OneRD Guaranteed Loan Regulation

CourtRural Business-cooperative Service,Rural Utilities Service
Citation86 FR 70349
Publication Date10 December 2021
Record Number2021-26160
Federal Register, Volume 86 Issue 235 (Friday, December 10, 2021)
[Federal Register Volume 86, Number 235 (Friday, December 10, 2021)]
                [Rules and Regulations]
                [Pages 70349-70358]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2021-26160]
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                Rules and Regulations
                 Federal Register
                ________________________________________________________________________
                This section of the FEDERAL REGISTER contains regulatory documents
                having general applicability and legal effect, most of which are keyed
                to and codified in the Code of Federal Regulations, which is published
                under 50 titles pursuant to 44 U.S.C. 1510.
                The Code of Federal Regulations is sold by the Superintendent of Documents.
                ========================================================================
                Federal Register / Vol. 86, No. 235 / Friday, December 10, 2021 /
                Rules and Regulations
                [[Page 70349]]
                DEPARTMENT OF AGRICULTURE
                Rural Utilities Service
                Rural Housing Service
                Rural Business-Cooperative Service
                7 CFR Part 5001
                [Docket No. RUS-19-Agency-0030]
                RIN 0572-AC56
                OneRD Guaranteed Loan Regulation
                AGENCY: Rural Business-Cooperative Service, Rural Housing Service,
                Rural Utilities Service, USDA.
                ACTION: Final rule; request for comments.
                -----------------------------------------------------------------------
                SUMMARY: Rural Development's Rural Business-Cooperative Service, Rural
                Housing Service, and Rural Utilities Service, agencies of the United
                States Department of Agriculture (USDA), are publishing this final rule
                for the oneRD Guarantee Loan Program (oneRD). The intent of this rule
                is to make necessary revisions to the policy and procedures which will
                strengthen oversight and management of the growing Community Facilities
                (CF), Water and Waste Disposal (WWD), Business and Industry (B&I), and
                Rural Energy for America (REAP) guarantee portfolios. This action is
                part of a continuing effort by the Agency to improve customer service
                for its lenders and create a more efficient work process for its staff.
                DATES:
                 Effective date: This final rule is effective December 10, 2021.
                 Comment date: Comments are due February 8, 2022.
                ADDRESSES: You may submit comments, identified by docket number RUS-19-
                Agency-0030 and Regulatory Information Number (RIN) number 0572-AC56
                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, 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:
                I. Background
                 The Rural Housing Service (RHS), the Rural Business-Cooperative
                Service (RBCS), and the Rural Utilities Service (RUS), agencies of the
                USDA Rural Development mission area, hereinafter collectively referred
                to as the Agency, published a final rule with comment on July 14, 2020
                (85 FR 42494) that created a unified guaranteed loan platform for
                enhanced delivery of four existing guaranteed loan programs: Community
                Facilities (CF) administered by RHS; Water and Waste Disposal (WWD)
                administered by RUS; and Business and Industry (B&I) and Rural Energy
                for America (REAP) administered by RBCS. The final rule was effective
                on October 1, 2020, and Rural Development began operating under the new
                guarantee loan platform on that date.
                 Collectively, Rural Development's guaranteed loan programs work to
                assist in building and maintaining sustainable rural communities.
                Through the public comment period and monthly office hours with lenders
                and staff, the Agency has solicited feedback on the requirements and
                policies contained in the rule implemented on October 1, 2020. The
                Agency has identified areas for revision or clarification that are
                amended with this final rule with comment. This oneRD final rule with
                comment incorporates revisions intended to simplify, clarify, improve,
                expand, and enhance the delivery of the four guaranteed loan programs.
                II. Summary of Comments and Responses
                 Through the public comment period and monthly office hours with
                lenders and staff, the Agency has solicited feedback on the
                requirements and policies contained in the rule implemented on October
                1, 2020. The Agency has identified needed revisions and clarification
                based on the comments received.
                 Rural Development received 87 comments from 24 commenters on the
                final rule with comment issued on July 14, 2020. Five commenters were
                private citizens, 10 commentors were anonymous and 9 comments were from
                lenders.
                 The following discusses each comment and the Agency's response,
                organized by section with the 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.
                Section 5001.3 Definitions
                 Comment: Four commenters requested additional definitions to be
                included in the regulation.
                 Agency Response: The Agency has reviewed the request and has
                determined the additional definitions would not add additional clarity
                to the regulation. However during our review it came to our attention
                that the definition of affiliate needed some additional clarification
                and two definitions needed updating to conform with changes made to
                those definitions in 7 CFR 4280. Additionally, due to the COVID
                pandemic the Agency has extended the timeline some businesses need for
                start-up; this has highlighted a potential loophole in the regulation
                and definitions for new businesses and existing businesses. We thought
                the 12-month timeline to be adequate for full ramp-up, but we are
                seeing issues with this, thus we made technical revisions to the
                definition of Existing business as well as New business as enumerated
                in Section III, Summary of Changes.
                Section 5001.104 WWD Projects and Requirements
                 Agency Comment: The Agency has identified a revision needed to
                improve consistency and clarity of Section 5001.104; this revision is
                included in
                [[Page 70350]]
                Section III, Summary of Changes to Rule.
                Section 5001.105 Eligible B&I Projects and Requirements
                 Comment: The Agency received several comments that the OneRD rule
                language is much stricter for project eligibility than what the
                existing Business and Industry regulation, 7 CFR 4279, had been.
                 Agency Response: Upon evaluation, it was not the Agency's intention
                to further restrict project eligibility. Several clarifications have
                been identified and are included in Section III, Summary of Changes to
                Rule.
                 Comment: Several comments were received on the revised equity
                requirements under 7 CFR 5001.105(d). The commenters believed the
                equity requirement for new businesses has increased from 20% to 25% of
                the total eligible project costs under Table 1 to 5001.105(d). They
                believe this additional 5% makes it even more difficult for new
                businesses to open in rural America. They recommended that the equity
                requirements for new businesses be 20% regardless if calculated as
                balance sheet equity or as a percentage of the total eligible project
                costs.
                 Agency Response: The Agency believes that there may have been some
                confusion over the requirement--it's 25% of project cost OR 20% balance
                sheet equity at loan closing. In fact, there are 3 other options
                available to meet the equity requirements. This issue has been
                addressed with Lenders during monthly office hours the Agency held for
                lenders. Therefore, the Agency believes the issue has been resolved and
                no regulatory amendments are needed.
