The Agency will consider this request only if no major
                changes have been made in the lender's loan conditions and requirements
                and no material adverse changes in the borrower or the borrower's
                financial condition have occurred since issuance of the conditional
                commitment. If a conditional commitment expires, the Agency will notify
                the lender in writing and may de-obligate the funds. Any additions or
                modifications to conditions stated in the original conditional
                commitment must be agreed upon between the lender, the borrower, and
                the Agency.
                Sec. 5001.452 Loan closing and conditions precedent to issuance of
                loan note guarantee.
                 (a) The lender must not close the guaranteed loan until all
                conditions of the conditional commitment are met.
                 (b) Simultaneously with or immediately after the guaranteed loan
                closing, the lender must provide to the Agency the guarantee fee, any
                secondary market sale documents, and the following forms and documents:
                 (1) An Agency-approved, ``Guaranteed Loan Closing Report'';
                 (2) A copy of each executed promissory note and collateral security
                documents;
                 (3) A copy of the executed final loan agreement, which must include
                any additional requirements imposed by the Agency in the conditional
                commitment;
                 (4) The original, executed Agency-approved guarantee form(s) for
                any required personal, partnership or corporate guarantees;
                 (5) The borrower's loan closing balance sheet, if required;
                 (6) For loans to public bodies, an opinion from recognized bond
                counsel regarding the adequacy of the preparation, issuance, and
                enforceability of the debt instruments;
                 (7) Any other documents required to comply with applicable law or
                required by this part, the conditional commitment or the Agency; and
                 (8) When requesting issuance of a loan note guarantee, the lender
                must certify to each condition identified in paragraphs (b)(8)(iii)(A)
                through (V) of this section, as applicable.
                 (i) In making its certification, the lender can rely on certain
                written materials (e.g., certifications, evaluations, appraisals,
                financial statements, and other reports) provided by the borrower or
                other qualified third parties (e.g., independent engineers, appraisers,
                accountants, attorneys, consultants, or other experts).
                 (ii) If the lender is unable to provide any of the certifications
                required under this section, the lender must provide an explanation
                satisfactory to the Agency.
                 (iii) The lender may request the loan note guarantee prior to
                construction in accordance with this part; however, the lender must
                still certify to all applicable conditions of this paragraph
                (b)(8)(iii).
                [[Page 42565]]
                 (A) All requirements of the conditional commitment have been met.
                 (B) The financial criteria specified in Sec. 5001.303(b)(4) of
                this part and any financial criteria contained in the conditional
                commitment were:
                 (1) Determined in accordance with any applicable requirements in
                Sec. 5001.9 of this part, and
                 (2) Have been maintained through the issuance of the loan note
                guarantee. Failure to maintain or attain the minimum financial criteria
                will result in the Agency not issuing a loan note guarantee.
                 (C) No major changes have been made in the applicant, project or
                lender's loan conditions and requirements since the issuance of the
                conditional commitment, unless such changes have been approved by the
                Agency.
                 (D) There has been neither any material adverse change in the
                borrower's financial condition nor any other material adverse change in
                the borrower during the period of time from the Agency's issuance of
                the conditional commitment to issuance of the loan note guarantee
                regardless of the cause or causes of the change and whether or not the
                change or causes of the change were within the lender's or borrower's
                control.
                 (1) The borrower is a legal entity in good standing with its
                regulator (as applicable) and operating in accordance with the laws of
                the State(s) or Tribe where the borrower was organized or has a place
                of business.
                 (2) The borrower meets the eligibility requirements as outlined in
                Sec. 5001.126(a) and (b) through (e), as applicable.
                 (E) There is a reasonable prospect that the guaranteed loan and
                other project debt will be repaid on time and in full (including
                interest) from project cash flow according to the terms proposed in the
                application.
                 (F) The guaranteed loan has been properly closed, and the required
                security instruments have been properly executed and all security
                interests obtained by the lender have been or will be properly
                perfected in accordance with applicable law.
                 (G) All planned property acquisition has been or will be completed;
                all development has been or will be substantially completed in
                accordance with plans and specifications and conforms to applicable
                Federal, State, and local codes; all equipment required for the project
                is available, can be procured and delivered within the project
                development schedule, and will be installed in conformance with
                manufacturer's specifications and design requirements; and costs have
                not exceeded the amount approved by the lender and the Agency.
                 (H) The proposed project complies with all current Federal, State,
                and local laws and regulatory rules that affect the project, the
                borrower, and lender activities, including, but not limited to, equal
                opportunity and Fair Housing Act requirements and design and
                construction requirements.
                 (I) Lender-required insurances are in effect.
                 (J) All truth-in-lending and equal credit opportunity requirements
                have been met.
                 (K) The borrower has marketable title to the collateral then owned
                by the borrower, subject to the rights of the guaranteed loan and to
                any other exceptions approved in writing by the Agency.
                 (L) Where required, necessary or prudent, the borrower has
                obtained--
                 (1) A legal opinion relative to the title and accessibility to any
                rights-of-way and easements; and
                 (2) A title opinion or title insurance showing the borrower has
                good and marketable title to real property and other collateral and all
                mortgages or other lien defects, restrictions, or encumbrances, if any.
                 (M) All project funds have been or will be disbursed for purposes
                and in amounts consistent with the conditional commitment (or Agency-
                approved amendment thereof) and the application submitted to the
                Agency. Appropriate lender controls were used to ensure that all funds
                were properly disbursed, including funds for working capital. A copy of
                a settlement statement by the lender detailing the use of loan and
                matching/equity funds must be attached to support this certification.
                 (N) When applicable, the entire amount of the loan for working
                capital or initial operating expenses have been disbursed to the
                borrower, except in cases where the Agency has approved disbursement
                over an extended period of time and funds are escrowed so that the
                settlement statement reflects the full amount to be disbursed.
                 (O) When required, personal and/or corporate guarantees have been
                obtained in accordance with Sec. 5001.204 of this part.
                 (P) Lien priorities are consistent with the requirements of the
                conditional commitment. No claims or liens of laborers, subcontractors,
                suppliers of machinery and equipment, materialmen, or other parties
                have been filed against the collateral and no suits are pending or
                threatened that would adversely affect the collateral.
                 (Q) Neither the lender nor any of the lender's officers has an
                ownership interest in the borrower or is an officer or director of the
                borrower, and neither the borrower nor its officers, directors,
                stockholders, or other owners have more than a 5 percent ownership
                interest in the lender.
                 (R) The loan agreement includes all borrower compliance measures
                identified in the Agency's environmental review for avoiding or
                reducing adverse environmental impacts of the project's construction or
                operation.
                 (S) The lender will comply with the requirements of the Debt
                Collection Improvement Act.
                 (T) The lender has executed and delivered the lender's agreement,
                completed registration in the Agency's electronic reporting system, and
                electronically submitted the closing report for the guaranteed loan
                along with the appropriate guarantee fee.
                 (U) For all RES and EEI projects, the lender must provide
                certification that the project has been performing at a steady state
                operating level in accordance with the technical requirements, plans,
                and specifications. Any modification to the 30-day steady state
                operating level requirement will be based on the Agency's review of the
                technical report or vendor certification and will be incorporated into
                the conditional commitment.
                 (V) For CF and WWD projects, the lender must also certify that the
                lender would not make the loan without an Agency loan guarantee.
                 (c) For RES projects where applicable, the lender must provide to
                the Agency a copy of the executed power purchase agreement.
                 (d)(1) For all CF projects before the Agency will issue a loan note
                guarantee on a guaranteed loan to a borrower other than a public body,
                the articles of incorporation or other organizing documents of the
                borrower or the loan agreement must include a condition similar to the
                following:
                 (2) If the corporation dissolves or ceases to perform the community
                facility objectives and functions, the board of directors shall
                distribute all business property and assets to one or more nonprofit
                corporations or public bodies. This distribution must be approved by 75
                percent of the users or members and must serve the public welfare of
                the community. The assets may not be distributed to any members,
                directors, stockholders, or others having a financial or managerial
                interest in the corporation. Nothing herein shall prohibit the
                corporation from paying its debts.
                 (e) For all B&I projects a borrower whose project involves locally
                or
                [[Page 42566]]
                regionally produced agricultural food products and is not located in a
                rural area must include in an appropriate agreement with retail and
                institutional facilities to which the borrower sells locally or
                regionally produced agricultural food products a requirement to inform
                consumers of the retail or institutional facilities that the consumers
                are purchasing or consuming locally or regionally produced agricultural
                food products.
                Sec. 5001.453 Issuance of the loan note guarantee.
                 The Agency, at its sole discretion, will determine if the
                conditions specified in the conditional commitment have been met and
                whether to issue the loan note guarantee.
                 (a) Issuance. When the Agency is satisfied that all of the
                conditions specified in the conditional commitment have been met and it
                receives all the required fees plus the executed lender's agreement
                from the lender, the Agency will issue the documents identified in
                paragraphs (a)(1) through (3) of this section, as appropriate.
                 (1) Loan note guarantee. The Agency will provide the lender the
                original loan note guarantee document which the lender must attach to
                the promissory note. If the lender elected to use the multi-note
                system, the Agency will issue an original loan note guarantee for each
                promissory note.
                 (2) Assignment guarantee agreement. If the lender assigns any
                guaranteed portion of a guaranteed loan to a holder, the lender,
                holder, and the Agency will execute an assignment guarantee agreement
                for each assignment.
                 (3) Certificate of incumbency and signature. The Agency will
                provide the lender an executed certificate of incumbency form to verify
                the signature and title of the Agency official who signs the loan note
                guarantee, lender's agreement, and assignment guarantee agreement.
                 (b) Agency review of closing. The Agency will review the closing
                documents submitted by the lender for completeness and if all
                conditions have been met and all documents have been provided, the
                Agency will issue the loan note guarantee. If the Agency determines
                that it cannot issue the loan note guarantee, the Agency will notify
                the lender, in writing, of the reasons and give the lender a reasonable
                period within which to satisfy the objections. If the lender satisfies
                the objections within the time allowed, the Agency will issue the loan
                note guarantee.
                 (c) Cancellation of obligation. A lender can submit a written
                request to the Agency for a partial cancellation. The lender must
                include in this request the reason for the partial cancellation, the
                effective date, and the portion to be canceled. If the Agency
                conditions for issuance of the loan note guarantee are rejected, cannot
                be met or funds are, in whole or in part, no longer needed, the Agency
                will cancel the obligation.
                Sec. 5001.454 Guarantee fee.
                 The guarantee fee is a one-time, non-refundable fee paid by the
                lender to the Agency at or before loan closing and is required to be
                paid before the Agency will issue the loan note guarantee. The lender
                may pass the guarantee fee on to the borrower.
                 (a) Guarantee fee calculation. The one-time guarantee fee is
                calculated by multiplying the total loan amount by the percentage of
                guarantee by the guarantee fee rate, which may vary by program.
                 (b) Guarantee fee rates. The guarantee fee rate is established by
                the Agency in an annual document published in the Federal Register.
                While the fee rate may vary annually, they will not exceed the limits
                in table 1:
                 Table 1 to Sec. 5001.454(b)--Guarantee Fee
                ------------------------------------------------------------------------
                 Maximum
                 guarantee fee
                 (percent)
                ------------------------------------------------------------------------
                Community Facilities.................................... 4
                Water and Waste Disposal................................ 3
                Business and Industry................................... 5
                Rural Energy for America Program........................ 3
                ------------------------------------------------------------------------
                 (c) Loan note guarantee prior to completion. If the loan note
                guarantee is issued prior to completion of the project's construction
                under Sec. 5001.205(e)(2), an additional guarantee fee of 0.50 percent
                will be added. This additional 0.50 percent fee may not be passed on to
                the borrower.
