OneRD Guarantee Loan, 79698-79729 [2024-21920]
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79698
Federal Register / Vol. 89, No. 189 / Monday, September 30, 2024 / Rules and Regulations
Development Innovation Center, U.S.
Department of Agriculture, 1400
Independence Ave. SW, Stop 1522,
Washington, DC 20250; telephone 202–
720–9631; email susan.woolard@
usda.gov.
SUPPLEMENTARY INFORMATION:
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 5001
[Docket No. RUS–19–Agency–0030]
RIN 0572–AC63
OneRD Guarantee Loan
Rural Business-Cooperative
Service, Rural Housing Service, Rural
Utilities Service, USDA.
ACTION: Final rule; request for
comments.
AGENCY:
Rural Development’s Rural
Business-Cooperative Service, Rural
Housing Service, and Rural Utilities
Service, agencies of the United States
Department of Agriculture (USDA),
collectively referred to as the Agency in
this document, are publishing this final
rule for the OneRD Guarantee Loan
Program (OneRD). The intent of this rule
is to make necessary revisions to the
policy and procedures which will
strengthen oversight and management of
the growing Community Facilities (CF),
Water and Waste Disposal (WWD),
Business and Industry (B&I), and Rural
Energy for America (REAP) guarantee
portfolios. This action is part of a
continuing effort by the Agency to
improve customer service for its lenders
and create a more efficient work process
for its staff.
DATES:
Effective date: This final rule is
effective November 29, 2024.
Comments due date: Comments must
be submitted on or before October 30,
2024.
SUMMARY:
You may submit comments,
identified by docket number RUS–19–
Agency–0030 and Regulatory
Information Number (RIN) number
0572–AC63 through https://
www.regulations.gov.
Instructions: All submissions received
must include the Agency name and
docket number or RIN for this
rulemaking. All comments received will
be posted without change to https://
www.regulations.gov, including any
personal information provided.
Docket: For access to the docket to
read background documents or
comments received, go to https://
www.regulations.gov.
Additional information about Rural
Development and its programs is
available on the internet at https://
www.rd.usda.gov.
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ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Susan L. Woolard, Regulations
Management Division, Rural
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I. Background
The Rural Housing Service (RHS), the
Rural Business-Cooperative Service
(RBCS), and the Rural Utilities Service
(RUS), agencies of the USDA Rural
Development mission area, hereinafter
collectively referred to as the Agency,
published a final rule with comment on
July 14, 2020 (85 FR 42494) that created
a unified guaranteed loan platform for
enhanced delivery of four existing
guaranteed loan programs: Community
Facilities (CF) administered by RHS;
Water and Waste Disposal (WWD)
administered by RUS; and Business and
Industry (B&I) and Rural Energy for
America (REAP) administered by RBCS.
The final rule was effective on October
1, 2020, and Rural Development began
operating under the new guaranteed
loan platform on that date.
Collectively, Rural Development’s
guaranteed loan programs work to assist
in building and maintaining sustainable
rural communities. Through the public
comment period and monthly office
hours with lenders and staff, the Agency
has solicited feedback on the
requirements and policies contained in
the rule implemented on October 1,
2020. The Agency has identified areas
for revision or clarification that are
amended with this final rule with
comment. This OneRD final rule with
comment incorporates revisions
intended to simplify, clarify, improve,
expand, and enhance the delivery of the
four guaranteed loan programs.
II. Summary of Changes to Regulation
1. § 5001.3 Definitions
a. The definition of ‘‘affiliate’’ is
updated to provide additional
information on affiliation determination
and include a reference to 13 CFR
121.03.
b. The definition of ‘‘agricultural
producer’’ is updated to include
additional information regarding what
constitutes agricultural operations
income for the calculation of the fiveyear average for eligibility
determinations. Additional information
on the location of an agricultural
producer for eligibility determinations
is also added.
c. The definition of ‘‘collateral’’ is
updated to include assignments of
relevant agreements as acceptable
collateral.
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d. The definition of ‘‘Debt Collection
Improvement Act’’ is updated to correct
the title of the act and provide
additional information on the Debt
Collection Improvement Act of 1996.
e. The definition of ‘‘delinquency’’ is
updated to provide additional
information on how this term is used in
the Part.
f. The definition of ‘‘energy efficient
equipment and systems’’ is updated to
include clear demonstration of energy
efficiency as an application
requirement.
g. The definition of ‘‘federal debt’’ is
updated to include additional
information on the Debt Collection
Improvement Act of 1996.
h. The definition of ‘‘guarantor’’ is
updated to include responsibility for
repayment as an undertaking of a
guarantor.
i. The definition of ‘‘hospital’’ is
updated to include additional
information on Certification Numbers.
j. The definition of ‘‘hybrid’’ is
updated to include additional
information and an example on the
eligibility of hybrid systems.
k. The definition of ‘‘local owner’’ is
updated to include information on what
constitutes a normal commuting area.
l. The definition of ‘‘matching funds’’
is updated to include the percentage of
matching funds required to be eligible
for a REAP guaranteed loan.
m. The definition of ‘‘natural resource
value-added product’’ is updated to
provide non-definitive examples of
eligible and ineligible projects.
n. The definition of ‘‘professional
service’’ is updated to include that a
loan finder fee is not considered a
professional service under the Part.
o. The definition of ‘‘refurbished’’ is
updated to provide an example of an
acceptable refurbishment and also to
provide information on what is
considered as ineligible.
p. The definition of ‘‘renewable
energy system (RES)’’ is updated to
include information on items that are
not considered RES.
q. The definition of ‘‘retrofitting’’ is
updated to include examples of eligible
projects.
r. The definition of ‘‘rural and rural
area’’ is updated to include additional
information to identify ineligible areas,
define rural-in-character determinations
as project specific determinations,
provide additional information on
‘‘strings’’ or areas that are attached to
the urbanized are by a contiguous area
of urbanized blocks, and to specify that
applications cannot be approved subject
to meeting rural area requirements.
s. The definition of ‘‘simple payback’’
is updated to include additional
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information on items to include in the
calculation and calculating shared meter
proration.
t. The definition of ‘‘small business’’
is updated to include additional
information on average net income, net
worth thresholds and to update the size
standard to meet the new Small
Business Administration’s definition.
u. The definition of ‘‘total project
costs’’ is updated to include additional
information on ineligible project costs
and retrofitting for existing RES.
v. The definition of ‘‘underserved
communities’’ is updated to expand on
populations that should be considered
for awarding of priority points.
2. Section 5001.9 Standards for
Financial Information
a. The Agency added language at
§ 5001.9(a) to reinforce that the loan is
the lender’s, and their standard
operating procedures apply.
b. ‘‘For those situations,’’ is added to
§ 5001.9(b) to clarify the subject of the
last sentence.
c. At § 5001.9(c) additional language
is added to provide information on the
use of tax returns as financial statements
and their suitability for eligibility
determinations.
3. Section 5001.101
Introduction
a. § 5001.101(a) is amended to add
‘‘. . . through 5001.119 . . .’’ to include
all four program areas.
b. § 5001.101(f) is added to identify
the location in the regulation of eligible
and ineligible uses of funds
respectively.
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4. Section 5001.102 Project
Eligibility—General
a. To direct REAP applicants to
refinancing information specific to the
REAP program, language is added to
§ 5001.102(d).
b. § 5001.102(d)(1) is modified to
provide further clarification on
refinancing limits on debts owed to
another creditor and (d)(2) provides an
expanded description of ‘‘better rates or
repayment terms’’.
c. ‘‘Special conditions and limitations
on loans’’ and ‘‘Loan Guarantees for
Water, Wastewater, and Essential
Community Facilities Loans’’ is added
to paragraph 5001.102(d)(3) to further
identify sections 333 and 306(a)(24)(C),
respectively, of the Consolidated Farm
and Rural Development Act.
d. § 5001.102(d)(4)(iii) is modified to
provide additional information for loans
where debt refinancing is the majority
purpose.
e. § 5001.102(d)(5) is modified to
specify program applicability, lender’s
responsibility for providing the
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requested information and update
information on total debt service
coverage ration as the current language
implies an acceptable ratio that is not
intended.
5. Section 5001.103 Eligible CF
Projects and Requirements
a. Assisted living facilities are added
to § 5001.103(a)(1) to identify them, in
certain situations, as health care
facilities.
b. § 5001.103(a)(3) is updated to
include eligibility requirements for
business incubators (when not
inherently commercial), thrift stores,
and fairgrounds, agricultural exposition
centers, farmers markets, food
distribution and food banks.
c. § 5001.103(b)(1) is updated to
include information on public use
requirements of Veterans of Foreign
Wars and American Legion post
facilities.
d. § 5001.103(d) is added to provide
limitations on leased space in a CF
project.
e. § 5001.103(e) is added to provide
the documentation necessary when the
project is to otherwise improve an
essential community facility through the
purchase of an existing facility.
6. Section 5001.104 Eligible WWD
Projects and Requirements
a. Introductory paragraph is updated
to correct regulatory references and
remove duplication.
b. § 5001.104(a)is updated to better
describes eligible WWD projects.
c. § 5001.104(a)(1) is updated by
removing ‘‘To construct, enlarge,
extend, or otherwise improve the
following types of facilities: . . .’’ as
those actions are eligible uses of funds
and not types of projects.
d. Remove § 5001.104(a)(2) as these
items are listed at § 5001.121(b)(10)
‘‘Eligible use of loan funds’’. The
duplication has caused confusion.
7. Section 5001.105 Eligible B&I
Projects and Requirements
a. § 5001.105(b)(7) is updated to add
examples of eligible agricultural
production projects.
b. § 5001.105(b)(14) is updated to
include additional information on what
constitutes a leasehold improvement for
this part and to provide further security
enhancements.
c. § 5001.105(b)(15)(i)(D) is updated to
include the timing of agreements with
retail and institutional clients in regard
to locally or regionally produced
agricultural products.
d. § 5001.105(b)(20) is updated to
include information on independent
living facilities’ eligibility for a
guarantee.
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e. § 5001.105(b)(22) (vii) is updated to
expand on the demonstration of
technical merit for energy projects.
f. § 5001.105(d) is updated to add
information on balance sheets used to
show that capital and equity
requirements are met.
g. § 5001.105(d)(1)(iii) is updated to
reflect the correct owner-contributed
capital calculation.
h. § 5001.105(d)(6) is deleted and the
content moved to § 5001.452(b)(8)(iii)(X)
as this certification was not intended to
be separate from the lender’s
certification required as part of the
documents submitted for issuance of the
loan note guarantee.
8. Section 5001.106 Eligible REAP—
Renewable Energy System (RES) Projects
and Requirements
§ 5001.106(e)(2) is updated to include
how a non-response in an area of a
technical report will be scored.
9. Section 5001.108 Eligible REAP—
Energy Efficient Equipment and Systems
(EEE) Projects and Requirements
The introductory paragraph for
§ 5001.108 is updated to include that
EEE projects may be located in rural or
non-rural areas as long as the energy
efficient equipment of systems are used
for agricultural production or processing
in accordance with this part.
10. § 5001.115
General
Ineligible Projects—
a. § 5001.115(l) is updated to provide
additional information to clarify when
telephone systems may be considered as
an eligible project.
b. § 5001.115(n) is updated to provide
additional information to clarify when
owner-occupied housing may be
considered for funding.
b. § 5001.115(r) is updated to provide
additional information to religious
organizations on items that may cause
their project to be deemed ineligible.
11. § 5001.116
Neligible CF Projects
a. § 5001.116(b) is updated to add a
reference to § 5001.103(d) for eligibility
of commercial enterprises leasing space
in an eligible CF project.
b. § 5001.116(e) is updated to include
characteristics of ineligible purchase
transactions.
12. § 5001.121
Funds
Eligible Uses of Loan
a. § 5001.121(a)(2) is updated to
include the installed conduit is not
essential to the operation of the eligible
essential community facility or service
to be financed and to add an example.
b. § 5001.121(a)(3)(iv) is updated to
clarify that guaranteed loan proceeds
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may be used to pay interim financing in
full, if used, and that payment in full
includes interest on that interim
financing.
c. § 5001.121(b) is revised in its
entirety to classify eligible uses of funds
as those that must be part of a
construction project and those that are
non-construction. Additionally, the
purchase and installation of RES for use
by an eligible facility, the use of up to
10 percent of project funds to construct,
improve, or acquire broadband
infrastructure, and professional service
fees, such as engineering or
environmental services and preplanning
evaluation procedures are added as
eligible uses of funds. Additional
information regarding the purchase of
land and/or rights, including water
rights is added as well as providing
clarification on payment of interim
financing, limiting initial operating
expenses to newly constructed facilities
and clarifying that purchase of
equipment must include installation
and is not for the purpose of increasing
inventory is also included.
d. § 5001.121(d)14)(vi) is added to
provide additional information on what
is considered refinancing under the
REAP program.
13. § 5001.121 Eligible Uses of Loan
Funds
a. § 5001.121(c)(6) is updated to
provide additional flexibility to the
programs.
b. § 5001.121(d) is updated to clarify
what the percentage includes.
c. § 5001.121(d)(14) is updated to add
information that paying interim
financing is not considered refinancing.
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14.§ 5001.122 Ineligible Uses of Loan
Funds
a. § 5001.122(k) is updated to include
as an additional ineligible use of loan
funds any costs for RES and/or EEI
projects that are used to improve a
vehicle’s ability to propel itself.
b. § 5001.122(l) is updated to clarify
that a former owner may remain as an
employee of the business during a
reasonable transition period and to align
the language with the definition of
conflict of interest.
c. § 5001.122(n) is added to include
lease payments as ineligible uses of
funds.
15. § 5001.126 Borrower Eligibility
a. § 5001.126 (a)and (a)(1) are updated
to clarify that the borrower must own
and retain control of the project at all
times under all ownership structures.
b. § 5001.126(c)(2) is updated to notify
lenders that they are required to certify
in writing that their borrower is unable
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to afford commercial credit at
reasonable rates and terms without the
guarantee.
c. § 5001.126(d)(3)(iii) is updated to
reference the definition of citizen and to
clarify that applications will not be
approved, nor will conditional
commitments be issued subject to
meeting the citizenship requirement.
d. § 5001.126(d)(4) is updated to
further ensure benefit to U.S. residents.
e. § 5001.126(e)(1) is updated to
provide more specificity on eligible
borrower entity types.
f. § 5001.126(e)(2) is updated to clarify
the timing of when and how long a
borrower must own or control a project
and the site for the project to at the time
of application or no later than
guaranteed loan closing and for the term
of the guaranteed loan.
16. § 5001.127 Borrower Ineligibility
Conditions
a. § 5001.127(a) is updated to specify
that the 20 percent ownership interest
in the borrower does not apply to
passive investors and expands on
delinquent debt under a repayment
plan.
b. § 5001.127(a)(4) is updated to add
that lenders must check SAM
exclusions at https://sam.gov to ensure
compliance with 2 CFR 180.300.
c. § 5001.127(d) is updated to include
a prohibition on projects receiving
income from marijuana operations.
d. § 5001.127(f) is updated to specify
that lender’s directors, stockholders, or
other owners that are officers, directors,
stockholders, or other owners of the
borrower without management control
or ownership of less than 5% must
recuse themselves from the decisionmaking process associated with the
guaranteed loan.
17. § 5001.130 Lender Eligibility
Requirements
a. § 5001.130(a)(3) is updated to
reduce risk and meet the requirements
of 31 U.S.C. 3354.
b. § 5001.130(c)(2) is updated to
include instructions on how nonregulated lending entities may apply for
approved lender status.
c. § 5001.130(c)(4) is updated to
provide additional information on what
an approved lender renewal review will
include.
d. § 5001.130(c)(4)(iv) is updated to
provide additional information to
lenders that have not been active in the
Agency’s guaranteed loan program or
whose loans have caused a loss to the
Agency on approved lender status
renewal.
e. § 5001.130(c)(4)(v) is added to
notify lenders that the renewal term are
for a period of 5 years.
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f. § 5001.130(d)(2) is updated to
provide non-regulated lending entities
serving Tribal trust lands additional
guidance on submittal of information
needed for applications to be
determined as approved lenders.
g. § 5001.130(d)(4) is updated to
provide non-regulated lending entities
serving Tribal trust lands information
on what will be considered during the
approved lender renewal review.
h. § 5001.130(d)(4)(v) is added to
notify lenders that renewals are for a
period of 5 years.
18. § 5001.131 Lender’s Agreement
Section 5001.131 is updated to
include that approval as a lender under
one program is approval for all
programs covered under this part, that
non-regulated lenders approval expires
January 31st of the fifth year after the
date of Agency approval and that only
one lenders agreement will be issued for
each lending entity based on their tax
identification number. This paragraph is
also updated to include the requirement
that a lending entity continue to service
their outstanding loan guarantees made
under this part even if they fail to renew
its lenders agreement and loses its
approved lender status.
19. § 5001.132 Maintenance of
Approved Lender Status
a. § 5001.132(a)(4) is updated to
clarify that a non-regulated lending
entity that fails to renew its approval
status within 5 years from the execution
of the lender’s agreement will lose its
approved status.
b. § 5001.132(b) is updated to include
that revocation of approved lender
status may apply to the entire entity,
specific branches, or personnel as
appropriate. This addition also requires
the lender to revoke the level II
eAuthentication privileges of all
individuals included in the revocation
notice.
20. § 5001.140 Cooperative Stock/
Cooperative Equity
a. § 5001.140(a)(4) is updated to
include that in event of default if the
stock is not sufficient to satisfy the debt,
the borrower is fully liable for the entire
debt regardless of the success or failure
of the cooperative; the lender will
maximize recovery; and, that DCIA may
impose significant restrictions on
delinquent Federal debtors.
b. § 5001.140(b) is updated to include
that in event of default if the stock is not
sufficient to satisfy the debt, the
borrower is fully liable for the entire
debt regardless of the success or failure
of the cooperative; the lender will
maximize recovery; and, that DCIA may
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impose significant restrictions on
delinquent Federal debtors.
c. § 5001.140(d)(3) is updated to
include that in event of default if the
stock is not sufficient to satisfy the debt,
the borrower is fully liable for the entire
debt regardless of the success or failure
of the cooperative; the lender will
maximize recovery; and, that DCIA may
impose significant restrictions on
delinquent Federal debtors.
21. § 5001.141
Credit
New Markets Tax
a. The title is updated to New Markets
Tax Credit Program. The introductory
paragraph is updated to reinforce that
requests for loan guarantees that include
NMTC are subject to all applicable
program eligibility requirements, credit
analysis and due diligence as required
by 7 CFR part 5001. Additional
information is provided on the
treatment of tax benefit or loss of tax
benefits in the servicing actions of a
guaranteed loan.
b. § 5001.141(b)(iii) is updated to
clarify leveraged lender entity
requirements.
c. § 5001.141(b)(6) is updated to
include guidance for QALICB’s and
their owners regarding guarantees of the
guaranteed loan as stipulated in
§ 5001.204.
d. § 5001.141(b)(14) is added to
inform applicants that they NMTC
structure must be approved by the
Agency.
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22. § 5001.202
Evaluation
Lender’s Credit
a. The introductory paragraph is
updated to provide additional
information to lenders on timing of
application submittal and completion of
the lender’s internal credit evaluation
process as part of a complete
application package. The update also
includes a requirement for the lender’s
credit evaluation to include a written
review and comment on the ‘‘Five Cs’’
of credit as outlined in § 5001.202(b)(1)
through (5).
b. § 5001.202(a) is updated to include
reference to the lender’s responsibility
to evaluate the relationships between all
associated parties in the event of
affiliated entities.
c. § 5001.202(b)(6)(iii) is amended to
add that any steps taken or proposed to
address any financial or industry
weakness must be reasonable and
adequately addressed.
d. § 5001.202(b)(6)(iv) is updated to
include additional guidance on
borrower projections and substantiation
of increases of revenues, profit margins
or profitability.
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e. § 5001.202(b)(6)(iv) is updated to
include the source of the cash flow in
the analysis of the operational cash flow
when lenders are requesting the loan
note guarantee prior to project
completion.
23. § 5001.203 Appraisals
a. The introductory paragraph is
updated to include, ‘‘. . . as determined
by the approval official.’’ to indicate
who determines appraisal acceptability.
Additionally, information on the
handling of value attributed to business
valuation or as a going concern and
discounting is added. For applications
that include an existing facility, the
Agency is including that it is expected
that the appraiser will physically visit
the property unless otherwise approved
by the Agency approval official, as these
‘‘desktop products’’ are not reliable and
present the potential for additional
valuation risk to the Agency.
b. § 5001.203(b) is updated to provide
additional assurances during the loan
underwriting review process.
c. § 5001.203(c) is updated to
incorporate the language from
§ 5001.203(c)(1)(i).
d. § 5001.203(c)(1) is removed. The
language from the current
§ 5001.203(c)(1)(i) is incorporated into
§ 5001.203(c). The current language in
§ 5001.203(c)(1)(ii) is not necessary as
the Agency’s expectations are
adequately covered in previous
language.
e. § 5001.203(d) (1) is updated to
allow for other than a State Certified
General Appraiser when approved by
the Agency as some project types are
unique enough that a qualified appraiser
may not be available.
f. § 5001.203(f) is updated to require
immediate notification to the Agency if
potential contamination is observed or
identified.
g. § 5001.203(h) is updated to reiterate
that appraisal fees are eligible project
costs, and that the Agency does not pay
for appraisals at the time of application
but that servicing appraisals will be
handled in accordance with 7 CFR 5001
subpart F.
24. § 5001.205 General Project
Monitoring Requirements
a. § 5001.205(a)(4) is added to include
compliance with section 70914 of the
Build America, Buy America Act within
the Infrastructure Investment and Jobs
Act (Pub. L. 117–58).
b. § 5001.205(b)(1) is updated to
include compliance with the Uniform
Relocation Assistance and Real Property
Acquisition Policies Act of 1970 to
ensure that all property transactions are
conducted accordingly.
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c. § 5001.205(e)(1)(i) is removed and
the information combined with
§ 5001.205(e)(1) as a separate (i) was not
necessary.
d. § 5001.205(e)(2)(iii) is updated to
include the requirement that the lender
must provide evidence of sufficient cash
flow to complete the project
construction, including contingencies
for cost overruns, plus working capital
during the business start-up period.
e. § 5001.205(e)(2)(iv) is updated to
include the requirement that, in all
cases, borrower equity must be injected
prior to any guaranteed loan funds.
f. § 5001.205(e)(2)(vii) is updated so
that the credit underwriting of the
independent technology development
firm is not limited only to renewable
energy projects, but may include energy
efficiency, renewable chemical, and
biobased manufacturing projects.
25. § 5001.206 Compliance With
USDA Departmental Regulations,
Policies, and Other Federal Laws
Section 5001.206(b) is updated to
include compliance with the Uniform
Relocation Assistance and Real Property
Acquisition Policies Act of 1970 as a
requirement if the proposed project
requires the acquisition of real property
or will displace people from their
homes, business, or farms, and Section
70914 of the Build America, Buy
America Act within the Infrastructure
Investment and Jobs Act, and 31 U.S.C.
3354 Do Not Pay Initiative.
Subpart D
26. § 5001.301 Beginning the
Application Process
Section 5001.301(a) is updated in its
entirety to reflect current application
submittal practices.
27. § 5001.303 Applications for Loan
Guarantee
Section 5001.303(c)(15) is updated to
include the entire title of SEC Form 10–
K.
28. § 5001.307 Specific Application
Requirements for REAP Projects
Section 5001.307(b) is updated to
include clarification on application
documentation requirements for rural
small businesses and agriculture
operations owned by Tribes.
28. § 5001.315 Application Evaluation
and Award Provisions
a. § 5001.315(b) is updated to include
the word ‘‘complete’’ to describe
applications that the Agency will
review.
b. § 5001.315(c)(1) is updated to
include the word ‘‘priority’’ to better
describe scoring.
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does not cover any fees related to the
swap. A requirement for the lender to
provide the Agency with an overall
effective interest rate charged to the
borrower in the swap transaction is also
added.
c. § § 5001.315(e)(2) is updated to
include notification in writing when
their application is withdrawn from
further funding consideration.
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29. § 5001.319
Point System
REAP Project Priority
a. The introductory paragraph is
updated to add, ‘‘. . . and subject to the
availability of funds . . .’’ to state when
the Agency will compete each complete
and eligible application for RES, EEI
and EEE projects.
b. § 5001.319(b)(1)(i) is updated to
include when priority points will be
awarded for retrofitting RES projects
and how off-the-grid and direct-use
projects will be awarded priority points.
c. § 5001.319 (b)(2)(i) is updated to
include information on calculating the
percentage of energy being replaced,
whether it is categorized a replacement
or generation. This does not change the
underlying calculation but provides
clarification.
d. § 5001.319 (b)(2)(i)(A) is updated to
include a requirement for
documentation to show that the
borrower entity incurred the cost of the
historical energy to be replaced and
what may be considered in the
calculation. This does not change the
underlying calculation but provides
clarification.
e. § 5001.319(b)(2)(ii) is updated to
add information on RES projects that are
not projecting to increase the amount of
renewable energy generated and that if
documentation of prior energy usage is
not provided the project will be scored
as an energy generation project.
f. § 5001.319(b)(2)(iii) is updated to
add ‘‘vendor certification’’ as acceptable
documentation of energy savings by the
installation of the EEI project.
g. § 5001.319(d) is updated to clarify
the meaning of ‘‘received and
accepted’’.
h. § 5001.319(e) is updated to specify
that an existing business must be in
operation for at least one full year, not
simply a year since legal business
formation.
i. § 5001.319(f)(1) is updated to add,
for clarity, that RES include
replacement, generation, and direct-use
RES projects.
j. § 5001.319(g)(6) is updated to clarify
that the United States Census Bureau
information to determine population
living in poverty is for the last 30 years.
Subpart E
30. § 5001.401
Interest Rate Provisions
Section 5001.401 is updated to
include that in the event of an interest
rate swap, the Agency’s guarantee can
only cover principal and interest and
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31. § 5001.402 Term Length, Loan
Schedule, and Repayment
Section 5001.402(b)(2) is updated to
provide additional information to
lenders on Agency requirements
regarding loan amortizations including
requirements, that balloon payments are
not acceptable except in some loan
servicing cases and that payments must
be amortized to maximize successful
loan repayment and may vary by
business type or company cash flow.
32. § 5001.406 Guaranteed Loan
Amounts
Section 5001.406(c) is updated to
place a limit on total guarantor loans.
Section 5001.406(d) is updated to
include that borrowers must
demonstrate evidence of a financial
contribution in the project of at least 25
percent of total eligible project costs.
Federal grant funds, if authorized by the
grantor, may be used as the financial
contribution.
33. § 5001.408 Participation or
Assignment of Guaranteed Loan
Section 5001.408(a)(5) is updated to
include a clarification of default and
that lenders using the multi-note system
may sell the guarantee on the secondary
market for a specific note once that note
is fully disbursed.
34. § 5001.450 General
a. § 5001.450(b)(1) is updated to add,
‘‘. . . during the loan approval process’’
to provide information on when
approval of a parity or junior lien
position request must be approved by
the Agency. A statement regarding
where to find the requirements for
guaranteed loans to purchase
cooperative stock was also added.
b. § 5001.450(c)(1) is updated to
include language on requesting the
payment of interest up to 180 days past
the most recent delinquency effective
date.
c. § 5001.450(c)(1)(iii) is updated to
provide lenders with information on
requesting extensions of accrued
interest and that approved collection
efforts that extend beyond 180 days will
be limited to 90 days of accrued interest
payments from the Agency.
d. § 5001.450(c)(2) is updated to add
‘‘. . . and provide the Agency with a
copy.’’ to provide information for the
lender on Agency notification of holders
in the event of interest termination.
