§ 1948.118 - Loan agreements between FmHA or its successor agency under Public Law 103-354 and the intermediary.

A loan agreement must be executed by the intermediary and FmHA or its successor agency under Public Law 103-354 at loan closing for each loan. The loan agreement will be prepared by FmHA or its successor agency under Public Law 103-354 and reviewed by OGC prior to the loan closing. Part 1948, subpart C, exhibit II (available from the FmHA or its successor agency under Public Law 103-354 National Office or any FmHA or its successor agency under Public Law 103-354 State Office), may be used as a guide. The loan agreement, as a minimum, must contain the following provisions:

(a) The loan agreement will set out:

(1) The amount of the loan.

(2) The interest rate.

(3) The term and repayment schedule.

(4) The provisions for late charges. The intermediary shall pay a late charge of 4 percent of the payment due of principal and/or interest if payment for either of these is not received within 15 calendar days following the due date. The late charge shall be considered unpaid if not received within 30 calendar days of the missed due date for which it was imposed. Any unpaid late charge shall be added to principal and be due as an extra payment at the end of the term. Acceptance of a late charge by FmHA or its successor agency under Public Law 103-354 does not constitute a waiver of default.

(5) Disbursement procedure. Disbursement of loan funds by FmHA or its successor agency under Public Law 103-354 to the intermediary shall take place after the loan agreement and promissory note are executed, and any other conditions precedent to disbursement of funds are fully satisfied. The intermediary may draw down only such funds as are necessary to cover a 30-day period in implementing its approved work program. Advances will be requested by the intermediary in writing. The intermediary may use Form FmHA 440-11, “Estimate of Funds Needed for 30-Day Period Commencing ____,” to show the amount of funds needed during the 30-day period.” The date of such drawdown shall constitute the date the funds are advanced under the loan agreement for purposes of computing interest payments.

(6) Provisions regarding default. On the occurrence of any event of default, FmHA or its successor agency under Public Law 103-354 may declare all or any portion of the debt and interest to be immediately due and payable and may proceed to enforce its rights under the loan agreement or any other instruments securing or relating to the loan and in accordance with the applicable law and regulations. Any of the following may be regarded as an “event of default” in the sole discretion of the FmHA or its successor agency under Public Law 103-354:

(i) Failure of the intermediary to carry out or comply with the specific activities in its loan application as approved by FmHA or its successor agency under Public Law 103-354, or loan terms and conditions, or any terms or conditions of the loan agreement, or any applicable Federal or State laws, or with such USDA or FmHA or its successor agency under Public Law 103-354 regulations as may become generally applicable at any time.

(ii) Failure of the intermediary to pay within 15 calendar days of its due date any installment of principal or interest on its promissory note to FmHA or its successor agency under Public Law 103-354.

(iii) The occurrence of:

(A) The intermediary's becoming insolvent, or ceasing, being unable, or admitting in writing its inability to pay its debts as they mature, or making a general assignment for the benefit of, or entering into any composition or arrangement with creditors;

(B) Proceedings for the appointment of a receiver, trustee or liquidator of the intermediary, or of a substantial part of its assets, being authorized or instituted by or against it.

(iv) Submission or making of any report, statement, warranty, or representation by the intermediary or agent on its behalf to USDA or FmHA or its successor agency under Public Law 103-354 in connection with the financial assistance awarded hereunder which is false, incomplete or incorrect in any material respect.

(v) Failure of the intermediary to remedy any material adverse change in its financial or other condition (such as the representational character of its board of directors or policymaking body) arising since the date of FmHA or its successor agency under Public Law 103-354's award of assistance hereunder, which condition was an inducement to FmHA or its successor agency under Public Law 103-354's original award.

(7) Insurance requirements. (i) Hazard insurance with a standard mortgage clause naming the intermediary as beneficiary will be required by the intermediary on every ultimate recipient's project in an amount that is at least the lesser of the depreciated replacement value of the property being insured or the amount of the loan. Hazard insurance includes fire, windstorm, lightning, hail, business interruption, explosion, riot, civil commotion, aircraft, vehicle, marine, smoke, builder's risk, public liability, property damage, flood or mudslide, or any other hazard insurance that may be required to protect the security. The intermediary's interest in the insurance will be assigned to the FmHA or its successor agency under Public Law 103-354.

(ii) Ordinarily, life insurance, which may be decreasing term insurance, is required for the principals and key employees of the ultimate recipient and will be assigned or pledged to the intermediary and subsequently to FmHA or its successor agency under Public Law 103-354. A schedule of life insurance available for the benefit of the loan will be included as part of the application.

(iii) Workmen's compensation insurance on ultimate recipients is required in accordance with State law.

(iv) The intermediary is responsible for determining if an ultimate recipient is located in a special flood or mudslide hazard area anytime FmHA or its successor agency under Public Law 103-354 loan funds are involved. If the ultimate recipient is in a flood or mudslide area, then flood or mudslide insurance must be provided in accordance with subpart B of part 1806 of this chapter (FmHA Instruction 426.2).