                Section 5001.115 Ineligible Projects--General
                 Comment: Several commenters requested that 7 CFR 5001.115(a) ``any
                investment or arbitrage'' be removed as an ineligible purpose as it
                seems to be excluding. They believe that excluding arbitrage from
                program eligibility, in its strictest sense, would leave many
                businesses, that it would seem the Agency would want to promote
                ineligible for program assistance.
                 Agency Response: The Agency does not agree. The intent of the
                provision is to prevent borrowing money to buy stock and holding such
                stock for future increases in value, therefore the regulation will not
                be amended.
                 Comment: Seven comments were received in reference to 7 CFR
                5001.115(n) which states ``owner-occupied housing or self-storage
                facilities'' are ineligible. The commentors felt that the intent is for
                the owner to have control over the facility, which the owner(s) would
                if determining who can and cannot be a lessee. Self-storage facilities
                provide construction jobs, permanent jobs, and increase the tax base in
                rural communities.
                 Agency Response: The Agency agrees with the comments in part and is
                therefore amending 5001.115(n) to clarify when owner occupied housing
                is considered eligible and removed the ineligibility of self-storage
                facilities.
                Section 5001.121 Eligible Uses of Loan Funds
                 Agency Comment: The Agency issued a final rule with comment on
                September 15, 2020, after the publication of the OneRD Guarantee
                regulation on July 1, 2020, promulgating Special Authority to Enable
                Funding of Broadband and Smart Utility Facilities Across Select Rural
                Development Programs (Smart Utility). A cross reference to 7 CFR 1980,
                subpart M has been added to the opening paragraph of Section 5001.121
                as discussed in Section III, Summary of Changes to Rule.
                Section 5001.126 Borrower Eligibility
                 Agency Comment: The Agency revised 7 CFR 4280 to remove references
                to the guarantee loan program and cross referencing to 7 CFR 5001. In
                the process of this revision, it was determined that 7 CFR 5001.126(e)
                needed to be amended to add ``New Users'' to conform with the revisions
                to 7 CFR 4280.
                Section 5001.130 Lender Eligibility Requirements
                 Agency Comment: The Office of Management and Budget promulgated
                revisions to 7 CFR 25, ``Universal Identifier and System for Award
                Management'' on August 13, 2020, after the publication of the OneRD
                regulation on July 14, 2020. Therefore, a cross reference to 7 CFR 25
                is needed in 5001.130 which requires an awardee of Federal financial
                assistance be registered in and maintain an active account in the
                System for Award Management (SAM). Section 5001.130(a) is amended to
                include the new requirements for lenders to be registered in and
                maintain an account in SAM in accordance with 7 CFR 25.200.
                Section 5001.202 Lender's Credit Evaluation
                 Comment: The Agency Received a couple of comments on the need for
                the Lender to discuss the feasibility study, as well as other
                applicable studies and reports in the credit presentation pursuant to
                Sec. 5001.202(b)(5) and submit such supporting documentation when
                applicable. However, the commenter felt that it appeared that the
                Agency will have its own policy. The commenter felt it is incumbent on
                the Agency to disclose its feasibility study policy to Lenders.
                 Agency Response: The Agency agrees with the comment and therefore
                is amending 7 CFR 5001.202(b)(2) to further clarify when feasibility
                studies are required.
                Section 5001.204 Personal, Partnership, and Corporate Guarantees
                 Agency Comment: The Agency has identified a revision needed to
                improve consistency and clarity of Section 5001.204; this revision is
                included in Section III, Summary of Changes to Rule.
                Section 5001.205 General Project Monitoring Requirements
                 Comment: Six lenders commented that they are happy to see that the
                Agency is allowing Loan Note Guarantees (LNG) prior to construction,
                however they feel the adoption of the current procurement process and
                standards to regulate construction loan guarantees is not in the
                borrower, lender or government's interest. They believe the adoption of
                the federal process would be an injurious and crippling barrier to
                entry into the LNG prior to construction, defeating the whole purpose
                of this rule. They stated all lenders have a construction policy in
                place to mitigate risk and by adding the requirements to mirror the
                USDA construction disbursement only increases the burden for the lender
                and urged us to reconsider this approach.
                 Agency Response: The Agency agrees with the comments that the
                lenders have the capacity and experience to manage this issue and
                therefore is amending Section 5001.205(e)(2)(ii) to allow the lender
                the flexibility when it documents the loan to include provisions to
                disburse funds and monitor progress of the construction project.
                Section 5001.207 Environmental Responsibilities
                 Comment: The Agency received five comments pertaining to the
                Council for Environmental Quality (CEQ) publication in the Federal
                Register on July 16, 2020. The commenters requested the Agency to
                comply with newly published CEQ requirements.
                 Agency Response: The Agency is in the process of reviewing the new
                requirements and has determined not to make any changes to OneRD at
                this
                [[Page 70351]]
                time. However, any appropriate conforming changes necessitated from
                updates to 7 CFR 1970, Environmental Policies and Procedures'' will be
                made to 7 CFR 5001 to ensure compliance with CEQ's regulations.
                Section 5001.303 Applications for Loan Guarantee
                 Comment: The Agency received three comments seeking some clarity
                and guidance on the need to now submit draft loan agreements. The
                commenters stated that one of the attractive features of the Agency
                guaranteed programs is the fact that lenders use their own debt and
                security instruments to document the loan. The way Section 5001.303 is
                currently written, the Agency is forcing lenders to modify their
                existing systems to meet the requirements.
                 Agency Comment: Based on the comments received, the Agency has
                identified several revisions to improve the clarity of Section 5001.303
                and these revisions are included in Section III, Summary of Changes to
                Rule.
                Section 5001.304 Specific Application Requirements for CF Projects
                 Agency Comment: The Agency has identified revisions needed to
                improve consistency and clarity of Section 5001.304; these revisions
                are included in Section III, Summary of Changes to Rule.
                Section 5001.318 B&I Project Priority Point System
                 Comments: The Agency received a comment in reference to giving
                priority points to a loan which offers a decreased guarantee percentage
                on a B&I project. They pointed out that this would be giving priority
                points to a guaranteed loan for violating the rule.
                 Agency Response: The Agency agrees, it was not the intention to
                allow priority points be given to a guaranteed loan that decreases the
                guarantee percentage for the loan. Since OneRD sets the guaranteed
                percentage on an annual basis and does not allow for any deviations of
                the set guaranteed percentage, the Agency will no longer grant priority
                points for a guaranteed loan that decreases the maximum allowable
                guaranteed percentage. Therefore, 7 CFR 5001.318(c)(3) has been
                removed.