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35. § 5001.452 Loan Closing and
Conditions Precedent to Issuance of
Loan Note Guarantee
a. § 5001.452(a) is updated to add that
if at a later date it is discovered that all
conditions of the conditional
commitment had not been met prior to
loan closing that full enforceability of
the guarantee may be compromised.
b. § 5001.452(b)(8)(iii)(U) is updated
to include that ‘‘. . . or will perform
. . .’’ may be part of the lender’s
certification of steady state operating
level.
c. § 5001.452(b)(8)(iii)(W) is added to
include certification of compliance with
American Iron and Steel and Build
America, Buy America requirements for
applicable WWD projects.
d. § 5001.452(b)(8)(iii)(X) is added to
include certification that, for B&I
projects, the capital/equity requirements
of the Conditional Commitment were
met.
e. § 5001.452(c) is updated to add that
a permission to operate letter from the
energy off-taker is required.
36. § 5001.454
Guarantee Fee
a. To ensure that the correct guarantee
fee is applied, the opening paragraph to
§ 5001.454 is updated to include that
the guarantee fee rate applied will be
the rate as established in the Federal
Register for the fiscal year in which a
guaranteed loan is obligated.
b. § 5001.454(b) is updated to include
that once the guarantee is obligated, the
guarantee fee rate in effect at the time
of obligation will remain in place even
if the guarantee fee rate changes before
the loan note guarantee is issued.
c. § 5001.454(d)(5) is updated to
provide additional information on what
constitutes an additional market for
existing local business.
Subpart F—Servicing Provisions
37. § 5001.505
and Release
Collateral Inspection
Section 5001.505(b)(3) is revised to
add additional information to further
specify requirements of an arm’s length
transaction.
38. § 5001.510
Position
Subordination of Lien
Section 5001.510(b)(3) is updated to
include additional information on
discounting of collateral when
determining sufficient collateral
coverage.
39. § 5001.516
Protective Advances
a. § 5001.516(c) is updated to inform
lender that payment of real estate taxes
is not considered a protective advance
and does not require Agency approval.
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b. § 5001.516(d) is updated to inform
lenders that it is their responsibility to
ensure that protective advances will be
secured by the collateral of the
guaranteed loan.
40. § 5001.517
Liquidation
a. § 5001.517(c)(1) is updated to
include items that may be used to
establish the lender’s ownership of the
guaranteed loan promissory note and
related security instruments.
b. § 5001.517(c)(2) is updated to
include additional requirements of the
liquidation plan including: transaction
history for the loan; if the interest rate
was a variable rate, the lender must
include documentation of changes to
the agreed upon base rate and when the
changes in the loan rate became
effective; and explanation of any special
accommodations that were made.
c. § 5001.517(c)(6)(i) is updated to
include that a copy of the appraisal or
valuation will be provided to the
Agency with the liquidation plan or as
soon as it is available.
d. § 5001.517(c)(10) is updated to
include a non-exhaustive list of
examples of liquidation expenses that
may be incurred.
e. § 5001.517(c)(11) is updated to
include: a non-exhaustive list of
possible protective advances; that
protective advances may be made to
maintain services or address unique
situations with proper justification; and
non-Agency approved advances of
funds will not be guaranteed.
f. § 5001.517(e)(1)(i) is updated to add
‘‘actively marketing the collateral.’’
Additionally, consideration of
submitting a final loss claim is added as
a possible next action if the lender is
unable to sell the collateral.
41. § 5001.521
Payment
Loss Calculations and
Section 5001.521(d)(2) is updated to
include information to borrowers and
lenders on project development issues
that could reduce any loss claim
payable.
The Agency also plans to correct
minor spelling, grammatical and
capitalization errors. All changes to
appendices C, D and E to Subpart D of
Part 5001 correct spelling, grammatical
or capitalization errors.
National Environmental Policy Act
In accordance with the National
Environmental Policy Act of 1969,
Public Law 91–190, this final rule has
been reviewed in accordance with 7
CFR part 1970 (‘‘Environmental Policies
and Procedures’’). The Agency has
determined that i) this action meets the
criteria established in 7 CFR 1970.53(f);
ii) no extraordinary circumstances exist;
and iii) the action is not ‘‘connected’’ to
other actions with potentially
significant impacts, is not considered a
‘‘cumulative action’’ and is not
precluded by 40 CFR 1506.1. Therefore,
the Agency has determined that the
action does not have a significant effect
on the human environment, and
therefore neither an Environmental
Assessment nor an Environmental
Impact Statement is required.
Executive Order 12988, Civil Justice
Reform
This final rule has been reviewed
under Executive Order 12988 (Civil
Justice Reform). The Agency has
determined that this 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 rule
will be preempted. No retroactive effect
will be given to this rule.
Executive Orders 12866 and 13563
Executive Order 13132, Federalism
The policies contained in this final
rule do not have a 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 rule impose substantial direct
compliance costs on state and local
governments. Therefore, consultation
with the states is not required.
Executive Orders 12866 and 13563
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches to maximize net benefits
Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601–602) generally requires an
agency to prepare a regulatory flexibility
analysis of any rule subject to notice
and comment rulemaking requirements
III. Executive Orders and Acts
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(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Executive Order 13563
emphasizes the importance of
quantifying both costs and benefits, of
reducing costs, of harmonizing rules,
and of promoting flexibility.
This final rule has been determined to
be not significant for purposes of
Executive Order (E.O.) 12866 and
therefore has not been reviewed by the
Office of Management and Budget
(OMB).
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79703
under the Administrative Procedure Act
(‘‘APA’’) or any other statute. The APA
exempts from notice and comment
requirements rules ‘‘relating to agency
management or personnel or to public
property, loans, grants, benefits, or
contracts’’ (5 U.S.C. 553(a)(2)), so
therefore an analysis has not been
prepared for this rule.
Executive Order 12372,
Intergovernmental Consultation
This final rule is excluded from the
scope of Executive Order 12372
(Intergovernmental Consultation),
which may require a consultation with
State and local officials. See the final
rule related notice entitled,
‘‘Department Programs and Activities
Excluded from Executive Order 12372’’
(50 FR 47034).
Executive Order 13175, Consultation
and Coordination With Indian Tribal
Governments
This executive order imposes
requirements on the Agency. The
Agency has determined that the rule
does not have a substantial direct effect
on one or more Indian Tribe(s) or on
either the relationship or the
distribution of powers and
responsibilities between the Federal
Government and Indian Tribes. Thus,
this rule is not subject to the
requirements of Executive Order 13175.
If Tribal leaders are interested in
consulting with the Agency on this rule,
they are encouraged to contact USDA’s
Office of Tribal Relations or the
Agency’s Native American Coordinator
at: AIAN@usda.gov to request such a
consultation.
Assistance Listing Number
The Assistance Listing (formerly
known as the Catalog of Federal
Domestic Assistance (CFDA)) numbers
assigned to the 4 programs within this
rule are: 10.766 for Community Facility
Programs, 10.760 for Water and Waste
Disposal Programs, 10.768 for Business
and Industry Programs and 10.868 for
Rural Energy for America Program. The
complete catalog is available on the
internet at https://sam.gov/content/
assistance-listings.
Paperwork Reduction Act and
Recordkeeping Requirements
This rule contains no new reporting
or recordkeeping burdens under OMB
control number 0572–0166 that would
require approval under the Paperwork
Reduction Act of 1995 (44 U.S.C.
Chapter 35).
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E-Government Act Compliance
Rural Development is committed to
complying with the E-Government Act
of 2002, which requires Government
agencies in general to provide the public
the option of submitting information or
transacting business electronically to
the maximum extent possible.
Civil Rights Impact Analysis
RD has reviewed this Final rule in
accordance with USDA Regulation
4300–4, Civil Rights Impact Analysis,’’
to identify any major civil rights
impacts the rule might have on program
participants on the basis of age, race,
color, national origin, sex, disability,
gender identity (including gender
expression), genetic information,
political beliefs, sexual orientation,
marital status, familial status, parental
status, veteran status, religion, reprisal
and/or resulting from all or a part of an
individual’s income being derived from
any public assistance program. This
final rule is within a guarantee-based
program. Guarantees are not covered
under Title VI of the Civil Rights Act of
1964, Section 504 of the Rehabilitation
Act of 1973, and Title IX of the
Education Amendments Act of 1972, as
amended, when the Federal assistance
does not include insurance or interest
credit loans. Lenders must comply with
other applicable Federal laws, including
Equal Employment Opportunities, the
Equal Credit Opportunity Act, the Fair
Housing Act, and the Civil Rights Act of
1964. Guaranteed loans that involve the
construction of or addition to facilities
that accommodate the public must
comply with the Architectural Barriers
Act Accessibility Standard. The
borrower and lender are responsible for
ensuring compliance with these
requirements.
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USDA Non-Discrimination Statement
In accordance with Federal civil
rights laws and U.S. Department of
Agriculture (USDA) civil rights
regulations and policies, the USDA, its
Mission Areas, agencies, staff offices,
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
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filing deadlines vary by program or
incident.
Program information may be made
available in languages other than
English. Persons with disabilities who
require alternative means of
communication to obtain program
information (e.g., Braille, large print,
audiotape, American Sign Language)
should contact the responsible Mission
Area, agency, or staff office; or the 711
Relay Service.
To file a program discrimination
complaint, a complainant should
complete a Form AD–3027, USDA
Program Discrimination Complaint
Form, which can be obtained online at
https://www.usda.gov/sites/default/
files/documents/ad-3027.pdf from any
USDA office, by calling (866) 632–9992,
or by writing a letter addressed to
USDA. The letter must contain the
complainant’s name, address, telephone
number, and a written description of the
alleged discriminatory action in
sufficient detail to inform the Assistant
Secretary for Civil Rights (ASCR) about
the nature and date of an alleged civil
rights violation. The completed AD–
3027 form or letter must be submitted 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; or
(2) Fax: (833) 256–1665 or (202) 690–
7442; or
(3) Email: program.intake@usda.gov.
Severability
It is USDA’s intention that the
provisions of this rule shall operate
independently of each other. In the
event that this rule or any portion is
ultimately declared invalid or stayed as
to a particular provision, it is USDA’s
intent that the rule nonetheless be
severable and remain valid with respect
to those provisions not affected by a
declaration of invalidity or stayed.
USDA concludes it would separately
adopt all of the provisions contained in
this final rule.
USDA is an equal opportunity
provider, employer, and lender.
List of Subjects in 7 CFR Part 5001
Business and industry, Community
facility, Energy efficiency improvement,
Loan programs, Renewable energy,
Rural areas, Rural development, Water
and waste disposal.
For the reasons set forth in the
preamble, under the authority at 5
U.S.C. 301 and 7 U.S.C. 1989, 7 CFR
part 5001 is amended as follows:
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PART 5001—Guaranteed Loans
1. The authority citation for part 5001
continues to read as follows:
■
Authority: 5 U.S.C. 301; 7 U.S.C. 1926(a);
7 U.S.C. 1932(a); and 7 U.S.C. 8107.
Subpart A—General Provisions
2. Amend § 5001.1 by revising (b) to
read as follows:
■
§ 5001.1
General.
*
*
*
*
*
(b) The applicability of the provision
of this part for processing and approving
applications and for servicing
guaranteed loans depend on when a
complete application is received. The
Agency will process and approve
applications, and service guaranteed
loans according to the provisions of this
part for all complete guaranteed loan
applications that it receives on or after
October 1, 2020, including guaranteed
loan applications submitted under any
of the programs whose authorization is
identified in this section. All complete
applications received before October 1,
2020, will be processed, and awarded
and guaranteed loans serviced in
accordance with the existing regulations
in effect at the complete application
date for the program under which the
application was submitted.
■ 3. Amend § 5001.2 by revising
paragraphs (b) and (d) to read as
follows:
§ 5001.2
Structure.
*
*
*
*
*
(b) Subpart B. This subpart contains
provisions for determining project,
borrower, and lender eligibility that are
applicable to each guaranteed loan
made under this part. It also contains a
list of eligible and ineligible uses of loan
funds, ineligible projects and conditions
that would make an otherwise eligible
borrower ineligible. The lender’s
agreement is addressed as well as
maintenance of approved lender status.
*
*
*
*
*
(d) Subpart D. This subpart contains
provisions relating to applications for a
loan guarantee under this part,
including preliminary eligibility
reviews, the application process,
application evaluation, and the
application award processes that are
applicable to each guaranteed loan
made under this part.
*
*
*
*
*
■ 4. Amend § 5001.3 by revising the
definitions of ‘‘Affiliate’’, ‘‘Agricultural
producer’’, ‘‘Collateral’’, ‘‘Commercially
available, ‘‘Debt Collection
Improvement Act’’, ‘‘Delinquency’’,
‘‘Energy efficient equipment and
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systems’’, ‘‘Federal debt’’, ‘‘Guarantor’’,
‘‘Hospital’’, ‘‘Hybrid’’, ‘‘Local owner’’,
‘‘Matching funds’’, ‘‘Natural resource
value-added product’’, ‘‘Professional
service’’, ‘‘Refurbished’’, ‘‘Renewable
energy system (RES)’’, ‘‘Retrofitting’’,
‘‘Rural and rural area’’, ‘‘Simple
payback’’, ‘‘Small business’’, ‘‘Total
project costs’’, and ‘‘Underserved
communities’’ to read as follows:
§ 5001.3
Definitions.
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*
*
*
*
*
Affiliate means a person that is
connected with or controlled by another
organization. Factors such as
ownership, management, current and
previous relationships with or ties to
another person, and contractual
relationships, will be considered in
determining whether affiliation exists.
Affiliation is determined using the
principles outlined in 13 CFR 121.103.
*
*
*
*
*
Agricultural producer means a
person, including non-profits, directly
engaged in the production of
agricultural products through labor
management and operations, including
the cultivating, growing, and harvesting
plants and crops (including farming);
breeding, raising, feeding, or housing of
livestock (including ranching); forestry
products; hydroponics; nursery stock; or
aquaculture, whereby 50 percent or
greater of their gross income is derived
from the operations. All gross income of
the applicant entity is included for
agricultural producer eligibility. The
percentage is calculated as the average
of gross agricultural operations income
of the concern divided by the gross nonfarm income of the concern for the five
most recent years. If the concern has
been in operation for less than 60
months but for at least 12 months,
average gross agricultural operations
income, and gross non-farm income for
as long as the concern has been in
operation will be used. Agricultural
operations income may include such
items as production contracts, crop
insurance, commodity payments, etc.
Total income may include W–2 wages,
schedule C income, and other income
not related to the agricultural operation.
Calculations will be using the
applicant’s five most recent tax years.
Each year’s gross agricultural operations
income will be divided by the
applicant’s gross total income, then the
five years will be averaged to determine
eligibility. An agricultural producer
could be located in either a rural or a
non-rural area.
*
*
*
*
*
Collateral means the asset(s),
including assignments of relevant
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agreements, pledged by the borrower to
the lender as security for the guaranteed
loan.
*
*
*
*
*
Debt Collection Improvement Act
(DCIA) means the Debt Collection
Improvement Act of 1996, 31 U.S.C.
3701 et seq., which requires that any
nontax monies that are payable or may
become payable from the United States
under contracts and other written
agreements to any person not an agency
or subdivision of a state or local
government may be subject to certain
collection options, such as
administrative offset, for a delinquent
debt the person owes to the United
States implemented under 7 CFR part 3.
*
*
*
*
*
Delinquency means a situation that
exists when a scheduled loan payment
on a guaranteed loan made under this
part is more than 30 calendar days past
due and cannot be cured within the next
30 calendar days. For purposes of this
part, delinquency provides guidance for
completing borrower status reports and
is not used to define monetary or nonmonetary default or undertaking-related
servicing actions.
*
*
*
*
*
Energy efficient equipment and
systems (EEE) means equipment or
systems for agricultural production or
processing that exceed any of the
following standards. Applications for
energy efficient equipment and systems
must clearly demonstrate energy
efficiency.
*
*
*
*
*
Essential community facility means a
public improvement, operated on a nonprofit basis, needed for the orderly
development of a rural community
where the rural community is a city or
town, or its equivalent county or multicounty area. The term ‘‘facility’’ refers to
both the physical structure financed,
and the resulting service provided to
rural residents or rural businesses.
Facilities may include, but are not
limited to, courthouses, community
centers, libraries, firehouses, health
care, education, transportation, and
industrial parks. An industrial park
consists of land and the necessary
access ways and utilities to the site, but
not improvements erected on such site.
*
*
*
*
*
Federal debt means debt owed to the
Federal Government that is subject to
collection under the Debt Collection
Improvement Act of 1996, 31 U.S.C.
3701, et seq.
*
*
*
*
*
Guaranteed loan means a loan made
and serviced by a lender for which the
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Agency and lender have entered into a
lender’s agreement and for which the
Agency has issued a loan note
guarantee. Unless otherwise specified,
guaranteed loan refers to a loan that the
Agency has guaranteed under this part.
*
*
*
*
*
Guarantor means a person giving
assurance to the Agency under an
Agency-approved written agreement
that the borrower’s obligations will be
fulfilled and promising its undertaking
of responsibility for repayment of a
guaranteed loan if the borrower should
default.
*
*
*
*
*
Hospital (1) For the purpose of
refinancing rural hospital debt in
accordance with § 5001.102(d)(5),
hospital means the following types of
facilities defined in the Social Security
Act, Section 1861 (42 U.S.C. 1395x):
(i) Hospital (section 1861(e)).
(ii) Psychiatric hospital (section
1861(f)).
(iii) Long-term care hospital (section
1861(ccc)); and shall also include the
following other provider types defined
in the Social Security Act, Section 1861
(42 U.S.C. 1395X):
(A) Critical access hospital (section
1861(mm)(1)).
(B) Religious nonmedical health care
institution (section 1861(ss)(1)).
(2) The Agency will use the applicant
provider’s Centers for Medicare and
Medicaid Services (CMS) Certification
Number (CCN) to verify the applicant
provider is listed as a ‘‘Hospital’’ for the
‘‘Provider or Supplier Type’’ category
on the CMS Quality Certification and
Oversight Reports (QCOR) website
qcor.cms.gov/index_new.jsp.
*
*
*
*
*
Hybrid means a combination of two or
more renewable energy technologies
that are incorporated into a unified
system to support a single project.
Projects which propose two or more
different renewable energy technologies
that are not incorporated into a unified
system and projects which propose
different renewable energy technologies
at two or more locations (a different
technology at each site) are not eligible.
For example, installing wind
technologies at one location and solar
technologies at another location is not
considered hybrid but installing wind
and solar technologies that are
incorporated into a unified system to
support a single project at both locations
is considered hybrid.
*
*
*
*
*
Local owner means an individual who
owns any portion of an entity that is the
eligible borrower and whose primary
residence is located within the normal
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commuting area, typically 100 miles or
less, of the guaranteed loan project.
*
*
*
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*
Matching funds means the 25 percent
of total eligible project costs required by
7 U.S.C. 8107 (REAP) to be eligible to
receive a guaranteed loan. Funds
provided by the borrower in excess of
matching funds are not matching funds.
*
*
*
*
*
Natural resource value-added product
means a product derived from any
naturally occurring resource, including
agricultural resources, that is further
processed to add value or used to
generate energy or renewable energy.
For example, wind or the sun being
used for energy generation, grapes that
are processed into wine or jam, or straw
that is processed into particle board.
Feeding grain to livestock is not
considered as part of this definition.
*
*
*
*
*
Professional service means services
used by the borrower for planning and
developing a project, including, but not
limited to, appraisals, architectural
services, surveys, environmental impact
analyses, implementing mitigation
measures, and establishing or acquiring
property rights. Such services are
generally rendered by persons licensed
or certified by States or accreditation
associations, such as architects,
engineers, accountants, attorneys, or
appraisers, and those rendered by loan
packagers, but not including loan
finders. A loan finder fee is not
considered a professional service.
*
*
*
*
*
Refurbished means a piece of
equipment or renewable energy system
that has been brought into a commercial
facility, thoroughly inspected, and worn
parts replaced and has a warranty that
is approved by the Agency or its
designee An example of refurbished
equipment is a diesel engine that has
been rebuilt to factory specifications.
The purchase of used equipment which
has not been refurbished is not eligible.
*
*
*
*
*
Renewable energy system (RES)
means a system that produces usable
energy from a renewable energy source.
Co-firing with fossil fuels, natural gas or
petroleum-based products or materials
such as coal and other fuels, oils,
chemicals, tires, or plastic are not
eligible; and may include:
(1) Distribution components necessary
to move energy produced by such
system to the initial point of sale; and
(2) Other components and ancillary
infrastructure of such system, such as a
storage system; however, such system
may not include a mechanism for
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dispensing energy at retail e.g., a
flexible fuel pump.
*
*
*
*
*
Retrofitting means a modification to
an existing building or installed
equipment that incorporates a function
or feature(s) not included in the original
design when built or for the
replacement of existing components
with components that improve the
original design and does not affect
original warranty if the warranty is still
in existence. Examples of retrofitting
include:
(1) Installing newly designed blades
to an existing wind turbine to enhance
energy production.
(2) Adding equipment or processes to
or altering or enhancing an existing RES
to improve production, efficiency, or
financial viability, such as a feedstock
retreater on an existing biodiesel
production plant;
(3) Adding a battery system to an
existing RES;
(4) Installing a steam turbine at an
ethanol plant, or;
(5) Installing a combined heat and
power system for a pellet production
facility.
*
*
*
*
*
Rural and rural area means any area
of a State not in a city or town that has
a population of more than 50,000
inhabitants, and which excludes certain
populations pursuant to 7 U.S.C.
1991(a)(13)(H), according to the latest
decennial census of the United States
and not in the urbanized area
contiguous and adjacent to a city or
town that has a population of more than
50,000 inhabitants. In making this
determination, the Agency will use the
latest decennial census of the United
States. Applications cannot be approved
subject to meeting rural area
requirements. Locations that are
contiguous and adjacent to an urbanized
area will be delineated as a non-eligible
area in the Rural Development Property
Eligibility Map found at: https://
eligibility.sc.egov.usda.gov/eligibility/
welcomeAction.do. This map is
maintained independently by another
government agency and is oriented
through census tract data. The following
exclusions apply:
(1) Any area in the urbanized area
contiguous and adjacent to a city or
town that has a population of more than
50,000 inhabitants that has been
determined to be ‘‘rural in character’’ as
follows:
(i) The determination that an area is
‘‘rural in character’’ will be made by the
Under Secretary of Rural Development.
Rural in character requests and
determinations are project specific; e.g.,
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if approved, the determination does not
apply to any future request made within
the same area. The process to request a
determination under this provision is
outlined in paragraph (1)(ii) of this
definition. The determination that an
area is ‘‘rural in character’’ under this
definition will apply to areas that are
within:
(A) An urbanized area that has two
points on its boundary that are at least
40 miles apart, which is not contiguous
or adjacent to a city or town that has a
population of greater than 150,000
inhabitants or the urbanized area of
such a city or town; or
(B) An urbanized area contiguous and
adjacent to a city or town of greater than
50,000 inhabitants that is within 1⁄4 mile
of a rural area.
(ii) Units of local government may
petition the Under Secretary of Rural
Development for a ‘‘rural in character’’
designation by submitting a petition to
the appropriate Rural Development
State Director for recommendation to
the Administrator on behalf of the
Under Secretary. The petition shall
document how the area meets the
requirements of paragraph (1)(i)(A) or
(B) of this definition and discuss why
the petitioner believes the area is ‘‘rural
in character,’’ including, but not limited
to, the area’s population density,
demographics, and topography and how
the local economy is tied to a rural
economic base. Upon receiving a
petition, the Under Secretary will
consult with the applicable governor or
leader in a similar position and request
comments to be submitted within 5
business days, unless such comments
were submitted with the petition. The
Under Secretary will release to the
public a notice of a petition filed by a
unit of local government not later than
30 days after receipt of the petition by
way of publication in a local newspaper
and posting on the Agency’s website at
rd.usda.gov/onerdguarantee, and the
Under Secretary will make a
determination not less than 15 days, but
no more than 60 days, after the release
of the notice. Upon a negative
determination, the Under Secretary will
provide to the petitioner an opportunity
to appeal a determination to the Under
Secretary, and the petitioner will have
10 business days to appeal the
determination and provide further
information for consideration. The
Under Secretary will make a
determination of the appeal in not less
than 15 days, but no more than 30 days.
(iii) Rural Development State
Directors may also initiate a request to
the Under Secretary to determine if an
area is ‘‘rural in character.’’ A written
recommendation must document how
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the area meets the statutory
requirements of paragraph (1)(i)(B) of
this definition and discusses why the
State Director believes the area is ‘‘rural
in character,’’ including, but not limited
to, the area’s population density,
demographics, topography, and how the
local economy is tied to a rural
economic base. Upon receipt of such a
request, the Administrator will review
the request for compliance with the
‘‘rural in character’’ provisions and
make a recommendation to the Under
Secretary. Provided a favorable
determination is made, the Under
Secretary will consult with the
applicable Governor and request
comments within 10 business days,
unless gubernatorial comments were
submitted with the request. A public
notice will be published by the State
Office in accordance with paragraph
(1)(ii) of this definition. There is no
appeal process for requests made on the
initiative of the State Director.
(2) An area that is attached to the
urbanized area of a city or town with
more than 50,000 inhabitants by a
contiguous area of urbanized census
blocks that is not more than two census
blocks wide. Applicants from such an
area should work with their Rural
Development State Office to request a
determination of whether their project is
located in a rural area under this
provision. This applies to areas that
would not be considered a rural area
because they are attached to the
urbanized area of a city or town of
greater than 50,000 inhabitants by a
‘‘string’’ area that is two census blocks
wide or less (which are typically
interstates or major highways). As long
as the ‘‘string’’ area is two census blocks
wide or less, the area outside of the
urbanized area, beginning with the
‘‘string’’ area, may be considered rural.
Once an area is approved as a string
exception, any project within that area
is eligible.
(3) For the Commonwealth of Puerto
Rico, the island is considered Rural and
eligible except for the San Juan Census
Designated Place (CDP) and any other
CDP with greater than 50,000
inhabitants. Areas within CDPs with
greater than 50,000 inhabitants, other
than the San Juan CDP, may be
determined to be Rural if they are ‘‘not
urban in character.’’
(4) For the State of Hawaii, all areas
within the State are considered rural
and eligible except for the Honolulu
CDP within the County of Honolulu and
any other CDP with greater than 50,000
inhabitants. Areas within CDPs with
greater than 50,000 inhabitants, other
than the Honolulu CDP, may be
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determined to be rural if they are ‘‘not
urban in character.’’
(5) For the purpose of defining a rural
area in the Republic of Palau, the
Federated States of Micronesia, and the
Republic of the Marshall Islands, the
Agency shall determine what
constitutes rural and rural Area based
on available population data.
*
*
*
*
*
Simple payback means the estimated
simple payback of a project funded
under this part as calculated using
paragraph (1), (2), or (3) of this
definition, as applicable.
(1) Energy efficiency improvement
projects simple payback = (Total Project
Costs) ÷ (Dollar value of energy saved).
(i) Energy saved will be determined
by subtracting the projected energy
(determined by the method in paragraph
(1)(i)(B) of this definition) to be
consumed from the historical energy
consumed (determined by the method
in paragraph (1)(i)(A) of this definition),
and converting the result to a monetary
value using a constant value or price of
energy (determined by the method in
paragraph (1)(i)(C) of this definition).
(A) Actual energy used in the original
building and/or equipment, as
applicable, prior to the EEI project, must
be based on the actual average annual
total energy used in British thermal
units (BTU) over the most recent 12, 24,
36, 48, or 60 consecutive months of
operation.
