Guaranteed Loanmaking and Servicing Regulations, 31035-31042 [2020-11242]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Business-Cooperative Service
• Rural Utilities Service

[Federal Register Volume 85, Number 100 (Friday, May 22, 2020)]
[Rules and Regulations]
[Pages 31035-31042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11242]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 

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Federal Register / Vol. 85, No. 100 / Friday, May 22, 2020 / Rules 
and Regulations

[[Page 31035]]



DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 4279

[Docket No. RBS-20-BUSINESS- 0016]
RIN 0570-AB07


Guaranteed Loanmaking and Servicing Regulations

AGENCY: Rural Business-Cooperative Service and Rural Utilities Service, 
USDA.

ACTION: Interim final rule.

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SUMMARY: The Rural Business-Cooperative Service (RBCS), a Rural 
Development agency of the United States Department of Agriculture 
(USDA), is issuing an interim final rule to update the Business and 
Industry (B&I) Guaranteed Loan Program to allow flexibility to obligate 
federal funds for guaranteed loans pursuant to the Coronavirus Aid, 
Relief, and Economic Security Act (CARES Act) in response to the 
national COVID-19 Public Health Emergency. The RBCS is responsible for 
administering the B&I Guaranteed Loan Program.

DATES: 
    Effective Date: May 22, 2020.
    Applicability date: This interim final rule applies to applications 
submitted under the B&I CARES Act Guaranteed Loan Program through June 
22, 2020 or until funds made available for this purpose are expended.
    Comment Date: This rule is being issued to allow for immediate 
implementation of this program. Although this interim final rule is 
effective immediately, comments are solicited from interested members 
of the public on all aspects of the interim final rule. These comments 
must be submitted and received on or before June 22, 2020. The RBCS 
will consider these comments and the need for making any revisions as a 
result of these comments.

ADDRESSES: Comments may be submitted on this interim final rule using 
the following method:
     Electronically using the Federal eRulemaking Portal: Go to 
https://www.regulations.gov and in the ``Search Documents'' box, enter 
the Docket Number RBS-20-BUSINESS-0016 or the RIN # (0570-AB07), and 
click the ``Search'' button. To submit a comment, choose the ``Comment 
Now!'' button. Information on using Regulations.gov, including 
instructions for accessing documents, submitting comments, and viewing 
the docket after the close of the comment period, is available under 
the ``Help'' tab at the top of the Home page. In the Docket ID column, 
select RBS-20-BUSINESS-0016 to submit or view public comments and to 
view supporting and related materials available electronically. 
Information on using Regulations.gov, including instructions for 
accessing documents, submitting comments, and viewing the docket after 
the close of the comment period, is available through the site's ``User 
Tips'' link.
    Other Information: Additional information about Rural Development 
and its programs is available on the internet at https://www.rd.usda.gov.

FOR FURTHER INFORMATION CONTACT: Mark Brodziski, Acting Administrator, 
Rural Business and Cooperative Service, Rural Development, U.S. 
Department of Agriculture, 1400 Independence Avenue SW, Stop 
Washington, DC 20250-3221; email: [email protected]; telephone 
(202) 205-0903.

SUPPLEMENTARY INFORMATION: 

Executive Summary

Background Information

    On March 13, 2020, President Trump declared the ongoing Coronavirus 
Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude 
to warrant an emergency declaration for all states, territories, and 
the District of Columbia. With the COVID-19 emergency, many businesses 
nationwide are experiencing economic hardship as a direct result of the 
Federal, State, and local public health measures that are being taken 
to minimize the public's exposure to the virus. These measures, as well 
as advice to physically social distance from other people and to stay 
at home or ``shelter in place,'' have resulted in a dramatic negative 
impact on the livelihood of many Americans and, in turn, negatively 
impacted the national economy.
    In order to provide some financial relief to American families, on 
March 27, 2020, the President signed the Coronavirus Aid, Relief, and 
Economic Security Act (the CARES Act or the Act) (Pub. L. 116-136) to 
provide emergency assistance and health care response for individuals, 
families, and businesses affected by the coronavirus pandemic. The 
Rural Business Cooperative Service (RBCS) received funding and 
authority through Division B, Title I of the CARES Act to provide for 
additional funds for use under the Business & Industry (B&I) Guaranteed 
Loan Program.
    Rural Development is a mission area within the USDA comprised of 
the Rural Utilities Service, Rural Housing Service and RBCS. Its 
mission is to increase economic opportunity and improve the quality of 
life in rural communities by providing the leadership, infrastructure, 
access to capital, and technical support that enables rural communities 
to prosper. To achieve its mission, Rural Development provides 
financial support through more than 40 programs including direct loans, 
grants, loan guarantees, and technical assistance to help improve the 
quality of life and provide the foundation for economic development in 
rural areas.
    The B&I Guaranteed Loan Program was authorized by the Rural 
Development Act of 1972. The loans are made by private lenders to rural 
businesses for the purpose of creating new businesses, expanding 
existing businesses, and for other purposes that create employment 
opportunities in rural America. Businesses in rural areas are eligible 
for this program. Rural areas, as defined at 7 CFR 4279.108(c), are any 
area of a State other than a city or town that has a population of 
greater than 50,000 inhabitants and any urbanized area contiguous and 
adjacent to such a city or town. The types of borrowers that are served 
by the B&I Guaranteed Loan Program are cooperative organizations, 
corporations, partnerships, or other legal entities organized and 
operated on a profit or nonprofit basis; Indian tribes on a Federal or 
State reservation or other

[[Page 31036]]

federally recognized tribal group; public bodies; or individuals, 
provided the borrower is engaged in, or proposing to engage in, a 
business. Loans can be made for a variety of purposes, including 
business acquisition, expansion or improvement; purchase of real 
estate, machinery and equipment, or supplies; limited debt refinancing; 
and working capital. The rate and term of the loan is negotiated 
between the business and the lender.