                Section 5001.401 Interest Rate Provisions
                 Agency Comment: The Agency has identified a technical correction
                needed to improve clarity of Section 5001.401; this revision is
                included in Section III, Summary of Changes to Rule.
                Section 5001.407 Percentage of Loan Guarantee
                 Comments: Nine commenters requested the Community Facility Program
                provide for a 90% guarantee as they believe that being capped at 80% in
                addition to the possibility of raising fees will discourage wide-spread
                lender participation in a market of non-profit borrowers who in many
                cases are providing critical services to the rural community.
                 Agency Response: While the Agency understands the concerns, no
                changes in the regulation are being made, however the Agency continues
                to do everything it can and will continue to review the fees and
                guarantee percentages on an annual basis to ensure there are no
                negative impacts on program participation.
                Section 5001.408 Participation or Assignment of Guaranteed Loan
                 Comments: Since publication of the OneRD rule, the Agency has
                received feedback from lenders on the requirement to charge a minimum
                50 basis point lender's servicing fee in Section 5001.408(b) when
                selling to a holder or participating to another lender.
                 Agency Response: Based on the concerns we have heard during monthly
                lender office hours or through direct lender contact with program
                staff, the Agency has reviewed this policy and determined to remove
                this requirement and allow lenders to determine their own interest rate
                spreads when assigning to a holder or participating to another lender.
                Section 5001.451 Conditional Commitment
                 Comments: The Agency received two comments regarding the lender
                requesting an extension of a conditional commitment based on the
                following statement in the regulation ``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.'' The
                concern is what constitutes a ``major'' change to request a change. It
                was suggested that the word ``major'' be defined or to remove the word
                ``major'' to avoid confusion.
                 Agency Response: The Agency agrees with the comments and is
                revising the sentence to remove this language as changes are not
                included in an extension of a conditional commitment.
                Section 5001.452 Loan Closing and Conditions Precedent to Issuance of
                Loan Note Guarantee
                 Comment: Four comments were received on loan closing and the
                conditions precedent to issuance of the Loan Note Guarantee. There was
                a concern with Section 5001.452 as it seems to limit the presentation
                of note sale assignment documents to USDA with or immediately after the
                guaranteed loan closing. Many lenders may choose to hold a loan for a
                period, then, based on the financial goals of the lender, sell the
                guaranteed portion of the loan at any point during the life of the
                loan.
                 Agency Response: The Agency concurs with the comments and is
                removing the text ``any secondary market assignment documents,'' as
                these documents are not required immediately after loan closing and may
                be submitted at any time subsequently.
                 Comment: Several comments were also received in reference to the
                requirement to obtain a title opinion or title insurance showing the
                borrower has good and marketable title to the real property and other
                collateral and all mortgages or other lien defects, restrictions, or
                encumbrances, if any. In most cases the guaranteed loan is closed based
                on a title commitment, which includes gap coverage until the issuance
                of a title insurance policy. Title companies can take weeks after a
                loan closing to issue title insurance policies. This requirement would
                leave the lender unable to fund the loan for weeks after a closing and
                filing of security instruments, as they await the receipt of the title
                insurance policy.
                 Agency Response: The Agency believes that this is a reasonable
                request, therefore the revisions have been made to Sec.
                5001.452(b)(8)(iii)(L)(2) and a new Sec. 5001.452(b)(8)(iii)(L)(3) has
                been added to provide clarity.
                Section 5001.453 Issuance of the Loan Note Guarantee
                 Comment: The Agency received a comment for clarification for the
                requirement of issuing a certificate of incumbency. The commenter
                stated some secondary market holders require the certificate of
                incumbency and signature and some do not require the certificate of
                incumbency and signature. Therefore, the certificate of incumbency and
                signature form should be eliminated. In lieu of the form, a certificate
                of incumbency and signature block should be included on the relevant
                forms, i.e., lender's agreement, loan note guarantee, and assignment
                [[Page 70352]]
                guarantee agreement to be completed when the form is originally
                prepared.
                 Agency Response: The Agency reviewed this request and determined
                that since some lenders require this form and some do not, we did not
                want to add this requirement to the ``relevant'' forms and leave as a
                stand-alone form that lenders may or may not complete based on their
                process.
                Section 5001.454 Guarantee Fee
                 Comment: Two commenters had an issue with 7 CFR 5001.454(c) and the
                additional 0.50 percent guarantee fee for issuing the loan note
                guarantee prior to construction which may not be passed on to the
                borrower. The commenters stated rather than invite potential conflict
                with the lender, why not just accept that the fee is 0.50 percent
                higher for construction loans. It is a benefit to the borrower as well
                as to the lender. The borrower is likely not to have its project
                financed unless the lender obtains the guarantee during construction.
                 Agency Response: The Agency agrees with the lender's comment that
                not allowing the lender to pass the fee on to the borrower may have
                unintended consequences. Issuing the guarantee prior to construction
                completion (enabling the borrower to avoid cost of construction
                financing) is a significant benefit to the borrower, therefore the
                Agency has removed this restriction.
                Section 5001.513 Interest Rate Changes
                 Comments: Some commenters requested consideration be given to
                allowing a borrower to switch to a fixed interest rate even if it is
                higher than the variable rate in effect on the loan.
                 Agency response: The Agency reviewed this and has determined that
                if the borrower is requesting the rate change whether to a lower or a
                higher fixed rate, the Agency has removed the restriction of only
                allowing a rate change to a lower interest rate.
                III. Summary of Changes to Rule
                 1. The definition of ``affiliate'' is updated to further clarify
                what constitutes an affiliate.
                 2. The definition of ``energy efficiency improvement'' is updated
                to conform with 7 CFR 4280.
                 3. The definition of ``existing business'' is updated to further
                define what it means for an existing business to be in operation.
                 4. The definition of ``new business'' is updated to further define
                what it means for a new business to be in operation.
                 5. The definition of ``final loss claim'' is updated to correct an
                incorrect site reference.
                 6. The definition of ``power purchase agreement'' is updated to
                conform with 7 CFR 4280.
                Section 5001.8 Approvals, Regulations, and Forms
                 Paragraph (a) is revised to clarify what constitutes an electronic
                signature.
                 Paragraph (d) is revised to update the website address where this
                regulation and forms referenced can be found.