(v) Intermediaries will provide fidelity bond coverage for all persons who have access to intermediary funds. Coverage may be provided either for all individual positions or persons, or through “blanket” coverage providing protection for all appropriate employees and/or officials. FmHA or its successor agency under Public Law 103-354 may also require the intermediary to carry other appropriate insurance, such as public liability, workers compensation, and/or property damage.

(A) The amount of fidelity bond coverage required by FmHA or its successor agency under Public Law 103-354 will normally approximate the total annual debt service requirements for the FmHA or its successor agency under Public Law 103-354 loans.

(B) Form FmHA 440-24, “Position Fidelity Schedule Bond Declarations,” may be used. Similar forms may be used if determined acceptable to FmHA or its successor agency under Public Law 103-354. Other types of coverage may be considered acceptable if it is determined by FmHA or its successor agency under Public Law 103-354 that they fulfill essentially the same purpose as a fidelity bond.

(C) Applicants must provide evidence of adequate fidelity bond and other appropriate insurance coverage by loan closing. Adequate coverage in accordance with this section must then be maintained for the life of the loan. It is the responsibility of the intermediary and not that of FmHA or its successor agency under Public Law 103-354 to assure and provide evidence that adequate coverage is maintained. This may consist of a listing of policies and coverage amounts in annual reports required by paragraph (b)(4) of this section, or other documentation.

(8) Authority to operate. The loan agreement will provide that the intermediary has permission and authority to collect on all notes given to it, service all loans it makes, and manage the relending program as if FmHA or its successor agency under Public Law 103-354 had not taken assignments on security pledged by ultimate recipients. It is the responsibility of the intermediary to make and service loans to ultimate recipients in such a manner that will fully protect the interests of the intermediary and the Government. After an event of default by the intermediary, FmHA or its successor agency under Public Law 103-354 may terminate this permission and authority by providing the intermediary with written notice.

(b) The intermediary will agree:

(1) Not to make any changes in the intermediary's articles of incorporation, charter, or by-laws without the concurrence of FmHA or its successor agency under Public Law 103-354.

(2) Not to make a loan commitment to an ultimate recipient without first receiving FmHA or its successor agency under Public Law 103-354's written concurrence in the proposed use of loan funds.

(3) To maintain a separate ledger and segregated account for IRP funds.

(4) To FmHA or its successor agency under Public Law 103-354 reporting requirements on the intermediary by providing:

(i) An annual audit; dates of audit report period need not necessarily coincide with other reports on the IRP. Audits shall be due 90 days following the audit period. Audits must cover all of the intermediary's activities. Audits will be performed by an independent certified public accountant or by an independent public accountant licensed and certified on or before December 31, 1970, by a regulatory authority of a State or other political subdivision of the United States. An acceptable audit will be performed in accordance with generally accepted auditing standards and include such tests of the accounting records as the auditor considers necessary in order to express an opinion on the financial condition of the intermediary. FmHA or its successor agency under Public Law 103-354 does not require an unqualified audit opinion as a result of the audit. Compilations or reviews do not satisfy the audit requirement.

(ii) Quarterly reports for periods ending March 31, June 30, September 30, and December 31 (due 30 days after the end of the period). FmHA or its successor agency under Public Law 103-354 at its option may change this requirement to semiannual reports. These reports shall contain information only on the IRP loan funds, or if other funds are included, the IRP loan program portion shall be segregated from the others; and in the case where the intermediary has more than one IRP loan, from FmHA or its successor agency under Public Law 103-354, a separate report shall be made for each of these IRP loans. The reports will include:

(A) Form FmHA 1951-4, “Report of IRP/RDLF Lending Activity” (available in the FmHA or its successor agency under Public Law 103-354 National Office). This report will include information on the intermediary's lending activity, income and expenses, and financial condition and a summary of names and characteristics of the ultimate recipients the intermediary has financed.

(B) Project Progress Review Narrative

(iii) An annual report on the extent to which increased employment, income and ownership opportunities are provided to low-income persons, for each loan made by such intermediary.

(iv) Proposed budget for the following year.

(v) Other reports as FmHA or its successor agency under Public Law 103-354 may require from time to time.

(5) Before the first relending of FmHA or its successor agency under Public Law 103-354 funds to the ultimate recipient, to obtain written FmHA or its successor agency under Public Law 103-354 approval of:

(i) All forms to be used for relending purposes, including application forms, loan agreements, promissory notes, and security instruments.

(ii) Intermediary's policy with regard to the amount and form of security to be required.

(6) To obtain approval of FmHA or its successor agency under Public Law 103-354 before making any major changes in forms or policy.

(7) To secure the indebtedness by pledging its portfolio of investments derived from the proceeds of the loan award, including providing assignments to FmHA or its successor agency under Public Law 103-354 of security pledged by ultimate recipients including the promissory notes of ultimate recipients and transferring possession to FmHA or its successor agency under Public Law 103-354 of promissory notes given by ultimate recipients, and/or pledging its real and personal property, and other rights and interests as FmHA or its successor agency under Public Law 103-354 may require.

(8) To provide additional security and execute any additional lien instruments as FmHA or its successor agency under Public Law 103-354 may require at any time during the term of the loan if, after review and monitoring, an assessment indicates the need for such security to protect the Government's interest.