                 (d) Reduced fee. Subject to annual limits set by the Agency and
                published in an annual Federal Register document, the Agency may charge
                a reduced guarantee fee if requested by the lender when the borrower's
                project meets any one of the following criteria:
                 (1) Is located in a rural community that--
                 (i) Is a distressed community in accordance with the Economic
                Innovation Group distressed community index. The list can be found on
                the Agency's website at: https://www.rd.usda.gov/onerdguarantee;
                 (ii) Is experiencing long-term population decline according to the
                last three decennial censuses;
                 (iii) Is in a persistent poverty county. A persistent poverty
                county is any county that has had 20 percent or more of its population
                living in poverty over the past 30 years, as measured by the 1990 and
                2000 decennial census and 2007-2011 American Community Survey 5-year
                average, or any territory or possession of the United States;
                 (iv) Is in a presidentially declared disaster area, declared within
                the 24 months preceding the date of the application, and is
                experiencing trauma as a result of natural disaster;
                 (v) Is located in a city, county, or state with an unemployment
                rate, as determined by the Department of Labor, 125 percent or greater
                of the current national rate; or
                 (vi) Is located within the boundaries of a federally recognized
                Indian tribe's reservation or within Tribal trust lands or within land
                owned by an Alaska Native Regional or Village Corporation as defined by
                the Alaska Native Claims Settlement Act.
                 (2) Processes, distributes, aggregates, stores, and/or markets
                locally or regionally produced agricultural food products and promotes
                access to healthy foods;
                 (3) Is locally owned and managed, and either
                 (i) Supports value-added agriculture and provides a market for
                locally or regionally produced agricultural food product; or
                 (ii) Produces a natural resource value-added product/manufactures a
                product from a natural resource.
                 (4) Is part of a strategic economic development and community
                development plan on a multi-jurisdictional and multi-sectoral basis in
                accordance with Section 6401 of the Agricultural Improvement Act of
                2018 (Pub. L. 115-334); or
                 (5) Provides an additional market for existing local businesses by
                purchasing substantial amounts of products or services from, selling
                product to, or providing services to existing local and regional
                businesses.
                Sec. 5001.455 Periodic guarantee retention fee.
                 The Agency will collect a periodic guarantee retention fee from the
                lender for as long as the loan note guarantee is outstanding in
                accordance with the annual notice published in the Federal Register in
                accordance with Sec. 5001.10. Payment of the periodic guarantee
                retention fee is required to maintain the validity of the loan note
                guarantee. The lender may pass the fee on to the borrower but may not
                delay payment of the fee to the Agency while collecting the payment
                from the borrower. The fee
                [[Page 42567]]
                rates may differ by program as published annually in a document in the
                Federal Register in accordance with Sec. 5001.10. The annual Federal
                Register notification will include the frequency of payment for the
                fees.
                 (a) Calculation. The guarantee retention fee is calculated by
                multiplying the full outstanding principal guaranteed loan balance as
                of a date(s) as published in the annual Federal Register notification,
                by the percentage of guarantee, by the fee rate as noted in the
                guaranteed loan conditional commitment.
                 (b) Effective fee rate. The effective guarantee retention fee rate
                that is published in a Federal Register document in accordance with
                Sec. 5001.10 at the time the guaranteed loan is obligated will be
                noted in the guarantee loan conditional commitment and the fee will
                remain in effect for the life of the loan note guarantee.
                 (c) Payments. The guarantee retention fee payment frequency and
                related due date provisions will be published in the annual Federal
                Register notification.
                 (1) Guarantee retention fee payments not received within 60 days
                after their due date are considered delinquent and, at the Agency's
                discretion, may result in cancellation of the loan note guarantee to
                the lender. The Agency will provide the lender 30 calendar days'
                written notice that the fee is delinquent before canceling the loan
                note guarantee. Holders' rights will continue in effect as specified in
                the loan note guarantee and assignment guarantee agreement, unless the
                holder took possession of an interest in the loan note guarantee
                knowing guarantee retention fees had not been paid.
                 (2) Until the loan note guarantee is canceled by the Agency, any
                delinquent periodic guarantee retention fee will bear interest at the
                promissory note rate.
                 (3) When the Agency repurchases 100 percent of the guaranteed
                portion of the guaranteed loan as prescribed in Sec. 5001.511(c), the
                Agency will discontinue collection of the periodic guarantee retention
                fee.
                 (d) Secondary market prohibition. Lenders are prohibited from
                selling any portion of the guaranteed loan on the secondary market if
                there are unpaid periodic guarantee retention fees.
                Sec. 5001.456 Other fees.
                 The Agency has the authority and may at its discretion charge
                additional fees in order to maintain adequate levels of program
                funding. Prior to the Agency charging any additional fees, the Agency
                will publish a notice of those fees in the Federal Register in
                accordance with Sec. 5001.10. All fees will be disclosed in the
                conditional commitment specific to the project as issued to the lender
                at the time approval.
                 (a) Until the loan note guarantee is canceled by the Agency, any
                delinquent fees will bear interest at the promissory note rate.
                 (b) Lenders are prohibited from selling any portion of the
                guaranteed loan on the secondary market if there are unpaid fees.
                Sec. 5001.457 Changes prior to loan closing.
                 (a) Change in borrower prior to closing. Any change in borrower
                ownership or organization prior to the issuance of the loan note
                guarantee must meet the applicable guaranteed program's eligibility
                requirements and must be approved by the Agency.
                 (b) Transfer to new lender prior to issuance of the loan note
                guarantee. Prior to issuance of the loan note guarantee, a lender can
                request a transfer of an outstanding conditional commitment to a new
                lender by providing the Agency with a letter from the lender, the
                borrower, and the proposed new lender. The request must include the
                reason(s) the current lender no longer desires to be the lender for the
                project.
                 (1) The Agency may approve the transfer from the current lender to
                the proposed new lender provided the new proposed lender is an eligible
                lender (see paragraph (b)(2) of this section) and no material adverse
                changes have occurred in the:
                 (i) Ownership, control or legal structure of the borrower; and
                 (ii) Borrower's written plan, scope of work, or the purpose or
                intent of the Project.
                 (2) The Agency will determine if the proposed new lender is
                eligible in accordance with Sec. 5001.130 of this part prior to
                approving the transfer of lender. The new lender must execute a new
                application form and a lender's agreement (unless the new lender
                already has a valid lender's agreement with the Agency) and must
                complete a new credit evaluation in accordance with Sec. 5001.202 of
                this part. The Agency may require the new lender to provide other
                updated application items as specified by the Agency.
                 (3) If the Agency approves the transfer to the new lender, the
                Agency will issue a letter of amendment to the original conditional
                commitment reflecting the new lender who must acknowledge acceptance of
                the amended conditional commitment in writing.
                Sec. 5001.458 Other Federal, State, and local requirements.
                 Beginning on the date of issuance of the loan note guarantee,
                lenders and borrowers must--
                 (a) Coordinate with all appropriate Federal, State, local and
                Tribal agencies that may have jurisdiction or involvement in each
                project; and
                 (b) Comply with all current Federal, State, local, and Tribal laws
                and rules, as well as applicable regulatory commission rules, that
                affect the project, the borrower, or lender. Compliance activities
                include, but are not limited to--
                 (1) Organization and borrower's authority to design, construct,
                develop, operate, and maintain the proposed facilities;
                 (2) Borrowing money, giving security, and raising revenues for
                repayment;
                 (3) Land use zoning;
                 (4) Health, safety, and sanitation standards as well as design and
                installation standards; and
                 (5) Protection of the environment and consumer affairs.
                Sec. 5001.459 Replacement of loan note guarantee and assignment
                guarantee agreement.
                 If a loan note guarantee or assignment guarantee agreement has been
                lost, stolen, destroyed, mutilated, or defaced while in the custody of
                the lender or holder, the Agency may issue a replacement to the lender
                or holder, as applicable under the conditions described in paragraphs
                (a) through (c) of this section. The lender is prohibited from altering
                or modifying or approving any alterations to or modifications of any
                loan documents without the prior written approval of the Agency.
                 (a) Replacement requirements. The lender must coordinate the
                activities of the party who seeks the replacement documents and must
                submit the required documents to the Agency for processing. The
                requirements for replacement are as follows:
                 (1) A written statement of loss which includes:
                 (i) Legal name and present address of either the lender or the
                holder who is requesting the replacement forms;
                 (ii) Legal name and address of the lender of record;
                 (iii) Capacity of person certifying;
                 (iv) Full identification of the loan note guarantee or assignment
                guarantee agreement including the name of the borrower, the Agency's
                case number, date of the loan note guarantee or assignment guarantee
                agreement, face amount of the promissory note in which an interest was
                purchased, date of the promissory note, present balance of the
                [[Page 42568]]
                guaranteed loan, percentage of guarantee, and, if an assignment
                guarantee agreement, the original named holder and the percentage of
                the guaranteed portion of the guaranteed loan assigned to that holder.
                Any existing parts of the document to be replaced must be attached to
                the certificate;
                 (v) A full statement of circumstances of the loss, theft,
                destruction, defacement, or mutilation of the loan note guarantee or
                assignment guarantee agreement; and
                 (vi) For the holder, evidence demonstrating current ownership of
                the assignment guarantee agreement. If the present holder is not the
                same as the original holder, the lender must include a copy of the
                endorsement of each successive holder in the chain of transfer from the
                initial holder to present holder. If copies of the endorsement cannot
                be obtained, the lender must submit the best available records of
                transfer (e.g., order confirmation, canceled checks, etc.).
                 (b) Indemnity bond. An indemnity bond acceptable to the Agency must
                accompany the request for replacement except when the holder is the
                United States, a Federal Reserve Bank, a Federal Government
                corporation, a State or territory, the District of Columbia or a
                federally recognized tribal entity. The indemnity bond must:
                 (1) Be issued by a qualified surety company holding a certificate
                of authority from the Secretary of the Treasury and listed in Treasury
                Department Circular 570, except when the outstanding principal balance
                and accrued Interest due the present holder, in accordance with Sec.
                5001.450(c), is less than $1 million as verified by the lender via a
                written letter of certification of balance due;
                 (2) Be issued and payable to the United States of America acting
                through the Agency;
                 (3) Be in an amount not less than the unpaid principal and
                interest; and
                 (4) Hold the Agency harmless against any claim or demand that might
                arise or against any damage, loss, costs, or expenses that might be
                sustained or incurred by reason of the loss or replacement of the
                instruments.
                 (c) Multi-note system. Where the guaranteed loan was closed under
                the provisions of the multi-note system, the Agency will not attempt to
                obtain, or participate in the obtaining of, replacement promissory
                notes from the borrower. The holder is responsible for bearing the
                costs of promissory note replacement if the borrower agrees to issue a
                replacement instrument. When the promissory note is replaced, its terms
                cannot be changed. If the promissory note has been lost, stolen,
                destroyed, mutilated or defaced, such promissory note must be replaced
                before the Agency will replace any instruments.
                Sec. Sec. 5001.460-5001.500 [Reserved]
                Subpart F--Servicing Provisions
                Sec. 5001.501 General.
                 The lender is responsible for servicing the entire loan and taking
                all servicing actions that a reasonably prudent lender would perform in
                servicing its own portfolio of loans that are not guaranteed. The
                lender must certify that it will service the guaranteed loan in
                accordance with this part, its loan servicing policies and procedures,
                and the lender's agreement. Where a lender's loan servicing policies
                and procedures address a corresponding requirement in this part or in
                the lender's agreement, the lender must comply the corresponding
                requirement in this part, unless otherwise approved by the Agency.
                 (a) A lender's servicing responsibilities include, but are not
                limited to,
                 (1) Periodic borrower visits;
                 (2) Distribution of guaranteed loan funds;
                 (3) Collecting payments on guaranteed loans;
                 (4) Ensuring compliance with the covenants and provisions in the
                loan agreement, security instruments, and other supplemental agreements
                relating to the guaranteed loan;
                 (5) Obtaining and analyzing financial statements;
                 (6) Ensuring payment of taxes and insurance premiums;
                 (7) Maintaining liens and lien priority on collateral;
                 (8) Keeping an inventory of all collateral items, and reconciling
                the inventory of all collateral sold during guaranteed loan servicing,
                including liquidation;
                 (9) Obtaining Agency approvals or concurrence as required; and
                 (10) Cooperating fully with all oversight and monitoring efforts of
                the Agency or its representatives as specified in Sec. 5001.502.
                 (b) The lender must remain mortgagee and secured party of record,
                notwithstanding the fact that another party may hold a portion of the
                loan.
                 (c) The lender must ensure that the borrower has obtained and will
                maintain all necessary insurance coverage appropriate to the proposed
                project.
                 (d) If the Agency determines that the lender is not in compliance
                with its servicing responsibilities, the Agency reserves the right to
                take any action the Agency determines necessary to protect the Agency's
                interests with respect to the guaranteed loan. If the Agency exercises
                this right, the lender must cooperate with the Agency to rectify the
                situation.