                 Paragraph (e) is revised to clarify what constitutes an electronic
                signature for the Lender.
                7 CFR 5001.104 Exception Authority
                 Paragraph (c) is revised to clarify when a utility project that is
                serving both rural and non-rural areas is eligible for a loan
                guarantee.
                7 CFR 5001.105 Eligible B&I Projects and Requirements
                 1. The introductory paragraph is revised to clarify that the list
                of eligible projects is not an exhaustive list of the types of projects
                that will be considered as eligible B&I projects.
                 2. Paragraph (b)(1) is updated to clarify that a B&I guaranteed
                loan may be used for the purchase and development of land, buildings,
                or infrastructure for public or private commercial enterprises.
                 3. Paragraph (b)(8) is revised to clarify exclusion of owner-
                occupied housing in the B&I guarantee program.
                 4. Paragraphs (b)(9) and (b)(10) are combined and edited to clarify
                when B&I funds may be utilized to fund a CF project.
                 5. A new paragraph (b)(10) is added to clarify when B&I funds may
                be used for the development and construction of broadband and
                telecommunication systems, including modification of existing systems,
                that are not otherwise eligible under RUS, existing RUS borrowers, or
                if funding is not available in the eligible RUS program, subject to the
                public notice filing requirements of 7 CFR 1738.106(a) and the
                additional reporting requirements of 7 CFR 1738.107.
                 6. Paragraph (d)(1)(i) is revised to clarify the length of time the
                minimum balance sheet equity must be maintained.
                 7. Paragraph (d)(1)(ii) is revised to clarify the length of time
                the minimum balance sheet equity must be maintained.
                 8. Paragraph (d)(2)(i) is revised to clarify the length of time the
                minimum balance sheet equity must be maintained.
                 9. Paragraph (d)(2)(ii) is revised to clarify the length of time
                the minimum balance sheet equity must be maintained.
                 10. Paragraph (d)(3)(i) is revised to align it with Section
                105(d)(2)(i).
                 11. Paragraph (d)(3)(ii) is revised to align it with Section
                105(d)(2)(ii).
                 12. Paragraph (d)(4)(i) is revised to align it with Section
                105(d)(2)(i).
                 13. Paragraph (d)(4)(ii) is revised to align it with Section
                105(d)(2)(ii).
                 14. Paragraph (d)(5)(ii) is revised by removing the requirement for
                historical financial statements for personal loan guarantors, as this
                was added in error.
                7 CFR 5001.115 Ineligible Projects-General
                 Paragraph (n) is amended to clarify when owner occupied housing is
                considered eligible and removed paragraph (s) the ineligibility of
                self-storage facilities.
                7 CFR 5001.121 Eligible Uses of Loan Funds
                 (1) The introductory paragraph is updated to allow a recipient of a
                loan guarantee to use up to 10 percent of project funds to construct,
                improve, or acquire broadband infrastructure related to the project
                financed, to conform with the requirements of 7 CFR part 1980, subpart
                M.
                 (2) Paragraph 7 CFR 5001.121 (c)(6) is amended to revise the
                reference to a preliminary review.
                7 CFR 5001.126 Borrower Eligibility
                 Paragraph (e) is amended to add a new subparagraph (3) End users,
                to conform with 7 CFR 4280. This revision brings consistency to REAP on
                the analysis of the eligibility of the applicant controlling interest
                of an end-user.
                7 CFR 5001.130 Lender Eligibility Requirements
                 Paragraph (a) is amended to include new requirements for lenders to
                be registered in and maintain an account in the System for Award
                Management (SAM) to conform with 2 CFR 25.
                7 CFR 5001.141 New Market Tax Credits
                 Paragraph (a)(2) is amended to revise an incorrect section
                reference.
                7 CFR 5001.202 Lender's Credit Evaluation
                 Paragraph (b)(5) is amended to clarify where to find the specific
                program requirements for supporting documentation.
                [[Page 70353]]
                5001.204 Personal, Partnership, and Corporate Guarantees
                 Paragraph (b) is amended to remove the reference to the Federal
                Credit Reform Act of 1990.
                7 CFR 5001.205 General Project Monitoring Requirements
                 1. Paragraph (e)(2) is amended to provide clarity and consistency
                with Sec. 5001.454(c).
                 2. Paragraph (e)(2)(ii) is amended to provide Lenders the
                opportunity to provide project monitoring under specific criteria.
                 3. Paragraph (f)(4) is amended to remove the words ``and inspection
                reports'' as this is covered in (f)(5).
                7 CFR 5001.303 Applications for Loan Guarantee
                 1. Paragraph (b)(4)(ii) is amended to remove the words ``and any
                guarantor(s)'' as this requirement was unintentional and not required
                in previous B&I and REAP regulations.
                 2. Paragraph (b)(5) is renumbered to Sec. 5001.303(c)(1) to
                improve flow and readability.
                 3. Paragraph (b)(5)(i) through (xiii) was moved to Sec. 5001.451
                and renumbered as (b)(3)(i) through (xiii) to improve flow and
                readability.
                7 CFR 5001.304 Specific Application Requirements for CF Projects
                 1. Paragraph (a)(1) is revised to provide consistency with the B&I
                program.
                 2. Paragraph (b) is amended to add a new (4) to coincide with B&I's
                requirements for feasibility studies.
                7 CFR 5001.318 B&I Project Priority Point System
                 1. The introductory paragraph in Sec. 5001.318 is amended to
                correct the total maximum points allowed to 100. This is being done as
                the points total changed with the removal of Sec. 5001.318(c)(3).
                 2. Paragraph (c)(3) is removed as it gives priority points to
                decreasing the guarantee percentage which violates the policy in the
                regulation and paragraph (c)(4) becomes (c)(3).
                7 CFR 5001.401 Interest Rate Provisions
                 Paragraph (d) is amended to clarify when a request for an interest
                rate change is to be made.
                7 CFR 5001.402 Term Length, Loan Schedule, and Repayment
                 Paragraph (b)(3) is amended to clarify that the repayment schedule
                must be in consideration of the borrower's cash flow as provided in
                Sec. 5001.402(b).
                7 CFR 5001.408 Participation or Assignment of Guaranteed Loan
                 Paragraph (b) is amended by removing the requirement of the lender
                to maintain a minimum servicing fee of 50 basis points from any holder.
                This will allow the lenders to determine their own interest rate
                spreads when selling to a holder or participating to another lender.
