[Federal Register Volume 60, Number 11 (Wednesday, January 18, 1995)]
[Proposed Rules]
[Pages 3566-3579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1193]
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DEPARTMENT OF AGRICULTURE
Rural Housing and Community Development Service
Rural Business and Cooperative Development Service
Rural Utilities Service
Consolidated Farm Service Agency
7 CFR Parts 1948 and 1951
RIN 0575-AB83
Intermediary Relending Program
AGENCIES: Rural Housing and Community Development Service, Rural
Business and Cooperative Development Service, Rural Utilities Service,
and Consolidated Farm Service Agency, USDA.
ACTION: Proposed rule.
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SUMMARY: The Rural Business and Cooperative Development Service is
proposing to amend regulations for the Intermediary Relending Program
(IRP). This action is needed to clarify and revise procedures and
requirements regarding a variety of issues. The amendments are expected
to clarify the roles of the Government and intermediaries, make the
program more responsive to the needs of intermediaries and ultimate
recipients, and facilitate continuing expansion of the program.
DATES: Comments must be received on or before March 20, 1995.
ADDRESSES: Submit written comments in duplicate to the Chief,
Regulations Analysis and Control Branch, Rural Economic and Community
Development Service, USDA, Ag. Box 0743, Washington, DC 20250-0743. All
written comments made pursuant to this notice will be available for
public inspection during regular working hours at the above office,
located in room 6348, South Agriculture Building, 14th and Independence
Avenue SW, Washington, DC.
FOR FURTHER INFORMATION CONTACT: M. Wayne Stansbery, Business and
Industry Loan Specialist, Rural Business and Cooperative Development
Service, USDA, Ag. Box 3221, Washington, DC 20250, Telephone (202) 720-
6819.
SUPPLEMENTARY INFORMATION:
Classification
We are issuing this proposed rule in conformance with Executive
Order 12866, and have determined that it is a ``significant regulatory
action.''
Programs Affected
The Catalog of Federal Domestic Assistance program impacted by this
[[Page 3567]] action is: 10.767, Intermediary Relending Program.
Program Administration
Due to reorganization actions within the Department of Agriculture,
the Intermediary Relending Program is currently administered by the
Rural Business and Cooperative Development Service (RBCDS). The RBCDS
is a successor to the Rural Development Administration, which was a
successor to the Farmers Home Administration.
Paperwork Reduction Act
The information collection requirements contained in 7 CFR part
1951 subpart R have been approved by the Office of Management and
Budget (OMB) and assigned OMB control number 9575-0131, in accordance
with the Paperwork Reduction Act of 1980. The revised information
collection requirements contained in 7 CFR part 1948 subpart C will be
submitted to OMB for review under Section 3504(h) of the Paperwork
Reduction Act. Public reporting burden for this collection of
information is estimated to vary from 30 minutes to 56 hours per
response with an average of 3.27 hours per response, including time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Please send written comments to the Office
of Information and Regulatory Affairs, OMB, Attention: Desk Officer for
USDA, Washington, DC 20503. Please send a copy of your comments to Jack
Holston, Agency Clearance Officer, USDA, RECD, Ag. Box 0743,
Washington, DC 20250.
Intergovernmental Review
As set forth in the final rule and related Notice to 7 CFR part
3015, subpart V, 48 FR 29112, June 24, 1993, Intermediary Relending
Loans are subject to the provisions of Executive Order 12372 which
requires intergovernmental consultation with State and local officials.
RBCDS conducts intergovernmental consultation in the manner delineated
in FmHA Instruction 1940-J, ``Intergovernmental Review of Farmers Home
Administration Programs and Activities.''
Civil Justice Reform
This document has been reviewed in accordance with Executive Order
12778. It is the determination of RBCDS that this action does not
unduly burden the Federal Court System in that it meets all applicable
standards provided in section 2 of the Executive Order.
Environmental Impact Statement
This document has been reviewed in accordance with FmHA Instruction
1940-G, ``Environmental Program.'' RBCDS has determined that this
proposed action does not constitute a major Federal action
significantly affecting the quality of the human environment, and in
accordance with the National Environmental Policy Act of 1969, Public
Law 91-190, an Environmental Impact Statement is not required.
Background
This regulatory package is an initiative to enhance the program
through revisions based on experience with operation of the program.
The primary changes include the following: -
1. The regulation is completely reorganized for improved clarity.
2. Definitions are provided for ``Agency IRP loan funds,'' ``IRP
revolving fund,'' ``revolved funds,'' and ``technical assistance.''
Throughout the document, clarifications are provided as to which
requirements apply only to Agency IRP loan funds, which apply to
revolved funds, and which apply to everything in the IRP revolving
fund.
3. Agency State Offices are authorized to accept and process all
applications except those from applicants located within Washington,
D.C., which will be processed by the National Office.
4. Eligibility requirements for intermediaries are revised to
clarify that a proposed intermediary that does not have lending
experience may still qualify for a loan if it will arrange for services
of people with lending experience.
5. Eligibility requirements are revised to provide that proposed
intermediaries that have an outstanding Federal judgement are not
eligible.
6. Eligibility requirements are provided for Ultimate recipients.
7. Eligible purposes for loans to ultimate recipients are revised
to be more consistent with the Business and Industry loan program,
authorize loans for refinancing and recreation facilities (except golf
courses, gambling and race tracks).
8. Security requirements are clarified.
9. General guidelines are provided for interest rates and terms of
loans to ultimate recipients, along with clarification that such rates
must be within limits established in the intermediary's work plan.
10. Loan ceilings are revised to provide that, subject to certain
conditions, intermediaries may receive a series of subsequent loans of
up to $1 million each to a combined total of up to $15 million. The
ceiling on loans to an ultimate recipient is raised to $250,000.
11. The intermediary's responsibilities for maintaining the
intermediary revolving fund are clarified and a provision is added for
establishment of a reserve for bad debts of 15 percent of the
intermediary's portfolio.
12. Loan disbursement procedures are revised to allow
intermediaries to draw up to 25 percent of their loan at loan closing.
The funds may be placed in an interest bearing account if they are not
immediately needed for loans to ultimate recipients.
13. The requirement for intermediaries to operate in accordance
with an approved work plan is clarified and guidelines are provided for
RBCDS approval of work plan revisions.
14. The contents of a complete application and work plan are
revised to eliminate some unnecessary items, provide more detail on
what should be covered regarding relending plans, add certifications
regarding debarment, Federal debt collection policies, and lobbying,
and provide for streamlined applications for subsequent loans.
15. The priority point scoring system is revised to adjust the
percentages required to qualify for points based on service area income
compared to the poverty line, provide for points based on service area
income compared to Statewide non-metropolitan income, provide for
points based on loans to underrepresented groups, and provide more
guidelines for the assigning of points by the Administrator.
16. The requirement for a certification by the intermediary
regarding equity is removed.
17. Guidelines are provided for information to be submitted to
RBCDS regarding proposed loans to ultimate recipients and for RBCDS
review and response to the information.
In addition, a number of issues were explored and alternatives were
considered in preparing this Proposed Rule. An internal taskforce of
State Directors and other State Office personnel has recommended
alternatives to some of the material in this proposed rule and
additional changes that have not been incorporated into this proposed
rule. We invite and encourage comments and suggestions in these areas
or in others germane to the mission and purpose of the program. To the
extent that comments received raise new issues or cause revision of the
proposed regulation which are outside the scope of the subject matter
area now contemplated by this proposal, the Agency will publish a new
proposal. We [[Page 3568]] are particularly interested in comments in
the following areas:
1. The specific mission of the IRP program in the context of the
USDA rural development missions.
The taskforce has recommended the following mission statement be
substituted in Sec. 1948.101(b) of the proposed rule: ``The purpose of
the program is to alleviate poverty and increase economic activity and
employment in rural communities, especially disadvantaged and remote
communities, through gap financing administered by community-based
organizations, targeted primarily towards smaller and emerging
businesses, in partnership with other public and private resources, and
in accordance with State and regional strategy based on identified
community needs. This purpose is achieved through loans made by the
Agency to intermediaries that establish programs for the purpose of
providing loans to ultimate recipients for business activities and
community development(s) in a rural area.'' Would it be helpful to have
this more detailed and descriptive mission statement in the regulation?
2. The type of credit needs for which IRP funding is most
appropriate.