                Sec. 5001.502 Oversight and monitoring.
                 The Agency will employ various oversight and monitoring activities
                in order to ensure compliance with this part. All lenders involved in
                any manner with any loan note guarantee issued under this part or under
                a loan note guaranteed previously issued under a guaranteed loan
                program identified in Sec. 5001.1 of this part must cooperate fully
                with the Agency in its oversight and monitoring efforts, including, but
                not necessarily limited to, those identified in paragraphs (a) through
                (c) of this section.
                 (a) Reports and notifications. Lenders must submit to the Agency
                reports and notifications as required by this part. To facilitate the
                Agency's oversight and monitoring including, but not necessarily
                limited to, those identified in paragraphs (a)(1) through (4), as
                applicable, of this section.
                 (1) Status reports. No less than semi-annual status reports as of
                June 30 and December 31 each year (unless more frequent reports are
                needed as determined by the Agency to protect the financial interests
                of the government) regarding the condition of the lender's guaranteed
                loan portfolio (including borrower status and loan classification) and
                any material change in the general financial condition of any borrower
                since the last report was submitted. The lender must submit these
                reports within 30 calendar days after the reporting period, using the
                appropriate Agency online reporting system.
                 (2) Default reports. Monthly default reports for each guaranteed
                loan in monetary default using the appropriate Agency online reporting
                system are due on the 15th working day of each month.
                 (3) Notifications. The lender(s) must notify the Agency by written
                notification within 15 calendar days of any:
                 (i) Loan agreement violation by any borrower, including when the
                borrower is 30 days past due or is otherwise in default of the
                covenants in the loan agreement;
                 (ii) Permanent or temporary reduction in the interest rate;
                 (iii) Downgrade in the lender's loan classification of any
                guaranteed loan; and
                 (iv) Protective advances in accordance with Sec. 5001.516.
                [[Page 42569]]
                 (4) Collection activities report. If a lender is liquidating the
                assets of a borrower, the lender must also evaluate and provide a
                report of collection activities regarding the collectability of
                personal and corporate guarantees.
                 (b) Records--(1) Lenders. Upon request by the Agency, the lender
                must permit representatives of the Agency (or other authorized persons)
                to inspect and make copies of any of the records of the lender
                pertaining to each guaranteed loan issued under this part or previously
                issued under one of the programs identified in Sec. 5001.1 of this
                part. Such inspection and copying may be made during regular office
                hours of the lender or at any other time the lender and the Agency
                agree upon.
                 (2) Borrowers. Except as provided by law, upon request by the
                Agency, the borrower must permit representatives of the lender (or
                other authorized persons) to inspect and make copies of any of the
                records relating to the borrower's project. Such inspection and copying
                may be made during regular office hours of the borrower or at any other
                time agreed upon between the borrower and the lender.
                 (c) Agency and lender conference. When requested by the Agency, the
                lender must consult with the Agency to ascertain how the guaranteed
                loan is being serviced and that the conditions and covenants of the
                loan agreement are being enforced.
                 (d) Access to the project. Until the loan note guarantee is
                terminated, the borrower must allow the lender and therefore the Agency
                access to the project and its performance information and permit
                periodic inspections of the project by an authorized representative of
                the Lender or the Agency.
                Sec. 5001.503 REAP RES or EEI project completion requirements.
                 Once a REAP RES or EEI project has been completed, the lender or
                borrower is required to submit the applicable project performance
                report as identified in paragraphs (a) and (b) of this section by
                January 31 each year.
                 (a) Renewable energy systems. For RES projects, commencing the
                first full calendar year following the year in which project
                construction was completed and continuing for three full years, the
                borrower must provide an outcome project performance certification
                noting that either the system has or has not performed at the steady
                state operating level as described in the technical report filed with
                the REAP guaranteed loan application, and whether projected jobs
                created or saved have occurred. If it has not performed as intended, a
                report detailing the circumstances affecting performance must be
                provided to the Agency along with the actual energy production of the
                system (in BTUs, kilowatt-hours, or similar energy equivalents) and the
                actual number of jobs created or saved as a direct result of the RES
                project for which guaranteed loan funds were used.
                 (b) Energy efficiency improvements. For EEI projects, commencing
                the first full calendar year following the year in which project
                construction was completed and continuing for two full years, the
                borrower must provide an outcome project performance certification
                noting that either the energy efficiency improvements have or have not
                been utilized at or above the projected operating levels as described
                in the technical report filed with the REAP guaranteed loan
                application, and whether projected jobs created or saved have occurred.
                If it has not performed as intended, a report detailing the
                circumstances affecting performance must be provided to the Agency
                along with the actual energy savings of the system and the actual
                number of jobs created or saved as a direct result of the EEI project
                for which guaranteed loan funds were used.
                Sec. 5001.504 Financial reports.
                 (a) The lender must obtain the borrower's and any guarantor's
                financial statements required by this part and the loan agreement. The
                Agency may require an annual audited financial statement based on a
                project's circumstances. States, local government, Indian tribes,
                institution of higher education, and nonprofit organization borrowers
                who meet the Federal awards expended threshold established in 2 CFR
                part 200, subpart F, ``Audit Requirements,'' during their fiscal year
                must submit an audit conducted in accordance with 2 CFR part 200,
                subpart F.
                 (b) The lender must submit financial statements obtained under this
                section to the Agency within 120 days of the end of the borrower's
                fiscal year. When the borrower's audit is conducted in accordance with
                2 CFR part 200, subpart F, audits must be submitted no later than nine
                months after the end of the borrower's fiscal year or 30 days after the
                borrower's receipt of the auditor's report, whichever is earlier. If a
                lender makes reasonable documented attempts to obtain financial
                statements but is unable to obtain the borrower's (or guarantor's)
                cooperation, the failure to obtain financial statements does not impair
                the validity of the loan note guarantee.
                 (c) Annual financial statements must be in accordance with
                accounting practices acceptable to the Agency as prescribed in Sec.
                5001.9 for all borrowers with a guaranteed loan balance in excess of
                $600,000. The lender may determine the type and frequency of financial
                statements for borrowers with a total guaranteed loan balance below
                $600,000 upon notification and justification to the Agency. This
                section does not supersede the borrower financial statement
                requirements of 2 CFR part 200, subpart F.
                 (d) The lender must analyze the financial statements obtained under
                paragraph (a) of this section and provide the Agency with a financial
                analysis including a credit evaluation of trends, strength and
                weaknesses, ratio analysis, and conclusions, plus any extraordinary
                transactions; borrower violations of loan covenants and covenant
                waivers proposed by the lender, any routine servicing actions
                performed; and other indications of the financial condition of the
                borrower.
                 (e) Following the Agency's review of the lender's financial
                analysis, the Agency will notify the lender in writing of any concerns.
                The lender must address each concern identified in the Agency's
                findings by the due date stated in the correspondence.
                 (f) The lender should routinely confirm the outstanding principal
                balance of a guarantee held by a holder to avoid any discrepancy and
                delay in reconciliation in the event of a lender or Agency repurchase
                of the guaranteed loan from a holder in accordance with Sec. 5001.511.
                Sec. 5001.505 Collateral inspection and release.
                 (a) Inspection of collateral. The lender must inspect the
                collateral as often as necessary to properly service the guaranteed
                Loan.
                 (b) Release of collateral. The lender must provide written
                justification for the release and obtain Agency approval before
                releasing any collateral. The lender is not required to provide
                justification for the release of collateral when the loan is not in
                default or liquidation and the collateral being released is a working
                asset, such as accounts receivable, inventory, and work-in-progress,
                that are routinely depleted or sold and proceeds used for the normal
                course of business operations.
                 (1) Exceptions to prior approval. Lenders are not required to
                obtain Agency approval prior to releasing collateral when the
                collateral sale proceeds are used to pay down debt in order of lien
                priority, pay down the guaranteed loan principal, or to acquire
                replacement collateral.
                [[Page 42570]]
                 (2) Appraisals. Current appraisals are required on all transactions
                pursuant to the requirements of Sec. 5001.203 of this part.
                 (3) Sale or release transaction. The sale or release of collateral
                must be based on an arm's length transaction, unless otherwise approved
                by the Agency in writing. There must be adequate consideration at
                market value for the release of collateral. Such consideration may
                include, but is not limited to:
                 (i) Application of the net proceeds from the sale of collateral to
                the borrower's debts in order of their lien priority against the sold
                collateral;
                 (ii) Use of the net proceeds from the sale of collateral to
                purchase other collateral of equal or greater value which the lender
                will obtain as security for the benefit of the guaranteed loan with a
                lien position equal or superior to the position previously held;
                 (iii) Application of the net proceeds from the sale of collateral
                to the borrower's guaranteed loan or to its business operation in such
                a manner that a significant improvement to the borrower's debt service
                ability will be clearly demonstrated. The Lender's written request must
                detail how the borrower's debt service ability will be improved; and
                 (4) No adverse impact. Any release of collateral must not
                materially cause an adverse effect to the project's operation or
                financial condition and the remaining collateral must be sufficient to
                provide for adequate collateral coverage. Such assurance must be
                supported by written documentation from the lender and be acceptable to
                the Agency. If the Agency determines that the project may be adversely
                affected by a release of collateral, the Agency may, at its discretion,
                require an appraisal on the remaining collateral in accordance with
                Sec. 5001.203 of this part.
                Sec. 5001.506 Loan transfers and assumptions.
                 (a) General. A lender must obtain prior written Agency approval in
                accordance with paragraph (c) of this section before the lender
                conducts a transfer and assumption of a guaranteed loan. The transferee
                will assume a loan amount at least equal to the outstanding loan
                balance or the present market value of the collateral, whichever is
                less. If the transferor is to receive a payment for their equity, the
                total debt must be assumed. The following conditions must be met:
                 (1) All transfers and assumptions will have a fee as provided by
                Sec. 5001.509(b).
                 (2) For each transfer and assumption, the lender must concur in
                plans for the disposition of funds, if any, in the transferor's debt
                service, operations and maintenance, or other reserve accounts.
                 (3) The lender must confirm that the transfer and assumption can be
                completed in accordance with applicable laws.
                 (4) The lender must confirm that the conveyance instruments will be
                filed, registered, and recorded as appropriate and legally permissible.
                The transfer and assumption must be made on the Lender's form of
                assumption agreement and contain the Agency case number of the
                transferor and transferee. The lender must provide the Agency with a
                copy of the assumption agreement.
                 (5) The lender may request a transfer and assumption when the total
                indebtedness, or less than the total indebtedness, of the guaranteed
                loan is assumed by another borrower. If the assumption is for less than
                the total indebtedness, the transfer and assumption must be an arm's
                length transaction and the transfer must be of all loan collateral.
                 (6) In the event of default of the guaranteed loan, a transfer and
                assumption of the borrower's operation and guaranteed loan can be
                accomplished before or after the loan goes into liquidation. However,
                if the collateral has been purchased through foreclosure or the
                borrower has conveyed title to the lender, no transfer and assumption
                is permitted.
                 (7) No transfer and assumption is permitted when the Agency has
                repurchased any guaranteed portion of the guaranteed portion of the
                loan.
                 (8) If the transfer is for less than the total indebtedness, the
                pro rata share of an eligible loss will be paid to the lender after
                execution of the transfer and assumption documents.
                 (b) Documentation. The lender will provide to the Agency
                documentation to support the transferee's status as an eligible
                borrower, and such other documentation as the Agency may request to
                determine eligibility and credit evaluation.
                 (1) The new borrower must sign an Agency-approved application form.
                 (2) The Agency will require personal and/or corporate guarantee(s)
                in accordance with Sec. 5001.204 of this part, as applicable. Any
                required new personal, partnership or corporate guarantors of the
                transferred guaranteed loan must sign an Agency approved guarantee
                form.
                 (c) Agency approval. The Agency will only approve a transfer and
                assumption if the transferee will continue the eligible purpose of the
                guaranteed loan and such transfer and assumption complies with the
                conditions specified in paragraphs (c)(1) through (3) of this section,
                as applicable.
                 (1) Whenever the transferor and transferee are affiliates or
                related parties, the transfer and assumption must:
                 (i) Be to an eligible borrower to continue the project for eligible
                purposes;
                 (ii) Transfer all the loan collateral; and
                 (iii) Be for the full amount of the guaranteed loan indebtedness.