(B) Projected energy use if the
proposed EEI project had been in place
for the original building and/or
equipment, as applicable, for the same
time period used to determine that
actual energy use under paragraph
(1)(i)(A) of this definition.
(C) Value or price of energy must be
the actual average price paid over the
same time period used to calculate the
actual energy used under paragraph
(1)(i)(A) of this definition.
(ii) Energy efficiency improvement
projects simple payback does not allow
EEI to monetize benefits other than the
dollar amount of the energy savings the
agricultural producer or rural small
business realizes as a result of the
improvement.
(iii) Proposed additional energy
consumption by a business which
would result in greater savings if
implemented is not considered in the
payback calculation.
(2) Renewable energy systems projects
simple payback = (total project costs) ÷
(dollar value of energy units replaced,
credited, sold, or used and fair market
value of byproducts as applicable in a
typical year).
(i) Value of energy replaced will be
calculated based on the borrower
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entity’s historical energy consumption
with actual average price paid for the
energy replaced, following the
methodology outlined in paragraph
(1)(i) of this definition RES replacement
projects which generate more energy
than the applicant’s historical records
document, may add to the replacement
value, the value obtained by taking the
excess energy generated times a
documented market price in order to
derive at total dollar value of energy
units replaced, credited, sold, or used.
(ii) Value of energy credited or sold
will be calculated based on the amount
of energy units to be sold at the
proposed rate per unit, as documented
in utility net metering or crediting
policies and/or a purchase agreement.
(iii) If proposed energy will be used
in a new facility (includes any directuse project), value of energy used will
be calculated based on the amount of
energy units to be used at the
documented price per unit of
conventional fuel alternative.
(iv) Value of byproducts produced by
and used in the project or related
enterprises should be documented at the
fair market value to be received for the
byproducts in a typical year.
(v) Renewable energy systems projects
simple payback does not include any
one-time benefits such as but not
limited to construction and investmentrelated benefits, nor credits which do
not provide annual income to the
project, such as tax credits. These
benefits may be considered when
appropriate for calculating repayment
ability of guaranteed loans.
(vi) For RES projects that involve a
shared meter with a residence where the
cost of the system has been prorated,
only the eligible prorated amount of
energy attributed to the rural business or
agricultural producer will be used in the
payback calculation. For projects that
involve in-eligible expenses other than
residential, the full amount of energy
production will be used in the payback
calculation.
(3) Energy efficiency equipment and
systems projects simple payback = (total
project costs) ÷ (dollar value of
efficiency savings). Efficiency savings
will be determined by subtracting the
annual value of energy to be consumed
by the proposed energy efficient
equipment from the annual value of
energy that a conventional equipment
alternative would have consumed.
Adequate documentation must be
provided for all consumption estimates
and values utilized in the calculation.
*
*
*
*
*
Small business means an entity that
meets the requirements of paragraphs
(1) and (2) of this definition:
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(1) An entity or utility, as applicable,
as further defined in paragraphs (1)(i)
through (iv) of this definition and
meeting the requirements in paragraph
(2) of this definition. With the exception
of the entities identified in this
paragraph, all other non-profit entities
are not small businesses for the
purposes of REAP program eligibility:
(i) A private for-profit entity,
including a sole proprietorship,
partnership, or corporation. The
application must sufficiently describe
the operations of the applicant’s
business entity;
(ii) A cooperative (including a
cooperative qualified under section
501(c)(12) of the Internal Revenue
Code);
(iii) An electric utility (including a
Tribal or governmental electric utility)
that provides service to rural consumers
and operates independent of direct
government control; or
(iv) A Tribal corporation or other
Tribal business entities that are
chartered under Section 17 of the Indian
Reorganization Act (25 U.S.C. 5124) or
have similar structures and
relationships with their Tribal
governments and are acceptable to the
Agency. The Agency will determine the
small business status of such Tribal
entity without regard to the resources of
the Tribal government. This means that
only the applicant entity must meet the
definition of a small business; and
(2) An entity that meets the
requirements of (i) or (ii) below:
(i) The Small Business Administration
size standards in accordance with 13
CFR 121.301(a), and any successor
regulation. The size of the applicant
alone (without affiliates) must not
exceed the size standard designated for
the industry in which the applicant is
primarily engaged. Also, the size of the
applicant combined with its affiliates
must not exceed the size standard
designated for either the primary
industry of the applicant alone or the
primary industry of the applicant and
its affiliates, whichever is higher. Size
standards to be utilized are found in 13
CFR 121.201, and any successor
regulation. The size standards
themselves are expressed either in
number of employees or annual receipts
in millions of dollars, unless otherwise
specified. The number of employees or
annual receipts indicates the maximum
allowed for an entity and its affiliates
and are calculated using the following
criteria:
(A) The number of employees is
calculated using the guidance found in
13 CFR 121.106, and any successor
regulation. The average number of
employees is used based upon number
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of employees for each of the pay periods
for the preceding 24 months. Part-time
and temporary employees are counted
as full-time employees. If the entity has
not been in business for 24 months, the
average number of employees is used for
each of the pay periods during which it
has been in business; or
(B) Annual receipts are calculated
using the guidance found in 13 CFR
121.104, and any successor regulation.
Federal income tax returns and any
amendments filed with the IRS on or
before the date of application must be
used. If an entity has not filed a Federal
income tax return, the Agency will
calculate the entities annual receipts
using any other available information
such as regular books of account, or
audited financial statements; or
(ii) The size standard outlined in 13
CFR 121.301(b)(2), and any successor
regulation. Including its affiliates, the
entity must not have a tangible net
worth in excess of $20 million, and
average net income after Federal income
taxes (excluding carry over losses) for
the preceding two completed fiscal year
not in excess of $6.5 million.
*
*
*
*
*
Total project costs means the sum of
all costs associated with a completed
project. All costs associated with a
completed project, including ineligible
project costs, must be included. Total
project costs for retrofitting an existing
RES includes the costs associated with
the modifications or replacement of the
existing components.
*
*
*
*
*
Underserved communities mean
communities (including urban or rural
communities and Indian tribal
communities) that have limited access
to affordable, healthy foods, including
fresh fruits and vegetables, in grocery
retail stores or farmer-to-consumer
direct markets and that have either a
high rate of hunger or food insecurity or
a high poverty rate as reflected in the
most recent decennial census or other
Agency-approved census. For purposes
of awarding priority points, when
applicable, this definition shall also
include unserved or underserved
populations, including minorities or
protected groups, persistent poverty
areas, or areas where Rural
Development projects have not been
awarded in the past five years. High
poverty rate is based on current census
data and is not the same as persistent
poverty which uses data for the last 30
years.
*
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*
■ 5. Amend § 5001.6 by revising
paragraph (b) to read as follows:
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§ 5001.6
General lender responsibilities.
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(b) Lenders can contract for services,
but such contracting does not relieve a
lender from its responsibilities as
identified in this part or, where
applicable, in the applicable guaranteed
loan program identified in § 5001.1.
*
*
*
*
*
■ 6. Revise § 5001.7 to read as follows:
§ 5001.7
Agency’s special initiatives.
Applicants submitting applications
that support the implementation of
strategic or special initiatives are
encouraged to review the Agency’s
annual notice to determine if their
projects are eligible for receiving
priority for projects. These projects may
also support the implementation of
strategic economic development and
community development plans on a
multi-jurisdictional and multi-sectoral
basis in accordance with section 6401 of
the Agriculture Improvement Act of
2018 (Pub. L. 115–334).
■ 7. Amend § 5001.8 by revising
paragraphs (e) introductory text and
(e)(1) to read as follows:
§ 5001.8
forms.
Approvals, regulations, and
*
*
*
*
*
(e) 7 CFR part 5001 does not prohibit
or consent to electronic signatures.
Rural Development will accept
electronic signatures from lenders for
origination, loan closing, and servicing
documents in accordance with the ESign Act unless otherwise prohibited by
law or program. Lenders may use
electronic signatures for electronic
promissory notes (eNotes), deeds of
trust and other documents relevant to
the loan transaction, providing that the
lender perfects and maintains a first lien
position, an enforceable promissory
note, and meets all other agency
requirements including the following:
(1) Lenders may submit forms to Rural
Development electronically using
USDA’s Service Center Agencies Online
Services website. Registration is limited
to individuals and each individual
authorized by the lender must register
and upon registration may electronically
sign and submit certain forms on behalf
of the lender.
*
*
*
*
*
■ 8. Revise and republish § 5001.9 to
read as follows:
§ 5001.9 Standards for financial
information.
(a) All financial information (e.g.,
financial statements, balance sheets,
financial projections, and income
statements) must be prepared and
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submitted in accordance with
accounting practices acceptable to the
Agency. Such practices can include, but
are not limited to, Generally Accepted
Accounting Principles (GAAP) and the
industry’s standard accounting practice.
Unless the applicant or borrower meets
the threshold for an audit in accordance
with 2 CFR part 200 subpart F, the type
of financial statement, e.g., borrower
prepared, compiled, reviewed, or
audited, required is typically the
decision of the lender.
(b) For sole proprietorships and other
situations where business assets are
held personally, financial statements
must be prepared using only the assets
and liabilities directly attributable to the
applicant’s project. For these situations,
assets, plus any improvements, must be
valued at the lower of cost or market
value.
(c) A tax return is not an acceptable
financial statement when underwriting
a loan guaranteed under this part;
however, tax return information may be
used to prepare financial statements and
to determine REAP eligibility.
■ 9. Amend § 5001.101 by:
■ a. Revising paragraphs (a) and (b); and
■ b. Adding paragraph (f)
The revisions and addition read as
follows:
§ 5001.101
Introduction.
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(a) Project eligibility. Sections
5001.102 through 5001.108 identify
requirements for projects to be eligible
to receive a loan guarantee under this
part. Sections 5001.115 through
5001.119 identify types of projects that
are not eligible for a loan guarantee
under this part. The Agency will not
issue a loan guarantee under this part
for any project that does not meet the
applicable eligibility criteria as
specified.
(b) Borrower eligibility. Section
5001.126 identifies the types of
borrowers that are eligible to receive a
loan guarantee for their projects under
this part. The types of borrowers eligible
to receive loan guarantees for their
projects vary based on the guaranteed
loan program they are applying under
and that guaranteed loan program’s
authorizing statute as set forth in
§ 5001.1. Section 5001.127 identifies
conditions that would make an
otherwise eligible borrower ineligible
for receiving a loan guarantee for its
project under this part.
*
*
*
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*
(f) Use of funds. Section 5001.121
identifies eligible uses of guaranteed
loan funds and § 5001.122 identifies
ineligible uses of guaranteed loan funds.
*
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*
*
*
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10. Amend § 5001.102 by revising and
republishing paragraph (d) to read as
follows:
■
§ 5001.102
Project eligibility—general.
*
*
*
*
*
(d) Debt refinancing. The Agency can
guarantee loans for debt refinancing, as
described in paragraphs (d)(1) through
(5) of this section when the guaranteed
loan extinguishes the debt being
refinanced. These paragraphs do not
apply to REAP loans, see
§ 5001.121(d)(14) for REAP refinancing
provisions. Longer-term financing to
pay off a lender’s interim construction
loan after project completion will not be
treated as debt refinancing as long as it
meets the requirements for takeout of
interim financing in § 5001.121(c)(6).
An eligible debt refinancing project is:
(1) Refinancing of debt on one or more
loans owed to another creditor. There is
no limit on percent of total use of funds
if a new lender is refinancing debt owed
to another creditor;
(2) Refinancing of debt owed to the
applicant lender or any part thereof
provided that the applicant lender debt
being refinanced does not exceed 50
percent of the total use of funds in the
new aggregated federally-guaranteed
debt, the applicant lender debt being
refinanced is in a current status for the
past six months and the new guaranteed
loan is providing better rates or
repayment terms. Better rates or
repayment terms can be shown in a
variety of ways including the lender
providing a fixed rate over a lower
variable rate provided the change is
advantageous to the borrower’s longterm repayment ability. The current
status cannot be achieved by the lender
forgiving the borrower’s debt or by
servicing actions that impact the
borrower’s repayment schedule; or
(3) Refinancing of debt owed directly
to the Federal Government or that is
federally-guaranteed, including any
guaranteed debt owed to the applicant
lender, when a refinance of this debt is
consistent with sections 333, ‘‘Special
Conditions and Limitations on Loans’’
and 306(a)(24)(C), ‘‘Loan Guarantees for
Water, Wastewater, and Essential
Community Facilities Loans’’ of the
Consolidated Farm and Rural
Development Act (as amended by the
Agriculture Improvement Act of 2018,
Pub. L. 115–334). Such guaranteed debt
shall not be included in the amount of
applicant lender debt when calculating
the maximum percentage of the total use
of funds in the new guaranteed loan as
stated in paragraph (d)(2) of this section;
and,
(4) When the refinancing is in
accordance with paragraphs (d)(1)
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through (3) of this section, the following
requirements must be met:
(i) The Agency has determined that
the project is viable, and debt
refinancing is necessary to improve cash
flow;
(ii) The debt is reflected on the
borrower’s balance sheet and the
original loan funds were used for
project-eligible purposes. Refinancing of
existing of lines of credit is considered
an eligible purpose for debt refinancing
in the B&I program;
(iii) For loans to existing businesses
where debt refinancing is a majority
purpose of the guaranteed loan, the
borrower must demonstrate historical
debt service coverage ratios using
proposed debt service requirements of
not less than 1.1 times, or the borrower’s
current financial performance
demonstrates it has corrected or
recovered from impacts or issues
adversely affecting its past financial
performance. The debt service coverage
ratio computed based on the current
income statement must be at least 1:1 to
demonstrate correction or recovery.
(5) For CF guaranteed loan requests
only, refinancing of debt, not including
new construction, incurred by a rural
hospital to preserve access to a health
service when the refinancing will
meaningfully improve the financial
position of the hospital. The debt can be
existing Agency direct loan debt,
Agency guaranteed debt, or another
lender’s debt (including other nonAgency Federal guaranteed debt). Loan
requests to refinance rural hospital debt
must demonstrate that the new amount
of annual debt repayment on the debt
being refinanced will be less than the
existing amount of annual debt
repayment and provide a total debt
service coverage ratio of at least 1.1
based on historical cash flow. To
calculate the ratio, the new debt service
amount will include annual capital
expense reserve and annual debt
repayment reserve requirements. This
information will be provided by the
lender on an Agency approved
application for loan guarantee and its
associated supporting documentation.
■ 11. Amend § 5001.103 by:
■ a. Revising paragraphs (a)(1), (a)(3)
and (b)(1); and
■ b. Adding paragraphs (d) and (e).
The revisions and additions read as
follows:
§ 5001.103 Eligible CF projects and
requirements.
*
*
*
*
*
(a) * * *
(1) Health care facilities and services,
including but not limited to hospitals
and assisted living facilities providing
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daily living and health care assistance
in compliance with Federal, Tribal and/
or State licensure or certification
requirements;
*
*
*
*
*
(3) Community, public, social,
educational, or cultural facilities or
services, including but not limited to:
(i) Business incubators when not an
inherently commercial enterprise, and
the applicant demonstrates the
following:
(A) Applicant is a mission-driven
organization such as a local or regional
economic development organization;
(B) The facility will be used to
provide technical assistance, training,
workforce development, administrative
support services and vocational training
to address workforce shortages in the
community or region; and
(C) Capacity building and support
services that include at a minimum the
following with the borrower
demonstrating expertise in one or more
of these services or presents a
sustainable economically feasible
program to outsource such activities:
(1) Business plan development;
(2) Administrative support services;
(3) Training and technical assistance;
(4) Mentoring, coaching, and
leadership;
(5) Finance and accounting
workshops;
(6) Programs to access capital; and
(7) High-speed internet access;
(ii) Thrift stores that operate as
charitable organizations to enrich the
quality of life for residents of the rural
community they serve demonstrated by
the following activities:
(A) Collect and resell used or donated
merchandise to community residents
and may also provide other services
such as job training or food pantries;
(B) Receive donations, gifts, or
bequests of money to help fund the
organization and its purpose with a
significant portion obtained from the
rural community it serves.
(C) Profits are reinvested in the
facility or in charitable activities in the
rural community served to ensure the
goals of the organization are met.
(iii) Fairgrounds, agricultural
exposition centers, farmers markets,
food distribution and food banks;
*
*
*
*
*
(b) * * *
(1) To demonstrate availability for
public use, the borrower may not
restrict use of or membership to its
facility or service based on race, color,
religion, sex, national origin, age,
disability, sexual orientation, or marital
or familial status Veterans of Foreign
Wars and American Legion post
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facilities must be open and available for
use by appointment or lease to
community residents or groups.
*
*
*
*
*
(d) Leased space. Eligible projects
may include leased space to ineligible
organizations or leased space used for
ineligible commercial activities
provided the floor space leased to
ineligible organizations or used for
ineligible commercial activity is less
than 25 percent of the facility’s floor
space. The ineligible organization and
the ineligible commercial activity must
be related to and enhance the primary
purpose of the eligible project.
Examples include a hair salon in an
assisted living facility, or a pharmacy in
a medical facility.
(e) Purchase of existing facility. When
the project is to otherwise improve an
essential community facility through the
purchase of an existing facility as
defined in § 5001.3 the following are
required:
(1) An appraisal which demonstrates
the purchase price is fair and reasonable
and represents the market value of the
facility through an arm’s length
transaction; and
(2) If the transaction is necessary to
improve the facility, documentation of
the improvements that will be required
and the plan, including source of
funding, to complete those
improvements within a reasonable
timeframe; or
(3) If the transaction is necessary to
prevent a loss of service, documentation
in the form of a financial analysis that
demonstrates the seller will not have the
financial means to continue to operate
the facility and provide the needed
services.
■ 12. Amend § 5001.104 by revising the
introductory text and paragraphs (a) and
(d)(1) to read as follows:
§ 5001.104 Eligible WWD projects and
requirements.
For a WWD project to be eligible for
a loan guarantee under this part, it must
meet the criteria specified in § 5001.102
and this section and be for a borrower
eligible to submit an application for the
project in accordance with § 5001.126.
(a) Type of project. The project must
be for one or more of the following
facilities:
(1) Drinking water facilities, including
but not limited to water source,
treatment and distribution;
(2) Sanitary sewage facilities,
including but not limited to collection
and treatment;
(3) Solid waste facilities; or,
(4) Stormwater facilities.
*
*
*
*
*
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(d) * * *
(1) The project must be installed to
serve any user within the service area
who desires service and can be feasibly
and legally served.
*
*
*
*
*
■ 13. Amend § 5001.105 by revising
paragraphs (b)(7), (b)(10), (b)(14),
(b)(15)(i)(D), (b)(18)(i), (b)(18)(ii)
introductory text, (b)(20), (b)(22)(vii), (d)
introductory text, and (d)(1)(iii) to read
as follows:
§ 5001.105 Eligible B&I projects and
requirements.
*
*
*
*
*
(b) * * *
(7) Agricultural production, when not
eligible for Farm Service Agency (FSA)
farm loan programs assistance and when
it is part of an integrated business also
involved in the processing of
agricultural products. Any agricultural
production considered for guaranteed
loan financing must be owned,
operated, and maintained by the
business receiving the guaranteed loan.
Examples of potentially eligible
agricultural production include but are
not limited to an apple orchard in
conjunction with a food processing
plant; poultry buildings linked to a meat
processing operation; or sugar beet
production coupled with storage and
processing.
*
*
*
*
*
(10) Development and construction of
broadband and telecommunication
systems, including modification of
existing systems, that are not otherwise
eligible for funding in the RUS program
or if funding is unavailable in the RUS
program, subject to the public notice
filing requirements of 7 CFR 1738.106(a)
and the additional reporting
requirements of 7 CFR 1738.107.
*
*
*
*
*
(14) Leasehold improvements when
the lease contains no reverter clauses or
restrictive clauses that would impair the
use or value of the property as security
for the loan. The term of the lease must
be equal to or greater than the term of
the loan. Leasehold improvements are
physical enhancements made to
property by or on behalf of the
property’s lessee. When improvements
are made to real property and those
improvements are permanently affixed
to the property, the title to those
improvements automatically transfers to
the owner of the property upon
termination of the lease.
(15) * * *
(i) * * *
(D) Includes an appropriate agreement
with retail and institutional clients to
inform consumers that they are
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purchasing or consuming locally or
regionally produced agricultural food
products. The agreement(s) must be in
place prior to issuance of the loan note
guarantee and stated as part of the
lender’s certification at loan closing.
*
*
*
*
*
(18) * * *
(i) Guaranteed loans to eligible
cooperatives may be made in principal
amounts up to $40 million if the project
is located in a rural area, the cooperative
facility being financed provides for the
value-added processing of agricultural
commodities, and the total amount of
guaranteed loans exceeding $25 million
does not exceed 10 percent of the funds
available for the fiscal year. Guaranteed
loans in excess of $25 million in
accordance with this provision may
only be approved by the Secretary,
whose authority may not be redelegated.
(ii) Guaranteed loans to eligible
cooperatives may also be made in nonrural areas provided:
*
*
*
*
*
(20) Nursing homes and assisted
living facilities where constant medical
care is provided and available onsite to
the residents. Independent living
facilities are not eligible in accordance
with § 5001.118(a). Independent living
facilities are considered residential
property as they have many similarities
to a multi-family housing complex,
whereas nursing home and assisted
living facility tenants rely on those
entities to provide needed personal or
medical care. Properties consisting of
both assisted care facilities and
independent senior living may be
eligible if the availability of the on-site
medical services is an optional service
to the independent living residents, or
if the predominant residents of the
facility require assisted living care.
*
*
*
*
*
(22) * * *
(vii) Operations and maintenance.
The demonstration of technical merit is
the completion of two operating cycles
at its designed production level.
‘‘Operating cycle’’ is the average time
between the acquisition of materials or
the providing of services and the final
cash realization of that acquisition or
provision of services.
*
*
*
*
*
(d) Capital and equity. Borrowers are
required to have sufficient capital or
equity to mitigate the ongoing financial
and operational risks of the business.
The capital/equity requirement must be
met in the form of either cash or earning
assets contributed to the business and
reflected on the borrower’s balance
sheet. Transfers of assets at fair market
value between related parties, which are
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not arm’s length transactions, must be in
accordance with GAAP and require
evidence that the transaction was
entered into at market terms. Equity
cannot include appraisal surplus or
bargain purchase gains. Subordinated
debt may be included when the
subordinated debt is in exchange for
cash injected into the business that
remains in the business for the life of
the guaranteed loan. The note or other
form of evidence must be submitted to
the Agency in order for subordinated
debt to count towards meeting the
balance sheet equity requirement.
Balance sheet equity will be determined
based upon current and projected
borrower financial statements. A
balance sheet as of loan closing is
required and should reflect the new
debt and use of proceeds. If there are
multiple borrowers, consolidated
financial statements should be
presented. The following capital and
equity requirements must be met at the
time of lender’s closing of the
guaranteed loan.
(1) * * *
(iii) Owner contributed capital, as
reflected in the equity section of the
balance sheet, that is equal to or greater
than 10 percent of net total fixed assets
plus depreciation.
*
*
*
*
*
■ 14. Amend § 5001.106 by revising the
introductory text, paragraphs (d)(2),
(e)(2) and (e)(3) introductory text to read
as follows:
§ 5001.106 Eligible REAP–Renewable
Energy System (RES) projects and
requirements.
For a REAP RES project to be eligible
for a loan guarantee under this part, it
must meet the criteria specified in
§ 5001.102(a) through (c) and in
paragraphs (a) through (e) of this section
and be for a borrower eligible to submit
an application for the project in
accordance with § 5001.126.* * *
*
*
*
*
*
(d) * * *
(2) The borrower may install or elect
to conditionalize funding upon the
installation of a device (such as a
second meter) that results in 100
percent of the energy generated by the
RES project to be used only by the
agricultural operation or rural small
business.
*
*
*
*
*
(e) * * *
(2) Pass/pass with conditions/fail
assignments. The Agency will assign
each area of the technical report, as
specified in paragraph (e)(1) of this
section, a ‘‘pass,’’ ‘‘pass with
conditions,’’ or ‘‘fail.’’ An area will
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receive a ‘‘pass’’ if the information
provided for the area has no weaknesses
and meets or exceeds any requirements
specified for the area. An area will
receive a ‘‘pass with conditions’’ if the
information provided for the area has
minor weaknesses which could be
conditioned and reasonably resolved by
the borrower. Otherwise, if the
information provided for the area is
conclusively deemed to be a major
weakness, or if the area has not been
addressed by the applicant, the area will
receive a fail.
(3) Determination. The Agency will
compile the results for each area of the
technical report to determine if the
project has technical merit.
*
*
*
*
*
■ 15. Amend § 5001.107 by revising and
republishing paragraph (a) to read as
follows:
§ 5001.107 Eligible REAP—Energy
Efficiency Improvement (EEI) projects and
requirements.
*
*
*
*
*
(a) The EEI project must use less
energy on an annual basis than the
original building and/or equipment that
it will improve or replace as
demonstrated in an energy assessment
or energy audit as applicable.
(1) If the project’s total project cost is
greater than $80,000, the energy
assessment must be conducted by an
energy auditor, an energy assessor, or an
individual supervised by either an
energy assessor or energy auditor. The
final energy assessment must be
validated and signed by the energy
assessor, the energy auditor who
conducted the energy assessment, or by
the supervising energy assessor or
energy auditor of the individual who
conducted the assessment, as
applicable.
(2) If the project’s total project cost is
$80,000 or less, the energy assessment
may be conducted in accordance with
paragraph (a)(1) of this section or by a
person that has at least 3 years of
experience and completed at least five
energy assessments or energy audits on
similar type projects. Eligible EEI
include, but are not limited to:
(i) Efficiency improvements to
existing RES; and
(ii) Construction of a new building
only when the new building is used for
the same purpose as the existing
building and if, based on an energy
assessment or energy audit, as
applicable, it is more cost effective to
construct a new building that will use
less energy on annual basis than to
improve the energy efficiency of the
existing building.
*
*
*
*
*
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16. Amend § 5001.108 by revising the
introductory text to read as follows:
■
§ 5001.108 Eligible REAP—Energy
Efficient Equipment and Systems (EEE)
projects and requirements.
For a REAP EEE project to be eligible
for a loan guarantee under this part, it
must meet the criteria specified in
§ 5001.102(a) through (c) and in
paragraphs (a) through (d) of this section
and be for a borrower that is an
agricultural producer eligible to submit
an application for the project in
accordance with § 5001.126. The EEE
project can be located in a rural or nonrural area as long as the energy efficient
equipment or systems are used for
agricultural production or processing in
accordance with paragraph (a) of this
section. If the borrower plans to use
taxable bonds as debt instruments the
provision § 5001.105(b)(19) must be
met.
*
*
*
*
*
■ 17. Amend § 5001.115 by revising
paragraphs (l), (n) and (r) to read as
follows:
§ 5001.115
Ineligible projects—general.
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*
*
*
*
*
(l) Telephone systems. In certain
circumstances, when not eligible for
assistance through the Agency’s
telecommunications program these
projects may be eligible for assistance
under this part.
*
*
*
*
*
(n) Except as provided in
§ 5001.105(b)(8), owner-occupied
housing. Owner-occupied housing, such
as bed and breakfasts, and hotels and
motels, are only eligible when the prorata value of the owner’s living quarters,
based on square footage, is deducted
from the loan proceeds.