Purpose of the Regulatory Action

    The Rural Business Cooperative Service (RBCS) received funding and 
authority through Division B, Title I of the CARES Act to provide for 
additional funds for use under the Business & Industry (B&I) Guaranteed 
Loan Program. In accordance with the CARES Act, the purpose of the 
additional B&I funding is to prevent, prepare for and respond to the 
effects of the COVID-19 pandemic. It is the Agency's intent that 
guaranteed loan funds will be used for working capital loan purposes to 
support business operations and facilities in rural areas. This funding 
will assist rural businesses that are impacted due to the economic 
impacts of the COVID-19 emergency. This critical funding will allow 
rural businesses to have access to funding for operating expenses to 
allow them to sustain operations. This rule will supplement the current 
B&I Guaranteed Loan Program as implemented in 7 CFR part 4279--
Guaranteed Loan Making and 7 CFR part 4287--Servicing, with the new B&I 
CARES Act Guaranteed Loan Program (B&I CARES Act Program).

Beneficiaries of the B&I CARES Act Program Provision

    Currently, with the COVID-19 emergency, there is a lack of access 
to much needed capital to support business operations and facilities. 
This holds true particularly for businesses in rural areas. Shelter in 
place requirements and restrictions on businesses reducing operations 
to only essential services are having an adverse impact on rural 
businesses and their capacities to fund operating expenses.
    Input and feedback to the Agency from businesses and business 
associations, bankers and bank associations, and other rural 
stakeholders highlight a growing concern that the erosion of working 
capital will require businesses to seek funding for working capital to 
sustain businesses during the COVID-19 emergency and to restart and 
ramp up business operations once the COVID-19 emergency is resolved. 
The National Rural Lenders Association, Rural Lenders Roundtable, ICBA 
Agriculture and Rural Lenders, and ABA Agriculture and Rural Banking 
committee reached out to the Agency to emphasize that many of the rural 
business borrowers will be unable to meet lenders' requirements for 
working capital loans without the support of a government guarantee. 
Rural businesses have limited options to access credit due to the 
limited number of banks serving rural communities. The B&I Guaranteed 
Loan program enables local lenders to serve rural businesses as 
evidenced by the fact that over 75 percent of the lenders in the B&I 
loan portfolio are local community banks financing local businesses.
    In addition to agricultural lenders, agribusiness and agricultural 
producer stakeholders have reached out to the Agency to emphasize the 
adverse impacts of the COVID-19 emergency to agricultural producers and 
agribusinesses, the financial needs of agricultural producers and the 
lack of assistance available to agricultural producers that are too 
large to qualify for SBA programs or USDA Farm Service Agency (FSA) 
guaranteed loan programs. The B&I CARES Act Program will also serve 
farmers, farm labor, and agribusiness. The eligibility requirements of 
the B&I Guaranteed Loan Program focus on the use of loan funds and not 
on the borrowers' primary industry classification, such as agricultural 
production. Loan proceeds of B&I guaranteed loans cannot generally be 
used for costs related to agricultural production; however, the B&I 
CARES Act Program will expand eligible use of loan funds to include 
loans to agricultural producers whose financial needs are greater than 
loan amounts available under FSA guaranteed loans or are otherwise 
ineligible for FSA guaranteed loans. Expansion of the program to larger 
agricultural producers, currently ineligible under B&I, could result in 
high utilization of available program funding by agricultural producers 
and limit availability of funding to other rural businesses. To enable 
large agricultural producers and rural businesses of all industry 
sectors access to the program, the aggregate total amount of loans for 
agricultural production will initially be limited to 50 percent of the 
total amount of program level for the B&I CARES Act Program. This 
restriction is intended to provide eligible rural businesses of all 
industry sectors the flexibility they need to use the program 
effectively. The Agency may publish future notices in the Federal 
Register revising the limitation of the amount of funding made 
available for loans for agricultural production to align with the 
demand for these loans.
    Agribusinesses (non-agricultural production businesses such as 
supply services, marketing, processing, and other services) are 
eligible and include agribusinesses owned by agricultural producers. 
Certain food processing and distribution businesses located in urban 
areas may be eligible if certain requirements are met including the 
processing of agricultural commodities whereby the food sold is grown 
locally or regionally.