What scale of business, type of asset financed, and range of risk
should be targeted? For example, should revolving or seasonal lines of
credit be eligible loan purposes? The taskforce believes there is a
crucial need for revolving credit lines for small businesses. The
Agency has been hesitant to allow IRP funds to be used for revolving
lines of credit because of the increased risks and special lender
expertise needed. Is this a service intermediaries should be providing?
3. Loan size limits for ultimate recipients.
The proposed rule would allow intermediaries to make some loans of
up to $250,000 (Sec. 1948.114(b)). This proposal was based primarily on
reports from some intermediaries of a need for commercial credit in the
$150,000 to $250,000 range. The taskforce is concerned that the
proposed higher loan limit to ultimate recipients might diminish the
effectiveness of the program in providing financing for micro-
enterprise revolving loan funds which are a target area for rural
development policy. Might it be appropriate to retain the existing loan
limit of $150,000? How great is the need for loans exceeding $150,000?
If the $150,000 limit is retained should exception authority be
provided to the Administrator for higher amounts? If so, what should
the criteria be for approving an exception.
4. Outcome and performance measures.
There is a significant need for information which documents the
rural community and economic development outcome achieved as a result
of IRP activity. What are appropriate outcome and performance measures
and reporting requirements for the intermediary loan funds financed by
the program, and for the funded activities of the ultimate recipients
of the loans?
5. Experience requirements.
To enable more socially oriented community-based organizations to
use the program, the taskforce has suggested further revising the
eligibility requirements for intermediaries. They have proposed
allowing loans to intermediaries that have experience in assisting
rural business or community development, but not necessarily lending
experience. The proposed rule, as well as current policy, would allow
this, but only if the Intermediary will bring individuals with loan
making and servicing experience and expertise into the operation
(Sec. 1948.103(b)(2)). Would relaxing the requirement for individuals
with lending experience achieve the goal of bringing more socially
oriented intermediaries into the program?
6. Citizenship requirements.
The taskforce recommended further revising the eligibility
requirements for ultimate recipients to allow intermediaries to make
loans to businesses owned by non-U.S. citizens if the project funded
creates or retains jobs for U.S. residents. Such loans would be
restricted to fixed assets located in the U.S. and the business would
have to have managers that are U.S. citizens or legally admitted to the
U.S. for permanent residence. Would this provision significantly help
to provide jobs?
7. Management consultant fees.
The taskforce has suggested further revising the eligible loan
purposes for loans to ultimate recipients to include management
consultant fees. Could this enhance the likelihood of success for
ultimate recipients?
8. Technical assistance.
The taskforce has suggested further revising the eligible loan
purposes to allow intermediaries to use IRP funds to provide direct
technical assistance to ultimate recipients or prospective recipients.
Would this change be valuable? Is technical assistance an appropriate
use for IRP funds?
9. Security requirements.
When the IRP was initiated in 1988, the security required for most
loans to intermediaries was a blanket pledge of the IRP revolving fund.
In 1991, the regulation was revised to require assignments on all
promissory notes and security documents (Sec. 1948.113(a)(2)).
Intermediaries have complained from time to time about being required
to provide the assignments and the taskforce has suggested that the
requirement be removed. Is the providing of assignments an inordinate
burden on the intermediary?
10. Review and concurrence for loans to ultimate recipients.
Current regulations require intermediaries to obtain the
Government's review and concurrence in the IRP loans it proposes to
make to ultimate recipients. This proposed rule clarifies the limited
scope of review required for concurrence (Sec. 1948.128) and also
clarifies that the requirement for review and concurrence applies only
to Federal loan funds and does not apply to loans made from the
revolving fund from collections on previous loans. The taskforce, in
addition, suggests exempting intermediaries that have demonstrated a
successful track record of lending IRP funds and servicing loans from
the requirement. Most of the impact of this change would be on
subsequent loans to intermediaries. Another alternative would be to
simply not require Government review and concurrence on loans to
ultimate recipients made from subsequent loans to intermediaries.
Should it be necessary for intermediaries to obtain Government
concurrence on every proposed loan from Federal funds?
11. Multiple IRP revolving funds.
Intermediaries are required to establish separate bookkeeping
accounts and bank accounts for the IRP revolving fund. Intermediaries
that receive more than one IRP loan are required to establish a
separate revolving fund with separate accounts for each loan. The
proposed rule would allow the funds to be combined with Government
consent and under certain conditions (Sec. 1948.115(b)(5)). The
taskforce recommended alternate language that would allow the funds to
be combined without Government consent unless the purposes of the loans
were significantly different. Should intermediaries with more than one
IRP loan be required to obtain Government consent to avoid setting up
entirely separate funds for each?
12. Environmental assessments.
Are the intergovernmental and environmental review requirements
referenced in the proposed rule excessive for loan funds of this type?
How could they be streamlined?
13. Loan agreements.
[[Page 3569]]
In connection with implementation of the proposed rule the
Government plans to begin using a printed form as a loan agreement
rather than preparing a loan agreement for each loan based on an
exhibit to the regulation. The taskforce recommended an additional step
of having one loan agreement serve for multiple loans to the same
intermediary. The pertinent language suggested was: ``For subsequent
loans with no substantial changes to the intermediary's work plan, an
amendment to the existing loan agreement shall be executed at loan
closing for each subsequent loan.'' Should subsequent IRP loans to the
same intermediary be handled by amendments to the original loan
agreement rather than with entirely new loan agreements?
14. Applications.
Should there be more specific requirements for the intermediary's
workplan to address issues such as mission, goals, targeting criteria
for recipients, and accompanying technical assistance to recipients to
ensure that the IRP program achieves tangible outcomes for rural
community and economic development and functions in keeping with the
Government Performance and Results Act? The taskforce recommended
application requirements be further revised, in
Sec. 1948.122(a)(2)(iii) of the proposed rule, to provide that the
demonstration of need could be met through targeting criteria and
supporting evidence that such prospective ultimate recipients exist in
sufficient numbers to justify funding the intermediary's request. Would
this approach be appropriate? The taskforce recommended further
revising the application requirements by requiring the proposed
intermediary to provide a set of goals, strategies, and anticipated
outcomes for its program and a mechanism for evaluating the outcome of
its IRP loan program. The taskforce also recommended requiring each
proposed intermediary to provide specific information on how it will
ensure that technical assistance will be made available to ultimate
recipients. Are these reasonable and worthwhile requirements?
15. Community representation.
Should the 10 county service area limitation (for priority points,
Sec. 1948.123(c)(5)) be changed to 14 as recommended by the taskforce?
16. Targeting priorities.
Should the proposed scoring criteria be further modified to place
greater emphasis on such factors as community and beneficiary
targeting, conformance with regional or community development plans,
and encouragement of smaller-size loans, with proportionately less
emphasis on the intermediary's own resources and its ability to
leverage funds? Specifically, the taskforce recommended the following:
Reduce the available points for other funds (Sec. 1948.123(c)(1)(i))
from 10, 20, or 30 to 5, 10, or 15; Reduce the available points for
other intermediary funds (Sec. 1948.123(c)(1)(ii)) from 10, 20, or 30
to 5, 10, or 15; Reduce the available points for intermediary
contribution (Sec. 1948.123(c)(3)) from 15, 30, or 50 to 5, 10, or 15;
Add a new provision to award points based on the average size of loans
expected to be made to ultimate recipients, with 5 points for loans
over $125,000, 10 points for loans of $75,000 to $125,000, 15 points
for loans of $25,000 to $75,000, and 30 points for loans less than
$25,000; Add, to the guidelines for justifying administrator points
(Sec. 1948.123 (c)(6)), reference to a workplan in accord with a
strategic plan, particularly a plan prepared as part of a request for
an Empowerment Zone/Enterprise Community designation. Comments are
welcomed on each of these potential changes in the priority system.
17. Bad debt reserve.
Is 15 percent of the IRP portfolio an appropriate amount of bad
debt reserve for most intermediaries (1948.115(b)(2))? If not, what
level of reserve should be suggested or required?
18. Hotels and motels.
The proposed rule removes a general prohibition on loans for
recreation and tourism facilities, but retains a prohibition on loans
for hotels, motels, bed and breakfast establishments, and convention
centers. This prohibition was based on perceptions that loans on such
facilities were high risk and the jobs created were low paying. Are
these perceptions valid? Should these facilities be made eligible and
considered on the merits of each case?