*
*
*
*
*
(r) Loans supporting inherently
religious activities, such as worship,
religious instruction, proselytization, or
to pay costs associated with acquisition,
construction, or rehabilitation of
structures for inherently religious
activities, including the financing of
multi-purpose facilities where religious
activities will be among the activities
conducted. However, religious
organizations may participate in
projects eligible for funding under
section 306(a)(24) of the Consolidated
Farm and Rural Development Act, 7
U.S.C. 1926(a)(24), provided they do not
use Agency assistance for inherently
religious activities in accordance with 7
CFR part 16, ‘‘Equal Opportunity for
Religious Organizations.’’ If an
organization conducts religious
activities, they must be offered
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separately, in time, or location from
programs or services supported with the
guaranteed loan. Participation in the
religious activities must be voluntary,
and not mandatory, for the beneficiaries
of the program or services. Religious
organizations may not discriminate
against a beneficiary or prospective
beneficiary, on the basis of religion or
religious beliefs. Sanctuaries, chapels,
or other rooms that are used as a
principal place of worship are ineligible
for guaranteed financing under this part.
*
*
*
*
*
■ 18. Amend § 5001.116 by revising
paragraphs (b) and (e) to read as follows:
§ 5001.116
Ineligible CF projects.
*
*
*
*
*
(b) Inherently commercial enterprises:
This type of project is typically operated
by a private enterprise with an essential
characteristic to produce profits. This
term does not include projects operated
by private enterprises on a not-for-profit
basis that provide education, childcare,
geriatric care, or health care to rural
communities. Inherently commercial
enterprises include but are not limited
to: grocery stores; television and radio
services or facilities; that portion of a
water and/or waste disposal facility
normally provided by a business or
industrial user; and telecommunication
facilities or services, including
broadband or fiber network services that
do not meet the requirements of
§ 5001.103(a)(6). See § 5001.103(d) for
the eligibility of a commercial enterprise
leasing space in an eligible project;
*
*
*
*
*
(e) Projects involving the purchase of
existing facilities in which the
transaction’s purpose is to primarily
retire the debt of the seller in order for
the seller to continue to use the facility
at a lower cost. Characteristics of
ineligible purchase transactions may
include the following:
(1) An entity, which may or may not
be an eligible CF borrower, forms a new
eligible entity or uses an existing
eligible related entity to purchase all or
part of its assets;
(2) The new entity uses CF guaranteed
loan funds to purchase the assets at the
agreed upon price and leases the assets
back to the seller, generally at a rate
which equates to the new debt
payments; and
(3) The seller uses the proceeds of the
sale to retire its high-cost debt and
continues to use the facilities at a lower
cost.
■ 19. Amend § 5001.121 by revising the
introductory text, paragraphs (a)(2),
(a)(3)(iv), (b), (c)(6), (d) introductory
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text, and (d)(14) introductory text to
read as follows:
§ 5001.121
Eligible uses of loan funds.
Guaranteed loan funds can only be
used for the items specified in this
section and any other items the Agency
identifies in the Federal Register. In
addition, RD may allow a recipient of a
loan guarantee under this part to use up
to 10 percent of project funds to
construct, improve, or acquire
broadband infrastructure subject to the
requirements of 7 CFR part 1980,
subpart M.
*
*
*
*
*
(a) * * *
(2) To pay the cost of conduit, such
as pipe, tube, or tile for protecting
electric wires or cables, and its
installation in conjunction with
financing facilities authorized in
§ 5001.103, when the cost of the conduit
is less than 25 percent of the total
project cost and the conduit is not
essential to the operation of the eligible
essential facility or service to be
financed. The borrower must be the
owner of the conduit. The conduit must
be installed at the time of project
construction and must be for public use.
A project example is construction of a
road. While work is being completed in
preparation for the eligible road project,
the borrower takes advantage of the
construction to install underground
conduit in anticipation of installing
fiber optic cables in the near future.
(3) * * *
(iv) Interest on guaranteed loans until
the facility is self-supporting, but not for
more than three years; interest on
guaranteed loans secured by general
obligation bonds until tax revenues are
available for payment, but not for more
than two years; and when the borrower
obtains interim financing for the eligible
project, the guaranteed loan proceeds
may be used to pay off the interim
financing as well as the interest on
interim financing;
*
*
*
*
*
(b) WWD projects. Guaranteed loan
funds for a WWD project receiving a
loan guarantee may be used to pay the
following:
(1) Constructing, extending, or
otherwise improving an eligible facility
outlined in § 5001.104(a), and may
include the cost of materials and labor
in addition to the following:
(i) Cost of acquiring interests in land,
rights (e.g., water rights, leases, permits,
rights-of-way), and other evidence of
land or water control or protection
necessary for development of the
project.
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(ii) Purchasing or renting equipment
necessary to construct, or extend the
facility services, for owner construction.
(iii) Cost of additional borrower labor
and other expenses necessary to install,
extend, or protect the facility.
(iv) Interest incurred during
construction in conjunction with
interim financing, and the payoff of the
interim loan with the permanent
financing.
(v) Initial operating expenses,
including interest, for a period
ordinarily not exceeding one year when
the borrower is unable to pay such
expenses, for construction of a new
facility. The lender must provide
justification and the Agency must
document the reason for granting the
longer time.
(vi) Professional service fees and
charges provided the Agency approves
the amounts as reasonable and
customary in the area.
(vii) Water reuse, renewable energy,
and other construction projects to
improve the sustainability or resilience
of an eligible facility.
(2) Stand-alone projects not involving
construction may also be made for the
following purposes:
(i) Costs of acquiring interests in land,
rights (e.g., water rights, leases, permits,
rights-of-way), and other evidence of
land or water control or protection
necessary for the maintenance or
operation of the facility.
(ii) Purchase of equipment to operate,
maintain, or protect facilities, such as
computers, generators, vehicles,
backhoes, meters, pipe, and pumps, etc.
The purchase of equipment must
include installation and not be for the
sole purpose of increasing inventory.
Owner construction or installation is an
option.
(iii) The purchase or acquisition of
existing facilities when it is necessary
either to improve service or prevent the
loss of service.
(iv) The purchase and installation of
RESs for use by an eligible facility (even
if it does not include construction).
(v) Planning, studies, and designs for
incorporating renewable energy or water
reuse, or to improve the sustainability or
resilience of an eligible facility.
(vi) The Agency may allow a recipient
of a loan guarantee under this part to
use up to 10 percent of project funds to
construct, improve, or acquire
broadband infrastructure subject to the
requirements of 7 CFR part 1980,
subpart M.
(vii) Professional service fees for
engineering and environmental services
that provide services for preplanning
evaluation procedures, such as leak
detection, or inflow and infiltration
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analysis, as reasonable and customary in
the area to evaluate an existing facility’s
need for improvements or repairs. Such
services will be in accordance with
professional service agreements with
copies of analysis to be provided in the
application package for such reports as
preliminary engineering report, final
design with plans and specifications,
bidding documents, or the completed
environmental review analysis.
(viii) Refinancing in accordance with
§ 5001.102(d).
(3) Other expenses related to any
project under (b)(1) and (2), including:
(i) Guarantee fees, as determined
under § 5001.454.
(ii) Lender fees, as provided in
§ 5001.403.
(iii) Payoff of interim financing
including principal and interest.
(c) * * *
(6) Takeout of interim financing:
Guaranteeing a loan that provides for
permanent, long-term financing after
project completion to pay off a lender’s
interim loan will not be treated as debt
refinancing provided that the lender
submits a complete request for
preliminary eligibility review or
complete application that proposes such
interim financing prior to closing the
interim loan. The borrower must take no
action until the conclusion of the
environmental review process prior to
any action that would have an adverse
effect on the environment or limit the
choices of any reasonable alternatives to
be considered by the Agency. Interim
financing is typically used to pay costs
associated with a planned project, such
as construction or installation of
equipment, however, the Agency will
consider, on a case-by-case basis, other
reasons to use interim financing. The
term for interim financing loans should
be for the construction period plus a
reasonable time for the business to begin
generation of working capital to
amortize the loan. Guaranteed
promissory notes that do not convert the
interim financing payment schedule to
an amortizing permanent schedule in
the same note are not allowed. In certain
cases, the applicant lender may use
interim financing to pay-off a borrower’s
maturing loan with another lender if it
is in the best interests of the borrower.
The takeout of interim financing is only
eligible when the permanent loan on
which the guarantee will be placed
takes out the interim financing that
financed the planned project and when
the lender submits a complete
preliminary eligibility review or
application to the Agency that proposes
the interim financing prior to closing
the interim loan. If the interim financing
does not meet these requirements, it is
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considered debt refinancing and must
comply with § 5001.102(d). If the
guarantee is issued prior to
construction, the promissory note must
contain and convert the terms of the
interim financing to permanent
financing. The Agency will not
guarantee takeout of interim financing
loans that prevent a meaningful
environmental assessment prior to
Agency loan approval. Even for projects
with interim financing, the Agency
cannot approve the loan nor issue a
conditional commitment until the
environmental process is complete. The
Agency assumes no responsibility or
obligation for interim loans.
*
*
*
*
*
(d) REAP projects. Guaranteed loan
funds for a project receiving a loan
guarantee under REAP may be used to
pay the expenses associated with the
items identified in paragraphs (d)(1)
through (14) of this section, provided
such items are directly related to and
their use and purpose are limited to the
RES, EEI, or EEE project. The expenses
associated with the items specified in
paragraphs (d)(8) through (11) of this
section cannot exceed more than ten
percent of the loan amount. Ten percent
is an aggregate amount, not ten percent
for each item.
*
*
*
*
*
(14) Refinancing outstanding longterm debt. It is not considered
refinancing if loans were structured as
construction or bridge loans for shortterm financing needs (interim financing)
in preparation for a long-term loan.
Refinancing will be considered when—
*
*
*
*
*
■ 20. Amend § 5001.122 by revising the
introductory text and paragraphs (a), (k)
and (l), and adding paragraph (n) to read
as follows:
§ 5001.122
Ineligible uses of loan funds.
Projects that receive a loan guarantee
under this part cannot use the
guaranteed loan funds for those
expenses or purposes identified in
paragraphs (a) through (n) of this section
and for any other item the Agency
identifies in accordance with § 5001.10.
(a) Payment in excess of actual costs
(e.g., profit, overhead, indirect costs,
and wages to owners) incurred by the
contractor or other service provider on
a contract or agreement that has been
entered into at less than an arm’s length
transaction or has a potential for a
conflict of interest. In situations where
there is common ownership or an
otherwise closely related company is
being paid to do construction or
installation work for a borrower, only
documented costs associated with the
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construction or installation can be paid
with guaranteed loan funds and cannot
include any profit or wages to such
related person.
*
*
*
*
*
(k) Agricultural tillage equipment,
used equipment, and vehicles are
ineligible for loans as specified under
REAP. Costs include costs for RES and/
or EEI projects that are used to improve
a vehicle’s ability to propel itself are
ineligible uses for loan funds. For
example, modifying an existing
vehicle’s engine to run on renewable
fuels or replacing an older vehicle with
a new more efficient vehicle are
ineligible uses of loan funds. Projects
similar to purchasing and installing
solar panels to power a refrigerator or
the replacement of a refrigerator for a
more efficient one on a food truck may
be considered eligible uses of loan funds
if all other borrower and project
eligibility requirements are met.
(l) Distribution or payment to an
individual or entity that will retain an
ownership interest in the borrower or
distribution or payment to a beneficiary
of the borrower. Distribution or payment
to a member of the immediate family of
an owner, partner, or stockholder will
not be permitted, except for change in
ownership interest and the Agency
determines the price paid to be
reasonable based upon an appraisal.
This prohibition does not apply to
transfers of ownership for ESOPs or
worker cooperatives, to cooperatives
where the cooperative pays the member
for product or services, or where
member stock is transferred among
members of the cooperative in
accordance with § 5001.140 of this part.
This paragraph does not preclude the
former owner from remaining an
employee of the business during a
reasonable transition period. The
payment of personal debt is considered
a distribution or payment to an owner,
except for the refinancing of debt for an
asset that is used in the business when
the owner is a co-borrower on the loan.
*
*
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*
*
(n) Lease payments, including lease to
own or capitalized leases. This does not
preclude a REAP applicant from leasing
out REAP financed and installed
equipment to a third party (lessee) such
as a non-profit, school district, or
municipal government. The third party
(lessee) must directly utilize the
equipment to fulfill the statutory
purposes of REAP, to generate
renewable energy or provide energy
savings. The borrower must maintain
ownership and control of the project for
the entire useful life of the project,
including site, income and expenses via
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the lease agreement. Additionally, all
other REAP requirements, must be
reviewed in this scenario to ensure
complete eligibility is obtained with a
lease in place. This includes, but is not
limited to, project eligibility, including
prohibitions on residential use and
other prescribed eligible project costs. A
REAP applicant may lease out a
commercial building, improved with
REAP funds, to various tenants. This
may include an office complex in which
a Federal Government Agency is a
tenant. This is allowable as long as
conflict of interest requirements are
complied with.
■ 21. Amend § 5001.126 by revising the
introductory text, paragraphs (a)
introductory text, (a)(1), (b)(2)(i), (c)(2),
(d)(3) introductory text, (d)(3)(iii), (d)(4),
(e)(1) and (2) to read as follows:
§ 5001.126
Borrower eligibility.
To be eligible for a loan guarantee
under this part, a borrower must meet
the requirements specified in this
section at the time of each guaranteed
loan’s approval and through issuance of
the loan note guarantee. A borrower
must meet the eligibility requirements
specified in paragraph (a) of this section
and in paragraphs (b) through (e), as
applicable, of this section.
(a) Legal authority and responsibility.
The borrower must have, or obtain
before issuance of the loan note
guarantee, the legal authority necessary
to construct, operate, and maintain the
proposed facility and services and to
obtain, give security for, and repay the
proposed loan.
(1) Operate and maintain the facility.
The borrower is responsible for
operating, maintaining, and managing
the facility and providing for its
continued availability and use. The
borrower will retain this responsibility
even though the facility may be
operated, maintained, or managed by a
third party under contract, management
agreement, or written lease. Leases may
be used for certain projects when they
are the only feasible way to provide the
service or facility, are the customary
practice to provide such service or
facility within the industry or in the
State and provide for the borrower’s
management control of the project.
Contracts, management agreements, or
written leases must not contain options
or other provisions for transfer of
ownership unless approved by the
Agency. The borrower must own and
retain control of the facility at all times;
however, various types of ownership
structures are permitted to bring in
passive investor equity. These include
but are not limited to partnership flips
and inverted leases, which are common
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in the renewable energy industry. The
anticipated release of passive tax credit
investor entities resulting in a change in
ownership control that does not impact
the financial performance of the loan, as
outlined at time of loan closing, does
not constitute a transfer or assumption,
nor require concurrence from the
Agency.
*
*
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*
(b) * * *
(2) * * *
(i) Association with or control by a
public body or bodies typically
evidenced in the organizational
documents of the borrower; or
*
*
*
*
*
(c) * * *
(2) Credit elsewhere. In accordance
with 7 U.S.C. 1983, certify in writing,
subject to Agency verification, that the
borrower is unable to finance the
proposed project from their own
resources or through commercial credit
without a guarantee, at reasonable rates
and terms. A loan guarantee will not be
provided to borrowers who are able to
obtain sufficient credit elsewhere to
finance project costs at reasonable rates
and terms, taking into consideration
prevailing private and cooperative rates
and terms in the community in or near
where the borrower resides, for loans for
similar purposes and periods of time, or
to borrowers who are able to finance
project costs from their own resources.
All lenders are required to provide
written certification that their borrowers
are unable to afford commercial credit at
reasonable rates and terms without the
guarantee.
*
*
*
*
*
(d) * * *
(3) A borrower who is an individual
must meet the requirements of (i)
through (iii) below. Applications will
neither be approved, nor a conditional
commitment issued subject to meeting
the citizenship requirement.
*
*
*
*
*
(iii) Be a citizen or resident of the
Republic of Palau, the Federated States
of Micronesia, American Samoa, Guam,
the Commonwealth of the Northern
Mariana Islands, or the Republic of the
Marshall Islands.
(4) A borrower must demonstrate, to
the Agency’s satisfaction, that
guaranteed loan funds will remain in
the United States and the project being
financed will primarily create new or
save existing jobs for rural U.S.
residents. To ensure that loan funds
remain in the United States, loans must
be collateralized with fixed assets that
remain in the United States.
(e) * * *
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(1) Type of borrower. The borrower
must be either an agricultural producer
or a rural small business if applying for
RES or EEI funding. The borrower must
be an agricultural producer if applying
for EEE funding. For-profit rural small
businesses that provide long-term care
services that benefit residents, such as
nursing homes and assisted living
facilities, are eligible. For-profit rural
small businesses that provide short-term
housing, such as hotels, are also eligible.
Newly formed special purpose entities
or equivalents that are clearly created
solely for the circumvention of
provisions prohibited by REAP statute
are not eligible.
(2) Ownership. The borrower at the
time of application or no later than
guaranteed loan closing and for the term
of the guaranteed loan must:
(i) Own the project; and
(ii) Own or control the site for the
project at the time of application and for
the term of the guaranteed loan.
*
*
*
*
*
22. Amend § 5001.127 by revising
paragraphs (a) introductory text, (a)(3),
(a)(4), (d), and (f) to read as follows:
■
§ 5001.127 Borrower ineligibility
conditions.
ddrumheller on DSK120RN23PROD with RULES2
*
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(a) An entity is ineligible if any of the
conditions identified in paragraphs
(a)(1) through (4) of this section applies
to the borrower, any owner with more
than 20 percent ownership interest in
the borrower (does not include passive
investors), or any owner with control of
the borrower. Entities with delinquent
debt, as identified in paragraphs (a)(1)
through (a)(4), under a repayment plan
are not eligible until the debt is paid in
full.
*
*
*
*
*
(3) Delinquency on Federal debt.
(4) Debarment or suspension from
receiving Federal assistance. The lender
is responsible for verification of the
borrower’s status. Verification can be
done at sam.gov.
*
*
*
*
*
(d) An entity is ineligible if it derives
income from illegal drugs, drug
paraphernalia, or any other illegal
product or activity as defined under
Federal statute. A borrower that intends
to lease space or enter into a power
purchase agreement with a marijuana
dispensary is not eligible given our
borrower would be receiving income
from the marijuana operation which is
a violation of Federal laws as marijuana
is a controlled substance under Federal
law and subject to Federal prosecution
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under the Controlled Substances Act (21
U.S.C. 812).
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*
(f) An entity is ineligible if its lender
or any of the lender’s officers has an
ownership interest in the borrower or is
an officer or director of the borrower
with management control or where the
borrower or any of its officers, directors,
stockholders, or other owners have more
than a five percent ownership interest in
the lender. Any of the lender’s directors,
stockholders, or other owners that are
officers, directors, stockholders, or other
owners of the borrower without
management control or ownership less
than 5 percent must be recused from
any decision-making process associated
with the guaranteed loan.
*
*
*
*
*
■ 23. Amend § 5001.130 by:
■ a. Redesignating (a)(3) through (a)(6)
as (a)(4) through (a)(7) and adding new
paragraph (a)(3);
■ b. Revising paragraphs (c)(1)(iii), (c)(2)
introductory text, (c)(2)(viii)(H), (c)(4)
introductory text, (c)(4)(iv);
■ c. Adding paragraph (c)(4)(v);
■ d. Revising paragraphs (d)(2)
introductory text, (d)(4) introductory
text, and (d)(4)(iv) ; and,
■ e. Adding paragraph (d)(4)(v).
The additions and revisions read as
follows:
§ 5001.130
Lender eligibility requirements.
*
*
*
*
*
(a) * * *
(3) Be free from default and
delinquency on any debt owed to the
Federal Government;
*
*
*
*
*
(c) * * *
(1) * * *
(iii) Have and agree to maintain
balance sheet equity in accordance with
§ 5001.105(d) of this part of at least 10
percent of assets and sufficient funds
available to disburse the guaranteed
loans it proposes to approve within the
first six months of being approved as a
lender;
*
*
*
*
*
(2) Written request. A non-regulated
lending entity that seeks to become a
lender must submit a written request to
the Agency via OneRDlenderapproval@
usda.gov, and must include the
following information:
*
*
*
*
*
(viii) * * *
(H) Proposed interest rate structure
and loan fees, including any loan
origination, loan preparation, and
servicing fees.
*
*
*
*
*
(4) Renewals. To maintain its status as
an approved lender, the non-regulated
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79715
lending entity must submit a written
request to the Agency for renewal of its
approved lender status at least 60, but
not more than 120, calendar days prior
to the expiration of the existing lender’s
agreement to be assured of a timely
renewal. A review of the lender’s
performance will be completed to
determine whether the lender has
continually met the eligibility criteria
described in paragraphs (c) and (d) of
this section. The lender’s activity in the
program and its delinquency/default
rate will also be considered when
making a determination regarding
renewal. Any action by the lender since
it was designated an eligible lender that
could be cause for revoking its status, in
accordance with § 5001.132, will be
considered cause for denying the
renewal of eligible status. The lender
will be notified in writing whether the
request is approved, reasons for denial,
or any conditions the lender must meet
for approval. The lender’s written
request must provide the information
specified in paragraphs (c)(2)(i) and (iii)
through (v) of this section; and
*
*
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*
*
(iv) The Agency may require lenders
with limited guaranteed loan activity
over the previous five years, or a lender
that has originated guaranteed loans
with servicing issues or a loss to the
Agency, to resubmit all the information
required by paragraph (c)(2) of this
section. A lender who is not active in
the Agency guaranteed loan programs
should provide evidence that they
remain active in other commercial
lending activity with acceptable
underwriting and servicing
performance. Lenders with loans that
cause a loss to the Agency are a concern
and those projects will be reviewed to
determine the cause of the loss,
including whether the lender’s analysis
or servicing processes were insufficient.
(v) The renewal will be for a term of
5 years.
(d) * * *
(2) Written request. A non-regulated
lending entity serving Tribal trust lands
that seeks to become a lender must
submit a written request to the Agency
via OneRDlenderapproval@usda.gov
that includes the following information:
*
*
*
*
*
(4) Renewals. To maintain its status as
an approved lender, the non-regulated
lending entity serving Tribal trust land
must submit a written request to the
Agency for renewal of its approved
lender status at least 60 and not more
than 120 calendar days prior to the
expiration of the existing lender’s
agreement to be assured of a timely
renewal. A review of the lender’s
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performance will be completed to
determine whether the lender has
continually met the eligibility criteria
described in paragraphs (c) and (d) of
this section. The lender’s activity in the
program and its delinquency/default
rate will also be considered when
making a determination regarding
renewal. Any action by the lender since
it was designated an eligible lender that
could be cause for revoking its status, in
accordance with § 5001.132, will be
considered cause for denying the
renewal of eligible status. The lender
will be notified in writing whether the
request is approved, reasons for denial,
or any conditions the lender must meet
for approval. The lender’s written
request must provide the information
specified in paragraphs (c)(2)(i) and (iii)
through (v) of this section; and
*
*
*
*
*
(iv) The Agency may require lender
with limited guaranteed loan activity
over the previous five years, or a lender
that has originated guaranteed loans
with servicing issues or a loss to the
Agency, to submit updated information
required by paragraph (c)(2) of this
section.
(v) The renewal will be for a term of
5 years.
*
*
*
*
*
24. Revise § 5001.131 to read as
follows:
■
ddrumheller on DSK120RN23PROD with RULES2
§ 5001.131
Lender’s agreement.
When approved to participate as a
lender under this part, the lender must
execute a lender’s agreement before the
Agency will issue a loan note guarantee.
A new lender’s agreement must be
executed with any existing lender
making new loans on or after October 1,
2020. Approval under one program is
approval for all programs. The eligibility
expiration date for non-regulated
lenders will be five years from the date
of the original execution of a lender’s
agreement as specified in § 5001.130(c)
and (d). There will be only one lender’s
agreement issued for each lending entity
based on their tax identification
number. Lender’s agreements will not
be issued for individual branches.
Subsequent loans do not require a new
lender’s agreement. A lender who fails
to renew its lender’s agreement and
loses its approved lender status must
continue to service any outstanding
guaranteed loans in conformance with
the lender’s agreement last in effect and
the applicable regulation under which
the lender became an approved lender.
Such lenders cannot submit requests for
new loan guarantees.
*
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*
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25. Amend § 5001.132 by revising
paragraphs (a)(3) and (4), (b)
introductory text, (b)(14), and (c) to read
as follows:
■
§ 5001.132 Maintenance of approved
lender status.
*
*
*
*
*
(a) * * *
(3) Is a regulated lending entity and
fails to remain in good standing with its
regulator;
(4) Is a non-regulated lending entity
and fails to renew its approval status
within 5 years of the expiration date of
the lender’s agreement.
(b) Revocation of approved status and
debarment of lender. The Agency can
revoke a lender’s status as an approved
lender at any time for cause as specified
in the lender’s agreement. A decision to
revoke a lender’s approved status will
be made by the Agency and the lender
will be notified in writing. The
revocation may apply to all branches of
the lender, specific branches, or
personnel, as appropriate. The lender
must revoke the level II eAuthentication
privileges of all individuals included in
the revocation notice. Cause for
revoking lender status includes, but is
not necessarily limited to, the
circumstances identified in paragraphs
(b)(1) through (14) of this section.
*
*
*
*
*
(14) Violation of applicable
nondiscrimination laws, including, but
not limited to, statutes, regulations,
USDA Departmental Regulations, the
USDA Non-Discrimination Statement,
and the Equal Credit Opportunity Act.
USDA’s Non-Discrimination Statement
is located on the Agency’s website, see
usda.gov/non-discrimination-statement.
In addition to revoking the lender’s
status, the Agency may debar the lender
in compliance with 2 CFR part 180.
(c) Servicing of outstanding loans.
Any lender who loses its status as an
approved lender under any of the
conditions identified in paragraph (a) or
(b) of this section must reapply under
the provisions of § 5001.130 to be
reinstated as an approved lender. A
lender who loses its approved lender
status must continue to service any
outstanding guaranteed loans in
conformance with the lender’s
agreement last in effect and the
applicable regulation under which the
lender became an approved lender. In
addition, such lenders cannot submit
requests for new loan guarantees.
26. Amend § 5001.140 by revising
paragraphs (a)(4), (b) introductory text
and (d)(3) to read as follows:
■
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§ 5001.140
equity.
Cooperative stock/cooperative
*
*
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*
(a) * * *
(4) The lender will, at a minimum,
obtain a valid lien on the stock, an
assignment of any patronage refund, and
the ability to transfer the stock to
another party, or any other right or
ability necessary to liquidate and
dispose of the collateral in the event of
a default by the borrower. The lender
and borrower understand that the
borrower is fully liable for the entire
debt, regardless of the success or failure
of the cooperative. The lender is
expected to maximize recovery on the
loan, including collection of personal,
partnership and corporate guarantees. In
addition, provisions of the DCIA may
impose significant restrictions on
delinquent Federal debtors, including
eligibility for other Federal programs.
*
*
*
*
*
(b) Purchase of transferable stock
shares. The Agency may also guarantee
loans for the purchase of transferable
stock shares of any type of existing
cooperative, which would primarily
involve new or incoming members.
Such stock may provide delivery or
some form of participation rights and
may only be traded among cooperative
members. The lender and borrower
understand that the borrower is fully
liable for the entire debt, regardless of
the success or failure of the ESOP. The
lender is expected to maximize recovery
on the loan, including collection of
personal, partnership and corporate
guarantees. In addition, provisions of
the DCIA may impose significant
restrictions on delinquent Federal
debtors, including eligibility for other
Federal programs.