The New B&I CARES Act Guaranteed Loan Program

    The B&I Guaranteed Loan program, as funded by the CARES ACT, is 
similar, yet different from other Federal Government programs. The B&I 
CARES Act Program will focus assistance to rural businesses, including 
agribusinesses and agricultural producers, with financial needs unmet 
by other Federal Government programs to prevent, prepare for, and 
respond to the coronavirus pandemic. The Small Business Administration 
(SBA) Economic Injury Disaster Loans (EIDL) provides working capital to 
help small businesses survive until normal operations resume after a 
disaster. EIDL can provide up to $2 million to help meet financial 
obligations and operating expenses that could have been met had the 
disaster not occurred. EIDL assistance is available only to small 
businesses when SBA determines they are unable to obtain credit 
elsewhere. Currently, access to the EIDL program is further limited and 
SBA is accepting new EIDL and EIDL Advance applications on a limited 
basis only to provide relief to U.S. agricultural businesses. Although 
loan purposes under the B&I CARES Act Program may overlap with loan 
purposes of EIDL, the B&I CARES Act Program will focus assistance to 
rural businesses that are ineligible to submit new EIDL applications or 
that are too large or otherwise not eligible for EIDL or have financial 
needs due to the coronavirus pandemic greater than EIDL assistance.
    SBA also administers the Paycheck Protection Program (PPP). PPP is 
designed to provide a direct incentive for small businesses to keep 
their employees on the payroll. PPP loans are eligible for forgiveness 
of up to the full principal amount of the loans if employee and 
compensation levels are maintained or restored to full-time employment 
by June 30, 2020 and the loan proceeds are used for payroll, rent, 
mortgage interest, or utilities. At least

[[Page 31037]]

75% of the forgiven amount must have been used for certain qualifying 
payroll costs. The guaranteed loans funded by the B&I CARES Act Program 
will be for working capital loan purposes to support business 
operations and facilities in rural areas. While loan purposes under the 
B&I CARES Act Program may overlap with some of the purposes of the SBA 
PPP, the B&I CARES Act Program guaranteed loans will cover a broader 
range of typical business operating expenses and will not be focused on 
payroll costs. The B&I CARES Act Program will include funding for 
inventory, raw materials, supplies, and critical operating expenses for 
rural manufacturing businesses, including purposes that were not 
included in the allowable uses of PPP funds.
    The B&I CARES Act guaranteed loan funds may be used by eligible 
businesses to finance business operating expenses incurred for a period 
up to 12 months, whereas the PPP maximum loan amount is for a period of 
2.5 months and the amount of forgiveness of a PPP loan depends on the 
borrower's payroll costs over an eight-week period. B&I CARES Act 
Program guaranteed loan funds may be used by rural businesses that 
require additional working capital to sustain and ramp up business 
operations once the emergency is resolved. The maximum B&I CARES Act 
Program loan amount a business may receive will be reduced by the 
amount of any SBA EIDL or PPP loans and other Federal emergency 
assistance they receive in order to prevent duplication of program 
services.
    The B&I CARES Act Program guaranteed loan will be a 90% guarantee 
and require the lender to retain a percentage of the loan and thus hold 
some of the risk. The loans do not include terms for loan forgiveness 
and require 100% repayment by the borrower. The loans must be secured 
with business collateral and may require personal guarantees.
    A bank or lender that is not already a participating lender in 
SBA's guaranteed business loan program (7(a) loan program) must be 
approved or authorized by the SBA. All lenders that are subject to 
supervision and credit exam by a Federal or State agency are 
automatically eligible to participate in the B&I program. Non-
supervised lenders may apply to the Agency for approval as an eligible 
lender.
    There are also differences in borrower eligibility requirements 
between this B&I CARES Act Program and SBA PPP. The PPP is limited to 
certain businesses and non-profit enterprises qualifying by size of 
business, mainly based on the number of employees. SBA does not have 
any geographic restrictions or preferences. The B&I program is 
available only to businesses located in rural areas as defined in the 
B&I statute, with limited exceptions. Businesses with multiple 
locations, rural and non-rural, are eligible when the use of loan funds 
is to support business facilities and operations in eligible rural 
areas. The program does not have any restriction on the size of 
business or business ownership structures.

Summary of Modifications to the B&I Program Regulation To Provide for 
the B&I CARES Act Guaranteed Loans Program