Lists of Subjects
7 CFR Part 1948
Business and industry, Credit, Economic Development, Rural areas.
7 CFR Part 1951
Loan programs--Agriculture, Rural areas.
Accordingly, Title 7, Chapter XVIII, of the Code of Federal
Regulations is proposed to be amended as follows:
PART 1948--RURAL DEVELOPMENT
1. The authority citation for Part 1948 continues to read as
follows:
Authority: 7 U.S.C. 1932 note; 5 U.S.C. 301; 7 CFR 2.23; 7 CFR
2.70.
2. Subpart C of part 1948 is revised to read as follows:
Subpart C--Intermediary Relending Program (IRP)
Sec.
1948.101 Introduction.
1948.102 Definitions and abbreviations.
1948.103 Eligibility requirements--intermediary.
1948.104 Eligibility requirements--Ultimate recipients.
1948.105-1948.108 [Reserved]
1948.109 Loan purposes.
1948.110 Ineligible loan purposes.
1948.111 Loan terms.
1948.112 Interest rates.
1948.113 Security.
1948.114 Loan limits.
1948.115 Post award requirements.
1948.116 [Reserved]
1948.117 Other regulatory requirements.
1948.118 Loan agreements between the Agency and the intermediary.
1948.119-1948.121 [Reserved]
1948.122 Application.
1948.123 Filing and processing applications for loans.
1948.124 [Reserved]
1948.125 Letter of conditions.
1948.126 Loan approval and obligating funds.
1948.127 Loan closing.
1948.128 Requests to make loans to ultimate recipients.
1948.129-1948.142 [Reserved]
1948.143 Appeals.
1948.144-1948.147 [Reserved]
1948.148 Exception authority.
1948.149 [Reserved]
1948.150 OMB control number.
Subpart C--Intermediary Relending Program (IRP)
Sec. 1948.101 Introduction.
(a) This subpart contains regulations for loans made by the Agency
to eligible intermediaries and applies to borrowers and other parties
involved in making such loans. The provisions of this subpart supersede
conflicting provisions of any other subpart. The servicing and
liquidation of such loans will be in accordance with subpart R of part
1951 of this chapter.
(b) The purpose of the program is to finance business facilities
and community development projects in rural areas. This purpose is
achieved through loans made to intermediaries that establish programs
for the purpose of providing loans to ultimate recipients for business
facilities and community developments in a rural area.
(c) Proposed intermediaries are required to identify any known
relationship or association with an Agency employee. Such assistance is
restricted by FmHA Instruction 2045-BB. Any processing or servicing
activity conducted pursuant to this subpart involving authorized
assistance to [[Page 3570]] Agency employees, members of their
families, known close relatives, or business or close personal
associates, is subject to the provisions of subpart D of part 1900 of
this chapter.
(d) Copies of all forms, regulations, and Instructions referenced
in this subpart are available in the National Office or any State
Office.
Sec. 1948.102 Definitions and abbreviations.
(a) General definitions. The following definitions are applicable
to the terms used in this subpart.
Agency. The Federal agency within the United States Department of
Agriculture (USDA) with responsibility assigned by the Secretary of
Agriculture to administer the IRP.
Agency IRP loan funds. Cash proceeds of a loan obtained from the
Agency through the IRP, including the portion of an IRP revolving fund
directly provided by the Agency IRP loan. Agency IRP loan funds are
Federal funds.
Intermediary. The entity requesting or receiving Agency IRP loan
funds for establishing a revolving fund and relending to ultimate
recipients.
IRP revolving fund. A group of assets, obtained through or related
to an Agency IRP loan and recorded by the intermediary in a bookkeeping
account or set of accounts and accounted for, along with related
liabilities, revenues, and expenses, as an entity or enterprise
separate from the intermediary's other assets and financial activities.
All Agency IRP loan funds received by an intermediary must be deposited
into an IRP revolving fund. The intermediary may transfer additional
assets into the IRP revolving fund. Loans to ultimate recipients are
advanced from the IRP revolving fund. The receivables created by making
loans to ultimate recipients, the intermediary's security interest in
collateral pledged by ultimate recipients, collections on the
receivables, interest, fees, and any other income or assets derived
from the operation of the IRP revolving fund are a part of the IRP
revolving fund.
Principals of intermediary. Members, officers, directors, and other
individuals or entities directly involved in the operation and
management of an intermediary.
Processing office/officer. The processing office for an IRP
application is the office within the Agency administrative organization
with assigned authority and responsibility to process the application.
The processing office is the primary contact for the proposed
intermediary and maintains the official application case file. The
processing officer for an application is the person in charge of the
processing office. The processing officer is responsible for ensuring
that all regulations and Instructions are complied with in regard to
applications under her/his jurisdiction.
Revolved funds. The cash portion of an IRP revolving fund that is
not Agency loan funds, including funds that result from loaning out the
Agency IRP loan funds and then collecting all or part of the loans, and
including fees and interest collected on such loans. Revolved funds
shall not be considered Federal funds.
Rural area. All territory of a State that is not within the outer
boundary of any city having a population of 25,000 or more, according
to the latest decennial census.
Servicing office/officer. The servicing office for an IRP loan is
the office within the Agency administrative organization with assigned
authority and responsibility to service the loan. The servicing office
is the primary contact for the borrower and maintains the official case
file after the loan is closed. The servicing officer for a loan is the
person in charge of the servicing office. The servicing officer is
responsible for ensuring that all regulations and Instructions are
complied with in regard to loans under her/his jurisdiction.
State. Any of the 50 States, the Commonwealth of Puerto Rico, the
Virgin Islands of the United States, Guam, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
Technical Assistance. A function performed for the benefit of an
ultimate recipient or proposed ultimate recipient, which is a problem
solving activity. The Agency will determine whether a specific activity
qualifies as technical assistance.
Ultimate recipient. An entity or individual that receives a loan
from an intermediary's IRP revolving fund.
(b) Abbreviations. The following are applicable to this subpart:
(1) B&I--Business and Industry
(2) FmHA--Farmers Home Administration
(3) IRP--Intermediary Relending Program
(4) OGC--Office of the General Counsel
(5) OIG--Office of the Inspector General
(6) OMB--Office of Management and Budget
(7) RDLF--Rural Development Loan Fund
(8) USDA--United States Department of Agriculture
Sec. 1948.103 Eligibility requirements--Intermediary.
(a) The types of entities which may become intermediaries are:
(1) Private nonprofit corporations.
(2) Public agencies--Any State or local government, or any branch
or agency of such government having authority to act on behalf of that
government, borrow funds, and engage in activities eligible for funding
under this subpart.
(3) Indian groups--Indian tribes on a Federal or State reservation
or other federally recognized tribal groups.
(4) Cooperatives--Incorporated associations, at least 51 percent of
whose members are rural residents, whose members have one vote each,
and which conduct, for the mutual benefit of their members, such
operations as producing, purchasing, marketing, processing or other
activities aimed at improving the income of their members as producers
or their purchasing power as consumers.
(b) The intermediary must:
(1) Have the legal authority necessary for carrying out the
proposed loan purposes and for obtaining, giving security for, and
repaying the proposed loan.
(2) Have a proven record of successfully assisting rural business
and industry, or, for intermediaries that propose to finance community
development, a proven record of successfully assisting rural community
development projects of the type planned.
(i) Except as provided in paragraph (b)(2)(ii) of this section,
such record will include recent experience in loan making and servicing
with loans that are similar in nature to those proposed for the IRP and
a delinquency and loss rate acceptable to the Agency.
(ii) The Agency may approve an exception to the requirement for
loan making and servicing experience provided:
(A) The proposed intermediary has a proven record of successfully
assisting rural business and industry or rural community development
projects of the type planned but the assistance is other than lending;
and
(B) The proposed intermediary will, before the loan is closed,
bring individuals with loan making and servicing experience and
expertise into the operation of the IRP revolving fund.
(3) Have the services of a staff with loan making and servicing
expertise acceptable to the Agency.
(4) Have capitalization acceptable to the Agency.
(c) No loans will be extended to an intermediary unless:
(1) There is adequate assurance of repayment of the loan based on
the fiscal and managerial capabilities of the proposed
intermediary. [[Page 3571]]
(2) The loan is not otherwise available on reasonable (i.e., usual
and customary) rates and terms from private sources or other Federal,
State, or local programs.