                 (2) A transfer and assumption may be approved when the present
                borrower is unable or unwilling to accomplish the objectives of the
                guaranteed loan, and the transfer will be in the best financial
                interest of the borrower and the Agency.
                 (3) The Agency prefers to transfer to an eligible borrower subject
                to the policies and procedures governing the type of guaranteed loan
                being made, however the Agency will consider approving a transfer of a
                guaranteed loan to an ineligible borrower only if:
                 (i) The sale price is greater than it would be if the transfer was
                to an eligible borrower;
                 (ii) The transfer to an ineligible borrower is needed as a method
                for servicing a problem case; or
                 (iii) When an eligible borrower is not available. All transfers to
                an ineligible borrower must meet the following requirements:
                 (A) Transfer fees will be collected, and payments applied, in
                accordance with Sec. 5001.509(b);
                 (B) The ineligible borrower agrees to pay the loan balance within
                the remaining term of the original guaranteed loan in periodic
                installments that will not result in a balloon payment at the loan's
                maturity;
                 (C) Interest rates are at the rate specified in the promissory note
                of the transferor or at rates customarily charged borrowers in similar
                circumstances in the ordinary course of business. The rates can be
                either fixed or variable, and are subject to Agency review and
                approval;
                 (D) The ineligible borrower must have the legal authority to enter
                into the contract and have the ability to repay the loan, as determined
                by the lender and the Agency. The ineligible borrower must submit a
                current balance sheet to the lender. The lender must obtain and analyze
                the credit history of the ineligible borrower.
                 (d) Release of liability. The transferor, including any guarantor,
                can be released from liability only with prior Agency written approval
                when the transfer and assumption is for the full outstanding balance of
                the guaranteed loan. If the assumption is for less than the full
                [[Page 42571]]
                amount of the loan and the Agency pays a loss to the lender, the
                transferor, including any guarantor, are specifically subject to the
                Debt Collection Improvement Act provisions unless other workout
                arrangements have been made.
                 (e) Loan agreement. A new loan agreement or an assumption
                agreement, acceptable to the Agency must be executed to establish the
                terms and conditions of the loan being assumed
                 (f) Changes in loan terms. When a transfer or assumption is made to
                an eligible borrower continuing the project for eligible purposes, the
                loan terms may remain the same or may be changed whether the transfer
                is for the total indebtedness or less than the total indebtedness. If
                the loan terms are to be changed, the lender must submit a request in
                accordance with this paragraph (f). The changed loan terms must be
                concurred to by the Agency, all holders, and the transferee (including
                guarantors). If there are changes in loan terms, the lender's request
                will require the following:
                 (1) An explanation of the reasons for the proposed change in the
                loan terms, and
                 (2) Certification that the lien position securing the guaranteed
                loan will be maintained or improved, and proper insurances will
                continue to be in effect.
                 (g) Loan note guarantee. The lender is responsible for noting each
                transfer and assumption on all originals of the loan note guarantee.
                 (h) Proceeds. Before the transfer and assumption is closed, the
                lender must credit any proceeds received from the sale of collateral to
                the transferor's guaranteed loan debt in order of lien priority.
                 (i) Additional loans. Guaranteed loans may be used to provide
                additional funds in connection with a transfer and assumption. The
                Agency will consider approving a guaranteed loan to provide additional
                funds in connection with a transfer and assumption pursuant to the
                lender's submission of a complete application in accordance with 7 CFR
                part 5001, subpart D.
                 (j) Credit quality. The lender must make a complete credit
                evaluation in accordance with Sec. 5001.202 of this part to determine
                viability of the project (subject to the Agency review and approval)
                including any requirement for deposits in an escrow account as security
                to meet the applicable equity requirements for the project.
                 (k) Appraisals. If the proposed Transfer and Assumption is for less
                than the full amount of the guaranteed loan, an appraisal is required
                on all the collateral being transferred, and the amount of the
                assumption must not be less than this appraised value. The lender is
                responsible for obtaining the appraisal, which must conform to the
                requirements of Sec. 5001.203 of this part. However, if the original
                appraisal is more than one year old, but less than two years old, the
                lender may provide an appraisal with a new effective date of evaluation
                in lieu of a completely new appraisal.
                 (l) Legal opinion. Prior to Agency approval, the lender must
                provide the Agency a preliminary written legal opinion that the
                guaranteed loan can be properly and legally transferred and assurance
                that the conveyance instruments will be appropriately filed,
                registered, and recorded. Upon execution of the transfer and
                assumption, the lender must provide the Agency with a final legal
                opinion that the assumption is completed, valid, and enforceable, and
                the assumption is consistent with the conditions outlined in the
                Agency's conditions of approval for the transfer and complies with all
                Agency regulations.
                 (m) Promissory notes. The lender must not issue any new promissory
                notes, release any mortgages and/or deeds of trust on the existing debt
                being transferred. An allonge may be attached to existing promissory
                notes as needed.
                 (n) Loss/repurchase resulting from transfer and assumption. (1) Any
                resulting loss must be processed in accordance with Sec. 5001.521.
                 (2) If a holder owns any of the guaranteed portion of the loan,
                such portion must be repurchased by the lender or the Agency in
                accordance with Sec. 5001.511.
                 (o) Cash down payment. The lender may allow the transferee to make
                cash down payments directly to the transferor provided:
                 (1) The transfer and assumption are made for the total indebtedness
                to an eligible borrower to continue the project for eligible purposes;
                 (2) The lender recommends that the cash be released, and the Agency
                concurs prior to the assumption being completed. The lender can require
                that an amount be retained for a defined period of time as a reserve
                against future defaults. Interest on such account may be paid
                periodically to the transferor or transferee as agreed; and
                 (3) The lender determines that the transferee has the repayment
                ability to meet the obligations of the assumed guaranteed loan as well
                as any other indebtedness.
                 (p) Change in control of borrower. The Agency will deem that a
                transfer and assumption has occurred whenever there is a significant
                change in the control of the borrower.
                Sec. 5001.507 Lender transfer.
                 (a) After the issuance of a loan note guarantee, a lender may sell
                or transfer the entire loan to a new lender with prior written approval
                of the Agency. The Agency may approve the sale or transfer to a new
                lender if the following conditions are met. The new lender:
                 (1) Is an eligible lender in accordance with Sec. 5001.130 of this
                part and is approved as such;
                 (2) Is able to service the loan in accordance with the original
                loan documents;
                 (3) Agrees in writing to acquire title to the unguaranteed portion
                of the loan held by the original Lender and assumes all original loan
                requirements, including liabilities and servicing responsibilities; and
                 (4) The transfer to the new lender is requested in writing by the
                borrower, the proposed new lender, and the original lender of record,
                if still in existence.
                 (b) Upon Agency approval, the original lender must transfer to the
                new lender the:
                 (1) Original promissory note and loan security documents;
                 (2) Original loan note guarantee;
                 (3) Original personal and corporate guarantee(s);
                 (4) Loan payment history; and
                 (v) The new lender must agree to accept the current loan terms,
                including the interest rate, secondary market holder (if any),
                collateral, loan agreement terms, and guarantors. The new lender can
                modify the loan terms after acquisition only by submitting a written
                request to the Agency and receiving Agency approval.
                 (vi) The new lender must certify to the Agency that the loan
                transfer has been completed in accordance with applicable laws and all
                provisions of the original loan remain in full force and effect.
                 (c) The Agency will not pay any loss or share in any costs (e.g.,
                legal fees, appraisal fees and environmental assessments) for a
                voluntary transfer of lender. This includes situations where a lender
                is merged with or acquired by another lender and situations where the
                lender has failed and been taken over by a Federal regulatory agency
                such as the Federal Deposit Insurance Corporation (FDIC) and the loan
                is subsequently sold to another lender. However, in situations where
                the lender has failed and been taken over by a Federal regulator and
                the loan is liquidated rather than being sold to another lender, the
                Agency will pay losses and share in
                [[Page 42572]]
                costs as if the Federal regulatory agency were an approved new lender.
                 (d) In cases when there is a transfer to a new lender or when a
                lender has been merged with or acquired by another Lender, the Agency
                and the new lender must execute a new lender's agreement, unless the
                new lender already has a valid lender's agreement with the Agency.
                 (e) After Agency approval of a transfer of lender, all terms of the
                original loan note guarantee shall transfer to the benefit of the new
                lender.
                Sec. 5001.508 Mergers.
                 Agency approval. All borrower mergers or consolidations (herein
                referred to as ``mergers'') require approval by the Agency and the
                lender. The Agency may approve a merger when--
                 (a) The resulting organization will be eligible for a guaranteed
                loan and assumes all the liabilities and acquires all the assets of the
                merged borrower;
                 (b) The merger is in the best interest of the government and the
                merging organization;
                 (c) The resulting organization can meet all required conditions as
                contained in specific loan agreements; and
                 (d) All property can be legally transferred to the resulting
                organization.
                Sec. 5001.509 Servicing fees.
                 The lender may pass the servicing fees on to the borrower but may
                not delay payment of the fee to the Agency while collecting the payment
                from the borrower.
                 (a) Guarantee retention fees. Where the lender is required to pay a
                periodic guarantee retention fee (see Sec. 5001.455), the fee is due
                for the entire payment period even if the loan note guarantee is
                terminated or transferred before the next retention fee payment is due.
                 (b) Borrower transfer fee. The Agency will charge the following
                fees:
                 (1) A one-time, $1,500 nonrefundable transfer fee at the time of
                transfer to an eligible borrower.
                 (2) Payment of a one-time nonrefundable transfer fee of 1 percent
                of the guaranteed loan balance to ineligible borrowers.
                Sec. 5001.510 Subordination of lien position.
                 (a) Request for subordination. A lender seeking a subordination of
                its lien position in collateral must submit a written request to the
                Agency. The lender must include in the request a financial analysis of
                the servicing action. The financial analysis must be fully supported by
                current financial statements, less than 90 calendar days old, of the
                borrower and guarantors. The lender must receive written Agency
                approval prior to the subordination.
                 (b) Agency approval. Agency approval of the subordination request
                requires that:
                 (1) The subordination of the lender's lien position enhances the
                borrower's business and is in the best financial interest of the
                Agency;
                 (2) The lien to which the guaranteed loan is subordinated is for a
                fixed dollar amount or fixed credit limit and for a fixed term, after
                which the guaranteed loan lien priority will be restored;
                 (3) Remaining collateral is sufficient to provide for adequate
                collateral coverage of the guaranteed loan. The Agency may require a
                current independent appraisal in accordance with Sec. 5001.203 of this
                part. However, if the original appraisal is more than one year old, but
                less than two years old, the lender may provide an appraisal with a new
                effective date of evaluation in lieu of a completely new appraisal;
                 (4) Lien priorities remain for the portion of the loan collateral
                that was not subordinated;
                 (5) The subordination of collateral to a line of credit does not
                extend beyond the term of the line of credit and in no event exceeds
                more than three years.
                 (6) Subordination to a tax-exempt obligation is strictly prohibited
                in compliance with OMB Circular A-129, ``Policies for Federal Credit
                Programs and Non-Tax Receivables.''
                Sec. 5001.511 Repurchases from holders.
                 (a) General. A holder can make written demand on either the lender
                or the Agency to repurchase the unpaid guarantee portion of the loan
                when the borrower is in monetary default or when the lender has failed
                to pay the holder its pro-rata share of any payment made by the
                borrower within 30 days of the lender's receipt thereof from the
                borrower. When making written demand on the lender, the holder must
                concurrently send a copy of the demand letter to the Agency.
                 (1) The lender is encouraged to repurchase the guarantee to
                facilitate the accounting of funds, resolve any loan problem, and
                resolve the monetary default, where and when reasonable. The benefit to
                the lender is that it may re-sell the guaranteed portion of the loan
                and then continue collection of its servicing fee, if any, when the
                monetary default is cured.
                 (2) When the lender and the Agency determine that repurchase is
                necessary to adequately service the loan, the holder must sell the
                guaranteed portion to the requesting entity.
                 (3) If the lender does not repurchase the guaranteed portion from
                the holder, the Agency may, at its option, purchase such guaranteed
                portion of the loan for servicing purposes.
                 (4) If a repurchase of a guaranteed loan includes the
                capitalization of interest, interest accrued on the capitalized
                interest will not be paid to the holder.