                7 CFR 5001.451 Conditional Commitment
                 1. Paragraphs (b)(5)(i) through (xiii) have been moved from Sec.
                5001.303 to paragraphs (b)(3)(i) through (xiii) of Sec. 5001.451 which
                will improve flow and readability.
                 2. The third sentence in paragraph (e) is amended to remove the
                text ``major changes have been made in the lender's loan conditions and
                requirements and no.'' This requirement is not needed to consider an
                extension of the conditional commitment; therefore, it has been
                removed.
                7 CFR 5001.452 Loan Closing and Conditions Precedent to Issuance of
                Loan Note Guarantee
                 1. Paragraph (b) is amended by deleting the text, ``any secondary
                market assignment documents.'' Such documents are not required
                immediately after loan closing and may be submitted at any time
                subsequently.
                 2. Paragraph (b)(8)(iii)(L)(2) is amended by adding that a
                commitment for title insurance or title commitment, when including gap
                coverage, is acceptable and to clarify that a title opinion or title
                commitment is not required for anything other than real estate.
                7 CFR 5001.454 Guarantee Fee
                 Paragraph (c) is amended by removing the restriction of the lender
                not being able to pass the additional .50 percent on to the borrower
                when issuing the loan note guarantee prior to construction.
                7 CFR 5001.513 Interest Rate Changes
                 Paragraph (e) is amended to allow variable rate changes to be
                changed to fixed rates whether the fixed rate is higher or lower at the
                request of the borrower, agreement of the holder, if any, and Agency
                concurrence.
                Subpart G--Delegations and Loan Approval Authorities
                 Sections 5001.601 through 5001.603 are added to define basic
                information on delegation and loan approval authorities for the
                programs within the OneRD regulation.
                IV. Executive Orders and Acts
                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 final rule has been determined to be not significant for
                purposes of Executive Order (E.O.) 12866 and therefore has not been
                reviewed by the Office of Management and Budget (OMB).
                National Environmental Policy Act
                 In accordance with the National Environmental Policy Act of 1969,
                Public Law 91-190, this final rule has been reviewed in accordance with
                7 CFR part 1970 (``Environmental Policies and Procedures''). The Agency
                has determined that (i) this action meets the criteria established in 7
                CFR 1970.53(f); (ii) no extraordinary circumstances exist; and (iii)
                the action is not ``connected'' to other actions with potentially
                significant impacts, is not considered a ``cumulative action'' and is
                not precluded by 40 CFR 1506.1. Therefore, the Agency has determined
                that 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.
                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.
                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
                [[Page 70354]]
                compliance costs on state and local governments. Therefore,
                consultation with the states is not required.
                Regulatory Flexibility Act
                 The Regulatory Flexibility Act (5 U.S.C. 601-602) 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. The APA
                exempts from notice and comment requirements rules ``relating to agency
                management or personnel or to public property, loans, grants, benefits,
                or contracts'' (5 U.S.C. 553(a)(2)), so therefore an analysis has not
                been prepared for this rule.
                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).
                Executive Order 13175, Consultation and Coordination With Indian Tribal
                Governments
                 This executive order imposes requirements on the Agency. The Agency
                has determined that the rule does not have a substantial direct effect
                on one or more Indian tribe(s) or on either the relationship or the
                distribution of powers and responsibilities between the Federal
                Government and Indian tribes. Thus, this rule is not subject to the
                requirements of Executive Order 13175. If tribal leaders are interested
                in consulting with the Agency on this rule, they are encouraged to
                contact USDA's Office of Tribal Relations or the Agency's Native
                American Coordinator at: [email protected] to request such a consultation.
                Catalog of Federal Domestic Assistance
                 The Catalog of Federal Domestic Assistance (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 Printing Office (GPO) provides. GPO prints
                and sells the CFDA to interested buyers. For information about
                purchasing the CFDA 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.
                Paperwork Reduction Act and Recordkeeping Requirements
                 This rule contains no new reporting or recordkeeping burdens under
                OMB control number 0572-0166 that would require approval under the
                Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
                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.
                Civil Rights Impact Analysis
                 Rural Development has reviewed this rule in accordance with USDA
                Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify any
                major civil rights impacts the rule might have on program participants
                on the basis of age, race, color, national origin, sex, disability, or
                marital or familial status. Based on the review and analysis of the
                rule and all available data, issuance of this Final Rule is not likely
                to negatively impact low and moderate-income populations, minority
                populations, women, Indian tribes or persons with disability, by virtue
                of their age, race, color, national origin, sex, disability, or marital
                or familial status.
                USDA Non-Discrimination Statement
                 In accordance with Federal civil rights law and U.S. Department of
                Agriculture (USDA) civil rights regulations and policies, the USDA, its
                agencies, offices, and employees, and institutions participating in or
                administering USDA Programs are prohibited from discriminating based on
                race, color, national origin, religion, sex, gender identity (including
                gender expression), sexual orientation, disability, age, marital
                status, family/parental status, income derived from a public assistance
                program, political beliefs, or reprisal or retaliation for prior civil
                rights activity, in any program or activity conducted or funded by USDA
                (not all bases apply to all programs). Remedies and complaint filing
                deadlines vary by program or incident.
                 Persons with disabilities who require alternative means of
                communication for program information (e.g., Braille, large print,
                audiotape, American Sign Language, etc.) should contact the responsible
                Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or
                contact USDA through the Federal Relay Service at (800) 877-8339.
                Additionally, program information may be made available in languages
                other than English.
                 To file a program discrimination complaint, complete the USDA
                Program Discrimination Complaint Form, AD-3027, found online at https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and
                at any USDA office or write a letter addressed to USDA and provide in
                the letter all of the information requested in the form. To request a
                copy of the complaint form, call (866) 632-9992. Submit your completed
                form or letter to USDA by:
                 (1) Mail: U.S. Department of Agriculture, Office of the Assistant
                Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC
                20250-9410; or
                 (2) email: [email protected].
                 USDA is an equal opportunity provider, employer, and lender.
                List of Subjects in 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, Chapter L of title 7 of the Code of
                Federal Regulations is amended as follows:
                PART 5001--GUARANTEED LOANS
                0
                1. The authority citation for part 5001 continues to read as follows:
                 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
                0
                2. Amend Sec. 5001.3 by:
                0
                A. Removing the definition ``Affiliates'';
                0
                B. Adding the definition ``Affiliate'';
                0
                C. Revising the definition ``Energy efficiency improvement (EEI)'';
                0
                D. Revising the first sentence in the definition ``Existing business'';
                0
                E. Revising the definition ``Final loss claim'';
                0
                F. Revising the definition ``New business''; and
                0
                G. Revising the definition ``Power purchase agreement''.
                 The addition and revisions read as follows:
                [[Page 70355]]
                Sec. 5001.3 Definitions.