    The B&I CARES Act Program will expand eligible use of loan funds to 
include loans for agricultural production when the borrower's financial 
needs are greater than loan amounts available under FSA guaranteed 
loans or is otherwise ineligible for FSA guaranteed loans.
    All the standard requirements of commercial loan applications may 
further restrict rural businesses' ability to access credit. For 
example, access to appraisal services and accounting and financial 
services may be limited due to social distancing and business service 
restrictions. Balancing credit underwriting standards with businesses' 
needs to access capital, the Agency is modifying its requirements for 
certain loan application information for the B&I CARES Act Guaranteed 
Loan Program. The Agency is providing more flexibility to lenders by 
accepting appraisals completed within the last two years (rather than a 
current year appraisal), and updated appraisals (rather than completely 
new appraisals). The Agency is also increasing the threshold of the 
loan amount which triggers when appraisals are required for loans in 
order to align with guidance by FDIC and other credit supervision 
agencies. The Agency will not require discounting the value of 
collateral for working capital loans but will continue to require 
security for loans and will continue limiting the amount of the loan so 
that it does not exceed the market value of collateral.
    The Agency is also providing more flexibility to lenders to accept 
borrowers' tax records in lieu of obtaining historical financial 
statements to document a borrower's financial history and loan 
repayment ability. Use of tax records is standard in commercial lending 
practices. Agricultural producers' financial records must meet the 
industry's standard accounting practices.
    Loss of income and ongoing fixed operating expenses may deplete a 
business's working capital and attempts by a business to finance 
working capital with additional debt will decrease the equity of a 
business. The Agency is providing borrowers more flexibility in the 
form of alternatives to meet the B&I requirement of 10% investment in 
the business by the borrower. Businesses currently facing financial 
distress will need time to recover. Repayment requirements of 
additional debt may further distress and lengthen their financial 
recovery period. To ease a borrower's capital requirement, the B&I 
CARES Act Program utilizes existing authorities for deferral of 
principal and interest payments in the first three years from loan 
origination and extends the maximum repayment term for working capital 
loans from 7 years to 10 years. Interest shall be paid at least 
annually from the date of the note.
    In summary, the Agency considered the type of enhancements that 
participating lenders would need to be able to generate quality loans 
and approve and disburse loan funds in a timely and efficient manner in 
these critical times. The Agency focused on adjusting several 
requirements under the current B&I program which would enable lenders 
greater flexibility in structuring loans while taking into 
consideration the borrowers' current financial condition and capacity, 
but also assuring that such adjustments can be made without 
compromising Agency underwriting standards. For the B&I CARES Act 
Program guaranteed loans, the Agency made program adjustments to the 
following: (a) Maximum percentage of guarantee; (b) equity evaluation; 
(c) appraisal evaluations; (d), collateral evaluation; and (e) maximum 
repayment terms for working capital loans. The Agency evaluated 
guarantee fee and annual renewal fee percentages, components of the 
credit subsidy scoring, necessary to achieve a balance between fee 
amounts adequate to decrease default risk and fee amounts at reasonable 
levels to applicants facing financial distress. The Agency intends fees 
to be reasonable and in an amount adequate to support program levels to 
make the program available to as many recipients as possible.
    As a result of these considerations and the funding purposes 
outlined in the CARES Act, the Agency decided to offer the following 
under the B&I CARES Act Program: (1) 90 percent guarantees to all B&I 
CARES Act Program funded loans, (2) 2 percent guarantee fee; (3) 
acceptance of appraisals completed within two years of the date of the 
application; (4) no

[[Page 31038]]

discounting of collateral for working capital loans; and (5) extension 
of the maximum term for working capital loans to 10 years.
    Changes to the B&I Guaranteed Loan Program regulations apply only 
to the loans funded under the CARES Act and do not apply to loans 
funded under the Appropriations Act of 2020 or any other appropriations 
other than the CARES Act.

Executive Order 12866, Regulatory Planning and Review

    This interim final rule has been reviewed by the Office of 
Management and Budget under Executive Order 12866 and determined to be 
economically significant for the purposes of Executive Orders 12866 
and, is considered a major rule under the Congressional Review Act. The 
Executive Order defines an ``economically significant regulatory 
action'' as one that is likely to result in a rule that may: (1) Have 
an annual effect on the economy of $100 million or more or adversely 
affect, in a material way, the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal governments or communities; (2) 
create a serious inconsistency or otherwise interfere with an action 
taken or planned by another agency; (3) materially alter the budgetary 
impact of entitlements, grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raise novel legal 
or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in this E.O. This interim rule 
was determined to be economically significant because the changes to 
the B&I Guaranteed Loan Program regulations are estimated to have an 
impact on the economy of more than $100 million.
    RBCS, however, is proceeding under the emergency provision of 
Executive Order 12866 Section 6(a)(3)(D) based on the need to move 
expeditiously to mitigate the current economic conditions arising from 
the COVID-19 emergency. RBCS is publishing this interim final rule to 
codify new funding purposes consistent with the purposes of the CARES 
Act--to prevent, prepare for and respond to the COVID-19 emergency. To 
the extent practicable under the circumstances related to the COVID-19 
emergency, RBCS has met, or attempted to meet the provisions of Section 
6(a)(3)(B) and (C) of the Executive Order. The Agency has determined 
that the most effective use of these program funds to meet this purpose 
is to primarily focus on funding working capital loans to support 
business operations and facilities in rural areas. The new provisions 
of the regulation will ensure the consistent and streamlined 
implementation by the Agency of these additional flexibilities to 
respond to the COVID-19 Emergency.

Administrative Procedure Act Statement

    The CARES Act provides for additional funds to the Agency under the 
B&I Guaranteed Loan Program to prevent, prepare for and respond to the 
coronavirus. The Agency is issuing this interim rule without advance 
rulemaking or public comment. The Administrative Procedure Act of 1946, 
as amended (5 U.S.C. 553) (APA), has several exemptions to rulemaking 
requirements. Section 553(b)(3)(B) of the APA authorizes agencies to 
dispense with rulemaking notice and comment procedures for rules when 
the agency, for ``good cause,'' finds that those procedures are 
``impracticable, unnecessary, or contrary to the public interest'' 
Additionally, agencies are authorized to dispense with the 30-day 
delayed effective date requirement as otherwise provided by the agency 
for good cause found and published with the rule by Section 553(d) of 
the same act. Under these sections, USDA has determined, upon finding 
good cause, that making these funds available as authorized in Division 
B, Title I of the CARES Act as expeditiously as possible is in the 
public interest in order to address the national COVID-19 Public Health 
Emergency. Therefore, the Agency has determined that withholding these 
funds to provide for public notice and comment would unduly delay the 
provision of benefits and be contrary to the public interest in 
response to the national COVID-19 Public Health Emergency. This rule is 
being issued to allow for immediate implementation of this program. 
Although this interim final rule is effective immediately, comments are 
solicited from interested members of the public on all aspects of the 
interim final rule. These comments must be submitted on or before June 
22, 2020. RBCS will consider these comments and the need for making any 
revisions to this rule or to the B&I CARES Act Program as a result of 
these comments.

Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801), the Office 
of Information and Regulatory Affairs of the Office of Management and 
Budget designated this action as a major rule, as defined by 5 U.S.C. 
804(2) because this action will result in an annual effect on the 
economy of $100,000,000 or more. However, notwithstanding 5 U.S.C. 801, 
section 808(2) of the Congressional Review Act (5 U.S.C. 808(2)) 
permits that if any rule which an agency for good cause finds that not 
issuing the notice and public procedure thereon would be impracticable, 
unnecessary, or contrary to the public interest, shall take effect at 
such in the time that the Agency determines. USDA has determined, under 
section 808(2), that making these funds available through the issuance 
of this interim rule, as authorized in Division B, Title I of the CARES 
Act, supplements existing authority implemented through regulatory 
authority in 7 CFR 4279, Subpart A and B, and 7 CFR 4287, Subpart B, 
and find good cause that notice and public procedure would be 
impracticable and contrary to the public interest, in light of the 
national COVID-19 Public Health Emergency. Such finding is made because 
withholding these funds would unduly delay the provision of emergency 
benefits under the CARES Act, which Congress intended to provide 
expeditious relief to address the current economic conditions arising 
from the COVID-19 emergency. This rule is being issued to allow for 
immediate implementation of this program. Although this interim final 
rule is effective immediately, comments are solicited from interested 
members of the public on all aspects of the interim final rule. These 
comments must be submitted on or before June 22, 2020. RBCS will 
consider these comments and the need for making any revisions to this 
rule or the B&I CARES Act Program as a result of these comments.

Executive Order 12988, Civil Justice Reform

    This interim rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. The Agency has determined that this interim rule 
meets the applicable standards provided in section 3 of the Executive 
Order. In addition, all state and local laws and regulations that 
conflict with this interim rule will be preempted. No retroactive 
effect will be given to this interim rule and, in accordance with 
section 212(e) of the Department of Agriculture Reorganization Act of 
1994 (7 U.S.C. 6912(e)), administrative appeal procedures must be 
exhausted before an action against the Department or its agencies may 
be initiated.

Executive Order 12372, Intergovernmental Review

    B&I guaranteed loans are subject to the Provisions of Executive 
Order

[[Page 31039]]

12372, which require intergovernmental consultation with State and 
local officials. The Agency will conduct intergovernmental consultation 
in accordance with 2 CFR part 415, subpart C.

Executive Order 13132, Federalism

    The policies contained in this interim final rule do not have any 
substantial direct effect on States, on the relationship between the 
National Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
interim final rule impose substantial direct compliance costs on State 
and local governments. Therefore, the Agency has determined that 
consultation with the States is not required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This interim final rule has been reviewed in accordance with the 
requirements of Executive Order 13175, ``Consultation and Coordination 
with Indian Tribal Governments.'' Executive Order 13175 requires 
Federal agencies to consult and coordinate with tribes on a government-
to-government basis on policies that have tribal implications, 
including regulations, legislative comments or proposed legislation, 
and other policy statements or actions that have substantial direct 
effects on one or more Indian tribes, on the relationship between the 
Federal Government and Indian tribes or on the distribution of power 
and responsibilities between the Federal Government and Indian tribes. 
Rural Development has assessed the impact of this interim final rule on 
Indian tribes and determined that this final rule does not, to our 
knowledge, have tribal implications that require tribal consultation 
under E.O. 13175. If a tribe would like to engage in consultation with 
Rural Development on this rule, please contact Rural Development's 
Native American Coordinator at (720) 544-2911 or [email protected].

Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule, or a final rule pursuant to section 
553(b) of the APA or another law, the agency must prepare a regulatory 
flexibility analysis that meets the requirements of the RFA and publish 
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically, 
the RFA normally requires agencies to describe the impact of a 
rulemaking on small entities by providing a regulatory impact analysis. 
Such analysis must address the consideration of regulatory options that 
would lessen the economic effect of the rule on small entities. The RFA 
defines a ``small entity'' as (1) a proprietary firm meeting the size 
standards of the SBA; (2) a nonprofit organization that is not dominant 
in its field; or (3) a small government jurisdiction with a population 
of less than 50,000. 5 U.S.C. 601(3), Except for such small government 
jurisdictions, neither State nor local governments are ``small 
entities.'' Similarly, for purposes of the RFA, individual persons are 
not small entities. The requirement to conduct a regulatory impact 
analysis does not apply if the head of the agency ``certifies that the 
rule will not, if promulgated, have a significant economic impact on a 
substantial number of small entities.'' 5 U.S.C. 605(b). The agency 
must, however, publish the certification in the Federal Register at the 
time of publication of the rule, ``along with a statement providing the 
factual basis for such certification.'' If the agency head has not 
waived the requirements for a regulatory flexibility analysis in 
accordance with the RFA waiver provision, and no other RFA exception 
applies, the agency must prepare the regulatory flexibility analysis 
and publish it in the Federal Register at the time of promulgation or, 
if the rule is promulgated in response to an emergency that makes 
timely compliance impracticable, within 180 days of publication of the 
final rule. 5 U.S.C. 604(a), 608(b). Rules that are exempt from notice 
and comment are also exempt from the RFA requirements, including 
conducting a regulatory flexibility analysis, when among other things, 
the agency for good cause finds that notice and public procedure are 
impracticable, unnecessary, or contrary to the public interest. 
Accordingly, as authorized by Section 553(b)(3)(B) and Section 553(d) 
of the APA as well as supported in the federal agency source book 
published by the Small Business Administration's Office of Advocacy, '' 
A Guide to for Government Agencies, How to Comply with the Regulatory 
Flexibility, Ch.1. p.9., the Agency is not required to conduct a 
regulatory flexibility analysis.