                 (b) Repurchase by lender. If the lender, borrower, and holder are
                unable to agree to restructuring of loan repayment, interest rate, or
                loan terms to resolve any loan problem or resolve any default, and
                repurchase of the guaranteed portion of the loan is necessary to
                adequately service the loan, the holder must sell the guaranteed
                portion of the loan to the lender. The sale must be for an amount equal
                to the unpaid principal and accrued Interest, in accordance with Sec.
                5001.450(c) of this part, on such portion less the lender's servicing
                fee.
                 (1) When a lender receives a written demand for repurchase from a
                holder, the lender must notify any other holder and the Agency within
                30 calendar days of receipt of the written demand. The lender must
                inform all parties if the lender will repurchase the unpaid guaranteed
                portion of the loan from the requesting holder.
                 (2) When the lender repurchases the unpaid guaranteed portion from
                the holder for servicing purposes, and any default is not cured within
                90 calendar days, the lender must discontinue interest accrual.
                 (3) Upon repurchase the holder will assign the assignment agreement
                to the lender without recourse.
                 (4) The lender must not repurchase from the holder for arbitrage or
                other purposes to further its own financial gain.
                 (5) Any repurchase from a holder may only be made after the lender
                obtains the Agency's written approval.
                 (c) Agency repurchase. A holder can submit a written demand to the
                Agency for repurchase only if the lender declines to repurchase. If a
                prior written demand was not made upon the lender, the Agency will
                notify the lender and allow up to seven calendar days for the lender to
                exercise their option to repurchase as provided in this section.
                 (1) Lender does not repurchase. If the lender does not repurchase
                the unpaid guaranteed portion of a loan as provided in paragraph (a) of
                this section, the Agency will, within 30 calendar days after written
                demand to the Agency from the holder, purchase from the holder the
                unpaid principal balance of the guaranteed portion together with
                accrued interest to date of repurchase or
                [[Page 42573]]
                the interest termination date, whichever is sooner, less the lender's
                servicing fee. The guarantee will not cover the accrued interest to the
                holder on the loan as determined under Sec. 5001.450(c) of this part.
                 (2) Written demand content. The holder must include in its written
                demand to the Agency:
                 (i) A copy of the written demand made upon the lender;
                 (ii) A copy of the lender's denial to repurchase the unpaid
                guaranteed portion of the guaranteed loan;
                 (iii) Evidence of the right to require payment from the Agency as
                provided by the holder or duly authorized agent. Such evidence must
                consist of the original assignment guarantee agreement properly
                assigned to the Agency without recourse including all rights, title,
                and interest in the loan;
                 (iv) The amount due including unpaid principal, unpaid interest to
                date of demand, and interest subsequently accruing from date of demand
                to proposed payment date; and
                 (v) When the initial holder has sold its interest, the original
                assignment guarantee agreement and an original of each Agency-approved
                reassignment document in the chain of ownership, with the latest
                reassignment being assigned to the Agency without recourse, including
                all rights, title, and interest in the guarantee.
                 (3) Payment. Unless otherwise agreed upon, payment will not be
                later than 30 calendar days from the date of demand.
                 (i) Upon request by the Agency, the lender must promptly furnish
                (within 30 calendar days of such request) a current statement,
                certified by an appropriate authorized officer of the lender, of the
                unpaid principal and interest then owed by the borrower on the loan and
                the amount then owed to any holder, along with the information
                necessary for the Agency to determine the appropriate amount due the
                holder.
                 (ii) Any discrepancy between the amount claimed by the holder and
                the information submitted by the lender must be resolved between the
                lender and the holder before payment will be approved. The Agency will
                notify both parties and such conflict will suspend the running of the
                30-calendar-day payment requirement.
                 (4) Subrogation. When the Agency purchases a loan from a holder it
                assumes all rights that were previously held by the holder.
                 (5) Servicing fee. When the Agency purchases the guaranteed portion
                of the loan from a holder, the lender's servicing fee will stop on the
                date that interest was last paid by the borrower. The lender can
                neither charge a servicing fee to the Agency nor collect such fee from
                the Agency.
                 (6) Payments and proceeds. The lender must apply all loan payments
                and collateral proceeds received to the guaranteed and unguaranteed
                portions of the loan on a pro rata basis.
                 (7) Accrued interest. If Federal or State regulators place the loan
                in non-accrual status, the lender must also discontinue interest
                accrual. If the Agency repurchases 100 percent of the guaranteed
                portion of a loan and becomes the holder, interest accrual on the loan
                will cease until the lender resumes remittance of the pro rata payments
                to the Agency.
                 (8) Establishing interest termination date. When a guaranteed loan
                has been delinquent more than 60 calendar days and no holder comes
                forward or when the lender has accelerated the account, and subject to
                the expiration of any forbearance or workout agreement, the lender, or
                the Agency at its sole discretion, must issue a letter to the holder(s)
                establishing the interest termination date. Accrued interest paid to
                the holder(s) will not exceed 90 calendar days and will be calculated
                from date when interest was last paid on the loan.
                 (9) Obligations and rights. Purchase by the Agency neither changes,
                alters, or modifies any of the lender's obligations to the Agency
                arising from the lender's agreement, guaranteed loan or loan note
                guarantee, nor does it waive any of the Agency's rights against the
                lender. The Agency will have the right to set-off against the lender
                all rights inuring to the Agency as the holder of the instrument
                against the Agency's obligation to the lender under the loan note
                guarantee.
                 (10) Accelerated loan. When the lender has accelerated the loan and
                the lender holds all or a portion of the guaranteed loan, an estimated
                loss claim must be filed by the Lender with the Agency within 60
                calendar days from the date the loan was accelerated. Accrued interest
                paid to the lender will not exceed 90 calendar days and will be
                calculated from date when interest was last paid on the loan.
                 (11) Interest termination during bankruptcy. When a borrower files
                a Chapter 7 liquidation plan, the lender shall immediately notify the
                Agency and submit a liquidation plan. The Agency will establish an
                interest termination date based on the date Interest was last paid to
                the lender. When a borrower files either a Chapter 9 or Chapter 11
                bankruptcy restructuring plan, the Agency and lender shall meet to
                discuss the bankruptcy procedure, the ability of the borrower to meet
                their restructuring plan, the lender's treatment of accruing interest,
                and potentially establish an interest termination date for the
                guaranteed loan. If the restructuring bankruptcy Chapter 9 or Chapter
                11 is converted to a liquidation bankruptcy Chapter 7 by court order,
                the interest termination date will be the date of such conversion.
                Sec. 5001.512 Additional expenditures and loans.
                 The lender shall not make additional expenditures on behalf of, or
                provide new loans to, the borrower without notification to the Agency
                even though such expenditures or loans will not be guaranteed. The
                lender shall not approve additional expenditures or new loans where the
                expenditure or loan will violate, or cause a violation of, any of the
                loan covenants in the borrower's loan agreement.
                Sec. 5001.513 Interest rate changes.
                 (a) Interest rate freezes. The guaranteed loan interest rate will
                freeze at the earliest uncured default date and will remain unchanged
                until the cancellation of the loan note guarantee in compliance with
                Sec. 5001.524.
                 (b) Reductions. The borrower, lender, and holder (if any) may
                collectively initiate a permanent or temporary reduction in the
                interest rate of the guaranteed loan at any time during the life of the
                loan upon written agreement among these parties. After a permanent
                reduction, the loan note guarantee will only cover losses of interest
                at the reduced interest rate.
                 (1) When the Agency is a holder, the lender must obtain Agency
                approval before implementing the reduction. The lender must provide a
                copy of the modification agreement to the Agency for approval. The
                Agency will approve the reduction only when it is demonstrated that the
                change is more viable than liquidation and that the government's
                financial interests are not adversely affected.
                 (2) Factors that the Agency will consider in determining whether to
                approve the change are the Government's cost of borrowing money; the
                monetary recovery is greater than the liquidation recovery; and the
                project's continued viability as demonstrated by a financial
                feasibility analysis.
                 (c) Increases. Unless a temporary interest rate reduction occurred,
                increases in fixed interest rates and increases in variable interest
                rate structure are prohibited.
                 (d) Fixed rate to variable rate change. Fixed rates can be changed
                to variable
                [[Page 42574]]
                rates to reduce the borrower's interest rate only when the variable
                rate has a ceiling that is less than or equal to the original fixed
                rate.
                 (e) Variable rate to fixed rate change. Variable rates can be
                changed to a fixed rate that is lower or equal to the current variable
                rate.
                 (f) After adjustments. The interest rates, after adjustments, must
                comply with the requirements for interest rates on new loans as
                established by paragraph Sec. 5001.401.
                 (g) Documentation. The lender is responsible for the legal
                documentation of interest rate changes by an endorsement or any other
                legally effective amendment to the promissory note; however, no new
                promissory notes can be issued. The lender must provide copies of all
                such documents to the Agency within 10 calendar days of the change.
                 (3) In a final loss settlement when qualifying interest rate
                changes are made in compliance with this part, the lender must
                calculate interest based on the periods the given rates were in effect.
                The lender must maintain records that adequately document the accrued
                interest claimed, which must be determined in accordance with Sec.
                5001.450(c).
                Sec. 5001.514 Lender failure.
                 (a) General. In the event a lender fails or ceases to service a
                guaranteed loan, the Agency will make the successor lending entity
                aware of the statutory and regulatory requirements and will provide
                instruction to the successor lending entity on a case-by-case basis.
                Such instructions may include the Agency's determination that the
                Agency will service the entire loan or the guaranteed portion of the
                loan.
                 (1) Any successor lender must take such action that a reasonable
                lender would take if it did not have a loan note guarantee to protect
                the lender and Agency's mutual interest.
                 (2) A successor entity approved by the Agency as a lender will be
                afforded the benefits of the loan note guarantee in the sharing of any
                loss and eligible expenses subject to the limits that are set forth in
                the regulations governing the loan guarantee.
                 (b) Non-regulated lender. If the successor lending entity is a non-
                regulated lender, the lending entity is prohibited from making changes
                to the lender's agreement and related documents on the guaranteed loan.
                The successor lending entity must comply with the provisions of this
                part, including promptly applying to become a lender if not already an
                eligible lender. If the successor lending entity is not or fails to
                become a lender as set forth in Sec. 5001.130 of this part within 60
                calendar days, the loan note guarantee will not be enforceable.
                 (c) Regulated lender. Where the failed lending entity is an FDIC
                regulated lender, the FDIC and the Agency will enter into an Inter-
                Agency Agreement regarding the FDIC's role as the successor lending
                entity, and all parties are to abide by this agreement or successor
                document(s). This agreement sets forth the duties and responsibilities
                of each Agency when a lender fails. When the FDIC is not the successor
                to a failed regulated lender, the regulatory agency serving as the
                successor lending entity and the Agency will abide by terms of the
                lender's agreement as executed by the originating lender. The Agency
                reserves the right to request a meeting with the successor lending
                entity to further define the duties and responsibilities of each agency
                when a lender fails.
                 (d) No successor entity. In the event no successor lending entity
                can be determined, the Agency reserves the right to enforce the
                provisions of the loan documents on behalf of the lender or to purchase
                the lender's interest in the loan.
                Sec. 5001.515 Default by borrower.
                 When there is a default by a borrower, the lender must act
                prudently and expeditiously in working with the borrower to bring the
                account current or cure the default through restructuring if a
                realistic plan can be developed, or to accelerate the account and
                conduct a liquidation in accordance with Sec. 5001.517 and in a manner
                that will minimize any potential loss.
                 (a) Default notification and meetings. The lender must notify the
                Agency within the timeframe as provided in Sec. 5001.502(a)(3)(i).
                 (1) The lender will provide this notification by submitting the
                guaranteed loan borrower default status report in the Agency's
                electronic reporting system. The lender must update the loan's status
                each month until such time as the loan is no longer in default.
                 (2) If a monetary default exceeds 30 calendar days, the lender must
                meet with the borrower and, if necessary, the Agency within 45 calendar
                days of the date of the default to discuss the situation. The lender
                must provide the Agency with a written summary of the meeting,
                including any decisions and actions agreed upon within 10 calendar days
                of the meeting.
                 (b) Curative options. In considering curative actions, providing a
                permanent cure without adversely affecting the risk to the Agency and
                the lender is the paramount objective. The lender may consider
                temporary curative actions (e.g., payment deferments or collateral
                subordination) provided they strengthen the loan and are in the best
                financial interest of the lender and the Agency.