                * * * * *
                 Affiliate means a person where one of the following circumstances
                exists:
                 (1) The person controls or has the power to control another person,
                or a third party or parties' controls or has the power to control both.
                Factors such as ownership, management, current and previous
                relationships with or ties to another person, and contractual
                relationships, shall be considered in determining whether affiliation
                exists. It does not matter whether control is actually exercised, so
                long as the power to control exists. Entities owned and controlled by
                Indian Tribes, Alaskan Native Corporations (ANCs), Native Hawaiian
                Organizations (NHOs), Community Development Corporations (CDCs), or
                wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs, are not
                considered to be affiliated with other entities owned by these entities
                solely because of their common ownership or common management.
                 (2) There is a family relationship and identical or substantially
                identical business or economic interests amongst persons (such as where
                the immediate family operate entities in the same or similar industry
                in the same geographic area); however, a person may rebut such
                determination with evidence showing that the business or economic
                interests are not identical or substantially identical.
                * * * * *
                 Energy efficiency improvement (EEI) means improvements to or
                replacement of an existing building or systems, or equipment owned by
                the borrower, that reduces measurable energy consumption on an annual
                basis.
                * * * * *
                 Existing business means a business that has been in operation for
                at least one full year and has achieved full operational capacity or
                stable operations as determined by the Administrator. * * *
                * * * * *
                 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(e).
                * * * * *
                 New business means a business that has been in operation for less
                than one full year and a business that has been in operation for at
                least one full year and has not achieved full operational capacity or
                stable operations as determined by the Administrator, including a new
                enterprise or new affiliate of an existing business moving or expanding
                into a new location involving new market or labor areas.
                * * * * *
                 Power purchase agreement means the terms and conditions governing
                the sale and transportation of power produced by the borrower to
                another party.
                * * * * *
                0
                3. Amend Sec. 5001.8 by revising paragraph (a) and adding paragraph
                (e) to read as follows:
                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 any action taken for which
                approval or concurrence is required. Written communication from an
                authorized Agency official, including any written communication
                approving, concurring, or otherwise communicating an Agency decision on
                a matter when such decision is required, may be transmitted via an
                electronic Agency system in accordance with Electronic Signatures in
                Global and National Commerce Act (ESIGN) of 2000 (114 Stat. 464) (E-
                Sign Act).
                * * * * *
                 (e) 7 CFR part 5001 does not prohibit or consent to electronic
                signatures. Rural Development will accept electronic signatures from
                Lenders for origination, loan closing, and servicing documents in
                accordance with the E-Sign Act unless otherwise prohibited by law or
                program. Lenders may use electronic signatures for electronic
                promissory notes (eNotes), deeds of trust and other documents relevant
                to the loan transaction, providing that the lender perfects and
                maintains a first lien position, an enforceable promissory note, and
                meets all other agency requirements including the following:
                 (1) Lenders may submit forms to Rural Development electronically
                using USDA's Service Center Agencies Online Services website.
                Registration is limited to individuals and each individual authorized
                by the Lender must register and upon registration may electronically
                sign and submit certain forms on behalf of the Lender.
                 (2) Lenders who choose to accept electronic signatures from
                borrowers must ensure that such signatures meet the standards and
                requirements set forth in the E-Sign Act, as well as all other
                applicable federal and state regulations and guidelines. Lenders are
                charged with the same responsibility of due diligence with
                electronically signed documents as they are with paper documents. If
                any electronically signed document is deemed unenforceable and is
                connected to any fraud, misrepresentation or negligent servicing, the
                lender bears the risk that any loss claim submitted in relation to the
                unenforceable document will be denied or reduced in accordance with
                applicable regulations. Any loss attributed to a lender's failure to
                collect on the promissory note or enforce the security instrument
                because of its electronic signature will be treated as negligent
                servicing under 7 CFR 5001 servicing regulations. Failure to comply
                with any Federal statute or regulation could result in the denial of a
                loan guarantee or claim, withdrawal of lending authority and/or
                debarment from Federal programs.
                Subpart B--Eligibility Provisions
                0
                4. Amend Sec. 5001.104 by revising paragraph (c) to read as follows:
                Sec. 5001.104 Eligible WWD projects and requirements.
                * * * * *
                 (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 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. The part of the facility located in a non-rural area
                must be necessary to provide the essential services to rural areas.
                * * * * *
                0
                5. Amend Sec. 5001.105 by:
                0
                A. Revising the introductory text;
                0
                B. Revising paragraph (b)(1), (8), (9) and (10);
                0
                C. Revising paragraph (d)(1)(i) and (ii);
                0
                D. Revising paragraph (d)(2)(i) and (ii);
                0
                E. Revising paragraph (d)(3)(i) and (ii);
                0
                F. Revising paragraph (d)(4)(i) and (ii); and
                0
                G. Revising paragraph (d)(5)(ii)
                 The revisions read as follows:
                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, be for a
                borrower eligible to submit an application for the project in
                accordance with Sec. 5001.126, and the uses of loan funds include, but
                are not limited to, the following:
                * * * * *
                 (b) * * *
                 (1) Purchase and development of land, buildings, or infrastructure
                for
                [[Page 70356]]
                public or private commercial enterprises or industrial properties,
                including expansion or modernization.
                * * * * *
                 (8) Tourist and recreation facilities, including hotels, motels,
                bed and breakfast establishments, and resort trailer parks and
                campgrounds operated as a public or private commercial enterprise.
                Owner-occupied housing, such as bed and breakfasts, hotels and motels
                are only allowed when the pro rata value of a direct owner's living
                quarters, based on square footage, is deducted from the use of loan
                proceeds.
                 (9) Educational or training facilities including other CF projects
                when not eligible for financing through Rural Housing Service or
                Community Facilities programs.
                 (10) Development and construction of broadband and
                telecommunication systems, including modification of existing systems,
                that are not otherwise eligible for funding in the RUS program or if
                funding is unavailable in the RUS program, subject to the Public Notice
                Filing requirements of 7 CFR 1738.106(a) and the additional reporting
                requirements of 7 CFR 1738.107.