Information Collection and Recordkeeping Requirements

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), the information collection activities associated with this 
interim final rule are covered under the Business and Industry (B&I) 
Guaranteed Loan Program, OMB Docket Number 0570-0069.

E-Government Act Compliance

    The RBCS is committed to the E-Government Act, which requires 
Government agencies in general to provide the public the option of 
submitting information or transacting business electronically to the 
maximum extent possible.

National Environmental Policy Act Certification

    This interim final rule has been reviewed in accordance with 7 CFR 
part 1970, ``Environmental Policies and Procedures.'' The Agency has 
determined that this is not a major Federal action significantly 
affecting the quality of the human environment, and in accordance with 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.), 
an Environmental Impact Statement is not required.

Catalog of Federal Domestic Assistance

    The program described by this interim final rule is listed in the 
Catalog of Federal Domestic Assistance Programs under number 10.768--
Business and Industry Guaranteed Loan Program. This catalog is 
available on a subscription basis from the Superintendent of Documents, 
the United States Government Printing Office, Washington, DC, 20402-
9325, telephone number (202) 512-1800 and at https://www.cfda.gov.

Unfunded Mandates

    This interim final rule contains no Federal mandates (under the 
regulatory provision of title II of the Unfunded Mandates Reform Act of 
1995) for State, local, and Tribal governments or the private sector. 
Therefore, this interim final rule is not subject to the requirements 
of section 202 and 205 of the Unfunded Mandates Reform Act.

Civil Rights Impact Analysis

    Rural Development has reviewed this interim final rule in 
accordance with USDA Regulation 4300-4, ``Civil Rights Impact 
Analysis,'' to identify any major civil rights impacts this interim 
final rule might have on program participants on the basis of age, 
race, color, national origin, sex or disability. After review and 
analysis of the interim final rule and available data, it has been 
determined that based on the analysis of the program purpose, 
application submission and eligibility criteria, issuance of this 
interim final rule will neither adversely nor disproportionately impact 
very low, low and moderate-income populations, minority

[[Page 31040]]

populations, women, Indian tribes or persons with disability, by virtue 
of their race, color, national origin, sex, age, disability, or marital 
or familiar status.

USDA Non-Discrimination Policy

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, gender identity (including 
gender expression), sexual orientation, disability, age, marital 
status, family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (e.g., Braille, large print, 
audiotape, American Sign Language, etc.) should contact the responsible 
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or 
contact USDA through the Federal Relay Service at (800) 877-8339. 
Additionally, program information may be made available in languages 
other than English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at https://www.ascr.usda.gov/complaint_filing_cust.html and at any USDA office or 
write a letter addressed to USDA and provide in the letter all of the 
information requested in the form. To request a copy of the complaint 
form, call (866) 632-9992. Submit your completed form or letter to USDA 
by: (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; (2) fax: (202) 690-7442; or (3) email: 
[email protected].
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects for 7 CFR Parts 4279

    Loan programs-business, Reporting and recordkeeping requirements, 
Rural areas.

    Accordingly, for reasons set forth in the preamble, 7 CFR part 4279 
is amended as set forth below:

PART 4279--GUARANTEED LOANMAKING

0
1. The authority citation for part 4279 is revised to read as follows:

    Authority:  5 U.S.C. 301; and 7 U.S.C. 1989: and Public Law 116-
136, Division B, Title I.

Subpart A--General

0
2. Amend Sec.  4279.1 by revising paragraph (a) as follows:


Sec.  4279.1   Introduction.

    (a) This subpart contains general regulations for making and 
servicing Business and Industry (B&I) loans guaranteed by the Agency 
and applies to lenders, holders, borrowers, and other parties involved 
in making, guaranteeing, holding, servicing, or liquidating such loans. 
This subpart is supplemented by subpart B of this part, which contains 
loan processing regulations, and subpart B of part 4287 of this 
chapter, which contains loan servicing regulations. This subpart also 
contains regulations for Business and Industry loans under the 
authority of the Coronavirus Aid, Relief, and Economic Security Act 
(CARES Act) (Pub. L. 116-136) to provide B&I guarantees for loans 
needed as a result of the Coronavirus Disease 2019 (COVID-19) pandemic 
for working capital loan purposes to support business operations and 
facilities in rural areas (B&I CARES Act Program Loans). Some of the 
requirements of this subpart are waived or altered for B&I CARES Act 
Program Loans. The waivers and alterations are provided in Sec.  
4279.190 of this subpart.
* * * * *

0
3. Amend Sec.  4279.101 by revising paragraph (a) to read as follows:


Sec.  4279.101   Introduction.