                 (1) Curative actions (subject to the rights of any holder and
                Agency concurrence) include, but are not limited to, the following
                options:
                 (i) Deferment of principal and/or interest payments;
                 (ii) An additional unguaranteed temporary loan by the lender to
                bring the account current;
                 (iii) Re-amortization of or rescheduling the payments on the loan
                excluding capitalization of accrued interest;
                 (iv) Transfer and assumption of the loan in accordance with Sec.
                5001.506;
                 (v) Reorganization;
                 (vi) Liquidation;
                 (vii) Changes in interest rates in accordance with Sec. 5001.513.
                Any interest payments must be adjusted proportionately between the
                guaranteed and unguaranteed portion of the loan; and
                 (viii) Troubled debt restructure.
                 (2) The term of any deferment, rescheduling, re-amortization, or
                moratorium cannot exceed the lesser of the remaining useful life of the
                collateral or remaining term of the loan as set forth in Sec.
                5001.402(b) of this part.
                 (i) During a period of deferment or moratorium on the guaranteed
                loan, the lender's non-guaranteed loan(s) and any stockholder or
                affiliate loans must also be under deferment or moratorium.
                 (ii) Balloon payments are permitted as a loan servicing option as
                long as there is a reasonable prospect for successful repayment of the
                guaranteed loan and the remaining life of the collateral supports the
                action.
                 (c) Multi-note system. If the loan was closed with the multi-note
                system, the lender may need to possess all promissory notes to take
                some servicing actions. In situations where the Agency is a holder of
                some of the promissory notes, the Agency may endorse the promissory
                notes back to the lender, provided the lender provides the Agency with
                a receipt identifying the reason for the transfer. The Agency will not
                endorse the original loan note guarantee to the lender under any
                circumstances.
                Sec. 5001.516 Protective advances.
                 Protective advances are allowed only when they are necessary to
                preserve the value of the collateral. Therefore, a lender must exercise
                sound judgment in determining that the protective advance
                [[Page 42575]]
                preserves collateral and recovery is actually enhanced by making the
                advance.
                 (a) Protective advances must be reasonable with respect to the
                outstanding loan amount and the value of the collateral being
                preserved.
                 (b) A lender cannot make protective advances in lieu of additional
                loans.
                 (c) A lender must obtain written Agency approval for any protective
                advance that will cumulatively amount to more than $200,000, or 10
                percent of the aggregate outstanding balance of principal and interest,
                whichever is less, to the same borrower.
                 (d) Protective advances constitute an indebtedness of the borrower
                to the lender and must be secured by collateral to the same extent as
                the original guaranteed loan.
                 (e) Notwithstanding Sec. 5001.22(c) of this part, upon Agency
                approval, protective advances can be used to pay Federal tax liens or
                other Federal debt.
                 (f) A Protective advance claim will be paid only at the time of the
                final payment as indicated in the report of loss. In the event of a
                final loss, protective advances may accrue interest at the promissory
                note rate from the date of such advance and will be guaranteed at the
                same percentage of loss as provided for in the loan note guarantee. The
                loan note guarantee will not cover interest on the protective advance
                accruing after the interest termination date.
                 (g) The maximum loss to be paid by the Agency will never exceed the
                original loan amount plus accrued interest times the percentage of
                guarantee regardless of any protective advances made.
                 (h) Holders do not have an interest in protective advances.
                Sec. 5001.517 Liquidation.
                 In the event of one or more incidents of default or third-party
                actions that the borrower cannot or will not cure or eliminate within a
                reasonable period of time, the lender, with Agency consent, must
                provide for liquidation in accordance with paragraphs (a) through (n)
                of this section. The lender is responsible for initiating actions
                immediately and as necessary to assure a prompt, orderly liquidation
                that will provide maximum recovery. The Agency reserves the right to
                unilaterally conclude that liquidation is necessary and require the
                lender to assign the collateral to the Agency and the Agency will then
                liquidate the loan per paragraph (o) of this section.
                 (a) Decision to liquidate. A decision to liquidate a loan or
                proceed otherwise must be made when the lender determines that the
                default cannot be cured or when the Agency and the lender determine
                that it is in the best interest of the Agency and the lender to
                liquidate. The decision to liquidate or proceed otherwise with the
                borrower must be made as soon as possible when one or more of the
                following exist:
                 (1) The loan is 90 calendar days behind on any scheduled payment
                and the lender and the borrower have not been able to cure the
                delinquency;
                 (2) Delaying liquidation will jeopardize full or maximum recovery
                on the loan; or
                 (3) The borrower or lender is uncooperative in resolving the
                problem or the Agency or lender has reason to believe the borrower is
                not acting in good faith, and immediate liquidation would minimize loss
                to the Agency.
                 (b) Repurchase of loan. When the decision to liquidate a loan is
                made, if any portion of the loan has been sold or assigned under Sec.
                5001.408 of this part and has not already been repurchased, the lender
                must make provisions for repurchase in accordance with Sec. 5001.511.
                 (c) Lender's liquidation plan. Within 30 calendar days after the
                lender decides to liquidate a loan, the lender must submit a written,
                proposed plan of liquidation to the Agency for approval. The
                liquidation plan must be detailed and include at least the following
                information:
                 (1) Such proof as the Agency requires to establish the lender's
                ownership of the guaranteed loan promissory note and related security
                instruments;
                 (2) A copy of the payment ledger, if available, or other
                documentation that reflects the current outstanding loan balance,
                accrued interest to date, and the method of computing the accrued
                interest;
                 (3) A full and complete list of all collateral and a listing of all
                liens held and status of such liens, plus any personal and corporate
                guarantees;
                 (4) The recommended liquidation methods for making the maximum
                collection possible on the indebtedness and the justification for such
                methods, including recommended action for acquiring and disposing of
                all collateral and collecting from guarantors;
                 (5) Necessary steps for preservation of the collateral including
                any anticipated protective advances;
                 (6) The market value and the potential liquidation value, or
                estimates thereof, of all the collateral securing the loan.
                 (i) These values or estimates of the collateral must be obtained by
                the lender through an independent appraisal. If the outstanding balance
                of principal and interest is less than $250,000, the lender may,
                instead of an appraisal, obtain these values or estimates by using
                their primary regulator's policies relating to appraisals and
                evaluations or, if the lender is not regulated, normal banking
                practices and generally accepted methods of determining value.
                 (ii) The procedure used to obtain these values or estimates of the
                collateral must include an evaluation of the impact of any release of
                hazardous substances, petroleum products, or other environmental
                hazards.
                 (iii) Any independent appraiser's fee, including the cost of the
                environmental site assessment if necessary, will be shared equally by
                the Agency and the lender;
                 (7) Proposed protective bid amounts on collateral to be sold at
                auction and a description to show how the amounts were determined.
                 (i) A protective bid can be made by the lender, with prior Agency
                written approval, at a foreclosure sale to protect the lender's and the
                Agency's interest.
                 (ii) The protective bid must not exceed the amount of the loan
                balance plus applicable foreclosure expenses and must be based on the
                liquidation value and estimated net recovery considering prior liens
                and outstanding taxes, expenses of foreclosure, and estimated expenses
                for holding and reselling the property. Foreclosure expenses include,
                but are not limited to, expenses for resale, interest accrual, length
                of time necessary for resale, maintenance, guard service,
                weatherization, and prior liens;
                 (8) Copies of the borrower's latest available financial statements;
                 (9) Copies of each guarantor's latest available financial
                statements;
                 (10) An itemized list of estimated liquidation expenses expected to
                be incurred along with justification for each expense;
                 (11) Estimated protective advance amounts with justification;
                 (12) If a voluntary conveyance is considered, the proposed amount
                to be credited to the guaranteed debt;
                 (13) Legal opinions, if needed by the lender's legal counsel; and
                 (14) A schedule to periodically report to the Agency on the
                progress of liquidation, not to exceed every 60 days.
                 (d) Partial liquidation plan. If actions are necessary to
                immediately preserve and protect the collateral, the lender may submit
                a partial liquidation plan and, when approved by the Agency, submit a
                complete liquidation plan prepared by the Lender in accordance with
                paragraph (c) of this section.
                 (e) Approval of liquidation plan. The lender cannot implement its
                liquidation
                [[Page 42576]]
                plan before obtaining written approval from the Agency. The Agency will
                approve or disapprove the plan within 30 calendar days of its receipt.
                In order to ensure prompt action, the lender may submit its liquidation
                plan with an estimate of collateral value, and the Agency may approve
                the liquidation plan subject to the results of the final liquidation
                appraisal.
                 (1) If the Agency approves the lender's liquidation plan, the
                lender must:
                 (i) Proceed expeditiously with liquidation;
                 (ii) Take all legal action necessary to liquidate the loan in
                accordance with the approved liquidation plan; and
                 (iii) Update or modify the liquidation plan when conditions
                warrant, including a change in value based on a liquidation appraisal.
                 (iv) If changed circumstances after submission of the liquidation
                plan require a revision of liquidation costs, the lender must obtain
                the Agency's written approval prior to proceeding with the proposed
                changes if the revised liquidation costs exceed 10 percent of the
                amount proposed in the liquidation plan approved by the Agency.
                 (2) If the Agency does not approve the lender's liquidation plan,
                the Agency will meet with the lender to resolve the concern(s). Until
                the concerns are resolved, the lender must take such actions that a
                reasonable lender would take without a guarantee and keep the Agency
                informed, in writing, of those actions. Once the revised liquidation
                plan is approved by the Agency, the lender must proceed in accordance
                with paragraphs (e)(1)(i) through (iii) of this section.
                 (f) Acceleration. The lender must proceed to accelerate the loan as
                expeditiously as possible when acceleration is necessary, including
                giving any notices and taking any other required legal actions. The
                guaranteed loan will be considered in liquidation once it has been
                accelerated and a demand for payment has been made upon the borrower.
                 (1) If the sole basis for acceleration is a non-monetary default,
                the lender must obtain concurrence from the Agency prior to
                accelerating the loan. In the case of monetary default, the lender may
                accelerate the loan without prior approval by the Agency, although
                Agency concurrence must still be given no later than the time the
                Agency approves the liquidation plan.
                 (2) The Lender must provide the Agency a copy of the acceleration
                notice or other acceleration document sent to the borrower.
                 (g) Estimated loss claim and payment. If the lender is conducting
                the liquidation and owns any or all the guaranteed portion of the loan,
                the lender must file an estimated loss claim once a decision has been
                made to liquidate if the liquidation will exceed 90 calendar days. The
                Agency will process the estimated loss claim and will make final loss
                payments in accordance with Sec. 5001.521.
                 (h) Liquidation expenses. (1) The guarantee will not cover
                liquidation expenses in excess of liquidation proceeds under any
                circumstances.
                 (2) When a liquidation is performed by the lender, the Agency must
                approve, in advance and in writing, the lender's estimated liquidation
                expenses of collateral.
                 (3) Liquidation expenses must be reasonable and customary and must
                provide a demonstrated economic benefit to the lender and the Agency.
                The lender and Agency will share liquidation expenses equally. To
                accomplish this, the lender must deduct 50 percent of the liquidation
                expenses from the collateral sale proceeds.
                 (i) Accounting and reports. The lender must account for funds
                during the period of liquidation and must provide the Agency with
                reports on the progress of liquidation including disposition of
                collateral and resulting costs. If in the course of implementing the
                approved liquidation plan the lender determines additional procedures
                are necessary for the successful completion of the liquidation or
                otherwise makes any other changes to or deviations from the approved
                liquidation plan, the lender must identify in the report such
                procedures, changes, and deviations.
                 (j) Transmitting payments and proceeds to the Agency. When the
                Agency is the holder of a portion of the guaranteed loan, the lender
                must transmit to the Agency within 14 calendar days the Agency's pro
                rata share of any payments received from the borrower, liquidation, or
                other proceeds using an Agency approved form.
                 (k) Disposition of collateral. (1) Disposition of collateral
                acquired by the lender must be approved, in writing, by the Agency
                when--
                 (i) The lender's cost to acquire the collateral of a borrower
                exceeds the potential recovery value of the security and the lender
                proposes abandoning the collateral in lieu of liquidation; or
                 (ii) The acquired collateral is to be sold to the borrower,
                affiliates or members of the borrower or to borrower's stockholders or
                officers, or the lender or lender's stockholders or officers.