                * * * * *
                 (d) * * *
                 (1) * * *
                 (i) A minimum of 10 percent balance sheet equity (including
                subordinated debt when subject to a standstill agreement for the life
                of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to
                1, at loan closing;
                 (ii) 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 for the
                life of the loan;
                * * * * *
                 (2) * * *
                 (i) A minimum of 10 percent balance sheet equity (including
                subordinated debt when subject to a standstill agreement for the life
                of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 1
                at loan closing; or
                 (ii) Borrower investment of equity or other funds (including
                subordinated debt when subject to a standstill agreement for the life
                of the loan and grants) into the project in an amount of 10 percent or
                more of total eligible project cost;
                 (3) * * *
                 (i) A minimum of 25 percent balance sheet equity (including
                subordinated debt when subject to a standstill agreement for the life
                of the loan), or a maximum debt-to-equity ratio of 3 to 1, at
                guaranteed loan closing; or
                 (ii) Borrower investment of equity or other funds (including
                subordinated debt when subject to a standstill agreement for the life
                of the loan and grants) into the project in an amount of 25 percent or
                more of total eligible project cost;
                 (4) * * *
                 (i) A minimum of 20 percent balance sheet equity (including
                subordinated debt when subject to a standstill agreement for the life
                of the loan), or a maximum debt-to-equity ratio of 4 to 1, at
                guaranteed loan closing, or;
                 (ii) Borrower investment of equity or other funds (including
                subordinated debt when subject to a standstill agreement for the life
                of the loan and grants) into the project in an amount of 25 percent or
                more of total eligible project cost;
                 (5) * * *
                 (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 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.
                * * * * *
                0
                6. Amend Sec. 5001.115 by revising paragraph (n) to read as follows:
                Sec. 5001.115 Ineligible projects--general.
                * * * * *
                 (n) Except as provided in Sec. 5001.105(b)(8), owner-occupied
                housing.
                * * * * *
                 Sec. 5001.115 [Amended]
                0
                7. Amend Sec. 5001.115 by removing paragraph (s).
                0
                8. Amend Sec. 5001.121 by revising the introductory paragraph and
                paragraph (c)(6) to read as follows:
                Sec. 5001.121 Eligible uses of loan funds.
                 Guaranteed loan funds can only be used for the items specified in
                this section. In addition, RD may allow a recipient of a loan guarantee
                under this Part to use up to 10 percent of project funds to construct,
                improve, or acquire broadband infrastructure related to the project
                financed, subject to the requirements of 7 CFR part 1980, subpart M.
                * * * * *
                 (c) * * *
                 (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 request for preliminary
                eligibility review or complete 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.
                0
                9. Amend Sec. 5001.126 by redesignating paragraphs (e)(3) through (4)
                as paragraphs (e)(4) through (5) and adding a new (e)(3) to read as
                follows:
                Sec. 5001.126 Borrower eligibility.
                * * * * *
                 (3) End users. If the controlling interest in the applicant entity
                is otherwise eligible as an applicant and a legal transaction between
                two parties for the sale of energy in an open market is being proposed,
                the Agency will not consider the energy end-users as part of the
                analysis of the eligibility of the applicant. However, if the proposed
                end-user would be an ineligible applicant, such as an entity which is
                residential in nature or a non-profit entity, and the REAP applicant
                entity is a newly formed special-purpose entity with substantially the
                same ownership as the proposed end-user, then the REAP applicant entity
                is not eligible.
                0
                10. Amend Sec. 5001.130 by adding paragraph (a)(6) to read as follows:
                Sec. 5001.130 Lender eligibility requirements.
                * * * * *
                 (a) * * *
                 (6) Be registered in and maintain an account in the System for
                Award Management (SAM) in accordance with 2 CFR 25.200.
                * * * * *
                0
                11. Amend Sec. 5001.141 by revising paragraph (a)(2) to read as
                follows:
                Sec. 5001.141 New markets tax credits.
                * * * * *
                 (a) * * *
                 (2) The provisions of Sec. 5001.127(f) 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.
                * * * * *
                Subpart C--Origination Provisions
                0
                12. Amend Sec. 5001.202 by revising paragraph (b)(5) to read as
                follows:
                [[Page 70357]]
                Sec. 5001.202 Lender's credit evaluation.
                * * * * *
                 (b) * * *
                 (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.) in accordance with Sec. Sec. 5001.304 through 5001.307:
                * * * * *
                0
                13. Amend Sec. 5001.204 by revising paragraph (b) to read as follows:
                Sec. 5001.204 Personal, partnership, and corporate guarantees.
                * * * * *
                 (b) When warranted by an Agency assessment of potential financial
                risk, the Agency may require the following:
                * * * * *
                0
                14. Amend Sec. 5001.205 by revising paragraphs (e)(2) introductory
                text, (e)(2)(ii) and (f)(4) to read as follows:
                Sec. 5001.205 General project monitoring requirements.
                * * * * *
                 (e) * * *
                 (2) Issuance of loan note guarantee prior to completion of the
                project's construction. Except for projects utilizing non-proven
                technologies, the lender may request that the loan note guarantee be
                issued prior to completion of a project's construction. The lender's
                request will be considered by the Agency, who may require credit risk
                mitigation. An additional fee for issuance of the loan note guarantee
                prior to completion of the project's construction 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:
                * * * * *
                 (ii) The borrower and lender have entered into a contract with an
                independent disbursement and monitoring firm with a construction
                monitoring plan acceptable to and approved by the Agency or, the lender
                documents that they have the capacity and experience to disburse funds
                and provides a monitoring plan acceptable to the Agency;
                * * * * *
                 (f) * * *
                 (4) Status of construction; and
                * * * * *
                Subpart D--Guarantee Application Provisions
                0
                15. Amend Sec. 5001.303 by:
                0
                A. Revising paragraph (b)(4)(ii);
                0
                B. Redesignating paragraphs (c)(1) through (18) as paragraphs (c)(2)
                through (19).
                0
                C. Redesignating (b)(5) introductory text as paragraph (c)(1);
                0
                D. Removing paragraphs (b)(5)(i) through (xiii);
                0
                E. Redesignating paragraphs (b)(6) and (7) as paragraphs (b)(5) and
                (6);
                0
                F. Revising the newly redesignated paragraph (c)(1).
                 The revisions read as follows:
                Sec. 5001.303 Applications for loan guarantee
                * * * * *
                 (b) * * *
                 (4) * * *
                 (ii) Agency-acceptable historical balance sheet, income statements,
                and cash flow statements of the borrower for the lesser of the last
                three fiscal years or all years of operation; and
                 (c) * * *
                 (1) For all applications of $600,000 or greater, a draft loan
                agreement for the guaranteed loan.
