Appendix K to Subpart E of Part 1980 - Regulations for Loan Guarantees for Disaster Assistance For Rural Business Enterprises

Appendix K to Subpart E of Part 1980 - Regulations for Loan Guarantees for Disaster Assistance For Rural Business Enterprises

A. In general

Disaster Assistance for Rural Business Enterprises (DARBE) guaranteed loans are authorized by Section 401 of the Disaster Assistance Act of 1989, which provides for guarantees of up to 90 percent of the unpaid principal and interest amount of qualifying loans, or $2,500,000 whichever is less, to any one borrower. DARBE guaranteed loans may be either to assist in alleviating financial distress caused to rural business entities, directly or indirectly, by drought, freeze, storm, excessive moisture, earthquake, or related conditions occurring in 1988 or 1989, or to assist such entities that refinance or restructure debt as a result of losses incurred, directly or indirectly, because of such natural disasters. Where used in this appendix, the term “natural disaster(s)” refers only to drought, freeze, storm, excessive moisture, earthquake, and related conditions occurring in 1988 or 1989. All provisions of subparts A and E of part 1980 of this chapter apply to DARBE loans, except as provided in this appendix. All forms used in connection with a DARBE loan will be those used in connection with a Business and Industrial (B&I) guaranteed loan, except for the following three forms that are incorporated in this appendix K of this subpart E, made a part hereof:

(1) Form RD 1980-71, “Lender's Agreement - Disaster Assistance for Rural Business Enterprise Guaranteed Loans,” or successor form will be used instead of Form RD 449-35, “Lender's Agreement.”

(2) Form RD 1980-72, “Loan Note Guarantee - Disaster Assistance for Rural Business Enterprise Guaranteed Loans,” or successor form will be used instead of Form RD 449-34, “Loan Note Guarantee.”

(3) Form RD 1980-73, “Assignment Guarantee Agreement - Disaster Assistance for Rural Business Enterprise Guaranteed Loans,” or successor form will be used instead of Form RD 449-36, “Assignment Guarantee Agreement.”

B. Loan purposes

Loan proceeds may be used for purposes described in § 1980.411(a), except in lieu of the debt refinancing requirements in § 1980.411(a)(11), the following refinancing requirements apply to DARBE loans. Loan proceeds to be used for refinancing must be used solely for refinancing or restructuring of debts as a result of losses incurred, directly or indirectly, as a result of drought, freeze, storm, excessive moisture, earthquake, or related conditions occurring in 1988 or 1989, and such refinancing or restructuring of debt(s) must be essential for the borrower to meet its financial obligations in a timely fashion. DARBE loan proceeds may be used for hotels, motels, tourist, or recreation facilities which meet the eligibility requirements of DARBE guaranteed loans in addition to the eligible loan purposes as stated in RD Instruction 1980-E. In addition, DARBE loan proceeds may be used for business enterprises engaged in agricultural production (production agriculture) which means the cultivation, production (growing), and harvesting, either directly or through integrated operations, of agricultural products (crops, animals, birds, and marine life, either for fibers or food for human consumption), and disposal or marketing thereof, the raising, housing, feeding (including commercial custom feedlots), breeding, hatching, control and/or management of farm and domestic animals. Other eligible uses of loan proceeds under agricultural production include:

(1) Commercial nurseries primarily engaged in the production of ornamental plants and trees and other nursery products such as bulbs, florists' greens, flowers, shrubbery, flower and vegetable seeds, sod, and the growing of vegetables from seed to the transplant stage.

(2) Forestry which includes establishments primarily engaged in the operation of timber tracts, tree farms, forest nurseries, and related activities such as reforestation.

(3) Loans for livestock and poultry processing as identified under eligible purposes.

(4) The growing of mushrooms or hydroponics.

In addition, those business enterprises which qualify for assistance as agricultural production must be ineligible entities for FmHA or its successor agency under Public Law 103-354 farmer program loans because the entity exceeds the definition of a family-size farm as defined by RD Instruction 1941-A, § 1941.4(d).