*
*
*
*
*
(d) * * *
(3) The lender must, at a minimum,
obtain a valid lien on the stock, an
assignment of any patronage refund, and
the ability to transfer the stock to
another party, or otherwise liquidate
and dispose of the collateral in the event
of a default by a borrower. The lender
and borrower understand that the
borrower is fully liable for the entire
debt, regardless of the success or failure
of the cooperative or ESOP. The lender
is expected to maximize recovery on the
loan, including collection of personal,
partnership and corporate guarantees. In
addition, provisions of the DCIA may
impose significant restrictions on
delinquent Federal debtors, including
eligibility for other Federal programs.
*
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*
■ 27. Amend § 5001.141 by:
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a. Revising the section heading, the
introductory text, and paragraphs
(b)(1)(iii), (b)(4), (6) and (8); and
■ b. Adding (b)(14).
The revisions and addition read as
follows:
■
ddrumheller on DSK120RN23PROD with RULES2
§ 5001.141
Program.
New Markets Tax Credits
The New Markets Tax Credits (NMTC)
Program is administered by the U.S.
Department of the Treasury’s (Treasury)
Community Development Financial
Institutions (CDFI) Fund with NMTC
credits allocated to Treasury-certified
Community Development Entities (CDE)
across the United States to make
Qualified Equity Investments (QEI) in
low-income communities. NMTC
related definitions and terms in this
section are governed by section 45(D) of
the Internal Revenue Code (26 U.S.C.
45D), and applicable Treasury
regulations (26 CFR 1.45D–1). A CDE
will generally establish a new
subsidiary of a CDE (sub-CDE) for
individual NMTC projects. Lenders and
their borrowers with guaranteed loan
projects that include NMTC investments
must comply with the provisions in this
section. To be a lender for a guaranteed
loan project that involves financing
under the NMTC provisions, the lending
entity must meet the applicable
eligibility criteria in § 5001.130. The
Agency will not waive its servicing
rights to a guaranteed loan or be a party
to any forbearance agreement in
conjunction with a NMTC project.
Requests for loan guarantees that
include NMTC are subject to all
applicable program eligibility
requirements, credit analysis, and due
diligence required by part 5001. In all
cases the Agency will undertake efforts
to protect the best financial interests of
the Federal government and collection
of its guaranteed loan. The Agency will
not consider any tax benefit or loss of
tax benefits to the CDE, sub-CDE or
NMTC investor in the servicing actions
of a guaranteed loan.
*
*
*
*
*
(b) * * *
(1) * * *
(iii) When the borrower is a leveraged
lender entity it must relend one
hundred percent of the guaranteed loan
funds to an investor fund entity. In all
cases one hundred percent of the
guaranteed loan funds are or will be
invested by the investment fund entity
in one or more sub-CDEs that will then
be loaned directly to a QALICB, as
defined by applicable regulations of the
Internal Revenue Service, through a
direct tracing method, and such
guaranteed loan funds are, or will be
used by the QALICB in accordance with
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the eligibility requirements in subpart B
of this part. The QALICB’s project must
be the ultimate use of one hundred
percent of the guaranteed loan funds.
*
*
*
*
*
(4) The loan terms found in
§ 5001.402 of this part apply to both the
borrower and the QALICB. The maturity
and related payment schedule of the
lender’s guaranteed loan to the borrower
must be no longer than the maturity and
related payment schedule of the subCDE’s loan to the QALICB. An Agency
approved unequal or escalating
schedule of principal and interest
payments can be used for a NMTC loan.
The lender may require additional
principal repayment by a co-borrower,
such as an owner or principal
participant of the QALICB. The
provisions of § 5001.402(b)(3)
notwithstanding, the Agency may
consider the payment of interest-only
payments by a borrower pursuant to an
interest-only term not to exceed seven
years on a loan made under an NMTC
structure if the lender requires:
(i) A debt repayment reserve fund or
sinking fund in an amount at least equal
to the guaranteed loan’s principal
amortization that would have otherwise
applied to the loan if equally amortized
payments were collected during the
seven-year term; and
(ii) Such reserve funds or sinking
funds are applied to the guaranteed loan
as an additional payment of principal at
the end of such interest-only term. The
debt repayment reserve fund or sinking
fund may be accumulated during the
loan terms, or the full amount may be
funded at loan closing.
*
*
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*
*
(6) The personal, partnership and
corporate guarantee provisions of
§ 5001.204 of this part apply when the
guaranteed loan borrower is a leveraged
lender entity in a NMTC project.
Guaranteed loans made directly to an
investor fund entity as the borrower do
not require a personal, partnership, or
corporate guarantee from the investor
fund entity’s owner, who is the NMTC
tax credit investor and considered a
passive investor. The Agency shall
obtain the personal, partnership or
corporate guarantee from the QALICB
ownership for a guaranteed loan to an
investor fund entity in compliance with
§ 5001.204, subject to the eligibility
requirements of the NMTC program.
The Agency may require additional
personal, partnership or corporate
guarantees if warranted by an Agency
evaluation of potential financial risk.
The QALICB is the ultimate user of the
guaranteed loan funds, and their owners
should provide a guarantee of the
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guaranteed loan as stipulated in
§ 5001.204.
*
*
*
*
*
(8) The financial report provisions of
§ 5001.504 of this part apply to both the
borrower and the QALICB.
*
*
*
*
*
(14) Agency concurrence of the NMTC
structure is required on all projects
leveraging the NMTC program.
*
*
*
*
*
■ 28. Amend 5001.202 by revising the
introductory text, paragraphs (a), (b)(5)
introductory text, and (b)(6)(iii), (iv) and
(vi) to read as follows:
§ 5001.202
Lender’s credit evaluation.
For each application, the lender must
prepare a credit evaluation that is
consistent with Agency standards found
in this part. Lenders are required to only
submit complete loan applications that
have been approved by their institution
after completion of their internal credit
evaluation. The components of a
lender’s credit evaluation will include a
written review and comment on the
‘‘Five Cs’’ of credit that are outlined in
§ 5001.202(b)(1) through (5). The
Agency should be able to obtain
sufficient details on the project, the
borrower, and the borrower’s ability to
repay the loan from the lender’s credit
evaluation.
(a) Lender’s evaluation guidelines.
The lender must conduct a credit
evaluation using credit documentation
procedures and underwriting processes
that are consistent with generally
accepted prudent lending practices for
commercial, public and project
financing, and also consistent with the
lender’s own policies, procedures, and
lending practices. The underwriting
process must include a review of each
loan for which a loan guarantee is being
sought under this part. Applications
involving affiliated entities must
include a global credit evaluation and if
applicable a global historical and
projected debt service coverage analysis.
The lender should evaluate the
relationships between all associated
parties to determine potential risks
which may affect our borrower and its
ability to repay the loan. Entities which
may have an impact on the borrower or
significantly contribute to the
repayment ability of the loan should
provide financials for global analysis.
Applications involving guarantor(s)
must also include a global debt service
coverage analysis of the guarantor(s)
including the cash flow of the
guarantor(s). In addition, the lender
must review all applicable contracts,
management agreements, and leases to
determine they will not adversely affect
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either the borrower’s repayment ability
or the value of the collateral securing
the guaranteed loan. The lender’s
evaluation must address any financial or
other credit weaknesses of the borrower
and project and discuss risk mitigation
requirements imposed by the lender.
(b) * * *
(5) Conditions. This paragraph (b)(5)
refers to the general business
environment, including the regulatory
environment affecting the business or
industry, and status of the borrower’s
industry. Consideration will be given to
items listed in paragraphs (b)(5)(i)
through (ix) of this section and when
applicable the lender should submit
supporting documentation (e.g.,
feasibility study, market study,
preliminary architectural or engineering
reports, etc.) in accordance with
§§ 5001.304 through 5001.307:
*
*
*
*
*
(6) * * *
(iii) Spreadsheets and analysis of the
financial statements provided in
accordance with § 5001.303, with
appropriate ratios and comparisons with
industry standards (such as Dun &
Bradstreet or the Risk Management
Association). The spreadsheets should
enable a reviewer to easily scan the
data, spot trends, and make
comparisons. Steps taken or proposed to
address any financial or industry
weakness must be reasonable and
adequately addressed.
(iv) Financial projections deviating
from historical financial performance
must be substantiated and documented.
The borrower’s projections should be
consistent with their past performance.
Increases to revenues, profit margins or
profitability should be reasonable and
substantiated in the analysis.
*
*
*
*
*
(vi) Operational cash flow analysis on
a quarterly basis from the current
financial statements through start-up or
occupancy for projects involving
construction when lenders are
requesting the loan note guarantee prior
to completion of construction The
lender and borrower are required to
provide a construction schedule with
their application for a loan guarantee
prior to construction completion. The
projected cash flow needs should mirror
the quarterly construction costs as the
project is being completed. The cash
flow analysis must indicate whether this
cash flow is being provided by the
guaranteed loan, borrower equity, or
other sources.
■ 29. Amend § 5001.203 by revising the
introductory text, paragraphs (b), (c),
(d)(1), (f) and (h) to read as follows:
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§ 5001.203
Appraisals.
Appraisals of collateral are required
as set forth in this section. The lender
is responsible for ensuring that
appraisal values adequately reflect the
actual value of the collateral based on
an arm’s length transaction. Completed
appraisals should be submitted when
the application is filed. If the appraisal
has not been completed when the
application is filed, the lender must
submit an estimated appraised value.
Prior to the issuance of the loan note
guarantee, the estimated value must be
supported with an appraisal acceptable
to the approval official. If an appraisal
is received containing any value
attributed to business valuation or as a
going concern, the business valuation or
going concern value must be deducted
from the reconciled market value prior
to discounting. The Agency expects
that, for appraisals of existing facilities,
the appraiser will physically visit the
property unless prior permission from
the Agency is obtained. Appraisals are
not typically required when security
consists of either a revenue or general
obligation bond or liens on real estate
for WWD projects which rely on
revenues of the facilities for loan
repayment.
*
*
*
*
*
(b) Existing chattel. The lender must
obtain appraisal(s) for existing chattel
collateral when its value exceeds
$250,000 and will be used to meet loan
to value requirements.
(c) Real estate. The lender must
obtain appraisals for real estate
collateral when the value of the
collateral exceeds $250,000 or the
current limitation established under the
Financial Institutions Reform, Recovery,
and Enforcement Act (FIRREA) Public
Law 101–73, 103 Stat. 183 (1989). Real
estate and chattels with a value below
these thresholds must be evaluated in
accordance with the lender’s primary
regulator’s policies relating to appraisals
and evaluations or, if the lender is not
regulated, in accordance with normal
banking practices and generally
accepted methods of determining value.
For construction projects, the lender
must obtain the ‘‘As is’’ market value
and the ‘‘prospective’’ market value as
of the date of construction completion
to determine the value of the real estate
property.
(d) * * *
(1) Each real estate appraisal must be
conducted by an independent qualified
appraiser in accordance with the
USPAP or similar Agency approved
standard. The appraiser must have the
specific qualification, experience, and
competency to appraise the type of
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facility being financed. All real estate
appraisals must meet the requirements
contained in the FIRREA, and the
appropriate guidelines contained in
Standards 1 and 2 of the USPAP or
similar Agency approved standard, and,
unless approved by the Agency
approval official, be performed by a
State Certified General Appraiser
licensed in the State in which the real
estate is located.
*
*
*
*
*
(f) Environmental considerations.
When the Agency will take a lien on
real property, the real estate appraisals
must include consideration of the
potential effects from a release of
hazardous substances or petroleum
products or other environmental
hazards on the market value of the
collateral, as determined in accordance
with the appropriate ASTM
International Real Estate Assessment
and Management environmental
standards. Potential contamination that
has been observed on the property or
identified through research or
interviews with individuals
knowledgeable about the property
should be immediately reported to the
Agency.
*
*
*
*
*
(h) Appraisal fees. Unless otherwise
stated in this part, appraisal fees or any
other associated costs will not be paid
by the Agency. Appraisal fees are
eligible loan purposes. The Agency does
not pay for appraisals required at the
time of loan application. Appraisals for
servicing actions are handled in
accordance with section 5001 subpart F.
■ 30. Amend § 5001.204 by revising
paragraphs (b)(2) and (3) to read as
follows:
§ 5001.204 Personal, partnership, and
corporate guarantees.
*
*
*
*
*
(b) * * *
(2) Guarantees from any person or
entity owning less than a 20-percent
interest or membership in the borrower;
and
(3) Guarantees from persons whose
ownership interest in the borrower is
held indirectly through intermediate or
affiliated entities.
*
*
*
*
*
■ 31. Amend § 5001.205 by revising and
republishing paragraph (a), and revising
paragraphs (b)(1), (e)(1), (e)(2)(iii), (iv),
(vii) and (f)(1)(i) to read as follows:
§ 5001.205 General project monitoring
requirements.
*
*
*
*
*
(a) Design requirements. The lender
must ensure that all facilities
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constructed with guaranteed loan funds
are:
(1) Designed using accepted
architectural, engineering, and design
practices, taking into consideration any
Agency comments when the facility is
being designed;
(2) Designed in conformance to
applicable Federal, Tribal, State, and
local codes and requirements;
(3) Constructed to support operations
at the level and quality contemplated by
the borrower using accepted
architectural and engineering practices;
and
(4) Compliant with applicable
domestic procurement preference
requirements including section 70914 of
the Build America, Buy America Act
(BABAA) within the Infrastructure
Investment and Jobs Act (Pub. L. 117–
58).
(b) * * *
(1) Obtained valid, continuous, and
adequate rights-of-way and easements,
in compliance with Uniform Relocation
Assistance and Real Property
Acquisition Policies Act of 1970 (URA)
if applicable, needed for the
construction, operation, and
maintenance of a project; and
*
*
*
*
*
(e) * * *
(1) Construction inspections. The
lender must notify the Agency of any
scheduled field inspections during
construction. The Agency may attend
any field inspections the lender may
conduct. Any Agency inspection,
including those with the lender, are for
the benefit of the Agency only (and not
for the benefit of other parties in
interest) and do not relieve any parties
of interest of their responsibilities to
conduct necessary inspections. On a
case-by-case basis in the event that the
Agency determines that there is
additional risk to the government, the
Agency may require the use of a
qualified, independent inspector to
inspect construction to ensure the
project is being adequately built to meet
the borrower’s requirements of the
borrower’s approved project and comply
with all applicable codes and legal
requirements.
(2) * * *
(iii) The borrower and lender have
agreed to a detailed timetable for the
project with a corresponding budget of
costs setting forth the parties
responsible for payment. The timetable
and budget will be confirmed as
adequate for the planned development
by a qualified independent consultant
(e.g., the project architect or engineer)
with demonstrated experience relating
to the project’s industry. The lender
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must provide evidence that there is
sufficient cash flow to complete the
project construction, including
contingencies for cost overruns, plus
working capital during the business
start-up period;
(iv) The borrower has entered into a
firm, fixed-price construction contract
with an independent general contractor
with costs outlined in detail and terms
specifying change order approvals, the
agreed retainage percentage, and the
disbursement schedule. In all cases,
borrower equity must be injected prior
to any guaranteed loan funds;
*
*
*
*
*
(vii) When applicable, the borrower
has entered into a contract with an
independent technology development
firm guaranteeing completion of the
project with the necessary technology to
successfully run the project and system
performance for projects that utilize
integrated processing equipment and
systems, such as biorefineries, RESs,
and chemical manufacturing plants. The
credit underwriting of the independent
technology development firm must be
satisfactory to and approved by the
Agency. This is not limited only to
renewable energy projects, but may
include energy efficiency, renewable
chemical, and biobased manufacturing
projects. The intent of the provision is
to ensure that all technology proposed
for the project can be successfully
integrated together to ensure successful
installation and performance of the
system. The respective technology
providers usually guarantee their
specific technology with quality
parameters of input such that the endproduct is what is proposed in both
quality and yield. An engineering,
procurement, construction (EPC)
provider is responsible for the
construction and assembly of the plant
or facility. They adopt the quality limits
and guarantee that the integrated facility
that is built will perform according to
specifications such that the input and
operational bounds are met. The
provision is likely applicable to the
following types of projects:
(A) Anaerobic digester. An anaerobic
digester project which uses a biological
process that requires specific conditions
and environment to be able to produce
the product of biogas that can be refined
to renewable natural gas (RNG). In some
simpler cases the gas will be used for
heat or electricity, but in other more
involved cases, it will be cleaned and
refined to make RNG that is marketable,
and quality assessed to enter an
interconnect pipeline. These types of
projects should be approved and
verified by an independent technology
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firm, for integrated performance
integrity and operability as well as yield
integrity.
(B) Landfill biogas. Like anaerobic
digesters projects, a landfill biogas
project will have multiple steps and
processes such as collection, clean-up,
flaring and refinement to a fuel or the
gas can be used to produce electricity.
These types of projects should be
approved and verified by an
independent technology firm for
integrated performance integrity and
operability, as well as yield integrity.
(C) Biofuel, biomass, ethanol,
biodiesel. A biofuel, ethanol, biomass,
or biodiesel system will have multiple
steps in which it must operate in line
with the design proposed that has been
from demonstration campaigns. It is
paramount that an independent
technology firm verify and guarantee the
operation and performance of these
integrated systems as they will have
multiple processes which need to work
in concert for the project to be
successful. These types of projects
should be approved and verified by an
independent technology firm for
integrated performance integrity and
yield.
(D) Solar thermal. Solar thermal
systems must have multiple processes
in order to provide the end product of
power, hot water, or heat. Due to their
potential complexity, these systems
should be approved and verified by an
independent technology firm for
performance integrity and operability.
(E) Hydrogen. These types of projects
should be approved and verified by an
independent technology firm for
integrated performance integrity.
(F) Geothermal. Depending on system
complexity and if it has multiple
processes, the project should be fortified
with a guarantee that the system will
operate definitively.
(G) Renewable chemical. A project
utilizing a series of chemical processes
and reactions to produce a polymer that
can be sold to make biodegradable
plastics. An example of a BBP project
utilizing gasification technology to
produce a biochar or soil amendment as
an end-user product.
*
*
*
*
*
(f) * * *
(1) * * *
(i) Certification by the independent
engineer or qualified consultant to the
lender that the work referred to in the
draw has been successfully completed;
and;
*
*
*
*
*
■ 32. Amend § 5001.206 by revising
paragraph (b) to read as follows:
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§ 5001.206 Compliance with USDA
Departmental Regulations, Policies, and
other Federal laws.
§ 5001.303 Applications for loan
guarantee.
*
*
*
*
*
*
(b) Other Federal laws. Lenders and
borrowers must comply with other
applicable Federal laws including, but
not limited to the following:
(1) Equal Employment Opportunity.
(2) Americans with Disabilities Act.
(3) Equal Credit Opportunity Act.
(4) Fair Housing Act.
(5) Uniform Relocation Assistance
and Real Property Acquisition Policies
Act of 1970 (URA).
(6) Section 70914 of the Build
America, Buy America Act (BABAA)
within the Infrastructure Investment
and Jobs Act (Pub. L. 117–58).
(7) 31 U.S.C. 3354 Do Not Pay
Initiative.
■ 33. Amend § 5001.207 by revising
paragraphs (a)(1), and (b)(2) to read as
follows:
§ 5001.207
Environmental responsibilities.
*
*
*
*
*
(a) * * *
(1) The lender is responsible for
becoming familiar and ensuring
compliance with Federal environmental
requirements. The lender must alert the
Agency to any environmental issues
related to a project or items that may
require extensive environmental review.
Proposals that minimize the potential of
any project to adversely impact the
environment must be developed and
provided upon request by the Agency.
*
*
*
*
*
(b) * * *
(2) The lender must assist in the
collection of additional data when the
Agency needs such data to complete its
environmental review of the project and
mitigation of environmental issues.
■ 34. Revise § 5001.301 to read as
follows:
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§ 5001.301
process.
Beginning the application
(a) The lender must file applications
and related documents through their
Agency contact.
(b) The lender may complete either a
request for preliminary eligibility
review in accordance with § 5001.302 or
a full application in accordance with
§§ 5001.303 through 5001.307, as
applicable, to begin the process for
obtaining a guaranteed loan. The
Agency encourages, but does not
require, lenders to file requests for
preliminary eligibility reviews in order
to obtain Agency comments before
submitting a full application.
■ 35. Amend § 5001.303 by revising
paragraph (c)(15) and (d) to read as
follows:
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*
*
*
*
(c) * * *
(15) Securities and Exchange
Commission (SEC) Form 10–K, ‘‘Annual
Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934,’’
as noted in § 5001.306(a)(4).
*
*
*
*
*
(d) Application modification. Once a
complete application is accepted by the
Agency and prior to Agency award of a
loan note guarantee, any modification to
the application will be treated as a new
application and the Agency will process
the information accordingly. The
submission date of record for a modified
application is the date the Agency
receives the modified application
information.
■ 36. Amend § 5001.304 by revising the
introductory text and (a)(4) introductory
text to read as follows:
§ 5001.304 Specific application
requirements for CF projects.
In addition to the requirements
specified in § 5001.303 as applicable, a
lender seeking a loan guarantee for a CF
project must submit a financial
feasibility report prepared by a qualified
firm or individual acceptable to the
Agency. All projects financed under this
section must meet the financial
feasibility requirements of this section
and must be based on projected taxes,
assessments, revenues, fees, or other
sources of revenues in an amount
sufficient to provide for project
operation and maintenance, debt
payments, and compliance with lender
reserve requirements, when applicable.
Other sources of revenue or existence of
payment guarantors are particularly
important in considering the feasibility
of eligible recreation projects. The
financial feasibility report must take
into consideration any interest rate
adjustment that may be instituted under
the terms of the promissory note.
Financial projections for projects that
are assisted living facilities, skilled
nursing facilities, or similar types of
eligible residential facilities must be
based on no more than 90 percent
occupancy. Utility projects dependent
on user fees for debt repayment shall
base their income and expense forecast
on user estimates supported by either a
State statute or local ordinance
requiring mandatory hookup or signed
and enforceable user agreements. If the
primary use of the essential community
facility is by a business and the success
or failure of the facility is dependent on
that business, then the economic
viability of that business must also be
assessed. For projects that include the
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purchase and installation of RES that
meet the eligibility requirements of
§ 5001.103(a)(8), a technical report on
the RES as outlined in § 5001.307(e)(1)
and (2), as applicable, will be included
with the applicable financial feasibility
report. The type of financial feasibility
report required will depend upon the
size of the guaranteed loan, the
collateral securing the guaranteed loan,
and the financial history of the
borrower. The two types of financial
feasibility report and when they are
required are described in paragraphs (a)
and (b) of this section.
(a) * * *
(4) The Agency may require a
feasibility study when the lender’s
analysis, borrower’s business plan, or
project information is not sufficient to
determine the technical feasibility,
market feasibility, or economic viability
of the project.
*
*
*
*
*
■ 37. Amend § 5001.305 by revising
paragraph (a)(2) and adding paragraph
(d) to read as follows:
§ 5001.305 Specific application
requirements for WWD projects.
*
*
*
*
*
(a) * * *
(2) The lender must ensure that the
project is designed utilizing accepted
architectural and engineering practices
and conforms to applicable Federal
requirements (e.g., the seismic
requirements of Executive Order 12699
(55 FR 835, 3 CFR, 1990 Comp., p. 269),
the debarment requirements of 2 CFR
part 180 as supplemented by 2 CFR part
417, American Iron and Steel (Section
746 of Title VII of the Consolidated
Appropriations Act of 2017), and the
Copeland Anti-Kickback Act (18 U.S.C.
874)); State, local and Tribal codes and
requirements; and facility plans or plans
and specifications reviewed and
approved by the applicable State, local
and/or Tribal regulatory agency. The
lender must also ensure that the
planned project will be completed
within the available funds and once
completed, will be suitable for the
borrower’s needs. Upon completion of
the project, the lender must certify that
all applicable Federal requirements
were met.
*
*
*
*
*
(d) Domestic procurement preference.
(1) American Iron and Steel (AIS).
Guaranteed loans must comply with AIS
requirements. Lenders and borrowers
are responsible for meeting the AIS
requirements of Section 746 of Title VII
of the Consolidated Appropriations Act
of 2017 and the continuing resolutions
adopted thereafter.
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(2) Build America, Buy America Act
(BABAA). BABAA was enacted as part
of the Infrastructure and Jobs Act (Pub.
L. 117–58) on November 15, 2021 and
became effective on May 14, 2022.
Under Section 70914(a) of BABAA,
‘‘none of the funds made available for a
Federal financial assistance program for
infrastructure may be obligated for a
project unless all of the iron, steel,
manufactured products, and
construction materials used in the
project are produced in the United
States.’’ Additional information may be
found on the Agency’s Build America,
Buy America website at https://
www.rd.usda.gov/build-america-buyamerica.
(3) Compliance. Owners are
ultimately responsible for compliance
with the domestic procurement
preference requirements and should
consult with the Agency early in project
development. Compliance must be
certified to prior to the issuance of the
loan note guarantee. The lender must
include any domestic preference
language, provided by the Agency, in
the loan agreement and other
appropriate loan documents.
*
*
*
*
*
38. Amend § 5001.306 by revising
paragraphs (a)(3) introductory text and
(b) introductory text to read as follows:
■
§ 5001.306 Specific application
requirements for B&I projects.
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*
*
*
*
*
(a) * * *
(3) The Agency may require a
feasibility study when the lender’s
analysis, borrower’s business plan, or
project information is not sufficient to
determine the technical feasibility,
market feasibility, or economic viability
of the project.
*
*
*
*
*
(b) Applications requesting a
guaranteed loan in an amount of
$600,000 or less. Guaranteed loan
applications may be processed under
this paragraph (b) if the amount of the
guaranteed loan does not exceed
$600,000, provided the Agency
determines that the lender’s analysis,
borrower’s business plan, or other
project or borrower information
submitted by the lender is sufficient to
determine the technical feasibility,
market feasibility, and economic
viability of the project. If any of the
items in paragraphs (a)(1) through (4) of
this section apply, the lender must
collect the information and maintain it
in their file. A lender may need to
resubmit or modify an application if the
application does not contain sufficient
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information for the Agency to make an
informed loan approval decision.
*
*
*
*
*
■ 39. Amend § 5001.307 by revising
paragraphs (a)(1) and (2), (b)
introductory text, (e) introductory text,
(e)(1)(ii), (e)(1)(v) introductory text,
(e)(1)(v)(A)(2) and (3), (e)(1)(v)(C)(2) and
(3) to read as follows:
§ 5001.307 Specific application
requirements for REAP projects.
*
*
*
*
*
(a) * * *
(1) Eligible borrowers must meet the
definition of agricultural producer or
rural small business as defined in
§ 5001.3. Agricultural producers seeking
funding for a RES or EEI project may
apply as either a rural small business or
as an agricultural producer, provided
they meet the applicable eligibility
requirements. Agricultural producers
seeking funding for an EEE project must
be eligible and apply as an agricultural
producer.
(2) The borrower must provide the
primary NAICS code applicable to the
borrower’s business concern and certify
on the Agency approved application
form or system that it meets the
definition of agricultural producer or
rural small business. The Agency
reserves the right to request supporting
documentation to verify borrower
eligibility.
(b) Borrower description. Describe the
ownership of the borrower, including
the information specified in paragraphs
(b)(1) through (3) of this section, as
applicable. Include a description of the
borrower’s existing farm, ranch, or
business operation, including how long
the borrower has been in operation.
Rural small businesses and agriculture
operations owned by Tribes should
provide documentation to adequately
show the separation of the applicant
and the Tribal government.
*
*
*
*
*
(e) Technical report. All eligible
projects must have technical merit and
provide information as identified in
§ 5001.106(e), § 5001.107, or § 5001.108
and (e)(1) through (3) of this section.
