§ 1700.20 - Insured electric loans pursuant to section 305 of the Rural Electrification Act, as amended.

(a) General. These loans are made from the Rural Electrification and Telephone Revolving Fund for purposes authorized by section 4 of the RE Act. The standard interest rate on these loans is 5 percent, but a rate as low as 2 percent is authorized by section 305(b) of the RE Act if a borrower:

(1) Has experienced extreme financial hardship; or

(2) Cannot, in accordance with generally accepted management and accounting principles and without charging rates to its customers or subscribers so high as to create a substantial disparity between such rates and the rates charged for similar service in the same or nearby areas by other suppliers, provide service consistent with the objectives of the RE Act.

(b) These loans are made to finance the construction and operation of electric facilities and systems to provide initial and continued adequate electric service to persons in rural areas not receiving central station service at the time of the initial RUS loan. The loans, approval of which rests solely within the discretion of the Administrator, must be self-liquidating within a period not to exceed 35 years, and must be reasonably secured in the judgment of the Administrator. Under the RE Act, they may be made to persons, corporations, public bodies, and cooperative, non-profit, or limited dividend associations. Preference is given to public bodies and cooperative, non-profit, or limited dividend associations.

(c) Loan applications. Applications for these loans are made on forms prescribed by RUS and supported by a resolution of the applicant's board of directors. Copies of these standard forms are made available by RUS on request. Loan applicants are assisted, as necessary, in preparing the loan application and supporting data. If an application is acceptable after legal, engineering, economic, and financial studies, funds are obligated by a loan contract and the borrower gives a note, mortgage and, in some cases, other security.

(d) Construction. Under the loan agreements, RUS reserves the right to approve the design and construction of the facilities, and to require progress reports on construction and audits of the borrower's records relating to construction.

(e) Advance of loan funds. Loan funds are advanced on the basis of requisitions submitted by borrowers in accordance with the loan contract and RUS regulations.