                * * * * *
                0
                16. Amend Sec. 5001.304 by revising paragraph (a)(1) and adding
                paragraph (a)(4) to read as follows:
                Sec. 5001.304 Specific application requirements for CF projects.
                * * * * *
                 (a) * * *
                 (1) Guaranteed loans of $25 million or less to existing community
                facilities;
                * * * * *
                 (4) 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 entity
                or an entity conducting a new activity, 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
                entities, 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 entity and its historic cash flow.
                * * * * *
                0
                17. Amend Sec. 5001.318 by:
                0
                (a) Revising the introductory paragraph;
                0
                (b) Revising the introductory text of paragraph (c);
                0
                (c) Removing paragraph (c)(3); and
                0
                (d) Redesignating paragraph (c)(4) as paragraph (c)(3).
                 The revision reads as follows:
                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. To
                receive veteran points, a veteran or veterans must own 20 percent or
                more interest in the borrower and the borrower must sign a
                certification in its application to indicate that the borrower has
                veteran status. A maximum of 100 points can be awarded.
                * * * * *
                 (c) Guaranteed loan features. An application is eligible to receive
                points under each of the categories identified in paragraphs (c)(1)
                through (3) of this section as follows:
                * * * * *
                Subpart E--Loan and Guarantee Provisions
                0
                18. Amend Sec. 5001.401 by revising paragraph (d) to read as follows:
                Sec. 5001.401 Interest rate provisions.
                * * * * *
                 (d) Interest rate changes. Any change in the base rate or fixed
                interest rate between issuance of the conditional commitment and loan
                closing 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.
                0
                19. Amend Sec. 5001.402 by revising paragraph (b)(3) to read as
                follows:
                Sec. 5001.402 Term length, loan schedule, and repayment.
                * * * * *
                 (b) * * *
                 (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. Scheduling of
                the first payment of principal and interest will be subject to
                consideration of whether the facility is operational and generates
                adequate income.
                [[Page 70358]]
                However, the scheduling of the first full principal and interest
                payment must commence not more than 3 years from the date of the
                promissory note and be paid at least annually thereafter.
                * * * * *
                0
                20. Amend Sec. 5001.408 by revising paragraph (b) to read as follows:
                Sec. 5001.408 Participation or assignment of guaranteed loan.
                * * * * *
                 (b) Lender's servicing fee to holder. The assignment guarantee
                agreement must clearly state the guarantee portion of loan as a
                percentage and corresponding dollar amount of the guaranteed portion of
                the guaranteed loan it represents and the lender's servicing fee. The
                lender cannot charge the Agency a servicing fee and servicing fees are
                not eligible expenses for loss claim.
                * * * * *
                0
                21. Amend Sec. 5001.451 by revising (b)(3) and (e) to read as follows:
                Sec. 5001.451 Conditional commitment.
                * * * * *
                 (b) * * *
                 (3) Loan agreement requirements to include:
                 (i) Repayment terms 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) Requirement as to the type and frequency of the financial
                statements to be required for the duration of the 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 other fixed
                assets and real estate;
                 (viii) Restrictions on mergers, consolidations, or sales of the
                business, project, or guarantee loan collateral without the concurrence
                of the lender;
                 (ix) Limitations on significant management changes without the
                concurrence of the lender;
                 (x) Maximum debt-to-net worth ratio, when required by the lender or
                by this part;
                 (xi) Minimum debt service coverage ratio, when required by the
                lender or by this part;
                 (xii) Requirements imposed by the Agency in its conditional
                commitment;
                 (xiii) Agency environmental requirements; and
                 (xiii) Requirement for the lender and the Agency to have reasonable
                access to the project and financial records including access for
                periodic inspections of the project and financial records by a
                representative of the lender or the Agency; and
                 (xiv) Requirement for the borrower to provide the lender and the
                Agency performance information during the term of the guaranteed loan.
                * * * * *
                 (e) Modification, and expiration of conditional commitment. The
                conditional commitment issued by the Agency will be effective for a
                period of one year or sufficient time to complete the guaranteed loan
                project prior to loan closing. The lender must submit a written request
                to the Agency to extend the conditional commitment at least 30 days
                prior to its expiration date and obtain Agency approval for the
                extension. The Agency will consider this request only if no material
                adverse changes in the borrower or the borrower's financial condition
                have occurred since issuance of the conditional commitment. If a
                conditional commitment expires, the Agency will notify the lender in
                writing and may de-obligate the funds. Any additions or modifications
                to conditions stated in the original conditional commitment must be
                agreed upon between the lender, the borrower, and the Agency.
                0
                22. Amend Sec. 5001.452 by revising paragraphs (b) introductory text
                and (b)(8)(iii)(L)(2) and adding paragraph (b)(8)(iii)(L)(3) to read as
                follows:
                Sec. 5001.452 Loan closing and conditions precedent to issuance of
                loan note guarantee.
                * * * * *
                 (b) Simultaneously with or immediately after the guaranteed loan
                closing, the lender must provide to the Agency the guarantee fee, and
                the following forms and documents:
                * * * * *
                 (8) * * *
                 (iii) * * *
                 (L) * * *
                 (2) A title opinion or title insurance showing the borrower has
                good and marketable title to the real property and other collateral and
                fully addressing all existing mortgages or other lien defects,
                restrictions or encumbrances. In those cases where there is adequate
                gap coverage, a title commitment may be acceptable.
                * * * * *
                0
                23. Amend Sec. 5001.454 by revising paragraph (c) to read as follows:
                Sec. 5001.454 Guarantee fee.
                * * * * *
                 (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.
                * * * * *
                Subpart F--Servicing Provisions
                0
                24. Amend Sec. 5001.513 by revising paragraph (e) to read as follows:
                Sec. 5001.513 Interest rate changes.
                * * * * *
                 (e) Variable rate to fixed rate change. Variable rates can be
                changed to a fixed rate at the request of the borrower, agreement of
                the holder, if any, and Agency concurrence.
                * * * * *
                Justin Maxson,
                Deputy Under Secretary, Rural Development.
                [FR Doc. 2021-26160 Filed 12-9-21; 8:45 am]
                BILLING CODE 3410-15-P
                

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