(3) The amount of the loan, together with other funds available, is
adequate to assure completion of the project or achieve the purposes
for which the loan is made.
(d) At least 51 percent of the outstanding interest or membership
in any nonpublic body intermediary must be citizens of the United
States or reside in the United States after being legally admitted for
permanent residence.
(e) An outstanding judgment against the proposed intermediary
obtained by the United States in a Federal court (other than in the
United States Tax Court), which has been recorded, shall cause the
proposed intermediary to be ineligible to receive any loan until the
judgment is paid in full or otherwise satisfied. Agency loan funds may
not be used to satisfy the judgment.
Sec. 1948.104 Eligibility requirements--Ultimate recipients.
(a) Ultimate recipients may be individuals, public or private
organizations, or other legal entities, with authority to incur the
debt and carry out the purpose of the loan.
(b) To be eligible to receive loans from the IRP revolving loan
fund:
(1) At least 51 percent of the outstanding membership or ownership
of the ultimate recipient must be either citizens of the United States
or residents of the United States after being legally admitted for
permanent residence.
(2) Must be located in a rural area.
(3) Must be unable to finance the proposed project from its own
resources or through commercial credit or other Federal, State, or
local programs at reasonable rates and terms.
(c) An outstanding judgment against the proposed ultimate recipient
obtained by the United States in a Federal court (other than in the
United States Tax Court), which has been recorded, shall cause the
proposed ultimate recipient to be ineligible to receive a loan from
Agency IRP loan funds until the judgment is paid in full or otherwise
satisfied. Agency IRP loan funds may not be used to satisfy the
judgment.
Secs. 1948.105-1948.108 [Reserved]
Sec. 1948.109 Loan purposes.
(a) Intermediaries. Agency IRP loan funds must be placed in the
intermediary's IRP revolving fund and used by the intermediary to
provide direct loans to eligible ultimate recipients.
(b) Ultimate recipients. Loans from the intermediary to the
ultimate recipient using the IRP revolving fund must be for community
development projects, the establishment of new businesses, expansion of
existing businesses, creation of employment opportunities, and/or
saving existing jobs. Such loans may include, but are not limited to:
(1) Business and industrial acquisitions when the loan will keep
the business from closing, prevent the loss of employment
opportunities, or provide expanded job opportunities.
(2) Business construction, conversion, enlargement, repair,
modernization, or development.
(3) Purchase and development of land, easements, rights-of-way,
buildings, facilities, leases, or materials.
(4) Purchase of equipment, leasehold improvements, machinery, or
supplies.
(5) Pollution control and abatement.
(6) Transportation services.
(7) Start-up operating costs and working capital.
(8) Interest (including interest on interim financing) during the
period before the facility becomes income producing, but not to exceed
3 years.
(9) Feasibility studies.
(10) Debt refinancing.
(i) A complete review will be made by the intermediary to determine
whether the loan will restructure debts on a schedule that will allow
the ultimate recipient to operate successfully rather than merely take
over an unsound loan. The intermediary will obtain the proposed
ultimate recipient's complete debt schedule which should agree with the
proposed ultimate recipient's latest balance sheet; and
(ii) Refinancing debts may be allowed only when it is determined by
the intermediary that the project is viable and refinancing is
necessary to create new or save existing jobs or create or continue a
needed service; and
(iii) On any request for refinancing of existing secured loan(s),
the intermediary is required, as a minimum, to obtain the previously
held collateral as security for the loan(s) and must not pay off a
creditor in excess of the value of the collateral. Additional
collateral will be required when refinancing of unsecured loans is
unavoidable to accomplish the necessary strengthening of the ultimate
recipient's position.
(11) Reasonable fees and charges only as specifically listed in
this paragraph. Authorized fees include loan packaging fees,
environmental data collection fees, and other fees for services
rendered by professionals. Professionals are generally persons licensed
by States or accreditation associations, such as Engineers, Architects,
Lawyers, Accountants, and Appraisers. The maximum amount of fee will be
what is reasonable and customary in the community or region where the
project is located. Any such fees are to be fully documented and
justified.
(12) Aquaculture including conservation, development, and
utilization of water for aquaculture. Aquaculture is defined as the
culture or husbandry of aquatic animals or plants by private industry
for commercial purposes including the culture and growing of fish by
private industry for the purpose of granting or augmenting publicly-
owned or regulated stocks of fish.
(13) Tourist and recreational facilities except as prohibited by
Sec. 1948.110 of this subpart.
Sec. 1948.110 Ineligible loan purposes.
Agency IRP loan funds may not be used for payment of the
intermediary's own administrative costs or expenses. The IRP revolving
fund may not be used for:
(a) Assistance in excess of what is needed to accomplish the
purpose of the ultimate recipient's project.
(b) Distribution or payment to the owner, partners, shareholders,
or beneficiaries of the ultimate recipient or members of their families
when such persons will retain any portion of their equity in the
ultimate recipient.
(c) Charitable and educational institutions, churches,
organizations affiliated with or sponsored by churches, and fraternal
organizations.
(d) Assistance to government employees, military personnel or
principals or employees of the intermediary or organizations for which
such persons are directors or officers or have major ownership (20
percent or more).
(e) A loan to an ultimate recipient which has an application
pending with or a loan outstanding from another intermediary involving
an IRP revolving fund.
(f) Any line of credit.
(g) Agricultural production, which means the cultivation,
production (growing), harvesting, either directly or through integrated
operations, of agricultural products (crops, animals, birds, and marine
life, either for fiber or food for human consumption, and disposal or
marketing thereof, and the raising, housing, feeding, breeding,
hatching, control, and/or management of farm and domestic animals).
Exceptions to this definition are:
(1) Aquaculture as identified under Sec. 1948.109(b) of this
subpart. [[Page 3572]]
(2) 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,
or the growing of vegetables from seed to the transplant stage.
(3) Forestry, which includes establishments primarily engaged in
the operation of timber tracts, tree farms, forest nurseries, and
related activities such as reforestation.
(4) The growing of mushrooms or hydroponics.
(h) The transfer of ownership unless the loan will keep the
business from closing, or prevent the loss of employment opportunities
in the area, or provide expanded job opportunities.
(i) Community antenna television services or facilities.
(j) Any illegal activity.
(k) Any project that is in violation of either a Federal, State or
local environmental protection law or regulation or an enforceable land
use restriction unless the assistance given will result in curing or
removing the violation.
(l) Hotels, motels, tourist homes, bed and breakfast
establishments, or convention centers.
(m) Lending and investment institutions and insurance companies.
(n) Golf courses, race tracks, or gambling facilities.
Sec. 1948.111 Loan terms.
(a) No loans to intermediaries shall be extended for a period
exceeding 30 years. Interest and principal payments will be scheduled
at least annually. The initial principal payment may be deferred
(during the period before the facility becomes income producing) by the
Agency, but not more than 3 years.
(b) Loans made by an intermediary to an ultimate recipient from the
IRP revolving fund will be scheduled for repayment over a term
negotiated by the intermediary and ultimate recipient. The term must be
reasonable and prudent considering the purpose of the loan, expected
repayment ability of the ultimate recipient, and the useful life of
collateral, and must be within any limits established by the
intermediary's work plan.
Sec. 1948.112 Interest rates.
(a) Loans made by the Agency pursuant to this subpart shall bear
interest at a fixed rate of 1 percent per annum over the term of the
loan.
(b) Interest rates charged by intermediaries to ultimate recipients
on loans from the IRP revolving fund shall be negotiated by the
intermediary and ultimate recipient. The rate must be within limits
established by the intermediary's work plan approved by the Agency. The
rate should normally be the lowest rate sufficient to cover the loan's
proportional share of the IRP revolving fund's debt service costs,
reserve for bad debts, and administrative costs.
Sec. 1948.113 Security.
(a) Intermediaries. Security for all loans to intermediaries must
be such that the repayment of the loan is reasonably assured, when
considered along with the intermediary's financial condition, work
plan, and management ability. It is the responsibility of the
intermediary to make loans to ultimate recipients in such a manner that
will fully protect the interests of the intermediary and the
Government.