(1) * * *
(ii) For RES projects, sufficient
information to enable the calculation of
the percentage of historical use of
energy compared to the amount of
renewable energy that will be generated
once the project is operating at its
steady state operating level. If the
project is closely associated with a
residence, satisfactory demonstration
must be made that 50 percent or more
of the projected renewable energy will
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benefit the agricultural operation or
rural small business; and
*
*
*
*
*
(v) For total project costs in the
amount of $80,000 or less, a technical
report, as identified in § 5001.303(c)(16),
prepared in accordance with the
following paragraphs, as applicable:
(A) * * *
(2) Vendor/installer certification that
the EEI project uses commercially
available technology;
(3) Vendor/installer certified
projections on the quantity of energy to
be saved;
*
*
*
*
*
(C) * * *
(2) Vendor/installer certification that
the EEE project uses commercially
available technology;
(3) Vendor/installer certification of
the proposed energy consumption
quantity and price per unit of the energy
efficiency equipment to be installed;
*
*
*
*
*
■ 40. Amend § 5001.315 by revising
paragraphs (a) introductory text, (b)
introductory text, (c)(1) and (2), (d)(4)
and (e)(2) to read as follows:
§ 5001.315 Application evaluation and
award provisions.
(a) General. The Agency will evaluate
all applications according to the
provisions of this part and may require
the lender to obtain additional
assistance in those areas where the
lender does not have the necessary
expertise to originate or service the
guaranteed loan. For the purposes of
this paragraph (a), ‘‘those areas’’ mean:
*
*
*
*
*
(b) Evaluation and eligibility
determinations. The Agency will review
each complete application to make a
formal determination as to: the
eligibility of the borrower, lender,
project, and guaranteed loan purpose
and proposed use of funds; if there is a
reasonable assurance of repayment
ability; if sufficient collateral and equity
exists; if the proposed guaranteed loan
complies with all applicable statutes
and regulations; and if the
environmental review is complete. The
Agency will only guarantee loans that
are sound and that have a reasonable
assurance of repayment.
*
*
*
*
*
(c) * * *
(1) Lenders must provide necessary
information related to determining the
priority score, if requested by the
Agency. To the extent possible, lenders
should consider the established
priorities of the Agency when
submitting projects for a loan guarantee.
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Higher scoring applications will receive
first consideration for funding.
(2) The Agency may establish a
minimum priority score for each
guarantee program. The Agency will, if
established, publish the minimum score
in a document in the Federal Register.
Applications that do not meet the
applicable minimum score will compete
with all other guaranteed loan
applications for each specific program
in a competition on the first business
day of September of the Federal fiscal
year in which the application is ready
for funding.
*
*
*
*
*
(d) * * *
(4) If a lender agrees to the lower loan
guarantee amount offered by the Agency
under either paragraph (d)(1) or (2) of
this section, the lender must certify that
the purpose(s) of the project can still be
met at the lower funding level and must
provide documentation that the
borrower has obtained the remaining
funds needed to complete the project as
originally proposed.
(e) * * *
(2) If an unfunded application has a
priority score less than any applicable
minimum score and remains unfunded
after the competition held on the first
business day of September of the fiscal
year in which the application is ready
for funding, the Agency will notify the
applicant in writing and withdraw the
application from further funding
consideration.
*
*
*
*
*
■ 41. Amend § 5001.316 by adding a
paragraph heading to paragraph (e) and
paragraph and revising paragraph (e)(2)
to read as follows:
§ 5001.316 CF project priority point system
and reservation of funds.
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*
*
*
*
*
(e) Rural priority. * * *
*
*
*
*
*
(2) On July 1 of each year, the Agency
will evaluate the dollar amount of
complete applications on hand for
projects in rural areas with a population
of not more than 20,000 inhabitants.
The dollar amount of the complete
applications will be subtracted from the
reserved allocation identified in this
paragraph (e) and the remaining amount
will be made available through the end
of the Federal fiscal year for projects in
rural areas with a population of not
more than 50,000 inhabitants.
■ 42. Amend § 5001.318 by revising
paragraph (b) introductory text to read
as follows:
§ 5001.318
system.
B&I project priority point
*
*
*
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*
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(b) Location priority. An application is
eligible to receive points under each of
the categories identified in paragraphs
(b)(1) through (3) of this section if the
project is located within:
*
*
*
*
*
■ 43. Amend § 5001.319 by revising the
introductory text, paragraphs (a)
introductory text, (b)(1)(i) introductory
text, (b)(2)(i) introductory text,
(b)(2)(i)(A), (b)(2)(ii), (b)(2)(iii)
introductory text, (d) introductory text,
(e), (f) introductory text, (f)(1)
introductory text and (g)(6) introductory
text to read as follows:
§ 5001.319
system.
REAP project priority point
This section applies to REAP projects
seeking a loan guarantee. On a periodic
basis, and subject to the availability of
funds, the Agency will compete each
complete and eligible RES, EEI, and EEE
application that is ready to be funded
and whose priority score, as determined
in this section, meets, or exceeds the
minimum priority score. Applications
that do not meet the applicable
minimum score will be considered as
provided in § 5001.315(c)(2). A
maximum score of 90 points is possible.
(a) Environmental benefits. The
Agency will award up to 5 points under
this criterion based on documentation
or the applicant’s indication in the
application that the project will have a
positive effect on resource conservation,
public health, and the environment. If
the project will have a positive impact
on:
*
*
*
*
*
(b) * * *
(1) * * *
(i) Renewable energy systems. The
quantity of energy generated or replaced
per guaranteed loan dollar requested
will be determined by dividing the
projected total annual energy generated
or replaced by the RES or RES retrofit
(minus energy for residential use),
which will be converted to BTUs, by the
guaranteed loan dollars requested.
Applications for retrofitting of a RES
that are not projecting to increase the
amount of renewable energy that the
RES is generating, while still eligible for
REAP, will not be awarded points under
this criteria. Off-the-grid projects and
direct-use projects which are not
replacements, will be awarded points
based on proposed energy generation.
Points will be awarded under this subcriterion based on the annual amount of
energy generated or replaced (minus
energy for residential use) per dollar of
guaranteed loan amount requested for
the RES project. The Agency will award
up to 10 points as determined under
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paragraph (b)(1)(i)(A) and (B) of this
section below. If the annual amount of
energy generated per dollar of
guaranteed loan amount requested
calculated under paragraph (b)(1)(ii) of
this section is:
*
*
*
*
*
(2) * * *
(i) Energy replacement. The Agency
will award points under this subcriterion for an RES project based on the
amount of energy replaced by the
project compared to the amount of
energy used by the applicable
process(es) over a 12-month period. If
the estimated energy produced is more
than 150 percent of the energy used by
the applicable process(es), the project
will be scored as an energy generation
project under paragraph (b)(2)(ii) of this
section. When calculating the
percentage of energy being replaced and
whether it is categorized as a
replacement or generation, the entire
amount of energy produced by the new
system will be used in the calculation,
regardless of whether the project is
being prorated because it shares a meter
with a residence or if it has ineligible
project costs.
(A) Documentation for energy
replacement. For a RES project to
qualify as energy replacement, the
borrower must provide documentation
in its application on prior energy use
incurred by the borrower.
Documentation must be shown that the
borrower entity incurred the cost of the
historical energy to be replaced, in order
for the project to qualify as energy
replacement. Replacement of existing
direct use renewable energy can be
considered in the replacement
calculation as long as the borrower
entity owns the existing RES system.
For a project involving a recent
acquisition, historical energy costs of
the previous owner can be used to
document prior energy use. Applicant
entities cannot utilize historical energy
costs of affiliate businesses to document
prior energy use. Proposed energy use,
such as that attributed to an expansion,
is not considered in the replacement
calculation. For a RES project involving
new construction and being installed to
serve the new facility, the project can be
classified as energy replacement only if
the borrower can document prior energy
use from a facility that is within plus or
minus 10 percent of the size of the
facility it is replacing. The estimated
quantities of energy must be converted
to either BTUs, watts, or similar energy
equivalents to facilitate scoring.
*
*
*
*
*
(ii) Energy generation. If the RES
project is intended for production of
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energy or is a proposed retrofitting of an
existing RES which increases the
amount of energy generated, the Agency
will award 10 points. Applications for
retrofitting of an RES that are not
projecting to increase the amount of
renewable energy that the RES is
generating, while still eligible for REAP,
will not be awarded points under this
criteria. If the borrower cannot
document prior energy use, the project
will be scored as an energy generation
project, regardless of whether or not
there is an agreement in place to sell the
power.
(iii) Energy saved. The Agency will
award up to 15 points under this subcriterion for an EEI project based on the
percentage of estimated energy saved by
the installation of the project as
determined by the projections in the
applicable vendor certification, energy
assessment or energy audit. If the
estimated energy expected to be saved
over the same period used in the energy
assessment or energy audit, as
applicable, will be—
*
*
*
*
*
(d) Previous grantees or borrowers.
The Agency will award up to 15 points
under this criterion based on whether
the borrower has received and accepted
a REAP grant award under 7 CFR part
4280 or a guaranteed loan commitment
under either this part or 7 CFR part
4280. Received and accepted means
REAP grant funds were disbursed and/
or a REAP loan note guarantee was
issued by the Agency. The
determination is based on the fiscal year
in which the obligation was made.
*
*
*
*
*
(e) Existing businesses. A maximum
of 5 points will be awarded for an
existing agricultural producer business
or rural small business that meets the
definition of existing business in
§ 5001.3. The business must be in
operation for at least one full year, not
simply a year since legal business
formation.
(f) Simple payback. A maximum of 15
points will be awarded for this criterion
based on the simple payback of the
project as defined in § 5001.3. Points
will be awarded for either RES, EEI, or
EEE; points will not be awarded for
more than one category. See definition
of simple payback for calculations.
Simple payback calculations will be
calculated based only on the
documented information provided with
the application.
(1) Renewable energy systems. RESs
includes replacement, generation, and
direct-use RES projects. If the simple
payback of the project is:
*
*
*
*
*
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(g) * * *
(6) The project is located in an area
where 20 percent or more of its
population is living in poverty, as
defined by the United States Census
Bureau, for the last 30 years; an
underserved community; or an area
which has experienced long-term
population decline, or loss of
employment.
*
*
*
*
*
■ 44. Revise and republish appendix C
to subpart D of part 5001 to read as
follows:
Appendix C to Subpart D of Part 5001—
Technical Reports for Energy Efficiency
Improvement (EEI) Projects With Total
Project Costs of More Than $80,000
For all EEI projects with total project costs
of more than $80,000, provide the
information specified in Sections A and D
and in Section B or Section C, as applicable.
If the application is for an EEI project with
total project costs of $80,000 or less, please
see § 5001.307(e) for the technical report
information to be submitted with your
application.
If the application is for an EEI project with
total project costs of $200,000 and greater,
you must conduct an energy audit (EA).
However, if the application is for an EEI
project with total project costs of less than
$200,000, you may conduct either an energy
assessment or an energy audit. Energy audits
that meet the American Society of Heating,
Refrigeration and Air-Conditioning Engineers
(ASHREA) Level II Energy Survey; Analysis
and American National Standards Institute
(ANSI); or American Society of Agricultural
and Biological Engineers (ASABE) S162
Standard for performing on farm energy
audits will be considered by the Agency to
be acceptable audits.
Section A. Project Information
Describe how all the improvements to or
replacement of an existing building and/or
equipment meet the requirements of being
commercially available. Describe how the
design, engineering, testing, and monitoring
are sufficient to demonstrate that the
proposed project will meet its intended
purpose, ensure public safety, and comply
with applicable laws, regulations,
agreements, permits, codes, and standards.
Describe how all equipment required for the
EEI(s) is available and able to be procured
and delivered within the proposed project
development schedule. In addition, present
information regarding component warranties
and the availability of spare parts.
Section B. Energy Audit
If conducting an EA, provide the following
information.
(1) Situation Report. Provide a narrative
description of the existing building and/or
equipment, its energy system(s) and usage,
and activity profile. Also include average
price per unit of energy (electricity, natural
gas, propane, fuel oil, renewable energy, etc.)
paid by the customer for the most recent 12
months, or an average of 2, 3, 4, or 5 years,
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for the building and equipment being
audited. Any energy conversion should be
based on use rather than source.
(2) Potential Improvement Description.
Provide a narrative summary of the potential
improvement and its ability to reduce energy
consumption or improve energy efficiency,
including a discussion of reliability and
durability of the improvements.
(i) Provide preliminary specifications for
critical components.
(ii) Provide preliminary drawings of project
layout, including any related structural
changes.
(iii) Identify significant changes in future
related operations and maintenance costs.
(iv) Describe explicitly how outcomes will
be measured.
(3) Technical Analysis. Give consideration
to the interactions among the potential
improvements and the current energy
system(s).
(i) For the most recent 12 months, or an
average of 2, 3, 4, or 5 years, prior to the date
the application is submitted, provide both
the total amount and the total cost of energy
used for the original building and/or
equipment, as applicable, for each
improvement identified in the potential
project. In addition, provide for each
improvement identified in the potential
project an estimate of the total amount of
energy that would have been used and the
total cost that would have been incurred if
the proposed project were in operation for
this same time period.
(ii) Calculate all direct and attendant
indirect costs of each improvement;
(iii) Rank potential improvements
measures by cost-effectiveness; and
(iv) Provide an estimate of simple payback,
including all calculations, documentation,
and any assumptions.
(4) Qualifications of the auditor. Provide
the qualifications of the individual or entity
which completed the energy audit.
Section C. Energy Assessment
If conducting an energy assessment,
provide the following information.
(1) Situation Report. Provide a narrative
description of the existing building and/or
equipment, its energy system(s) and usage,
and activity profile. Also include average
price per unit of energy (electricity, natural
gas, propane, fuel oil, renewable energy, etc.)
paid by the customer for the most recent 12
months, or an average of 2, 3, 4, or 5 years,
for the building and equipment being
evaluated. Any energy conversion shall be
based on use rather than source.
(2) Potential Improvement Description.
Provide a narrative summary of the potential
improvement and its ability to reduce energy
consumption or improve energy efficiency.
(3) Technical Analysis. Giving
consideration to the interactions among the
potential improvements and the current
energy system(s), provide the information
specified in paragraphs (3)(i) through (iii) of
this appendix.
(i) For the most recent 12 months, or an
average of 2, 3, 4, or 5 years, prior to the date
the application is submitted, provide both
the total amount and the total cost of energy
used for the original building and/or
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equipment, as applicable, for each
improvement identified in the potential
project. In addition, provide for each
improvement identified in the potential
project an estimate of the total amount of
energy that would have been used and the
total cost that would have been incurred if
the proposed project were in operation for
this same time period.
(ii) Document baseline data compared to
projected consumption, together with any
explanatory notes on source of the projected
consumption data. When appropriate, show
before-and-after data in terms of
consumption per unit of production, time, or
area.
(iii) Provide an estimate of simple payback,
including all calculations, documentation,
and any assumptions.
(4) Qualifications of the Assessor. Provide
the qualifications of the individual or entity
that completed the assessment. If the energy
assessment for a project with total project
costs of $80,000 or less is not conducted by
energy auditor or energy assessor, then the
individual or entity must have at least 3 years
of experience and completed at least five
energy assessments or energy audits on
similar type projects.
Section B. Resource Assessment
Section D. Qualifications
Section D. Project Construction and
Equipment Information
Provide a resume or other evidence of the
contractor or installer’s qualifications and
experience with the proposed EEI
technology. Any contractor or installer with
less than 2 years of experience may be
required to provide additional information in
order for the Agency to determine if they are
qualified installer/contractor.
45. Revise and republish appendix D
to subpart D of part 5001 to read as
follows:
■
Appendix D to Subpart D of Part 5001—
Technical Reports for Renewable
Energy System (RES) Projects With
Total Project Costs of Less Than
$200,000 but More Than $80,000
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Provide the information specified in
Sections A through D for each technical
report prepared under this appendix.
A renewable energy site assessment may be
used in lieu of Sections A through C if the
renewable energy site assessment contains
the information requested in Sections A
through C. In such instances, the technical
report would consist of Section D and the
renewable energy site assessment.
Note: If the total project cost for the RES
project is $80,000 or less, this appendix does
not apply. Instead, for such projects, please
provide the information specified in
§ 5001.307(e).
Section A. Project Description
Provide a description of the project,
including its intended purpose and a
summary of how the project will be
constructed and installed. Describe how the
system meets the definition of commercially
available. Identify the project’s location and
describe the project site.
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Describe the quality and availability of the
renewable resource to the project. Identify
the amount of renewable energy generated
that will be generated once the proposed
project is operating at its steady state
operating level. If applicable, also identify
the percentage of energy being replaced by
the system.
If the application is for a bioenergy project,
provide documentation that demonstrates
that any and all woody biomass feedstock
from National Forest System land or public
lands cannot be used as a higher value woodbased product.
Section C. Project Economic Assessment
Describe the projected financial
performance of the proposed project. The
description must address total project costs,
energy savings, and revenues, including
applicable investment and other production
incentives accruing from government
entities. Revenues to be considered shall
accrue from the sale of energy, offset or
savings in energy costs, byproducts, and
green tags. Provide an estimate of simple
payback, including all calculations,
documentation, and any assumptions.
Describe how the design, engineering,
testing, and monitoring are sufficient to
demonstrate that the proposed project will
meet its intended purpose, ensure public
safety, and comply with applicable laws,
regulations, agreements, permits, codes, and
standards. Describe how all equipment
required for the RES is available and able to
be procured and delivered within the
proposed project development schedule. In
addition, present information regarding
component warranties and the availability of
spare parts.
Section E. Qualifications of Key Service
Providers
Describe the key service providers,
including the number of similar systems
installed and/or manufactured, professional
credentials, licenses, and relevant
experience. When specific numbers are not
available for similar systems, estimations will
be acceptable.
46. Revise and republish appendix E
to subpart D of part 5001 to read as
follows:
■
Appendix E to Subpart D of Part 5001—
Technical Reports for Renewable
Energy System (RES) Projects With
Total Project Costs of $200,000 and
Greater
Provide the information specified in
Sections A through G for each technical
report prepared under this appendix.
Provide the resource assessment under
Section C that is applicable to the project. For
hybrid projects, technical reports must be
prepared for each technology that comprises
the hybrid project.
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Section A. Qualifications of the Project Team
Describe the project team, their
professional credentials, and relevant
experience. The description shall support
that the project team key service providers
have the necessary professional credentials,
licenses, certifications, and relevant
experience to develop the proposed project.
Section B. Agreements and Permits
Describe the necessary agreements and
permits (including any for local zoning
requirements) required for the project and the
anticipated schedule for securing those
agreements and permits. For example,
interconnection agreements and power
purchase agreements are necessary for all
renewable energy projects electrically
interconnected to the utility grid.
Section C. Resource Assessment
Describe the quality and availability of the
renewable resource and the amount of
renewable energy generated through the
deployment of the proposed system. For all
bioenergy projects, except anaerobic digesters
projects, complete Section C.3 of this
appendix. For anaerobic digester projects,
complete Section C.6 of this appendix.
(1) Wind. Provide adequate and
appropriate data to demonstrate the amount
of renewable resource available. Indicate the
source of the wind data and the conditions
of the wind monitoring when collected at the
site or assumptions made when applying
nearby wind data to the site.
(2) Solar. Provide adequate and
appropriate data to demonstrate the amount
of renewable resource available. Indicate the
source of the solar data and assumptions.
(3) Bioenergy/Biomass Project. Provide
adequate and appropriate data to
demonstrate the amount of renewable
resource available. Indicate the type,
quantity, quality, and seasonality of the
renewable biomass resource, including
harvest and storage, where applicable. Where
applicable, also indicate shipping or
receiving method and required infrastructure
for shipping. For proposed projects with an
established resource, provide a summary of
the resource. Document that any and all
woody biomass feedstock from National
Forest System land or public lands cannot be
used as a higher value wood-based product.
(4) Geothermal Electric Generation.
Provide adequate and appropriate data to
demonstrate the amount of renewable
resource available. Indicate the quality of the
geothermal resource, including temperature,
flow, and sustainability and what conversion
system is to be installed. Describe any special
handling of cooled geothermal waters that
may be necessary. Describe the process for
determining the geothermal resource,
including measurement setup for the
collection of the geothermal resource data.
For proposed projects with an established
resource, provide a summary of the resource
and the specifications of the measurement
setup.
(5) Geothermal Direct Generation. Provide
adequate and appropriate data to
demonstrate the amount of renewable
resource available. Indicate the quality of the
geothermal resource, including temperature,
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flow, and sustainability and what direct use
system is to be installed. Describe any special
handling of cooled geothermal waters that
may be necessary. Describe the process for
determining the geothermal resource,
including measurement setup for the
collection of the geothermal resource data.
For proposed projects with an established
resource, provide a summary of the resource
and the specifications of the measurement
setup.
(6) Anaerobic Digester Project/Biogas.
Provide adequate and appropriate data to
demonstrate the amount of renewable
resource available. Indicate the substrates
used as digester inputs, including animal
wastes or other renewable biomass in terms
of type, quantity, seasonality, and frequency
of collection. Describe any special handling
of feedstock that may be necessary. Describe
the process for determining the feedstock
resource. Provide either tabular values or
laboratory analysis of representative samples
that include biodegradability studies to
produce gas production estimates for the
project on daily, monthly, and seasonal basis.
If an anerobic digester project, identify the
type of operation (e.g., dairy, swine, layer,
etc.), along with breed, herd population size
and demographics, and the type of waste
collection method and frequency information
available. For the biogas produced, identify
the type of digester (e.g., mixed, plug-flow,
attached film, covered lagoon, etc.), if
applicable, or the method of capture (landfill,
sewage waste treatment, etc.) and treatment.
Identify the system designer and determine
the digester design assumptions such as the
number and type of animals, the bedding
type and estimated annual quantity used, the
manure and wastewater volumes, and the
treatment of digester effluent (e.g., none,
solids separation by screening, etc. with
details including use or method of disposal).
(7) Hydrogen Project. Provide adequate and
appropriate data to demonstrate the amount
of renewable resource available. Indicate the
type, quantity, quality, and seasonality of the
renewable biomass resource. For solar, wind,
or geothermal sources of energy used to
generate hydrogen, indicate the renewable
resource where the hydrogen system is to be
installed. Local resource maps may be used
as an acceptable preliminary source of
renewable resource data. For proposed
projects with an established renewable
resource, provide a summary of the resource.
(8) Hydroelectric/Ocean Energy Projects.
Provide adequate and appropriate data to
demonstrate the amount of renewable
resource available. Indicate the quality of the
resource, including temperature (if
applicable), flow, and sustainability of the
resource, including a summary of the
resource evaluation process and the
specifications of the measurement setup and
the date and duration of the evaluation
process and proximity to the proposed site.
If less than 1 year of data is used, a qualified
consultant must provide a detailed analysis
of the correlation between the site data and
a nearby, long-term measurement site.
(9) Renewable Energy Systems with Storage
Components. Provide adequate and
appropriate data to demonstrate the amount
of renewable resource available. Indicate the
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type, quantity, quality, and seasonality of the
renewable energy resource, where applicable.
Indicate the storage system specifications and
the integrity of the system in conjunction
with the RES it is integrated with, including
application, size, lifetime, response time,
capital and maintenance costs associated
with the operation as well as the distribution
of the stored resource(s).
Section D. Design and Engineering
Describe the intended purpose of the
project and the design, engineering, testing,
and monitoring needed for the proposed
project. The description shall support that
the system will be designed, engineered,
tested, and monitored to meet its intended
purpose, ensure public safety, and comply
with applicable laws, regulations,
agreements, permits, codes, and standards. In
addition, identify that all major equipment is
commercially available, including
proprietary equipment, and justify how this
unique equipment is needed to meet the
requirements of the proposed design. In
addition, information regarding component
warranties and the availability of spare parts
must be presented.
Section E. Project Development
Describe the overall project development
method, including the key project
development activities and the proposed
schedule, including proposed dates for each
activity. The description shall identify each
significant historical and projected activity,
its beginning and end, and its relationship to
the time needed to initiate and carry the
activity through to successful project
completion. The description shall address
applicant project development cash flow
requirements. Details for equipment
procurement and installation shall be
addressed in Section F of this Appendix.
Applications should include a concise
development schedule with timelines for
activities.
Section F. Equipment Procurement and
Installation
Describe the availability of the equipment
required by the system. The description shall
support that the required equipment is
available and can be procured and delivered
within the proposed project development
schedule.
Describe the plan for site development and
system installation, including any special
equipment requirements. In all cases, the
system or improvement shall be installed in
conformance with manufacturer’s
specifications and design requirements, and
comply with applicable laws, regulations,
agreements, permits, codes, and standards.
Section G. Operations and Maintenance
Describe the operations and maintenance
requirements of the system, including major
rebuilds and component replacements
necessary for the system to operate as
designed over its useful life. The warranty
must cover and provide protection against
both breakdown and a degradation of
performance. The performance of the RES or
EEI shall be monitored and recorded as
appropriate to the specific technology.
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47. Amend § 5001.401 by revising the
introductory text and paragraph (c) to
read as follows:
■
§ 5001.401
Interest rate provisions.
Interest rates, interest rate caps, and
incremental interest rate adjustment
limitations on a guaranteed loan are
negotiated between the lender and the
borrower. The interest rate for a
guaranteed loan can be either fixed or
variable, or a combination thereof, as
long as it is a legal rate. Interest rates
cannot be more than those rates the
lender customarily charges its borrowers
for non-guaranteed loans in similar
circumstances in the ordinary course of
business. The Agency encourages each
lender to use the secondary market and
pass interest-rate savings on to the
borrower. If an interest rate swap is
utilized, the guarantee will only cover
principal and interest. The lender must
provide the Agency with the overall
effective interest rate charged to the
borrower in the swap transaction. The
Agency guarantee does not cover any
fees related to the swap.
*
*
*
*
*
(c) Multi-rates. When multi-rates are
used, the lender must provide the
Agency with the overall effective
interest rate for the entire loan.
*
*
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*
*
48. Amend § 5001.402 by revising
paragraph (b)(2) to read as follows:
■
§ 5001.402 Term length, loan schedule,
and repayment.
*
*
*
*
*
(b) * * *
(2) Guaranteed loans must require a
periodic payment schedule that will
retire the debt over the term of the loan
without a balloon payment. Balloon
maturities are not allowed, unless
required as a loan servicing action.
Payments must be amortized to
maximize successful loan repayment
and may vary by type of business or
cash flow.
*
*
*
*
*
49. Amend § 5001.403 by revising
paragraph (b) to read as follows:
■
§ 5001.403
Lender fees.
*
*
*
*
*
(b) Default charges, penalty interest,
late payment fees, and additional
interest expenses are not covered by the
loan note guarantee and cannot be
added to the principal or interest due
under any loan note guarantee in the
event of a loss claim as prescribed in
§ 5001.521 or a repurchase as prescribed
in § 5001.511.
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50. Amend § 5001.406 by revising
paragraphs (c) and (d) introductory text
to read as follows:
■
§ 5001.406
Guaranteed loan amounts.
*
*
*
*
*
(c) B&I projects. The maximum total
amount of B&I guaranteed loans
(including the guaranteed and
unguaranteed portions of any B&I
guaranteed loans, the outstanding
principal and interest balance of any
existing B&I guaranteed loans, and any
new B&I guaranteed loan that is the
subject of an application) that may be
made to a borrower is limited to a
maximum amount of $25 million. The
Secretary, whose authority may not be
redelegated, may approve, at the
Secretary’s discretion, guaranteed loans
in excess of $25 million and up to $40
million for rural cooperatives that
process value-added agricultural
commodities in accordance with
§ 5001.105(b)(18)(i). In addition to the
borrower loan limit, there is a guarantor
loan limit of $100 million.