                 (2) A recommendation by the lender for abandonment of collateral is
                considered a servicing action under 7 CFR 1970.8(e) and a separate NEPA
                review is not required.
                 (l) Disposition of personal or corporate guarantees. The lender
                must take action to maximize recovery from all personal and corporate
                guarantees, including seeking deficiency judgments when there is a
                reasonable chance of future collection.
                 (m) Compromise settlement. Compromise settlements must be approved
                by the lender and the Agency. The lender must provide complete current
                financial information on all parties obligated for the loan. At a
                minimum, the compromise settlement must be equivalent to the value and
                timeliness of that which would be received from attempting to collect
                on the guarantee. Any guarantor cannot be released from liability until
                the full amount of the compromise settlement has been received. In
                determining whether to approve a compromise settlement, the Agency will
                consider, among other things, whether the compromise is more
                financially advantageous than collecting on the guarantee.
                 (n) Liquidation provisions selection. (1) If a lender has made a
                loan guaranteed under one of the programs identified in Sec. 5001.1 of
                this part, the lender has the option to liquidate the loan under the
                provisions of this part or under the entire provisions of applicable
                regulation at the time the loan was guaranteed by the Agency.
                 (2) The lender must notify the Agency in writing within 10 calendar
                days after its decision to liquidate as to which regulatory provisions
                it chooses to use. If the lender does not notify the Agency in writing
                within these 10 calendar days, it must use the liquidation provisions
                in this part.
                 (o) Agency liquidation. The Agency will liquidate a guaranteed loan
                at its option only when it is a holder and there is reason to believe
                the lender is not likely to undertake liquidation efforts that will
                result in maximum recovery. When it conducts a liquidation, the Agency
                will apply proceeds derived from the sale of the collateral first to
                reasonable liquidation expenses and second to the guaranteed portion of
                the loan.
                Sec. 5001.518 [Reserved]
                Sec. 5001.519 Bankruptcy.
                 (a) Lender's responsibilities. The lender is responsible for
                protecting the guaranteed loan and the collateral securing it in
                bankruptcy and any
                [[Page 42577]]
                related appellate proceedings. These responsibilities include, but are
                not limited to, the following:
                 (1) Taking actions that result in greater recoveries and avoiding
                actions that are likely not to be cost-effective;
                 (2) Monitoring confirmed bankruptcy plans to determine borrower
                compliance, and, if the borrower fails to comply, pursuing appropriate
                relief, including seeking a dismissal of the bankruptcy plan;
                 (3) Requesting modifications of any proposed bankruptcy plan
                whenever it appears that the lender could obtain additional recoveries
                via plan modification;
                 (4) Filing a proof of claim, when necessary, and all the necessary
                papers and pleadings concerning the case;
                 (5) Attending and, when necessary, participating in meetings of the
                creditors and all court proceedings;
                 (6) Immediately seeking adequate protection of the collateral if it
                is subject to being used by the trustee in bankruptcy or the debtor in
                possession;
                 (7) When appropriate, seeking involuntary conversion of a pending
                chapter 11 case to a liquidation proceeding or seeking dismissal of the
                proceedings;
                 (8) Submitting a default status report within 15 calendar days
                after the date when the borrower defaults and every 30 calendar days
                thereafter until the default is resolved or a final loss claim is paid
                by the Agency; and
                 (9) Informing the Agency within 10 working days upon notification
                of the filing of a bankruptcy case and keeping the Agency adequately
                and regularly informed, in writing, of all aspects of the proceedings,
                at a minimum, on a bi-monthly basis.
                 (b) Appraisals. In a Chapter 9 or Chapter 11 reorganization, the
                lender must obtain an independent appraisal of the collateral if the
                Agency has determined that an independent appraisal is necessary. With
                written Agency consent, the lender and Agency will equally share the
                cost of any independent appraisal fee to protect the guaranteed loan in
                any bankruptcy proceedings.
                 (c) Repurchase from the holder. The Agency or the lender, with the
                approval of the Agency, can initiate the repurchase of the unpaid
                guaranteed portion of the loan from the holder. If the lender is the
                holder, an estimated loss payment may be filed at the initiation of a
                Chapter 7 proceeding or after a Chapter 9 or Chapter 11 proceeding
                becomes a liquidation proceeding. Any loss payment on loans in
                bankruptcy must be approved by the Agency.
                 (d) Reports of loss during bankruptcy. In bankruptcy proceedings,
                the lender must use the report of loss form for reporting all estimated
                and final loss determinations. Payment of loss claims will be made as
                provided in this section.
                 (1) Estimated loss payments. (i) If a borrower has filed for
                bankruptcy and all or a portion of the debt has been discharged, the
                lender must request an estimated loss payment of the guaranteed portion
                of the accrued interest and principal discharged by the court. Only one
                estimated loss payment is allowed during the bankruptcy and any related
                appellate proceedings. The Agency will treat all subsequent claims of
                the lender during bankruptcy and any related appellate proceedings as
                revisions to the initial estimated loss. At its option, the Agency may
                process a revised estimated loss payment in accordance with any court-
                approved changes in the bankruptcy plan. Once the bankruptcy plan has
                been satisfactorily completed, the lender is responsible for submitting
                the documentation necessary for the Agency to review and adjust the
                estimated loss claim to reflect any actual discharge of principal and
                interest and to reimburse the lender for any court-ordered interest
                rate reduction under the terms of the bankruptcy plan.
                 (ii) The lender must use the report of loss to request an estimated
                loss payment and to revise any estimated loss payments during the
                bankruptcy plan. The estimated loss claim, as well as any revisions to
                this claim, must be accompanied by documentation to support the claim.
                 (iii) Upon completion of a bankruptcy plan, the lender must--
                 (A) Enter the data directly into the Agency's electronic system;
                and
                 (B) Provide the Agency with the documentation necessary to
                determine whether the estimated loss paid equals the actual loss
                sustained. Where the actual loss sustained is different than the
                estimated loss paid, the difference will be handled in accordance with
                Sec. 5001.521(h).
                 (2) Bankruptcy loss payments. (i) The lender must request a
                bankruptcy loss payment of the guaranteed portion of the accrued
                interest and principal discharged by the court for all bankruptcies
                when all or a portion of the debt has been discharged. Unless a final
                court decree approves a subsequent change to the bankruptcy plan that
                is adverse to the lender, only one bankruptcy loss payment is allowed
                during the bankruptcy. Once a final court decree has discharged all or
                part of the guaranteed loan and any appeal period has run, the lender
                must submit the documentation necessary for the Agency to review and
                adjust the bankruptcy loss claim to reflect any actual discharge of
                principal and Interest.
                 (ii) The lender must use the report of loss to request a bankruptcy
                loss payment and to revise any bankruptcy loss payments during the
                course of the bankruptcy. The lender must include with the bankruptcy
                loss claim documentation to support the claim, as well as any revisions
                to this claim.
                 (iii) Upon completion of a bankruptcy plan, restructure, or
                liquidation, the lender must enter the data directly into the Agency's
                electronic reporting system.
                 (iv) If an estimated loss claim is paid during a bankruptcy and the
                borrower repays in full the remaining balance without an additional
                loss sustained by the lender, a final report of loss will be filed to
                terminate the loan.
                 (3) Interest losses as a result of bankruptcy reorganization.
                Interest losses as a result of bankruptcy reorganization will be paid
                as described in paragraphs (e)(3)(i) and (ii) of this section, as
                applicable.
                 (i) For guaranteed loans closed for which the Agency has not issued
                an interest termination letter--
                 (A) The loss of interest income sustained during the period of the
                bankruptcy plan will be processed in accordance with paragraph (d)(1)
                of this section;
                 (B) The loss of interest income sustained after the bankruptcy plan
                is confirmed will be processed annually when the lender sustains a loss
                as a result of a permanent interest rate reduction that extends beyond
                the period of the bankruptcy plan; and
                 (C) If an estimated loss claim is paid during the operation of the
                bankruptcy plan and the borrower repays in full the remaining balance
                without an additional loss sustained by the lender, a final report of
                loss will be filed to terminate the loan.
                 (ii) For guaranteed loans closed for which the Agency has issued an
                interest termination letter, the Agency will not compensate the lender
                for any difference in the interest rate specified in the loan note
                guarantee and the rate of interest specified in the bankruptcy plan.
                 (4) Final bankruptcy loss payments. The Agency will process final
                bankruptcy loss payments when the loan is fully liquidated.
                 (5) Application of loss claim payments. The lender must apply
                estimated loss payments first to the principal balance of the
                guaranteed portion of the debt and then to the
                [[Page 42578]]
                interest of the guaranteed portion of the debt. In the event a court
                attempts to direct the payments to be applied in a different manner,
                the lender must immediately notify the Agency in writing.
                 (6) Protective advances. If approved protective advances, as
                authorized by Sec. 5001.516, were incurred in connection with the
                initiation of liquidation action and were required to protect the
                collateral as result of delays in the case or failure of the borrower
                to maintain the security prior to the borrower having filed bankruptcy,
                the protective advances together with accrued interest, as determined
                under Sec. 5001.450(c) of this part, are payable under the guarantee
                in the final loss claim.
                 (e) Liquidation expenses during bankruptcy proceedings. (1) The
                liquidation expenses will be in compliance with Sec. 5001.517(h).
                 (2) Reasonable and customary liquidation expenses in bankruptcy may
                be deducted from liquidation proceeds of collateral. In the case of
                Chapter 11 reorganizations or Chapters 11 or 7 liquidation, only
                expenses authorized by the court can be deducted from the collateral
                proceeds, unless the liquidation is by the lender.
                 (3) When a bankruptcy proceeding results in a liquidation of the
                borrower by a bankruptcy trustee appointed under 11 U.S.C. 701, 702,
                703, or 1104, expenses will be handled as directed by the court, and
                the lender cannot claim liquidation expenses for the sale of the
                assets.
                 (4) If the property is abandoned by the bankruptcy trustee and any
                relief from the stay has been obtained, the lender will conduct the
                liquidation in accordance with Sec. 5001.517.
                 (5) Proceeds received from partial sale of collateral during
                bankruptcy can be used by the lender to pay reasonable costs (e.g.,
                freight, labor, and sales commissions) associated with the partial
                sale. Reasonable use of proceeds for this purpose must be documented
                with the final loss claim request.
                 (6) Legal fees as a result of a bankruptcy are limited by the
                Agency to an amount not to exceed 3 percent of the current principal
                balance and are only recoverable from liquidation proceeds. Legal fees
                in excess of 3 percent of the current principal balance shall be borne
                by the lender and are not recoverable from liquidation proceeds or any
                loss claim by the lender.
                Sec. 5001.520 Litigation.
                 (a) In all litigation proceedings involving the borrower, the
                lender is responsible for protecting the rights of the lender and the
                Agency with respect to the loan and keeping the Agency adequately and
                regularly informed, in writing, of all aspects of the proceedings. If
                the Agency determines that the lender is not adequately protecting the
                rights of the lender or the Agency with respect to the loan, the Agency
                reserves the right to take any legal action the Agency determines
                necessary to protect the rights of the lender and Agency, on behalf of
                the lender or the Agency. If the Agency exercises this right, the
                lender must cooperate with the Agency. The Agency will assess against
                the lender any cost the Agency incurs with such action.
                 (b) Notwithstanding any other provision of this part, the Agency
                reserves the right to be represented by the U.S. Department of Justice
                in any litigation where the Agency is named as a party.
                Sec. 5001.521 Loss calculations and payment.
                 Unless the Agency anticipates a future recovery, the Agency will
                make a final settlement with the lender after the collateral is
                liquidated or after settlement and compromise of all parties has been
                completed. The Agency has the right to recover losses paid under the
                guarantee from any party that may be liable.
                 (a) Report of loss form. The lender must use the report of loss
                form for all estimated and final loss claim requests.
                 (b) Estimated loss claim. The lender must submit to the Agency a
                completed report of loss form for all estimated loss claims. In
                calculating the estimated loss, the lender must use the estimated or
                current appraised liquidation value of the collateral.