(1) Security for such loans may include, but is not limited to:
(i) Any realty, personalty, or intangibles capable of being
mortgaged, pledged, or otherwise encumbered by the intermediary in
favor of the Agency; and
(ii) Any realty, personalty, or intangibles capable of being
mortgaged, pledged, or otherwise encumbered by an ultimate recipient in
favor of the Agency.
(2) Security will normally consist of a lien on the IRP revolving
fund. The Agency will obtain assignments of security pledged by
ultimate recipients including an assignment of the promissory notes
given by the ultimate recipients and take possession of the promissory
notes.
(i) The assignment documents will not be filed or recorded in the
public records unless the intermediary is in default on its IRP loan.
They will be held by the Agency and may be filed at the sole discretion
of the Agency, after an event of default, if the Agency determines the
filing is necessary to protect the Government's interest.
(ii) The perfection of assignments when intermediaries close loans
is not required. Assignment documents will be obtained and held to
facilitate the perfection of assignments at a later date if the
intermediary fails to meet its obligations.
(3) The Agency may require additional security or additional
documents needed to perfect liens at any time during the term of a loan
to an intermediary if, after review and monitoring, an assessment
indicates the need for such security or documentation to protect the
Government's interest.
(b) Ultimate recipients. Security for a loan from an intermediary's
IRP revolving fund to an ultimate recipient will be negotiated by the
intermediary and ultimate recipient, within the general security
policies established by the intermediary and approved by the Agency.
Sec. 1948.114 Loan limits.
(a) Intermediary.
(1) No loan to an intermediary will exceed the maximum amount the
intermediary can reasonably be expected to relend to eligible ultimate
recipients, in an effective and sound manner, within 1 year after loan
closing.
(2) The first IRP loan to an intermediary will not exceed $2
million.
(3) Intermediaries that have received one or more IRP loans may
apply for and be considered for subsequent IRP loans provided:
(i) At least 80 percent of the Agency IRP loan funds the
intermediary was approved for have been disbursed to eligible ultimate
recipients.
(ii) The intermediary is promptly relending all collections from
loans made from its IRP revolving fund in excess of what is needed for
required debt service, reasonable administrative costs approved by the
Agency, and a reasonable reserve for debt service and uncollectible
accounts.
(iii) The outstanding loans of the intermediary's IRP revolving
fund are generally sound.
(iv) The intermediary is in compliance with all applicable
regulations and its loan agreement(s) with the Agency.
(4) Subsequent loans will not exceed $1 million each and not more
than one loan will be approved for an intermediary in any one fiscal
year.
(5) Total outstanding IRP indebtedness of an intermediary to Agency
will not exceed $15 million at any time.
(b) Ultimate recipients. Loans from intermediaries to ultimate
recipients using the IRP revolving fund will not exceed the lessor of:
(1) $250,000; or
(2) 75% of the total cost of the ultimate recipient's project for
which the loan is being made.
(c) Portfolio. No more than 25 percent of an IRP loan approved for
an intermediary may be used for loans to ultimate recipients that
exceed $150,000. This limit does not apply to revolved funds.
Sec. 1948.115 Post award requirements.
(a) Applicability. Intermediaries receiving loans under this
program shall be governed by these regulations, the loan agreement, the
approved work plan, security interests, and any other conditions which
the Agency may [[Page 3573]] impose in awarding a loan. Whenever this
subpart imposes a requirement on loans made from the ``IRP revolving
fund,'' such requirement shall apply to all loans made by an
intermediary to an ultimate recipient from the intermediary's IRP
revolving fund, as defined in Sec. 1948.102(a) of this subpart, so long
as any portion of the intermediary's IRP loan from the Agency remains
unpaid. Whenever this subpart imposes a requirement on loans made by
intermediaries from ``Agency IRP loan funds,'' without specific
reference to the IRP revolving fund, such requirement shall apply only
to loans made by an intermediary using Agency IRP loan funds, as
defined in Sec. 1948.102(a) of this subpart, and will not apply to
loans made from revolved funds.
(b) Maintenance of IRP revolving fund. So long as any part of an
IRP loan to an intermediary remains unpaid, the intermediary must
maintain the IRP revolving fund in accordance with the definition of
IRP revolving fund found in Sec. 1948.102(a) of this subpart. The
portion of the IRP revolving loan fund that is Agency IRP loan funds
may only be used for making loans in accordance with Sec. 1948.109 of
this subpart. The portion that is revolved funds as defined in
Sec. 1948.102(a) of this subpart may be used for debt service,
reasonable administrative costs, or reserves in accordance with this
section, or for making additional loans.
(1) The intermediary must submit an annual budget of proposed
administrative costs for Agency approval. The amount removed from the
IRP revolving fund for administrative costs in any year must be
reasonable, must not exceed the actual cost of operating the IRP
revolving fund, including loan servicing and providing technical
assistance, and must not exceed the amount approved by the Agency in
the budget.
(2) A reasonable amount of revolved funds should be used to create
a reserve for bad debts. Reserves should be accumulated over a period
of years. The total amount should not exceed maximum expected losses,
considering the quality of the intermediary's portfolio of loans.
Unless the intermediary provides loss and delinquency records that, in
the opinion of the Agency, justifies different amounts, a reserve for
bad debts of 15 percent of outstanding loans should be accumulated over
5 years and then maintained.
(3) Any cash in the IRP revolving fund from any source that is not
needed for debt service, approved administrative costs, or reasonable
reserves must be available for additional loans to ultimate recipients.
(4) All reserves and other cash in the IRP revolving loan fund not
immediately needed for loans to ultimate recipients or other authorized
uses should be deposited in an interest bearing account in a bank or
other financial institution covered by a form of Federal deposit
insurance. Such accounts and any interest earned thereon remain a part
of the IRP revolving fund.
(5) If an intermediary receives more than one IRP loan, a separate
IRP revolving fund must be established and maintained for each loan
unless the Agency gives written permission for the IRP revolving funds
to be combined. The Agency may give such permission only if there are
no significant differences in the loan agreements and other
requirements imposed by Agency for the loans or if the intermediary
agrees in writing to operate the combined revolving funds in accordance
with the most stringent loan agreements and requirements.
Sec. 1948.116 [Reserved]
Sec. 1948.117 Other regulatory requirements.
(a) Intergovernmental consultation. The IRP is subject to the
provisions of Executive Order 12372 which requires intergovernmental
consultation with State and local officials. The approval of a loan to
an intermediary will be the subject of intergovernmental consultation.
For each ultimate recipient to be assisted with a loan from Agency IRP
loan funds and for which the State in which the ultimate recipient is
to be located has elected to review the program under their
intergovernmental review process, the State Single Point of Contact
must be notified. Notification, in the form of a project description,
can be initiated by the intermediary or the ultimate recipient. Any
comments from the State must be included with the intermediary's
request to use the Agency loan funds for the ultimate recipient. Prior
to the Agency's decision on the request, compliance with the
requirements of intergovernmental consultation must be demonstrated for
each ultimate recipient. These requirements should be carried out in
accordance with FmHA Instruction 1940-J.
(b) Environmental requirements.
(1) Unless specifically modified by this section, the requirements
of subpart G of part 1940 of this chapter apply to this subpart.
Intermediaries and ultimate recipients must consider the potential
environmental impacts of their projects at the earliest planning stages
and develop plans to minimize the potential to adversely impact the
environment. Both the intermediaries and the ultimate recipients must
cooperate and furnish such information and assistance as the Agency
needs to make any of its environmental determinations.
(2) For each application for a loan to an intermediary, the Agency
will review the application, supporting materials, and any required
Forms FmHA 1940-20, ``Request for Environmental Information,'' and
complete a Class II environmental assessment. This assessment will
focus on the potential cumulative impacts of the projects as well as
any environmental concerns or problems that are associated with
individual projects that can be identified at this time.
Neither the completion of the environmental assessment nor the
approval of the application is an Agency commitment to the use of loan
funds for a specific project; therefore, no public notification
requirements for a Class II assessment will apply to the application.
The affected public has not been sufficiently identified at this stage
of the Agency review.
(3) For each proposed loan from an intermediary to an ultimate
recipient using Agency IRP loan funds, the Agency will complete the
environmental review required by subpart G of part 1940 of this chapter
including public notification requirements. The results of this review
will be used by the Agency in making its decision on concurrence in the
proposed loan. The Agency will prepare an Environmental Impact
Statement for any application for a loan from Agency IRP loan funds
determined to have a significant effect on the quality of the human
environment.