(d) REAP projects. The amount of a
guaranteed loan that will be made
available to an eligible project and
borrower under this part will be at least
$5,000, not to exceed 75 percent of
eligible project costs. Borrowers must
demonstrate evidence of a financial
contribution in the project of not less
than 25 percent of total eligible project
costs.
*
*
*
*
*
■ 51. Amend § 5001.408 by revising
paragraphs (a)(5) and (e)(1) to read as
follows:
§ 5001.408 Participation or assignment of
guaranteed loans.
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*
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(a) * * *
(5) Secondary market. The lender
must properly close their loan and fully
disburse loan funds of a promissory
note for the purposes intended prior to
assignment of the guaranteed portion of
the promissory note(s) on the secondary
market. The lender can assign all or part
of the guaranteed portion of the loan
only if the loan is not in default. Default
includes a borrower default in payments
or a lender default by unpaid periodic
guarantee retention fees. A lender using
the multi-note system may sell the
guarantee on the secondary market for a
specific note once that note is fully
disbursed, even if other guaranteed
notes for the project have not been fully
disbursed.
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*
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*
*
(e) * * *
(1) A guarantee and right to require
purchase in accordance with § 5001.511
will be directly enforceable by a holder
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notwithstanding any fraud or
misrepresentation by the lender or any
unenforceability of the loan guarantee
by the lender, except for fraud or
misrepresentation of which the holder
had actual knowledge at the time it
became the holder or in which the
holder participates or condones.
*
*
*
*
*
■ 52. Amend § 5001.450 by revising
paragraphs (b)(1), (c)(1) introductory
text, (c)(1)(iii) and (c)(2) to read as
follows:
§ 5001.450
General.
*
*
*
*
*
(b) * * *
(1) The entire loan must be secured by
the same collateral with equal lien
priority for the guaranteed and
unguaranteed portions of the loan. The
unguaranteed portion of the guaranteed
loan will neither be paid first nor given
any preference or priority over the
guaranteed portion. A parity or junior
lien position in the guaranteed loan
collateral may be considered on a caseby-case basis and must be approved by
the Agency during the loan approval
process. Requirements for guaranteed
loans to purchase cooperative stock are
found in § 5001.140.
*
*
*
*
*
(c) * * *
(1) If the lender owns all or a portion
of the guaranteed portion of the
guaranteed loan or makes a protective
advance, the Agency, in its sole
discretion, may cover interest on the
guaranteed portion for the 90 days from
the most recent delinquency effective
date. Per paragraph (c)(2) of this section,
if applicable, the lender should issue an
interest termination letter to any
holder(s) and provide the Agency with
a copy. The Agency will entertain the
payment of interest up to 180 days past
the most recent delinquency effective
date only if:
*
*
*
*
*
(iii) Concurrence for inclusion of the
extended period of interest to the lender
is received from the Agency. The lender
must request an extension of accrued
interest in writing and document their
collection efforts and timeframe for full
resolution, which must be within 180
days from the most recent delinquency.
Approved collection efforts that will
extend longer than 180 days from the
most recent delinquency date will be
limited to 90 days of accrued interest
payment from the Agency.
(2) If the guaranteed loan has one or
more holders, the lender will issue an
interest termination letter to each holder
establishing the termination date for
interest accrual and provide the Agency
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with a copy. The loan note guarantee
will not cover interest to any holder
accruing after 90 days from the date of
the interest termination letter. The
Agency at its sole discretion may notify
each holder of the interest termination
provisions if it is determined that lender
correspondence to holders is
inadequate.
■ 53. Amend § 5001.452 by:
■ a. Revising paragraphs (a) and
(b)(8)(iii)(U);
■ b. Adding paragraphs (b)(8)(iii)(W)
and (X); and
■ c. Revising paragraph (c).
The revisions and additions to read as
follows:
§ 5001.452 Loan closing and conditions
precedent to issuance of loan note
guarantee.
(a) The lender must not close the
guaranteed loan until all conditions of
the conditional commitment are met. If,
at a later date, it is discovered that all
conditions were not met, the lender will
be advised in writing that full
enforceability of the guarantee by the
lender may be compromised if the
deficiencies are not corrected.
(b) * * *
(8) * * *
(iii) * * *
(U) For all RES and EEI projects, the
lender must provide certification that
the project has been performing or will
perform at a steady state operating level
in accordance with the technical
requirements, plans, and specifications.
Any modification to the 30-day steady
state operating level requirement will be
based on the Agency’s review of the
technical report or vendor certification
and will be incorporated into the
conditional commitment.
*
*
*
*
*
(W) For WWD projects, if applicable,
the lender must certify that the project
complied with American Iron and Steel
requirements.
(X) For B&I, the capital/equity
requirement set forth in the Conditional
Commitment was met, as evidenced by
a balance sheet as of the date the
guaranteed loan was closed, giving
effect to the entirety of the loan in the
calculation whether or not the loan
itself is fully advanced. A copy of the
borrower’s loan closing balance sheet
must be included with the lender’s
certification.
(c) For RES projects where applicable,
the lender must provide to the Agency
a copy of the executed power purchase
agreement and/or a permission to
operate letter from the energy off-taker.
*
*
*
*
*
■ 54. Amend § 5001.454 by revising the
introductory text, paragraphs (b)
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introductory text, (d)(4) and (5) to read
as follows:
§ 5001.459 Replacement of loan note
guarantee, and assignment guarantee
agreement.
§ 5001.454
*
Guarantee Fee.
The guarantee fee is a one-time, nonrefundable fee paid by the lender to the
Agency at or before loan closing and is
required to be paid before the Agency
will issue the loan note guarantee. The
guarantee fee rate applied will be the
rate as established in the Federal
Register for the fiscal year in which a
guaranteed loan is obligated. The lender
may pass the guarantee fee on to the
borrower.
*
*
*
*
*
(b) Guarantee fee rates. The guarantee
fee rate is established by the Agency in
an annual document published in the
Federal Register. While the fee rate may
vary annually, they will not exceed the
limits in table 1. Once the guarantee is
obligated, the guarantee fee rate in effect
at the time of obligation will remain in
place even if the guarantee fee rate
changes before the loan note guarantee
is issued.
*
*
*
*
*
(d) * * *
(4) Is part of a strategic economic
development and community
development plan on a multijurisdictional and multi-sectoral basis in
accordance with Section 6401 of the
Agriculture Improvement Act of 2018
(Pub. L. 115–334); or
(5) Provides an additional market for
existing local businesses by purchasing
substantial amounts of products or
services from, selling product to, or
providing services to existing local and
regional businesses. The additional
market for existing local businesses
means that the borrower uses industry
clusters in the same community as a
substantial part of their product
manufacturing or service delivery, or
the borrower is part of a product chain
where they are a substantial part of
another local business’ product
manufacturing or service delivery. The
use of local janitorial or maintenance
firms, for example, does not meet this
criteria.
■ 55. Amend § 5005.457 by revising
paragraph (b)(1)(ii) to read as follows:
§ 5001.457
Changes prior to loan closing.
ddrumheller on DSK120RN23PROD with RULES2
*
*
*
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*
(b) * * *
(1) * * *
(ii) Borrower’s written plan, scope of
work, or the purpose or intent of the
project.
*
*
*
*
*
■ 56. Amend § 5005.459 by revising
paragraph (b)(1) to read as follows:
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*
*
*
*
(b) * * *
(1) Be issued by a qualified surety
company holding a certificate of
authority from the Secretary of the
Treasury and listed in Treasury
Department Circular 570, except when
the outstanding principal balance and
accrued interest due the present holder,
in accordance with § 5001.450(c), is less
than $1 million as verified by the lender
via a written letter of certification of
balance due;
*
*
*
*
*
■ 57. Amend § 5005.502 by revising
paragraph (d) to read as follows:
§ 5001.502
Oversight and monitoring.
*
*
*
*
*
(d) Access to the project. Until the
loan note guarantee is terminated, the
borrower must allow the lender and
therefore the Agency access to the
project and its performance information
and permit periodic inspections of the
project by an authorized representative
of the lender or the Agency.
■ 58. Amend § 5005.505 by revising
paragraphs (a), (b)(3) introductory text,
(b)(3)(iii) to read as follows:
§ 5001.505
release.
Collateral inspection and
*
*
*
*
*
(a) Inspection of collateral. The lender
must inspect the collateral as often as
necessary to properly service the
guaranteed loan.
(b) * * *
(3) Sale or release transaction. The
sale or release of collateral must be
based on an arm’s length transaction,
unless otherwise approved, in writing,
by the Agency when the sale or release
of collateral results in paying the
guaranteed loan in full and termination
of the loan note guarantee. There must
be adequate consideration at market
value for the release of collateral. Such
consideration may include, but is not
limited to:
*
*
*
*
*
(iii) Application of the net proceeds
from the sale of collateral to the
borrower’s guaranteed loan or to its
business operation in such a manner
that a significant improvement to the
borrower’s debt service ability will be
clearly demonstrated. The lender’s
written request must detail how the
borrower’s debt service ability will be
improved; and
*
*
*
*
*
■ 59. Amend § 5001.506 by revising
paragraphs (e) and (k) to read as follows:
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79727
§ 5001.506 Loan transfers and
assumptions
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*
*
*
*
(e) Loan agreement. A new loan
agreement or an assumption agreement,
acceptable to the Agency must be
executed to establish the terms and
conditions of the loan being assumed.
*
*
*
*
*
(k) Appraisals. If the proposed
transfer and assumption is for less than
the full amount of the guaranteed loan,
an appraisal is required on all the
collateral being transferred, and the
amount of the assumption must not be
less than this appraised value. The
lender is responsible for obtaining the
appraisal, which must conform to the
requirements of § 5001.203 of this part.
However, if the original appraisal is
more than one year old, but less than
two years old, the lender may provide
an appraisal with a new effective date
of evaluation in lieu of a completely
new appraisal.
*
*
*
*
*
■ 60. Amend § 5001.507 by revising
paragraphs (a)(3) and (d) to read as
follows:
§ 5001.507
Lender transfer.
*
*
*
*
*
(a) * * *
(3) Agrees in writing to acquire title
to the unguaranteed portion of the loan
held by the original lender and assumes
all original loan requirements, including
liabilities and servicing responsibilities;
and
*
*
*
*
*
(d) In cases when there is a transfer
to a new lender or when a lender has
been merged with or acquired by
another lender, the Agency and the new
lender must execute a new lender’s
agreement, unless the new lender
already has a valid lender’s agreement
with the Agency.
*
*
*
*
*
■ 61. Amend § 5001.510 by revising
paragraph (b)(3) to read as follows:
§ 5001.510
Subordination of lien position.
*
*
*
*
*
(b) * * *
(3) Remaining collateral is sufficient
to provide for adequate collateral
coverage of the guaranteed loan after
taking into account the lender’s
discount of collateral consistent with
the lender’s sound loan-to-discounted
value practices and satisfactory
justification of the discount used. The
Agency may require a current
independent appraisal in accordance
with § 5001.203. However, if the
original appraisal is more than one year
old, but less than two years old, the
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lender may provide an appraisal with a
new effective date of evaluation in lieu
of a completely new appraisal;
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*
■ 62. Amend § 5001.511 by revising
paragraphs (b) introductory text, (c)(9)
and (10) to read as follows:
§ 5001.511
Repurchase from holders.
ddrumheller on DSK120RN23PROD with RULES2
*
*
*
*
*
(b) Repurchase by lender for loan
servicing purposes. If the lender,
borrower, and holder are unable to agree
to restructuring of loan repayment,
interest rate, or loan terms to resolve
any loan problem or resolve any default
and repurchase of the guaranteed
portion of the loan is necessary to
adequately service the loan, the holder
must reassign the guaranteed portion of
the loan to the lender. The reassignment
must be for an amount not less than the
holder’s unpaid principal and accrued
interest, in accordance with
§ 5001.450(c) of this part, on such
portion less the lender’s servicing fee.
*
*
*
*
*
(c) * * *
(9) Accelerated loan. When the lender
has accelerated the loan and the lender
holds all or a portion of the guaranteed
loan, an estimated loss claim must be
filed by the lender with the Agency
within 60 calendar days from the date
the loan was accelerated. Accrued
interest paid to the lender in accordance
with § 5001.450(c)(1).
(10) Interest termination during
bankruptcy. When a borrower files a
Chapter 7 liquidation plan, the lender
shall immediately notify the Agency
and submit a liquidation plan. The
Agency will establish an interest
termination date based on the date
interest was last paid to the lender.
When a borrower files either a Chapter
9 or Chapter 11 bankruptcy
restructuring plan, the Agency and
lender shall meet to discuss the
bankruptcy procedure, the ability of the
borrower to meet their restructuring
plan, the lender’s treatment of accruing
interest, and potentially establish an
interest termination date for the
guaranteed loan. If the restructuring
bankruptcy Chapter 9 or Chapter 11 is
converted to a liquidation bankruptcy
Chapter 7 by court order, the interest
termination date will be the date of such
conversion.
■ 63. Amend § 5001.516 by revising
paragraphs (c) and (d) to read as follows:
§ 5001.516
Protective advances.
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*
*
(c) A lender must obtain written
Agency approval for any protective
advance that will cumulatively amount
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to more than $200,000, or 10 percent of
the aggregate outstanding balance of
principal and interest, whichever is less,
to the same borrower. Payment of real
estate taxes by the lender is not
considered a protective advance and
does not require Agency approval.
(d) Protective advances constitute an
indebtedness of the borrower to the
lender and must be secured by collateral
to the same extent as the original
guaranteed loan. It is the lender’s
responsibility to ensure that any
protective advances are secured by the
collateral of the guaranteed loan.
*
*
*
*
*
■ 64. Amend § 5001.517 by revising
paragraphs (c)(1), (c)(2), (c)(6)(i), (c)(10),
(c)(11), (d), (e)(1)(i), and (f)(2) to read as
follows:
§ 5001.517
Liquidation.
*
*
*
*
*
(c) * * *
(1) Such proof as the Agency requires
to establish the lender’s ownership of
the guaranteed loan promissory note
and related security instruments. Such
proof may include copies of executed
notes; and copies of mortgages or deeds
of trust recorded in the appropriate
jurisdiction;
(2) A copy of the payment ledger, if
available, or other documentation that
reflects the current outstanding loan
balance, accrued interest to date, and
the method of computing the accrued
interest. If the interest rate was a
variable rate, the lender must include
documentation of changes in the agreed
upon base rate and when the changes in
the loan rate became effective.
*
*
*
*
*
(6) * * *
(i) These values or estimates of the
collateral must be obtained by the
lender through an independent
appraisal. If the outstanding balance of
principal and interest is less than
$250,000, the lender may, instead of an
appraisal, obtain these values or
estimates by using their primary
regulator’s policies relating to appraisals
and evaluations or, if the lender is not
regulated, normal banking practices and
generally accepted methods of
determining value. A copy of the
appraisal or valuation will be provided
to the Agency with the liquidation plan
or as soon as it is available.
*
*
*
*
*
(10) An itemized list of estimated
liquidation expenses expected to be
incurred along with justification for
each expense. These may include
attorney, auctioneer, and other
professional fees for services the lender
will need to contract to maximize
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recovery on the loan. Cost could also
include legal representation to protect
Agency/lender joint interest in
bankruptcy or receivership;
(11) Estimated protective advance
amounts with justification. Protective
advances include, but are not limited to,
advances made for taxes, annual
assessments, ground rent, hazard and
flood insurance premiums affecting the
collateral, and other expenses necessary
to protect the collateral. Protective
advances may include advances
necessary to maintain services or
address unique situations with proper
justification. If the lender has advanced
funds without agency approval during
the life of the loan, such expenditures
or loans will not be guaranteed;
*
*
*
*
*
(d) Partial liquidation plan. If actions
are necessary to immediately preserve
and protect the collateral, the lender
may submit a partial liquidation plan
and, when approved by the Agency,
submit a complete liquidation plan
prepared by the lender in accordance
with paragraph (c) of this section.
(e) * * *
(1) * * *
(i) Proceed expeditiously with
liquidation. The lender must actively
market the collateral for a reasonable
period of time. If after this period of
time the lender is unable to sell the
collateral, then consideration should be
given to submission of a final loss claim
based on the fair market value of the
collateral prior to its ultimate
disposition;
*
*
*
*
*
(f) * * *
(2) The lender must provide the
Agency a copy of the acceleration
notice, or other acceleration document
sent to the borrower.
*
*
*
*
*
■ 65. Amend § 5001.519 by revising
paragraph (d)(2)(i) to read as follows:
§ 5001.519
Bankruptcy.
*
*
*
*
*
(d) * * *
(2) * * *
(i) The lender must request a
bankruptcy loss payment of the
guaranteed portion of the accrued
interest and principal discharged by the
court for all bankruptcies when all or a
portion of the debt has been discharged.
Unless a final court decree approves a
subsequent change to the bankruptcy
plan that is adverse to the lender, only
one bankruptcy loss payment is allowed
during the bankruptcy. Once a final
court decree has discharged all or part
of the guaranteed loan and any appeal
period has run, the lender must submit
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the documentation necessary for the
Agency to review and adjust the
bankruptcy loss claim to reflect any
actual discharge of principal and
interest.
*
*
*
*
*
■ 66. Amend § 5001.521 by revising
paragraphs (d)(2), (e)(3), (e)(4), and
(e)(8)(iii) to read as follows:
§ 5001.521
Loss calculations and payment.
*
*
*
*
(d) * * *
(2) Non-compliance with the
requirements of § 5001.205(a) or
§ 5001.305(a) will result in a reduction
of loss claims payable. The Agency’s
review of the non-compliance could
result in a total reduction of the loss
claim payable. The Agency’s review of
the non-compliance could result in a
total reduction of the loss claim payable.
The lender must ensure during loan
making and project development that
the project is designed utilizing
accepted architectural and engineering
practices and conforms to applicable
Federal requirements including the
seismic requirements of Executive Order
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*
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12699 (55 FR 835, January 5, 1990),
State and local codes and requirements,
and facility plans or plans and
specifications reviewed and approved
by the applicable State regulatory
agency. The lender must also ensure
that the planned project will be
completed within the available funds
and once completed, will be suitable for
the borrower’s needs.
*
*
*
*
*
(e) * * *
(3) Audit. Upon receipt of the final
accounting and report of loss, the
Agency may audit all applicable
documentation to determine the final
loss. The lender must make its records
available to and otherwise assist the
Agency in making any investigation or
audit of the report of loss. The
documentation accompanying the report
of loss must support the amounts
reported. The Agency must be satisfied
that the lender has maximized the
collections in conducting the
liquidation.
(4) Guarantees. The lender must
determine the collectability of
unsecured personal and corporate
PO 00000
Frm 00033
Fmt 4701
Sfmt 9990
79729
guarantees required in accordance with
§ 5001.204 of this part. The lender must
promptly collect or otherwise dispose of
such guarantees prior to completion of
the final loss report. However, if
collection from the guarantors appears
unlikely or will require a prolonged
period of time, the lender must file the
report of loss when all other collateral
has been liquidated. Unsecured
personal or corporate guarantees
outstanding at the time of the
submission of the final report of loss
will be treated as a future recovery with
the net proceeds to be shared on a pro
rata basis by the lender and the Agency.
*
*
*
*
*
(8) * * *
(iii) If a restructuring of a guaranteed
loan includes the capitalization of
interest, the guarantee will not cover the
interest accrued on the capitalized
interest.
*
*
*
*
*
Basil I. Gooden,
Under Secretary, Rural Development.
[FR Doc. 2024–21920 Filed 9–27–24; 8:45 am]
BILLING CODE 3410–15–P
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30SER2
]]>Agencies
[Federal Register Volume 89, Number 189 (Monday, September 30, 2024)]
[Rules and Regulations]
[Pages 79698-79729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21920]
[[Page 79697]]
Vol. 89
Monday,
No. 189
September 30, 2024
Part II
Department of Agriculture
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Rural Utilities Service
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7 CFR Part 5001
OneRD Guarantee Loan; Final Rule
Federal Register / Vol. 89 , No. 189 / Monday, September 30, 2024 /
Rules and Regulations
[[Page 79698]]
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DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 5001
[Docket No. RUS-19-Agency-0030]
RIN 0572-AC63
OneRD Guarantee Loan
AGENCY: Rural Business-Cooperative Service, Rural Housing Service,
Rural Utilities Service, USDA.
ACTION: Final rule; request for comments.
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SUMMARY: Rural Development's Rural Business-Cooperative Service, Rural
Housing Service, and Rural Utilities Service, agencies of the United
States Department of Agriculture (USDA), collectively referred to as
the Agency in this document, are publishing this final rule for the
OneRD Guarantee Loan Program (OneRD). The intent of this rule is to
make necessary revisions to the policy and procedures which will
strengthen oversight and management of the growing Community Facilities
(CF), Water and Waste Disposal (WWD), Business and Industry (B&I), and
Rural Energy for America (REAP) guarantee portfolios. This action is
part of a continuing effort by the Agency to improve customer service
for its lenders and create a more efficient work process for its staff.
DATES:
Effective date: This final rule is effective November 29, 2024.
Comments due date: Comments must be submitted on or before October
30, 2024.
ADDRESSES: You may submit comments, identified by docket number RUS-19-
Agency-0030 and Regulatory Information Number (RIN) number 0572-AC63
through https://www.regulations.gov.
Instructions: All submissions received must include the Agency name
and docket number or RIN for this rulemaking. All comments received
will be posted without change to https://www.regulations.gov, including
any personal information provided.
Docket: For access to the docket to read background documents or
comments received, go to https://www.regulations.gov.
Additional information about Rural Development and its programs is
available on the internet at https://www.rd.usda.gov.
FOR FURTHER INFORMATION CONTACT: Susan L. Woolard, Regulations
Management Division, Rural Development Innovation Center, U.S.
Department of Agriculture, 1400 Independence Ave. SW, Stop 1522,
Washington, DC 20250; telephone 202-720-9631; email
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
The Rural Housing Service (RHS), the Rural Business-Cooperative
Service (RBCS), and the Rural Utilities Service (RUS), agencies of the
USDA Rural Development mission area, hereinafter collectively referred
to as the Agency, published a final rule with comment on July 14, 2020
(85 FR 42494) that created a unified guaranteed loan platform for
enhanced delivery of four existing guaranteed loan programs: Community
Facilities (CF) administered by RHS; Water and Waste Disposal (WWD)
administered by RUS; and Business and Industry (B&I) and Rural Energy
for America (REAP) administered by RBCS. The final rule was effective
on October 1, 2020, and Rural Development began operating under the new
guaranteed loan platform on that date.
Collectively, Rural Development's guaranteed loan programs work to
assist in building and maintaining sustainable rural communities.
Through the public comment period and monthly office hours with lenders
and staff, the Agency has solicited feedback on the requirements and
policies contained in the rule implemented on October 1, 2020. The
Agency has identified areas for revision or clarification that are
amended with this final rule with comment. This OneRD final rule with
comment incorporates revisions intended to simplify, clarify, improve,
expand, and enhance the delivery of the four guaranteed loan programs.
II. Summary of Changes to Regulation
1. Sec. 5001.3 Definitions
a. The definition of ``affiliate'' is updated to provide additional
information on affiliation determination and include a reference to 13
CFR 121.03.
b. The definition of ``agricultural producer'' is updated to
include additional information regarding what constitutes agricultural
operations income for the calculation of the five-year average for
eligibility determinations. Additional information on the location of
an agricultural producer for eligibility determinations is also added.
c. The definition of ``collateral'' is updated to include
assignments of relevant agreements as acceptable collateral.
d. The definition of ``Debt Collection Improvement Act'' is updated
to correct the title of the act and provide additional information on
the Debt Collection Improvement Act of 1996.
e. The definition of ``delinquency'' is updated to provide
additional information on how this term is used in the Part.
f. The definition of ``energy efficient equipment and systems'' is
updated to include clear demonstration of energy efficiency as an
application requirement.
g. The definition of ``federal debt'' is updated to include
additional information on the Debt Collection Improvement Act of 1996.
h. The definition of ``guarantor'' is updated to include
responsibility for repayment as an undertaking of a guarantor.
i. The definition of ``hospital'' is updated to include additional
information on Certification Numbers.
j. The definition of ``hybrid'' is updated to include additional
information and an example on the eligibility of hybrid systems.
k. The definition of ``local owner'' is updated to include
information on what constitutes a normal commuting area.
l. The definition of ``matching funds'' is updated to include the
percentage of matching funds required to be eligible for a REAP
guaranteed loan.
m. The definition of ``natural resource value-added product'' is
updated to provide non-definitive examples of eligible and ineligible
projects.
n. The definition of ``professional service'' is updated to include
that a loan finder fee is not considered a professional service under
the Part.
o. The definition of ``refurbished'' is updated to provide an
example of an acceptable refurbishment and also to provide information
on what is considered as ineligible.
p. The definition of ``renewable energy system (RES)'' is updated
to include information on items that are not considered RES.
q. The definition of ``retrofitting'' is updated to include
examples of eligible projects.
r. The definition of ``rural and rural area'' is updated to include
additional information to identify ineligible areas, define rural-in-
character determinations as project specific determinations, provide
additional information on ``strings'' or areas that are attached to the
urbanized are by a contiguous area of urbanized blocks, and to specify
that applications cannot be approved subject to meeting rural area
requirements.
s. The definition of ``simple payback'' is updated to include
additional
[[Page 79699]]
information on items to include in the calculation and calculating
shared meter proration.
t. The definition of ``small business'' is updated to include
additional information on average net income, net worth thresholds and
to update the size standard to meet the new Small Business
Administration's definition.
u. The definition of ``total project costs'' is updated to include
additional information on ineligible project costs and retrofitting for
existing RES.
v. The definition of ``underserved communities'' is updated to
expand on populations that should be considered for awarding of
priority points.
2. Section 5001.9 Standards for Financial Information
a. The Agency added language at Sec. 5001.9(a) to reinforce that
the loan is the lender's, and their standard operating procedures
apply.
b. ``For those situations,'' is added to Sec. 5001.9(b) to clarify
the subject of the last sentence.
c. At Sec. 5001.9(c) additional language is added to provide
information on the use of tax returns as financial statements and their
suitability for eligibility determinations.
3. Section 5001.101 Introduction
a. Sec. 5001.101(a) is amended to add ``. . . through 5001.119 . .
.'' to include all four program areas.
b. Sec. 5001.101(f) is added to identify the location in the
regulation of eligible and ineligible uses of funds respectively.
4. Section 5001.102 Project Eligibility--General
a. To direct REAP applicants to refinancing information specific to
the REAP program, language is added to Sec. 5001.102(d).
b. Sec. 5001.102(d)(1) is modified to provide further
clarification on refinancing limits on debts owed to another creditor
and (d)(2) provides an expanded description of ``better rates or
repayment terms''.
c. ``Special conditions and limitations on loans'' and ``Loan
Guarantees for Water, Wastewater, and Essential Community Facilities
Loans'' is added to paragraph 5001.102(d)(3) to further identify
sections 333 and 306(a)(24)(C), respectively, of the Consolidated Farm
and Rural Development Act.
d. Sec. 5001.102(d)(4)(iii) is modified to provide additional
information for loans where debt refinancing is the majority purpose.
e. Sec. 5001.102(d)(5) is modified to specify program
applicability, lender's responsibility for providing the requested
information and update information on total debt service coverage
ration as the current language implies an acceptable ratio that is not
intended.