                 (c) Estimated loss payment. The Agency will approve estimated loss
                payments only after it has approved the lender's liquidation plan. For
                a loan which has been approved by the Agency for a debt write-down (or
                debt restructure), the maximum amount of loss payment will not exceed
                the percent of guarantee multiplied by the difference between the
                outstanding principal and interest balance of the loan before the
                write-down and the outstanding balance of the loan after the write-
                down.
                 (1) The amount of an estimated loss payment must be credited first
                as a deduction from the principal balance of the loan with any
                remaining balance to accrued interest.
                 (2) The estimated loss payment cannot be applied as a payment on
                the loan for purposes of reducing the unpaid balance owed by the
                borrower for status reporting or any debt collection actions against
                the borrower or any guarantors.
                 (d) Reduction of loss claims payable. (1) Negligent loan
                origination and negligent loan servicing will result in a reduction of
                loss claims payable under the guarantee to the lender if any losses
                have occurred as the result of such negligence. The Agency will assess
                against the lender any cost to the Agency associated with actions taken
                by the Agency necessary to protect the Agency's interests with respect
                to the loan where a lender is not in compliance with its origination
                and servicing responsibilities. The extent of the reduction, which
                could be a total reduction of the loss claims payable, will depend on
                the extent of the losses incurred as a result of the negligent loan
                origination or servicing.
                 (2) Non-compliance with the requirements of Sec. 5001.205(a) or
                Sec. 5001.305(a) will result in a reduction of loss claims payable.
                The Agency's review of the non-compliance could result in a total
                reduction of the loss claim payable.
                 (3) Any delinquent fees, including any interest due thereon, will
                be deducted from any loss payment due the lender.
                 (e) Final loss claim. Except for certain unsecured personal or
                corporate guarantees as provided for in this section, the lender must
                submit a final report of loss to the Agency within 30 calendar days
                after liquidation of all collateral is completed. The Agency will not
                guarantee interest beyond the interest termination date or this 30-day
                period, other than for the period of time it takes the Agency to
                process the loss claim. The lender must apply the total amount of the
                loss payment remitted by the Agency to the guaranteed portion of the
                loan debt. At the time of final loss settlement, the lender must notify
                the borrower that the loss payment has been so applied. Such
                application does not release the borrower from liability. Once the
                lender receives a final loss payment from the Agency, the Agency will
                collect any outstanding debts owed to the government in accordance with
                part 3 of this title.
                 (1) Loss. In the event of a loss, the loan note guarantee will not
                cover--
                 (i) Interest to the lender accruing after the interest termination
                date;
                 (ii) Any interest accrued as the result of the borrower's default
                on the guaranteed loan over and above that which would have accrued at
                the Agency-approved promissory note rate on the guaranteed loan (e.g.,
                default interest rate); or
                 (iii) Any late fees, penalties, bond fees, interest rate swap
                charges, liquidation expenses, and other costs
                [[Page 42579]]
                unless authorized under paragraph (e)(7) of this section.
                 (2) Accounting of funds. Before the Agency will approve a final
                report of loss, the lender must account for all funds during the period
                of liquidation, disposition of the collateral, all costs incurred, and
                any other information necessary for the successful completion of
                liquidation. The lender must document and show that all the collateral
                has been accounted for and properly liquidated, and that liquidation
                proceeds have been properly accounted for and applied correctly on the
                loan.
                 (3) Audit. Upon receipt of the final accounting and report of loss,
                the Agency may audit all applicable documentation to determine the
                final loss. The lender must make its records available to and otherwise
                assist the Agency in making any investigation or audit of the report of
                loss. The documentation accompanying the Report of loss must support
                the amounts reported. The Agency must be satisfied that the lender has
                maximized the collections in conducting the liquidation.
                 (4) Guarantees. The lender must determine the collectability of
                unsecured personal and corporate guarantees required in accordance with
                Sec. 5001.204 of this part. The lender must promptly collect or
                otherwise dispose of such guarantees prior to completion of the final
                loss report. However, if collection from the guarantors appears
                unlikely or will require a prolonged period of time, the lender must
                file the report of loss when all other collateral has been liquidated.
                Unsecured personal or corporate guarantees outstanding at the time of
                the submission of the final report of loss will be treated as a Future
                Recovery with the net proceeds to be shared on a pro rata basis by the
                lender and the Agency.
                 (5) Federal debt. Any amounts paid by the Agency on account of
                liabilities of a borrower constitute a Federal debt owed to the Agency
                by the borrower. In such case, the Agency can use all remedies
                available to it to collect the debt from the borrower, including offset
                in accordance with part 3 of this title.
                 (i) Any amounts paid by the Agency pursuant to a claim by a lender
                constitute a Federal debt owed to the Agency by a third-party guarantor
                of the guaranteed loan, to the extent of the amount of the third-party
                guarantee. In such case, the Agency can use all remedies available to
                it to collect the debt from the third-party guarantor including offset
                in accordance with part 3 of this title.
                 (ii) The Agency may consider a compromise settlement of a debt owed
                to the Agency after it has processed a final report of loss and issued
                a 60-day due process letter. Any funds collected by the Agency will not
                be shared with the lender.
                 (6) Protective advances. In those instances where the lender made
                authorized protective advances, the lender can claim recovery for the
                guaranteed portion of any loss of monies advanced as well as interest
                resulting from such protective advances. These claims must be included
                in the final report of loss. The lender must provide receipts and a
                breakdown of protective advances as to the payee, purpose of the
                expenditure, date paid, evidence that the amount expended was proper,
                and that the amount was actually paid.
                 (7) Liquidation expenses. As provided in Sec. 5001.517(e), certain
                reasonable liquidation expenses are allowed during the liquidation
                process. The lender cannot claim any liquidation expenses in excess of
                liquidation proceeds.
                 (i) Liquidation expenses are recoverable only from liquidation
                proceeds. The Agency will deduct liquidation expenses from the
                liquidation proceeds of the collateral unless the costs have been
                previously determined by the lender (with Agency concurrence) to be
                protective advances. The lender must provide receipts and a breakdown
                of liquidation expenses as to the payee, purpose of the expenditure,
                date paid, evidence that the amount expended was proper, and that the
                amount was actually paid.
                 (ii) The Agency may approve legal fees as liquidation expenses
                provided that the fees are reasonable, require the assistance of
                attorneys, and cover legal issues pertaining to the liquidation that
                could not be properly handled by the lender, its employees or in-house
                counsel. Approved legal expenses are limited by the Agency to an amount
                not to exceed 3 percent of the current principal balance and will be
                shared by the lender and Agency equally. This includes those instances
                where the lender has incurred such expenses from a trustee conducting
                the liquidation of assets. Legal fees in excess of 3 percent of the
                current principal balance shall be borne by the lender and are not
                recoverable from liquidation proceeds or any loss claim by the lender.
                 (iii) The lender cannot claim the guarantee fee or the other Agency
                fees as authorized liquidation expenses, and In-house expenses of the
                lender are not allowed.
                 (8) Accrued interest. If the lender holds all or a portion of the
                guaranteed loan, the Agency will guarantee accrued interest in
                accordance with Sec. 5001.450(c) of this part.
                 (i) Accrued interest eligible for payment under the guarantee on a
                defaulted loan will be discontinued when the estimated loss is paid.
                Interest will not be paid beyond the interest termination date.
                 (ii) The lender must support accrued interest by documenting how
                the amount was accrued, including attaching a copy of both the
                promissory note and ledger. If the interest rate was a variable rate,
                the lender must include documentation of changes in both the selected
                base rate and the loan rate.
                 (iii) If a restructuring of a guaranteed loan includes the
                capitalization of interest, the guarantee will not cover the interest
                accrued on the capitalized Interest.
                 (9) Acquiring property titles. If a lender acquires title to
                property, any loss will be based on the collateral value at the time
                the lender obtains title. Alternatively, the lender can calculate the
                final loss settlement using the net proceeds received at the time of
                the ultimate disposition of the property if--
                 (i) The lender has submitted to the Agency a written request to use
                this option within 15 calendar days of acquiring title; and
                 (ii) The Agency approves the request prior to the lender submitting
                any request for estimated loss payment.
                 (f) Loss limit. The amount payable by the Agency to the lender
                cannot exceed the limits contained in the loan note guarantee. If the
                lender conducts the liquidation, loss occasioned by accruing interest
                will be covered to the interest termination date, provided the lender
                proceeds expeditiously with the liquidation plan approved by the
                Agency. If the Agency conducts the liquidation, loss occasioned by
                accruing interest will be covered by the guarantee only to the date the
                Agency accepts this responsibility.
                 (g) Rent. The lender must apply any net rental or other income that
                it receives from the collateral to the guaranteed loan debt.
                 (h) Final loss payment. The Agency will make loss payments after it
                has reviewed the complete final report of loss, all collateral has been
                properly liquidated and accounted for, and the Agency has determined
                that liquidation expenses are reasonable and within approved limits.
                 (1) Any estimated loss payments made to the lender will be credited
                against the final loss payment on the guaranteed loan.
                 (2) Once the Agency approves the report of loss and supporting
                documents submitted by the lender--
                [[Page 42580]]
                 (i) If the actual loss is greater than any estimated loss payment,
                the Agency will pay the additional amount owed by the Agency to the
                lender.
                 (ii) If the actual loss is less than the estimated loss payment,
                the lender must reimburse the Agency for the overpayment plus interest
                at the promissory note rate from the date of payment of the estimated
                loss.
                 (iii) If the Agency conducted the liquidation, it will provide an
                accounting to the lender and will pay the lender in accordance with the
                loan note guarantee.
                Sec. 5001.522 Future recovery.
                 After a final loss claim has been paid, the lender must use
                reasonable efforts to collect from any party still liable for future
                recovery unless the Agency notifies the lender otherwise. Any net
                proceeds from future recovery will be split pro rata between the lender
                and the Agency based on the percent of the loan guarantee even if the
                loan note guarantee has been terminated. Once the Agency determines a
                debt is Federal debt and provides notice to the lender, that Federal
                debt is excluded from future recovery. The lender must cease all
                collection efforts against the borrower and any individual or corporate
                guarantors upon referral of the debts by the Agency for collection in
                accordance with part 3 of this title. The Agency will not share with
                the lender any collection of Federal debt made by the Federal
                Government from any liable party to the guaranteed loan.
                Sec. 5001.523 Property acquired by the lender.
                 (a) Collateral preservation. When a lender acquires title to the
                collateral and the final loss claim is not paid until final
                disposition, the lender must proceed as quickly as possible to develop
                a plan to fully protect the collateral from deterioration (weather,
                vandalism, etc.). Hazard insurance in an amount necessary to cover the
                market value of the collateral must be maintained.
                 (b) Collateral sale. (1) Upon acquiring the collateral, the lender
                must prepare and submit without delay to the Agency a plan on the best
                method for the sale of the collateral, keeping in mind any prospective
                purchasers. The Agency must approve the plan in writing. If an existing
                approved liquidation plan addresses the disposition of acquired
                property, no further review is required unless modification of the plan
                is needed.
                 (2) Whenever the conversion of collateral to cash can reasonably be
                expected to result in a negative net recovery amount, the lender should
                consider abandonment of the collateral. If the lender seeks to abandon
                the collateral, the lender must obtain written Agency approval before
                abandoning the collateral.
                 (c) Re-title collateral. Any collateral accepted by the lender must
                not be titled in the Agency's name in whole or in part.
                Sec. 5001.524 Termination of loan note guarantee.
                 Each loan note guarantee issued under this part or under one of the
                guaranteed loan programs identified in Sec. 5001.1 of this part will
                terminate automatically when one of the events described in paragraphs
                (a) through (c) of this section occur. The lender will maintain its
                guaranteed loan files for at least three years after termination of the
                loan note guarantee.
                 (a) The guaranteed loan is paid in full;
                 (b) Full payment by the Agency of any loss claim or compromised
                settlement except for future recovery provisions; or
                 (c) Written request from the lender to the Agency to terminate the
                guarantee, which will be effective the date the Agency receives the
                request provided that the lender holds all the guaranteed portion of
                the loan.
                 (d) The Agency may terminate the loan note guarantee if it is
                determined that the lender or borrower failed to adhere to the
                applicable provisions of this part or other good cause.
                Sec. Sec. 5001.525-5001.600 [Reserved]
                Bette B. Brand,
                Deputy Under Secretary, Rural Development.
                [FR Doc. 2020-13991 Filed 7-13-20; 8:45 am]
                BILLING CODE 3410-15-P
                

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