    (a) Content. This subpart contains loan processing regulations for 
the Business and Industry (B&I) Guaranteed Loan Program. It is 
supplemented by subpart A of this part, which contains general 
guaranteed loan regulations, and subpart B of part 4287 of this 
chapter, which contains loan servicing regulations. This subpart also 
contains regulations for Business and Industry loans under the 
authority of the Coronavirus Aid, Relief, and Economic Security Act 
(CARES Act) (Pub. L. 116-136) to provide B&I guarantees for loans 
needed as a result of the Coronavirus Disease 2019 (COVID-19) pandemic 
for working capital loan purposes to support business operations and 
facilities in rural areas (B&I CARES Act Program Loans). Some of the 
requirements of this subpart are waived or altered for B&I CARES Act 
Program Loans. The waivers and alterations are provided in Sec.  
4279.190 of this subpart.
* * * * *

0
4. Add Sec.  4279.190 to Subpart B to read as follows:


Sec.  4279.190  Business and Industry national COVID-19 Public Health 
Emergency Loans.

    (a) Introduction. This section contains regulations for the 
Business and Industry National COVID-19 Public Health Emergency loan 
program (B&I CARES Act Program Loans). The purpose of the program is to 
provide loan guarantees under the authority of the Coronavirus Aid, 
Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136). These 
B&I CARES Act Program Loans cover costs to prevent, prepare for and 
respond to the coronavirus. Consistent with the purposes of the CARES 
Act, the Agency has determined that the most effective use of these 
program funds is to support the cost of guaranteed loans to rural 
businesses to respond to the coronavirus. No B&I CARES Act Program Loan 
guarantee will be approved after September 30, 2021. All provisions of 
Subparts A and B of Part 4279 and Subpart A of Part 4287 of this 
chapter apply to B&I CARES Act Program Loans, except as provided in 
this section. All forms used in connection with a B&I CARES Act Program 
Loan will be those used with other Business and Industry (B&I) loans, 
except as provided in this section.
    (b) Eligible borrowers. Section 4279.108 of this subpart applies to 
B&I CARES Act Program Loans. In addition, borrowers must have been in 
operation on February 15, 2020.
    (c) Eligible use of funds. (1) The purpose of any B&I CARES Act 
Program Loan must be to cover costs to prevent, prepare for, and 
respond to the coronavirus pandemic in accordance with paragraph (a) of 
this section. B&I CARES Act Program Loans should not exceed the amount 
needed to overcome the financial distress caused by the COVID-19 
National Emergency.
    (2) Notwithstanding the provisions of Sec.  4279.113, B&I CARES Act 
Program guaranteed loans will be limited to loans for working capital 
loan purposes in accordance with paragraph (c)(3) of this section. Loan 
proceeds may be used only to support facilities and business operations 
in rural areas and the Borrower must have been in operation on February 
15, 2020. Loan proceeds must be disbursed through multiple draws on an 
as-needed monthly basis.

[[Page 31041]]