(c) Equal opportunity and nondiscrimination requirements.
(1) In accordance with Title V of Pub. L. 93-495, the Equal Credit
Opportunity Act, and Section 504 of the Rehabilitation Act for
Federally Conducted Programs and Activities, neither the intermediary
nor the Agency will discriminate against any proposed intermediary or
proposed ultimate recipient on the basis of sex, marital status, race,
color, religion, natural origin, age, physical or mental handicap
(provided the proposed intermediary or proposed ultimate recipient has
the capacity to contract), because all or part of the proposed
intermediary's or proposed ultimate recipient's income is derived from
public assistance of any kind, or because the proposed intermediary or
proposed ultimate recipient has in good faith exercised any
[[Page 3574]] right under the Consumer Credit Protection Act, with
respect to any aspect of a credit transaction anytime Agency loan funds
are involved.
(2) The regulations contained in subpart E of part 1901 of this
chapter apply to this program.
(3) The Administrator will assure that equal opportunity and
nondiscrimination requirements are met in accordance with Title VI of
the Civil Rights Act of 1964, ``Nondiscrimination in Federally Assisted
Programs,'' 42 U.S.C. 2000d-4, Section 504 of the Rehabilitation Act
for Federally Conducted Programs and Activities, and the Age
Discrimination Act of 1975, as amended.
Sec. 1948.118 Loan agreements between the Agency and the intermediary.
A loan agreement must be executed by the intermediary and the
Agency at loan closing for each loan. The loan agreement will be
prepared by the Agency using Form FmHA 1948-4, ``Intermediary Relending
Program Loan Agreement,'' and reviewed by OGC and the intermediary
prior to loan closing. 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 the Agency does not constitute a
waiver of default.
(5) Disbursement procedure. Disbursement of loan funds by the
Agency 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 date of each draw down
shall constitute the date the funds are advanced under the loan
agreement for purposes of computing interest.
(i) The intermediary may initially draw up to 25 percent of the
loan funds. If the intermediary does not have loans to ultimate
recipients ready to close sufficient to use the initial draw, the funds
should be deposited in an interest bearing account in accordance with
Sec. 1948.115 (b)(4) of this subpart until needed for such loans. The
initial draw must be used for loans to ultimate recipients before any
additional Agency IRP loan funds may be drawn by the intermediary. Any
funds from the initial draw that have not been used for loans to
ultimate recipients within 1 year from the date of the draw must be
returned to the Agency as an extra payment on the loan. Agency IRP loan
funds must not be used for administrative expenses of the intermediary.
(ii) After the initial draw of funds, an intermediary may draw down
only such funds as are necessary to cover a 30-day period in
implementing its approved work plan. 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 request the funds.
(6) Provisions regarding default. On the occurrence of any event of
default, the Agency 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 Agency:
(i) Failure of the intermediary to carry out or comply with the
specific activities in its loan application as approved by the Agency,
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 Agency 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 the Agency.
(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; or,
(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
the Agency 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 the Agency's award of assistance
hereunder, which condition was an inducement to Agency'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 funded from the IRP revolving fund
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 Agency.
(ii) Ordinarily, life insurance, which may be decreasing term
insurance, is required for the principals and key employees of the
ultimate recipient funded from the IRP revolving fund and will be
assigned or pledged to the intermediary and subsequently to the Agency.
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 the State law.
(iv) The intermediary is responsible for determining if an ultimate
recipient funded from the IRP revolving fund is located in a special
flood or mudslide hazard area anytime. 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. The Agency 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 the Agency
will normally approximate the total annual [[Page 3575]] debt service
requirements for the Agency loans.
(B) Form FmHA 440-24, ``Position Fidelity Schedule Bond
Declarations,'' may be used. Similar forms may be used if determined
acceptable to the Agency. Other types of coverage may be considered
acceptable if it is determined by the Agency that they fulfill
essentially the same purpose as a fidelity bond.
(C) Intermediaries 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 the Agency 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 the Agency 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, the Agency may terminate this
permission and authority by providing the intermediary with written
notice.
(9) That if any part of the loan has not been used in accordance
with the intermediary's work plan by a date 3 years from the date of
the loan agreement, the Agency may cancel the approval of any funds not
yet delivered to the intermediary and demand the return, as an extra
payment on the loan, any funds delivered to the intermediary that have
not been used by the intermediary in accordance with the work plan. The
Agency, at its sole discretion, may allow the intermediary additional
time to use the loan funds by delaying cancellation of the funds by not
more than 3 additional years. If any loan funds have not been used by 6
years from the date of the loan agreement, the approval will be
cancelled of any funds that have not been delivered to the intermediary
and the intermediary will return, as an extra payment on the loan, any
funds it has received and not used in accordance with the work plan. In
accordance with Form FmHA 1948-3, ``Intermediary Relending Program
Promissory Note,'' regular loan payments will be based on the amount of
funds actually drawn by the intermediary.
(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 the
Agency.
(2) Not to make a loan commitment to an ultimate recipient to be
funded from Agency IRP loan funds without first receiving the Agency's
written concurrence.
(3) To maintain a separate ledger and segregated account for the
IRP revolving fund.
(4) To Agency reporting requirements by providing:
(i) An annual audit.
(A) 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 Government 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. The Agency does not require an
unqualified audit opinion as a result of the audit. Compilations or
reviews do not satisfy the audit requirement.
(B) It is not intended that audits required by this subpart be
separate and apart from audits performed in accordance with State and
local laws or for other purposes. To the extent feasible, the audit
work should be done in connection with these audits. Intermediaries
covered by OMB Circular A-128 or A-133 should submit audits made in
accordance with those circulars.
(ii) Quarterly reports (due 30 days after the end of the period).
(A) The Agency at its option may change this requirement to
semiannual reports. These reports shall contain information only on the
IRP revolving loan fund, 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 the Agency a
separate report shall be made for each of these IRP loans unless the
Agency has given permission for the IRP revolving funds to be combined.
(B) The reports will include Form FmHA 1951-4, ``Report of IRP/RDLF
Lending Activity.'' 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.
(iii) Annual proposed budget for the following year.
(iv) Other reports as the Agency may require from time to time.
(5) Before the first relending of Agency funds to an ultimate
recipient, to obtain written Agency 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 written approval of the Agency before making any
significant changes in forms, security policy, or the work plan. The
servicing officer may approve changes in forms, security policy, or
work plans at any time upon a written request from the intermediary and
determination by the Agency that the change will not jeopardize
repayment of the loan or violate any requirement of this subpart or
other Agency regulations. The intermediary must comply with the
workplan approved by the Agency so long as any portion of the
intermediary's IRP loan is outstanding.
(7) To secure the indebtedness by pledging its portfolio of
investments derived from the proceeds of the loan award, including
providing assignments to the Agency of security pledged by ultimate
recipients including the promissory notes of ultimate recipients and
transferring possession to the Agency of promissory notes given by
ultimate recipients, and/or pledging its real and personal property,
and other rights and interests as the Agency may require.
(8) To provide additional security and execute any additional lien
instruments as the Agency 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.
Secs. 1948.119-1948.121 [Reserved]
Sec. 1948.122 Application.
(a) An application will consist of:
(1) Form FmHA 1948-1, ``Application for Loan (Intermediary
Relending Program).''
(2) A written work plan and other evidence the Agency requires to
[[Page 3576]] demonstrate the feasibility of the intermediary's program
to meet the objectives of this program. The plan must, at a minimum:
(i) Document the intermediary's ability to administer an IRP in
accordance with the provisions of this subpart. In order to adequately
demonstrate the ability to administer the program, the intermediary
must provide a complete listing of all personnel responsible for
administering this program along with a statement of their
qualifications and experience. The personnel may be either members or
employees of the intermediary's organization or contract personnel
hired for this purpose. If the personnel are to be contracted for, the
contract between the intermediary and the entity providing such service
will be submitted for Agency review and the terms of the contract and
its duration must be sufficient to adequately service the Agency loan
through to its ultimate conclusion. If the Agency determines the
personnel lack the necessary expertise to administer the program, the
loan request will not be approved.
(ii) Document the intermediary's ability to commit financial
resources under the control of the intermediary to the establishment of
an IRP. This should include a statement of the source(s) of non-Agency
funds for administration of the the intermediary's operations and
financial assistance for projects.