C. Ineligible loan purposes

RD Instruction 1980-E, § 1980.412 are ineligible purposes for DARBE guaranteed loans except for hotels, motels, tourist, recreation facilities and agricultural production (production agriculture) as defined in § 1980.412(e), DARBE guaranteed loans may not be used for:

(1) Business expansion, acquisition of real estate, machinery, equipment, inventory, other goods or services, or for any other purpose unless related directly to the financial distress or loss that is the basis for the DARBE guaranteed loan.

(2) Alleviating financial distress of entities engaged in agricultural production that are eligible for other Rural Development -type farm loan programs.

D. Transactions which will not be guaranteed

In addition to transactions listed in RD Instruction 1980-E, § 1980.413, except for § 1980.413(a)(3), Rural Development will not make DARBE guaranteed loans if the completed application is not received by Rural Development on or before September 30, 1991, nor will Rural Development make subsequent DARBE guarantee loans.

E. Borrower equity requirements

See RD Instruction 1980-E, § 1980.441. In lieu of the borrower equity requirements in § 1980.441, paragraphs (a) and (b), the following applies to DARBE loans. Tangible balance sheet equity must be positive when the Loan Note Guarantee is issued. Equity must be such that, when considered with other credit factors, repayment of the loan and the continued success of the business operation are reasonably assured. Requirements of § 1980.441(c) apply to DARBE guaranteed loans.

F. Filing and processing preapplications and applications

See RD Instruction 1980-E, § 1980.451. All requirements of § 1980.451 remain in effect. In addition to the information required as part of a preapplication under § 1980.451(f), and unless previously submitted as a part of an application under § 1980.451(i) evidence is required which demonstrates to Rural Development 's satisfaction:

(1) The causal relationship between a 1988 or 1989 natural disaster and the financial distress or loss upon which the preapplication or application is based; and,

(2) That the amount of the loan requested is not greater than the amount necessary for curing the problems caused by the natural disaster. Financial distress or loss shall be determined on the basis of a comparison of financial data for comparable periods of time and need not necessarily be based on data at the year's end. Evidence submitted may include, but is not limited to, the following:

(a) Evidence of financial loss or distress (including loss or distress caused by business interruption) resulting from physical damage caused by natural disaster, or

(b) Evidence that the financial loss and/or distress of the business is the direct or indirect result of loss of sales, business interruption, loss of markets, shortage of raw materials, or decline in patronage or customers caused by a nautral disaster. It must be shown that business operations were damaged as a result of such natural disaster.

(3) Evidence of compliance with Sodbuster and Swampbuster requirements as referenced in paragraph K below.

G. Loan guarantee limit. The total principal amount of DARBE guaranteed loans to any one borrower cannot exceed $10,000,000. The maximum loss covered by Form RD 1980-72, “Loan Note Guarantee DARBE,” (or successor form) issued on any one borrower can never exceed the percentage of guarantee multiplied by the unpaid principal and accrued interest on the loan as evidenced by the note(s) or by assumption agreement(s), and protective advances, or $2,500,000, whichever is the lesser amount.

H. Percentage of guarantee. The provisions of RD instruction 1980-E, § 1980.420 will not apply to DARBE. For loans in excess of $2,000,000, the percentage of guarantee will be calculated so that the guaranteed portion of the principal amount of the loan cannot exceed $2,000,000. For loans of $2,000,000 or less the maximum percentage of guarantee will be 90 percent. For example, a loan of $10,000,000 would not exceed a 20 percent guarantee; a $5,000,000 loan would not exceed a 40 percent guarantee.

I. Lender's existing unguaranteed exposure

The provisions of § 1980.452 ADMINISTRATIVE C. 1(d) do not apply.

J. No direct or insured loans

RD Instruction 1980-E, §§ 1980.423(b), 1980.488(b), 1980.481, 1980.411(b), and other provisions of this subpart dealing with insured or direct loans do not apply to DARBE loans. All DARBE loans are Rural Development guaranteed loans. Rural Development has no authority to make DARBE loans directly to borrowers.

K. Sodbuster and Swampbuster requirements

The provisions of 7 CFR part 1970 will apply to loans made to rural business enterprises engaged in agricultural production.

[54 FR 42483, Oct. 17, 1989, as amended at 55 FR 137, Jan. 3, 1990; 55 FR 19245, May 8, 1990; 80 FR 9911, Feb. 24, 2015; 81 FR 11048, Mar. 2, 2016]