    (3) Eligible Working Capital uses of B&I CARES Act Program Loan 
funds are limited to:
    (i) Wages, salaries, sales commissions to employees, group 
healthcare benefits, and other employee benefits;
    (ii) Administrative expenses and administrative service contracts;
    (iii) Property insurance, hazard insurance, and other business 
insurance;
    (iv) Principal and interest payments excluding owner/stockholder 
debt and related-party debts;
    (v) Rent, payments on leases, and routine maintenance;
    (vi) Utilities;
    (vii) Inventory, feed, seed, fertilizer and chemicals, livestock 
(excluding livestock for breeding) and supplies;
    (viii) Marketing, shipping, and other expenses incurred through 
normal business operations or such additional expenses due to the 
national COVID-19 Public Health Emergency;
    (ix) Taxes; and
    (x) Loan costs and essential loan-related expenses.
    (4) Ineligible purposes. Notwithstanding the provisions of Sec.  
4279.113, the following purposes are ineligible for B&I CARES Act 
Program guaranteed loans:
    (i) Purchase and development of land, buildings, and associated 
infrastructure for commercial or industrial properties, including 
expansion or modernization;
    (ii) Business acquisitions;
    (iii) Leasehold improvements;
    (iv) Constructing or equipping facilities;
    (v) Purchase of machinery and equipment; and
    (vi) Debt refinancing unless such debt refinancing is for debts 
incurred subsequent to February 15, 2020 for eligible purposes listed 
in paragraph (c)(3) of this section.
    (5) Agricultural production. The provisions of Sec.  4279.113(q) do 
not apply to B&I CARES Act Program Loans. Loans for working capital to 
support agricultural production, including independent agricultural 
production, is an eligible use of funds when the applicant's loan 
request exceeds the maximum loan available through Farm Service Agency 
(FSA) guaranteed loan programs or the applicant's request is otherwise 
ineligible for FSA loans.
    (d) Loan amount limits. (1) The provisions of Sec.  4279.119(a) do 
not apply to B&I CARES Act Program Loans. The total amount of B&I and 
B&I CARES Act Program Loans to one borrower (including the guaranteed 
and unguaranteed portions, the outstanding principal and interest 
balance of any existing B&I guaranteed loans, and the new loan request) 
cannot exceed $25 million.
    (2) The amount of the B&I CARES Act Program Loan shall be based on 
a cash flow analysis and must not be greater than the amount needed to 
cure problems caused by the COVID-19 emergency so that the business is 
reestablished on a successful basis. Losses and business operating 
expenses that were adequately paid by insurance or by loans or grants 
from other sources will not be covered by B&I CARES Act Program Loans. 
LB&I CARES Act Program Loans may be used to supplement insurance 
payments or assistance from other sources when the insurance coverage 
or other assistance is insufficient.
    (3) The maximum loan amount of the B&I CARES Act Program Loan for 
working capital purposes may not exceed 12 times the borrower's total 
average monthly costs of eligible working capital loan purposes less 
the total amount of covered loans received under the provisions of 
section 1102 and Section 1110(a)(2) of the CARES Act and other Federal 
emergency assistance received.
    (4) Borrowers receiving B&I CARES Act Program Loans in an amount 
less than the maximum loan amount in accordance with paragraph (d)(3) 
of this section, may apply for subsequent loans under this section up 
to an accumulative amount of B&I CARES Act Program loans not to exceed 
the maximum loan amount.
    (e) Percentage of guarantee. The provisions of Sec.  4279.119(b) do 
not apply to B&I CARES Act Program Loans. The percentage of guarantee 
is 90 percent.
    (f) Guarantee fee. The provisions of Sec.  4279.120(a) do not apply 
to B&I CARES Act Program Loans. The guarantee fee for the B&I CARES Act 
Program Loans shall be two (2) percent. The guarantee fee is paid at 
the time the Loan Note Guarantee is issued and may be included as an 
eligible use of guaranteed loan proceeds. The amount of the guarantee 
fee is determined by multiplying the total loan amount by the guarantee 
fee rate by the percentage of guarantee.
    (g) Annual renewal fee. Notwithstanding the provisions of Sec.  
4279.120(b), the annual renewal fee for B&I CARES Act Program Loans 
shall be one half of one (0.5) percent (50 basis points.)
    (h) Loan terms. Notwithstanding the provisions of Sec.  4279.126, 
the maximum allowable repayment term of loans for working capital 
purposes is 10 years. Loan repayment may defer principal payments or 
principal and interest payments for a period up to 12 months from loan 
closing and may extend deferral of principal payments up to a total of 
three years with a maximum repayment term of 10 years from the date of 
loan closing.
    (i) Credit quality. Notwithstanding the provisions of Sec.  
4279.131(a), the lender's evaluation of the borrower's repayment 
ability shall include an emphasis on the borrower's successful 
financial history and on the borrower's 2019 financial performance, 
present condition, and future viability.
    (j) Collateral. B&I CARES Act Program loans must be adequately 
secured. Notwithstanding the provisions of Sec.  4279.131(b), loan-to-
value discounting by the lender is not required for B&I CARES Act 
Program Loans for working capital purposes. The value of the collateral 
(fair market value) must be equal to or greater than the loan amount.
    (k) Capital/equity. Notwithstanding the provisions of Sec.  
4279.131(d), the business must meet one of the following requirements 
at loan closing:
    (1) A minimum of 10 percent balance sheet equity (including 
subordinated debt when subject to a standstill agreement), or a maximum 
debt-to-balance sheet equity ratio of 9 to 1;
    (2) A Borrower investment of equity or other funds into the project 
equal to 10 percent or more of total eligible project costs, (such 
investment may include grants or subordinated debt when subject to a 
standstill agreement); or
    (3) The balance sheet equity includes owner-contributed capital of 
10 percent or more of total fixed assets (net total fixed assets plus 
depreciation).
    (l) Appraisals. Notwithstanding the provisions of Sec.  4279.144, 
appraisals of real estate and chattel collateral are required when the 
amount of the loan exceeds $1,000,000, unless the chattel is newly 
acquired equipment and the value is supported by a bill of sale. The 
Agency will accept appraisals older than 1 year but completed within 2 
years of the application date. Lenders may provide an updated appraisal 
in lieu of a new complete appraisal when the original appraisal is more 
than 2 years old. All appraisals of real estate must be compliant with 
Uniform Standards of Professional Appraisal Practices (USPAP) 
requirements and reflect the current market value of the collateral as 
required by Sec.  4279.144(a). To protect lenders, appraisers and 
Agency staff during the COVID-19 pandemic, an interior or on-site 
inspection of the collateral is not required if an assumption can be 
made by the appraiser on a reasonable basis or is based on previous 
inspections and

[[Page 31042]]

condition reports completed by the lender or third party for the 
collateral.
    (m) Filing preapplications and applications. (1) B&I CARES Act 
Program Loan borrowers with existing B&I loans do not need to resubmit 
their historical financial statements that have been previously 
submitted through routine loan servicing actions.
    (2) Loans for working capital are classified as categorical 
exclusions for purposes of the Agency's environmental review policies 
and procedures in accordance with 7 CFR part 1970. These actions 
normally do not require an applicant to submit environmental 
documentation with the application. However, based on the review of the 
project description, the Agency may request additional environmental 
documentation from the applicant at any time, specifically if the 
Agency determines that extraordinary circumstances may exist.
    (3) Notwithstanding the provisions of Sec.  4279.161(b), a draft 
loan agreement is not required, a business plan or feasibility study is 
not required, and lenders may substitute and rely on the borrower's tax 
returns when financial statements prepared in accordance with GAAP are 
not available from the borrower. Agricultural producers' financial 
records must meet the industry's standard accounting practices.
    (4) A lender or borrower may combine applications for a B&I CARES 
Act Program loan for working capital with an application for B&I 
appropriated fiscal year funds. The provisions of this section do not 
apply to applications for B&I appropriated fiscal year funds.

Bette B. Brand,
Deputy Under Secretary, Rural Development.
[FR Doc. 2020-11242 Filed 5-21-20; 8:45 am]
 BILLING CODE 3410-XY-P