(iii) Demonstrate a need for loan funds. As a minimum, the
intermediary should identify a sufficient number of proposed and known
ultimate recipients it has on hand to justify Agency funding of its
loan request.
(iv) Include a list of proposed fees and other charges it will
assess the ultimate recipients it funds.
(v) Demonstrate to Agency satisfaction that the intermediary has
secured commitments of significant financial support from public
agencies and private organizations.
(vi) Provide evidence to Agency satisfaction that the intermediary
has a proven record of obtaining private and/or philanthropic funds for
the operation of similar programs to the one contained in this subpart.
(vii) Include the intermediary's plan (specific loan purposes) for
relending the loan funds. The plan must be of sufficient detail to
provide the Agency with a complete understanding of what the
intermediary will accomplish by lending the funds to the ultimate
recipient and the complete mechanics of how the funds will get from the
intermediary to the ultimate recipient. The service area, eligibility
criteria, loan purposes, fees, rates, terms, collateral requirements,
limits, priorities, application process, method of disposition of the
funds to the ultimate recipient, monitoring of the ultimate recipient's
accomplishments, and reporting requirements by the ultimate recipient's
management are some of the items that must be addressed by the
intermediary's relending plan.
(3) Form FmHA 1940-20 for all projects positively identified as
proposed ultimate recipient loans that are Class I or Class II actions
under subpart G of part 1940 of this chapter.
(4) Comments from the State single point of contact, if the State
has elected to review the program under Executive Order 12372.
(5) A pro forma balance sheet at start-up and for at least 3
additional projected years; financial statements for the last 3 years,
or from inception of the operations of the intermediary if less than 3
years; and projected cash flow and earnings statements for at least 3
years supported by a list of assumptions showing the basis for the
projections. The projected earnings statement and balance sheet must
include one set of projections that shows the IRP revolving fund only
and a separate set of projections that shows the proposed intermediary
organization's total operations. Also, if principal repayment on the
IRP loan will not be scheduled during the first 3 years, the
projections for the IRP revolving fund must extend to include a year
with a full annual installment on the IRP loan.
(6) A written agreement will be signed by the intermediary to
assure that there is not misunderstanding concerning Agency audit
requirements.
(7) Form FmHA 400-4, ``Assurance Agreement.''
(8) Complete organizational documents, including evidence of
authority to conduct the proposed activities.
(9) Evidence that the loan is not available at reasonable rates and
terms from private sources or other Federal, State, or local programs.
(10) Latest audit report, if available.
(11) Form FmHA 1910-11, ``Applicant Certification Federal
Collection Policies for Consumer or Commercial Debts.''
(12) Form AD-1047, ``Certification Regarding Debarment, Suspension,
and Other Responsibility Matters--Primary Covered Transactions.''
(13) Exhibit A-1 of FmHA Instruction 1940-Q.
(b) Applications from intermediaries that already have an active
IRP loan may be streamlined as follows:
(1) The material required by paragraphs (a)(6), (a)(8), and (a)(10)
of this section may be omitted.
(2) A statement that the new loan would be operated in accordance
with the work plan on file for the previous loan may be submitted in
lieu of a new work plan.
(3) The financial information required by paragraph (a)(5) of this
section may be limited to projections for the proposed new IRP
revolving loan fund.
Sec. 1948.123 Filing and processing applications for loans.
(a) Intermediaries' contact. Intermediaries desiring the assistance
in this subpart may file applications with the State Office for the
State in which the intermediary's headquarters is located.
Intermediaries headquartered in the District of Columbia may file the
application with the National Office, B&I Division, Washington, DC
20250-3221.
(b) Filing applications. Intermediaries must file the complete
application, in one package. Applications received by the Agency will
be reviewed and ranked quarterly and funded in the order of priority
ranking. The Agency will retain unsuccessful applications for
consideration in subsequent reviews, through a total of four quarterly
reviews.
(c) Loan priorities. Priority consideration will be given to
proposed intermediaries based on the following factors. Points will be
allowed only for factors indicated by well documented, reasonable plans
which, in the opinion of the Agency, provide assurance that the items
have a high probability of being accomplished. The points awarded will
be as specified in paragraphs (c)(1) through (c)(6) of this section. If
an application does not fit one of the categories listed, it receives
no points for that paragraph or subparagraph.
(1) Other funds. Points allowed under this paragraph should be
based on documented successful history or written evidence that the
funds are available.
(i) The intermediary will obtain non-Federal loan or grant funds to
pay part of the cost of the ultimate recipients' projects. The amount
of funds from other sources will average:
(A) At least 10% but less than 25% of the total project cost--10
points.
(B) At least 25% but less than 50% of the total project cost--20
points.
(C) 50% or more of the total project cost--30 points.
(ii) The intermediary will provide loans to the ultimate recipient
from its own funds (not loan or grant) to pay part of the costs of the
ultimate recipients' [[Page 3577]] projects. The amount of non-Agency
derived intermediary funds will average:
(A) At least 10% but less than 25% of the total project costs--10
points.
(B) At least 25% but less than 50% of total project costs--20
points.
(C) 50% or more of total project costs--30 points.
(2) Employment. For computations under this paragraph, income data
should be from the latest decennial census of the United States,
updated according to changes in consumer price index (CPIU). The
poverty line used will be as defined in Section 673 (2) of the
Community Services Block Grant Act (42 U. S. C. 9902 (2)). Unemployment
data used will be that published by the Bureau of Labor Statistics,
U.S. Department of Labor.
(i) The median household income in the service area of the proposed
intermediary equals the following percentage of the poverty line for a
family of four:
(A) At least 150% but not more than 175%--5 points.
(B) At least 125% but less than 150%--10 points.
(C) Below 125%--15 points.
(ii) The intermediary certifies that the following percentage of
the loans it makes from Agency IRP loan funds will be in counties with
median household income below 80 percent of the statewide non-
metropolitan median household income. (To receive priority points under
this category, the intermediary must provide a list of counties in the
service area that have qualifying income.)
(A) At least 50% but less than 75%--5 points.
(B) At least 75% but less than 100%--10 points.
(C) 100%--15 points.
(iii) The unemployment rate in the intermediary's service area
equals the following percentage of the national unemployment rate:
(A) At least 100% but less than 125%--5 points.
(B) At least 125% but less 150%--10 points.
(C) 150% or more--15 points.
(iv) The intermediary will require, as a condition of eligibility
for a loan to an ultimate recipient from Agency IRP loan funds, that
the ultimate recipient certify in writing that it will employ the
following percentage of its workforce from members of families with
income below the poverty line.
(A) At least 10% but less than 20% of the workforce--5 points.
(B) At least 20% but less than 30% of the workforce--10 points.
(C) 30% of the workforce or more--15 points.
(v) The intermediary has a demonstrated record of providing
assistance to members of underrepresented groups, has a realistic plan
for targeting loans to members of underrepresented groups, and, based
on the intermediary's record and plans, it is expected that the
following percentages of its loans made from Agency IRP loan funds will
be made to entities owned by members of underrepresented groups.
(A) At least 10% but less than 20%--5 points.
(B) At least 20% but less than 30%--10 points.
(C) 30% or more--15 points.
(3) Intermediary contribution. All assets of the IRP revolving fund
will serve as security for the IRP loan and the intermediary will
contribute funds not derived from the Agency into the IRP revolving
fund along with the proceeds of the IRP loan. The amount of non-Agency
derived funds contributed to the IRP revolving fund will equal the
following percentage of the Agency IRP loan:
(i) At least 5% but less than 15%--15 points.
(ii) At least 15% but less than 25%--30 points.
(iii) 25% or more--50 points.
(4) Experience. The intermediary has actual experience in making
and servicing commercial loans, with a successful record, for the
following number of full years:
(i) At least 1 but less than 3 years--5 points.
(ii) At least 3 but less than 5 years--10 points.
(iii) At least 5 but less than 10 years--20 points.
(iv) 10 or more years--30 points.
(5) Community representation. The service area is not more than 10
counties and the intermediary utilizes local opinions and experience by
including community representatives on its board of directors or
equivalent oversight board. For purposes of this section, community
representatives are people, such as civic leaders, business
representatives, or bankers, who reside in the service area and are not
employees of the intermediary.
(i) At least 10% but less than 40% of the board members are
community representatives--5 points.
(ii) At least 40% but less than 75% of the board members are
community representatives--10 points.
(iii) At least 75% of the board members are community
representatives--15 points.
(6) Administrative. The Administrator may assign up to 35
additional points to an application to account for items not adequately
covered by the other priority criteria set out in this section. Such
items may include, but are not limited to, a particularly successful
business development record, a service area with no other IRP coverage,
a service area with severe economic problems, a service area with
emergency conditions caused by a natural disaster or loss of a major
industry, or excellent utilization of a previous IRP loan.
Sec. 1948.124 [Reserved]
Sec. 1948.125 Letter of conditions.
If the Agency is able to provide the loan, it will provide the
intermediary a letter of conditions listing all requirements for such
loan. Immediately after reviewing the conditions and requirements in
the letter of conditions, the intermediary should complete, sign and
return the Form FmHA 1942-46, ``Letter of Intent To Meet Conditions,''
to the Agency. If certain conditions cannot be met, the borrower may
propose alternate conditions to the Agency. The Agency loan approval
official must concur with any changes made to the initially issued or
proposed letter of conditions.
Sec. 1948.126 Loan approval and obligating funds.
The loan will be considered approved on the date the signed copy of
Form FmHA 1940-1 is mailed to the intermediary. The approving official
may request an obligation of funds when available and according to the
following:
(a) Form FmHA 1940-1, authorizing funds to be reserved, may be
executed by the loan approving official providing the intermediary has
the legal authority to contract for a loan, and to enter into required
agreements and has signed Form FmHA 1940-1.
(b) An obligation of funds established for an intermediary may be
transferred to a different (substituted) intermediary provided:
(1) The substituted intermediary is eligible to receive the
assistance approved for the original intermediary;
(2) The substituted intermediary bears a close and genuine
relationship to the original intermediary; and
(3) The need for and scope of the project and the purpose(s) for
which Agency IRP loan funds will be used remain substantially
unchanged.
Sec. 1948.127 Loan closing.
(a) At loan closing, the intermediary must certify to the
following:
(1) No major changes have been made in the work plan except those
approved in the interim by the Agency. [[Page 3578]]
(2) All requirements of the letter of conditions have been met.
(3) There has been no material adverse change in the intermediary
nor its financial condition since the issuance of the letter of
conditions. If there have been adverse changes, they must be explained.
The adverse changes may be waived, at the sole discretion of the
Agency. Financial data must not be more than 60 days old at loan
closing.
(b) Agency personnel shall not sign any documents other than those
specifically provided for in this subpart.
(c) The processing officer will review any requests for changes to
the letter of conditions. The processing officer will approve only
minor changes which do not materially affect the project, its capacity,
employment, original projections, or credit factors. Changes in legal
entities or where tax consideration are the reason for change will not
be approved.
(d) At loan closing the intermediary will provide sufficient
evidence to enable Agency to ascertain that no claim or liens of
laborers, materialmen, contractors, subcontractors, suppliers of
machinery and equipment, or other parties are against the security of
the intermediary, and that no suits are pending or threatened that
would adversely affect the security of the intermediary when the
security instruments are filed.
Sec. 1948.128 Requests to make loans to ultimate recipients.
(a) When an intermediary proposes to use Agency IRP loan funds to
make a loan to an ultimate recipient, and prior to final approval of
such loan, the intermediary must submit the following material to the
Agency:
(1) A request for Agency concurrence in approval of the proposed
loan.
(2) Certification by the intermediary that:
(i) The proposed ultimate recipient is eligible for the loan.
(ii) The proposed loan is for eligible purposes.
(iii) The proposed loan complies with all applicable statutes and
regulations.
(iv) The ultimate recipient is unable to finance the proposed
project through commercial credit or other Federal, State, or local
programs at reasonable rates and terms.
(v) The intermediary and its principal officers (including
immediate family) hold no legal or financial interest or influence in
the ultimate recipient, and the ultimate recipient and its principal
officers (including immediate family) hold no legal or financial
interest or influence in the intermediary.
(3) For projects that meet the criteria for a Class I or Class II
environmental assessment or environmental impact statement as provided
in subpart G of part 1940 of this chapter, a completed and executed
Form FmHA 1940-20.
(4) All comments obtained in accordance with Sec. 1948.117 (a) of
this subpart, regarding intergovernmental consultation.
(5) Copies of sufficient material from the ultimate recipient's
application and the intermediary's related files, to allow the Agency
to determine:
(i) The name and address of the ultimate recipient.
(ii) The loan purposes.
(iii) The interest rate and term.
(iv) The location, nature, and scope of the project being financed.
(v) The other funding included in the project.
(vi) The nature and lien priority of the collateral.
(6) Such other information as the Agency may request on specific
cases.
(b) Upon receipt of a request for concurrence in a loan to an
ultimate recipient from Agency IRP loan funds the Agency will:
(1) Review the material required by paragraph (a) of this section
for completeness and compliance with regulations.
(2) Complete an environmental review in accordance with subpart G
of part 1940 of this chapter, including public notice requirements and
provisions for mitigation measures as appropriate. This review will be
conducted by the Agency in the same manner it would be conducted if the
Agency were considering a direct loan to the ultimate recipient. The
results of the environmental review will be used by the Agency in
making its decision on the request for loan concurrence.
(3) Consider any comments received through the intergovernmental
consultation process. Prior to the Agency's decision on loan
concurrence, compliance with the requirements of intergovernmental
consultation in accordance with FmHA Instruction 1940-J must be
demonstrated.
(4) When all requirements have been met, issue a letter concurring
in the loan.
(5) If the Agency determines it is unable to concur in the loan,
the intermediary will be notified in writing, given the reasons for
denial, and informed of its rights for review and appeal in accordance
with subpart B of part 1900 of this chapter.
Secs. 1948.129-1948.142 [Reserved]
Sec. 1948.143 Appeals.
Any appealable adverse decision made by the Agency which affects
the intermediary may be appealed upon written request of the aggrieved
party in accordance with subpart B of part 1900 of this chapter.
Secs. 1948.144-1948.147 [Reserved]
Sec. 1948.148 Exception authority.
The Administrator may in individual cases grant an exception to any
requirement or provision of this subpart which is not inconsistent with
an applicable law or opinion of the Comptroller General, provided the
Administrator determines that application of the requirement or
provision would adversely affect the Government's interest. The basis
for this exception will be fully documented. The documentation will:
Demonstrate the adverse impact; identify the particular requirement
involved; and show how the adverse impact will be eliminated.
Sec. 1948.149 [Reserved]
Sec. 1948.150 OMB control number.
The reporting and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget
and have been assigned OMB control number 0575-0130. Public reporting
burden for this collection of information is estimated to vary from 1
to 120 hours per response, with an average of 12 hours per response
including time for reviewing instructions, searching existing data
sources, gathering and maintaining the data needed, and completing and
reviewing the collection of information. Send comments regarding this
burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to Department of
Agriculture, Clearance Officer, OIRM, Ag. Box 7630, Washington, DC
20250; and to the Office of Management and Budget, Paperwork Reduction
Project (OMB# 0575-0130), Washington, DC 20503.
PART 1951--SERVICING AND COLLECTIONS
3. The authority citation for part 1951 continues to read as
follows:
Authority: 7 U.S.C. 1989; 7 U.S.C. 1932 Note; 42 U.S.C. 1480; 5
U.S.C. 301; 7 C.F.R. 2.23 and 2.70.
Subpart R--Rural Development Loan Servicing
4. Section 1951.853 is amended by revising paragraph (b)(2)(ix) to
read as follows: [[Page 3579]]
Sec. 1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.
* * * * *
(b) * * *
(2) * * *
(ix) Reasonable fees and charges only as specifically listed in
this subparagraph. Authorized fees include loan packaging fees,
environmental data collection fees, and other professional fees
rendered by professionals generally licensed by individual State or
accreditation associations, such as Engineers, Architects, Lawyers,
Accountants, and Appraisers. The amount of fee will be what is
reasonable and customary in the community or region where the project
is located. Any such fees are to be fully documented and justified.
* * * * *
Dated: December 9, 1994.
Bob J. Nash,
Under Secretary, Rural Economic and Community Development.
[FR Doc. 95-1193 Filed 1-17-95; 8:45 am]
BILLING CODE 3410-32-U