5. Section 5001.103 Eligible CF Projects and Requirements
a. Assisted living facilities are added to Sec. 5001.103(a)(1) to
identify them, in certain situations, as health care facilities.
b. Sec. 5001.103(a)(3) is updated to include eligibility
requirements for business incubators (when not inherently commercial),
thrift stores, and fairgrounds, agricultural exposition centers,
farmers markets, food distribution and food banks.
c. Sec. 5001.103(b)(1) is updated to include information on public
use requirements of Veterans of Foreign Wars and American Legion post
facilities.
d. Sec. 5001.103(d) is added to provide limitations on leased
space in a CF project.
e. Sec. 5001.103(e) is added to provide the documentation
necessary when the project is to otherwise improve an essential
community facility through the purchase of an existing facility.
6. Section 5001.104 Eligible WWD Projects and Requirements
a. Introductory paragraph is updated to correct regulatory
references and remove duplication.
b. Sec. 5001.104(a)is updated to better describes eligible WWD
projects.
c. Sec. 5001.104(a)(1) is updated by removing ``To construct,
enlarge, extend, or otherwise improve the following types of
facilities: . . .'' as those actions are eligible uses of funds and not
types of projects.
d. Remove Sec. 5001.104(a)(2) as these items are listed at Sec.
5001.121(b)(10) ``Eligible use of loan funds''. The duplication has
caused confusion.
7. Section 5001.105 Eligible B&I Projects and Requirements
a. Sec. 5001.105(b)(7) is updated to add examples of eligible
agricultural production projects.
b. Sec. 5001.105(b)(14) is updated to include additional
information on what constitutes a leasehold improvement for this part
and to provide further security enhancements.
c. Sec. 5001.105(b)(15)(i)(D) is updated to include the timing of
agreements with retail and institutional clients in regard to locally
or regionally produced agricultural products.
d. Sec. 5001.105(b)(20) is updated to include information on
independent living facilities' eligibility for a guarantee.
e. Sec. 5001.105(b)(22) (vii) is updated to expand on the
demonstration of technical merit for energy projects.
f. Sec. 5001.105(d) is updated to add information on balance
sheets used to show that capital and equity requirements are met.
g. Sec. 5001.105(d)(1)(iii) is updated to reflect the correct
owner-contributed capital calculation.
h. Sec. 5001.105(d)(6) is deleted and the content moved to Sec.
5001.452(b)(8)(iii)(X) as this certification was not intended to be
separate from the lender's certification required as part of the
documents submitted for issuance of the loan note guarantee.
8. Section 5001.106 Eligible REAP--Renewable Energy System (RES)
Projects and Requirements
Sec. 5001.106(e)(2) is updated to include how a non-response in an
area of a technical report will be scored.
9. Section 5001.108 Eligible REAP--Energy Efficient Equipment and
Systems (EEE) Projects and Requirements
The introductory paragraph for Sec. 5001.108 is updated to include
that EEE projects may be located in rural or non-rural areas as long as
the energy efficient equipment of systems are used for agricultural
production or processing in accordance with this part.
10. Sec. 5001.115 Ineligible Projects--General
a. Sec. 5001.115(l) is updated to provide additional information
to clarify when telephone systems may be considered as an eligible
project.
b. Sec. 5001.115(n) is updated to provide additional information
to clarify when owner-occupied housing may be considered for funding.
b. Sec. 5001.115(r) is updated to provide additional information
to religious organizations on items that may cause their project to be
deemed ineligible.
11. Sec. 5001.116 Neligible CF Projects
a. Sec. 5001.116(b) is updated to add a reference to Sec.
5001.103(d) for eligibility of commercial enterprises leasing space in
an eligible CF project.
b. Sec. 5001.116(e) is updated to include characteristics of
ineligible purchase transactions.
12. Sec. 5001.121 Eligible Uses of Loan Funds
a. Sec. 5001.121(a)(2) is updated to include the installed conduit
is not essential to the operation of the eligible essential community
facility or service to be financed and to add an example.
b. Sec. 5001.121(a)(3)(iv) is updated to clarify that guaranteed
loan proceeds
[[Page 79700]]
may be used to pay interim financing in full, if used, and that payment
in full includes interest on that interim financing.
c. Sec. 5001.121(b) is revised in its entirety to classify
eligible uses of funds as those that must be part of a construction
project and those that are non-construction. Additionally, the purchase
and installation of RES for use by an eligible facility, the use of up
to 10 percent of project funds to construct, improve, or acquire
broadband infrastructure, and professional service fees, such as
engineering or environmental services and preplanning evaluation
procedures are added as eligible uses of funds. Additional information
regarding the purchase of land and/or rights, including water rights is
added as well as providing clarification on payment of interim
financing, limiting initial operating expenses to newly constructed
facilities and clarifying that purchase of equipment must include
installation and is not for the purpose of increasing inventory is also
included.
d. Sec. 5001.121(d)14)(vi) is added to provide additional
information on what is considered refinancing under the REAP program.
13. Sec. 5001.121 Eligible Uses of Loan Funds
a. Sec. 5001.121(c)(6) is updated to provide additional
flexibility to the programs.
b. Sec. 5001.121(d) is updated to clarify what the percentage
includes.
c. Sec. 5001.121(d)(14) is updated to add information that paying
interim financing is not considered refinancing.
14.Sec. 5001.122 Ineligible Uses of Loan Funds
a. Sec. 5001.122(k) is updated to include as an additional
ineligible use of loan funds any costs for RES and/or EEI projects that
are used to improve a vehicle's ability to propel itself.
b. Sec. 5001.122(l) is updated to clarify that a former owner may
remain as an employee of the business during a reasonable transition
period and to align the language with the definition of conflict of
interest.
c. Sec. 5001.122(n) is added to include lease payments as
ineligible uses of funds.
15. Sec. 5001.126 Borrower Eligibility
a. Sec. 5001.126 (a)and (a)(1) are updated to clarify that the
borrower must own and retain control of the project at all times under
all ownership structures.
b. Sec. 5001.126(c)(2) is updated to notify lenders that they are
required to certify in writing that their borrower is unable to afford
commercial credit at reasonable rates and terms without the guarantee.
c. Sec. 5001.126(d)(3)(iii) is updated to reference the definition
of citizen and to clarify that applications will not be approved, nor
will conditional commitments be issued subject to meeting the
citizenship requirement.
d. Sec. 5001.126(d)(4) is updated to further ensure benefit to
U.S. residents.
e. Sec. 5001.126(e)(1) is updated to provide more specificity on
eligible borrower entity types.
f. Sec. 5001.126(e)(2) is updated to clarify the timing of when
and how long a borrower must own or control a project and the site for
the project to at the time of application or no later than guaranteed
loan closing and for the term of the guaranteed loan.
16. Sec. 5001.127 Borrower Ineligibility Conditions
a. Sec. 5001.127(a) is updated to specify that the 20 percent
ownership interest in the borrower does not apply to passive investors
and expands on delinquent debt under a repayment plan.
b. Sec. 5001.127(a)(4) is updated to add that lenders must check
SAM exclusions at https://sam.gov to ensure compliance with 2 CFR
180.300.
c. Sec. 5001.127(d) is updated to include a prohibition on
projects receiving income from marijuana operations.
d. Sec. 5001.127(f) is updated to specify that lender's directors,
stockholders, or other owners that are officers, directors,
stockholders, or other owners of the borrower without management
control or ownership of less than 5% must recuse themselves from the
decision-making process associated with the guaranteed loan.
17. Sec. 5001.130 Lender Eligibility Requirements
a. Sec. 5001.130(a)(3) is updated to reduce risk and meet the
requirements of 31 U.S.C. 3354.
b. Sec. 5001.130(c)(2) is updated to include instructions on how
non-regulated lending entities may apply for approved lender status.
c. Sec. 5001.130(c)(4) is updated to provide additional
information on what an approved lender renewal review will include.
d. Sec. 5001.130(c)(4)(iv) is updated to provide additional
information to lenders that have not been active in the Agency's
guaranteed loan program or whose loans have caused a loss to the Agency
on approved lender status renewal.
e. Sec. 5001.130(c)(4)(v) is added to notify lenders that the
renewal term are for a period of 5 years.
f. Sec. 5001.130(d)(2) is updated to provide non-regulated lending
entities serving Tribal trust lands additional guidance on submittal of
information needed for applications to be determined as approved
lenders.
g. Sec. 5001.130(d)(4) is updated to provide non-regulated lending
entities serving Tribal trust lands information on what will be
considered during the approved lender renewal review.
h. Sec. 5001.130(d)(4)(v) is added to notify lenders that renewals
are for a period of 5 years.
18. Sec. 5001.131 Lender's Agreement
Section 5001.131 is updated to include that approval as a lender
under one program is approval for all programs covered under this part,
that non-regulated lenders approval expires January 31st of the fifth
year after the date of Agency approval and that only one lenders
agreement will be issued for each lending entity based on their tax
identification number. This paragraph is also updated to include the
requirement that a lending entity continue to service their outstanding
loan guarantees made under this part even if they fail to renew its
lenders agreement and loses its approved lender status.
19. Sec. 5001.132 Maintenance of Approved Lender Status
a. Sec. 5001.132(a)(4) is updated to clarify that a non-regulated
lending entity that fails to renew its approval status within 5 years
from the execution of the lender's agreement will lose its approved
status.
b. Sec. 5001.132(b) is updated to include that revocation of
approved lender status may apply to the entire entity, specific
branches, or personnel as appropriate. This addition also requires the
lender to revoke the level II eAuthentication privileges of all
individuals included in the revocation notice.
20. Sec. 5001.140 Cooperative Stock/Cooperative Equity
a. Sec. 5001.140(a)(4) is updated to include that in event of
default if the stock is not sufficient to satisfy the debt, the
borrower is fully liable for the entire debt regardless of the success
or failure of the cooperative; the lender will maximize recovery; and,
that DCIA may impose significant restrictions on delinquent Federal
debtors.
b. Sec. 5001.140(b) is updated to include that in event of default
if the stock is not sufficient to satisfy the debt, the borrower is
fully liable for the entire debt regardless of the success or failure
of the cooperative; the lender will maximize recovery; and, that DCIA
may
[[Page 79701]]
impose significant restrictions on delinquent Federal debtors.
c. Sec. 5001.140(d)(3) is updated to include that in event of
default if the stock is not sufficient to satisfy the debt, the
borrower is fully liable for the entire debt regardless of the success
or failure of the cooperative; the lender will maximize recovery; and,
that DCIA may impose significant restrictions on delinquent Federal
debtors.
21. Sec. 5001.141 New Markets Tax Credit
a. The title is updated to New Markets Tax Credit Program. The
introductory paragraph is updated to reinforce that requests for loan
guarantees that include NMTC are subject to all applicable program
eligibility requirements, credit analysis and due diligence as required
by 7 CFR part 5001. Additional information is provided on the treatment
of tax benefit or loss of tax benefits in the servicing actions of a
guaranteed loan.
b. Sec. 5001.141(b)(iii) is updated to clarify leveraged lender
entity requirements.
c. Sec. 5001.141(b)(6) is updated to include guidance for QALICB's
and their owners regarding guarantees of the guaranteed loan as
stipulated in Sec. 5001.204.
d. Sec. 5001.141(b)(14) is added to inform applicants that they
NMTC structure must be approved by the Agency.
22. Sec. 5001.202 Lender's Credit Evaluation
a. The introductory paragraph is updated to provide additional
information to lenders on timing of application submittal and
completion of the lender's internal credit evaluation process as part
of a complete application package. The update also includes a
requirement for the lender's credit evaluation to include a written
review and comment on the ``Five Cs'' of credit as outlined in Sec.
5001.202(b)(1) through (5).
b. Sec. 5001.202(a) is updated to include reference to the
lender's responsibility to evaluate the relationships between all
associated parties in the event of affiliated entities.
c. Sec. 5001.202(b)(6)(iii) is amended to add that any steps taken
or proposed to address any financial or industry weakness must be
reasonable and adequately addressed.
d. Sec. 5001.202(b)(6)(iv) is updated to include additional
guidance on borrower projections and substantiation of increases of
revenues, profit margins or profitability.
e. Sec. 5001.202(b)(6)(iv) is updated to include the source of the
cash flow in the analysis of the operational cash flow when lenders are
requesting the loan note guarantee prior to project completion.
23. Sec. 5001.203 Appraisals
a. The introductory paragraph is updated to include, ``. . . as
determined by the approval official.'' to indicate who determines
appraisal acceptability. Additionally, information on the handling of
value attributed to business valuation or as a going concern and
discounting is added. For applications that include an existing
facility, the Agency is including that it is expected that the
appraiser will physically visit the property unless otherwise approved
by the Agency approval official, as these ``desktop products'' are not
reliable and present the potential for additional valuation risk to the
Agency.
b. Sec. 5001.203(b) is updated to provide additional assurances
during the loan underwriting review process.
c. Sec. 5001.203(c) is updated to incorporate the language from
Sec. 5001.203(c)(1)(i).
d. Sec. 5001.203(c)(1) is removed. The language from the current
Sec. 5001.203(c)(1)(i) is incorporated into Sec. 5001.203(c). The
current language in Sec. 5001.203(c)(1)(ii) is not necessary as the
Agency's expectations are adequately covered in previous language.
e. Sec. 5001.203(d) (1) is updated to allow for other than a State
Certified General Appraiser when approved by the Agency as some project
types are unique enough that a qualified appraiser may not be
available.
f. Sec. 5001.203(f) is updated to require immediate notification
to the Agency if potential contamination is observed or identified.
g. Sec. 5001.203(h) is updated to reiterate that appraisal fees
are eligible project costs, and that the Agency does not pay for
appraisals at the time of application but that servicing appraisals
will be handled in accordance with 7 CFR 5001 subpart F.
24. Sec. 5001.205 General Project Monitoring Requirements
a. Sec. 5001.205(a)(4) is added to include compliance with section
70914 of the Build America, Buy America Act within the Infrastructure
Investment and Jobs Act (Pub. L. 117-58).
b. Sec. 5001.205(b)(1) is updated to include compliance with the
Uniform Relocation Assistance and Real Property Acquisition Policies
Act of 1970 to ensure that all property transactions are conducted
accordingly.
c. Sec. 5001.205(e)(1)(i) is removed and the information combined
with Sec. 5001.205(e)(1) as a separate (i) was not necessary.
d. Sec. 5001.205(e)(2)(iii) is updated to include the requirement
that the lender must provide evidence of sufficient cash flow to
complete the project construction, including contingencies for cost
overruns, plus working capital during the business start-up period.
e. Sec. 5001.205(e)(2)(iv) is updated to include the requirement
that, in all cases, borrower equity must be injected prior to any
guaranteed loan funds.
f. Sec. 5001.205(e)(2)(vii) is updated so that the credit
underwriting of the independent technology development firm is not
limited only to renewable energy projects, but may include energy
efficiency, renewable chemical, and biobased manufacturing projects.
25. Sec. 5001.206 Compliance With USDA Departmental Regulations,
Policies, and Other Federal Laws
Section 5001.206(b) is updated to include compliance with the
Uniform Relocation Assistance and Real Property Acquisition Policies
Act of 1970 as a requirement if the proposed project requires the
acquisition of real property or will displace people from their homes,
business, or farms, and Section 70914 of the Build America, Buy America
Act within the Infrastructure Investment and Jobs Act, and 31 U.S.C.
3354 Do Not Pay Initiative.
Subpart D
26. Sec. 5001.301 Beginning the Application Process
Section 5001.301(a) is updated in its entirety to reflect current
application submittal practices.
27. Sec. 5001.303 Applications for Loan Guarantee
Section 5001.303(c)(15) is updated to include the entire title of
SEC Form 10-K.
28. Sec. 5001.307 Specific Application Requirements for REAP Projects
Section 5001.307(b) is updated to include clarification on
application documentation requirements for rural small businesses and
agriculture operations owned by Tribes.
28. Sec. 5001.315 Application Evaluation and Award Provisions
a. Sec. 5001.315(b) is updated to include the word ``complete'' to
describe applications that the Agency will review.
b. Sec. 5001.315(c)(1) is updated to include the word ``priority''
to better describe scoring.
[[Page 79702]]
c. Sec. Sec. 5001.315(e)(2) is updated to include notification in
writing when their application is withdrawn from further funding
consideration.
29. Sec. 5001.319 REAP Project Priority Point System
a. The introductory paragraph is updated to add, ``. . . and
subject to the availability of funds . . .'' to state when the Agency
will compete each complete and eligible application for RES, EEI and
EEE projects.
b. Sec. 5001.319(b)(1)(i) is updated to include when priority
points will be awarded for retrofitting RES projects and how off-the-
grid and direct-use projects will be awarded priority points.
c. Sec. 5001.319 (b)(2)(i) is updated to include information on
calculating the percentage of energy being replaced, whether it is
categorized a replacement or generation. This does not change the
underlying calculation but provides clarification.
d. Sec. 5001.319 (b)(2)(i)(A) is updated to include a requirement
for documentation to show that the borrower entity incurred the cost of
the historical energy to be replaced and what may be considered in the
calculation. This does not change the underlying calculation but
provides clarification.
e. Sec. 5001.319(b)(2)(ii) is updated to add information on RES
projects that are not projecting to increase the amount of renewable
energy generated and that if documentation of prior energy usage is not
provided the project will be scored as an energy generation project.
f. Sec. 5001.319(b)(2)(iii) is updated to add ``vendor
certification'' as acceptable documentation of energy savings by the
installation of the EEI project.
g. Sec. 5001.319(d) is updated to clarify the meaning of
``received and accepted''.
h. Sec. 5001.319(e) is updated to specify that an existing
business must be in operation for at least one full year, not simply a
year since legal business formation.
i. Sec. 5001.319(f)(1) is updated to add, for clarity, that RES
include replacement, generation, and direct-use RES projects.
j. Sec. 5001.319(g)(6) is updated to clarify that the United
States Census Bureau information to determine population living in
poverty is for the last 30 years.
Subpart E
30. Sec. 5001.401 Interest Rate Provisions
Section 5001.401 is updated to include that in the event of an
interest rate swap, the Agency's guarantee can only cover principal and
interest and does not cover any fees related to the swap. A requirement
for the lender to provide the Agency with an overall effective interest
rate charged to the borrower in the swap transaction is also added.
31. Sec. 5001.402 Term Length, Loan Schedule, and Repayment
Section 5001.402(b)(2) is updated to provide additional information
to lenders on Agency requirements regarding loan amortizations
including requirements, that balloon payments are not acceptable except
in some loan servicing cases and that payments must be amortized to
maximize successful loan repayment and may vary by business type or
company cash flow.
32. Sec. 5001.406 Guaranteed Loan Amounts
Section 5001.406(c) is updated to place a limit on total guarantor
loans.
Section 5001.406(d) is updated to include that borrowers must
demonstrate evidence of a financial contribution in the project of at
least 25 percent of total eligible project costs. Federal grant funds,
if authorized by the grantor, may be used as the financial
contribution.
33. Sec. 5001.408 Participation or Assignment of Guaranteed Loan
Section 5001.408(a)(5) is updated to include a clarification of
default and that lenders using the multi-note system may sell the
guarantee on the secondary market for a specific note once that note is
fully disbursed.
34. Sec. 5001.450 General
a. Sec. 5001.450(b)(1) is updated to add, ``. . . during the loan
approval process'' to provide information on when approval of a parity
or junior lien position request must be approved by the Agency. A
statement regarding where to find the requirements for guaranteed loans
to purchase cooperative stock was also added.
b. Sec. 5001.450(c)(1) is updated to include language on
requesting the payment of interest up to 180 days past the most recent
delinquency effective date.
c. Sec. 5001.450(c)(1)(iii) is updated to provide lenders with
information on requesting extensions of accrued interest and that
approved collection efforts that extend beyond 180 days will be limited
to 90 days of accrued interest payments from the Agency.
d. Sec. 5001.450(c)(2) is updated to add ``. . . and provide the
Agency with a copy.'' to provide information for the lender on Agency
notification of holders in the event of interest termination.
35. Sec. 5001.452 Loan Closing and Conditions Precedent to Issuance of
Loan Note Guarantee
a. Sec. 5001.452(a) is updated to add that if at a later date it
is discovered that all conditions of the conditional commitment had not
been met prior to loan closing that full enforceability of the
guarantee may be compromised.
b. Sec. 5001.452(b)(8)(iii)(U) is updated to include that ``. . .
or will perform . . .'' may be part of the lender's certification of
steady state operating level.
c. Sec. 5001.452(b)(8)(iii)(W) is added to include certification
of compliance with American Iron and Steel and Build America, Buy
America requirements for applicable WWD projects.
d. Sec. 5001.452(b)(8)(iii)(X) is added to include certification
that, for B&I projects, the capital/equity requirements of the
Conditional Commitment were met.
e. Sec. 5001.452(c) is updated to add that a permission to operate
letter from the energy off-taker is required.
36. Sec. 5001.454 Guarantee Fee
a. To ensure that the correct guarantee fee is applied, the opening
paragraph to Sec. 5001.454 is updated to include that the guarantee
fee rate applied will be the rate as established in the Federal
Register for the fiscal year in which a guaranteed loan is obligated.
b. Sec. 5001.454(b) is updated to include that once the guarantee
is obligated, the guarantee fee rate in effect at the time of
obligation will remain in place even if the guarantee fee rate changes
before the loan note guarantee is issued.
c. Sec. 5001.454(d)(5) is updated to provide additional
information on what constitutes an additional market for existing local
business.
Subpart F--Servicing Provisions
37. Sec. 5001.505 Collateral Inspection and Release
Section 5001.505(b)(3) is revised to add additional information to
further specify requirements of an arm's length transaction.
38. Sec. 5001.510 Subordination of Lien Position
Section 5001.510(b)(3) is updated to include additional information
on discounting of collateral when determining sufficient collateral
coverage.
39. Sec. 5001.516 Protective Advances
a. Sec. 5001.516(c) is updated to inform lender that payment of
real estate taxes is not considered a protective advance and does not
require Agency approval.
[[Page 79703]]
b. Sec. 5001.516(d) is updated to inform lenders that it is their
responsibility to ensure that protective advances will be secured by
the collateral of the guaranteed loan.
40. Sec. 5001.517 Liquidation
a. Sec. 5001.517(c)(1) is updated to include items that may be
used to establish the lender's ownership of the guaranteed loan
promissory note and related security instruments.
b. Sec. 5001.517(c)(2) is updated to include additional
requirements of the liquidation plan including: transaction history for
the loan; if the interest rate was a variable rate, the lender must
include documentation of changes to the agreed upon base rate and when
the changes in the loan rate became effective; and explanation of any
special accommodations that were made.
c. Sec. 5001.517(c)(6)(i) is updated to include that a copy of the
appraisal or valuation will be provided to the Agency with the
liquidation plan or as soon as it is available.
d. Sec. 5001.517(c)(10) is updated to include a non-exhaustive
list of examples of liquidation expenses that may be incurred.
e. Sec. 5001.517(c)(11) is updated to include: a non-exhaustive
list of possible protective advances; that protective advances may be
made to maintain services or address unique situations with proper
justification; and non-Agency approved advances of funds will not be
guaranteed.
f. Sec. 5001.517(e)(1)(i) is updated to add ``actively marketing
the collateral.'' Additionally, consideration of submitting a final
loss claim is added as a possible next action if the lender is unable
to sell the collateral.
41. Sec. 5001.521 Loss Calculations and Payment
Section 5001.521(d)(2) is updated to include information to
borrowers and lenders on project development issues that could reduce
any loss claim payable.
The Agency also plans to correct minor spelling, grammatical and
capitalization errors. All changes to appendices C, D and E to Subpart
D of Part 5001 correct spelling, grammatical or capitalization errors.
III. Executive Orders and Acts
Executive Orders 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches to maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
This final rule has been determined to be not significant for
purposes of Executive Order (E.O.) 12866 and therefore has not been
reviewed by the Office of Management and Budget (OMB).
National Environmental Policy Act
In accordance with the National Environmental Policy Act of 1969,
Public Law 91-190, this final rule has been reviewed in accordance with
7 CFR part 1970 (``Environmental Policies and Procedures''). The Agency
has determined that i) this action meets the criteria established in 7
CFR 1970.53(f); ii) no extraordinary circumstances exist; and iii) the
action is not ``connected'' to other actions with potentially
significant impacts, is not considered a ``cumulative action'' and is
not precluded by 40 CFR 1506.1. Therefore, the Agency has determined
that the action does not have a significant effect on the human
environment, and therefore neither an Environmental Assessment nor an
Environmental Impact Statement is required.
Executive Order 12988, Civil Justice Reform
This final rule has been reviewed under Executive Order 12988
(Civil Justice Reform). The Agency has determined that this 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 rule will be preempted. No retroactive effect will be given
to this rule.
Executive Order 13132, Federalism
The policies contained in this final rule do not have a 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
rule impose substantial direct compliance costs on state and local
governments. Therefore, consultation with the states is not required.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601-602) generally
requires an agency to prepare a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act (``APA'') or any other statute. The APA
exempts from notice and comment requirements rules ``relating to agency
management or personnel or to public property, loans, grants, benefits,
or contracts'' (5 U.S.C. 553(a)(2)), so therefore an analysis has not
been prepared for this rule.
Executive Order 12372, Intergovernmental Consultation
This final rule is excluded from the scope of Executive Order 12372
(Intergovernmental Consultation), which may require a consultation with
State and local officials. See the final rule related notice entitled,
``Department Programs and Activities Excluded from Executive Order
12372'' (50 FR 47034).
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This executive order imposes requirements on the Agency. The Agency
has determined that the rule does not have a substantial direct effect
on one or more Indian Tribe(s) or on either the relationship or the
distribution of powers and responsibilities between the Federal
Government and Indian Tribes. Thus, this rule is not subject to the
requirements of Executive Order 13175. If Tribal leaders are interested
in consulting with the Agency on this rule, they are encouraged to
contact USDA's Office of Tribal Relations or the Agency's Native
American Coordinator at: [email protected] to request such a consultation.
Assistance Listing Number
The Assistance Listing (formerly known as the Catalog of Federal
Domestic Assistance (CFDA)) numbers assigned to the 4 programs within
this rule are: 10.766 for Community Facility Programs, 10.760 for Water
and Waste Disposal Programs, 10.768 for Business and Industry Programs
and 10.868 for Rural Energy for America Program. The complete catalog
is available on the internet at https://sam.gov/content/assistance-listings.
Paperwork Reduction Act and Recordkeeping Requirements
This rule contains no new reporting or recordkeeping burdens under
OMB control number 0572-0166 that would require approval under the
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
[[Page 79704]]
E-Government Act Compliance
Rural Development is committed to complying with the E-Government
Act of 2002, which requires Government agencies in general to provide
the public the option of submitting information or transacting business
electronically to the maximum extent possible.
Civil Rights Impact Analysis
RD has reviewed this Final rule in accordance with USDA Regulation
4300-4, Civil Rights Impact Analysis,'' to identify any major civil
rights impacts the rule might have on program participants on the basis
of age, race, color, national origin, sex, disability, gender identity
(including gender expression), genetic information, political beliefs,
sexual orientation, marital status, familial status, parental status,
veteran status, religion, reprisal and/or resulting from all or a part
of an individual's income being derived from any public assistance
program. This final rule is within a guarantee-based program.
Guarantees are not covered under Title VI of the Civil Rights Act of
1964, Section 504 of the Rehabilitation Act of 1973, and Title IX of
the Education Amendments Act of 1972, as amended, when the Federal
assistance does not include insurance or interest credit loans. Lenders
must comply with other applicable Federal laws, including Equal
Employment Opportunities, the Equal Credit Opportunity Act, the Fair
Housing Act, and the Civil Rights Act of 1964. Guaranteed loans that
involve the construction of or addition to facilities that accommodate
the public must comply with the Architectural Barriers Act
Accessibility Standard. The borrower and lender are responsible for
ensuring compliance with these requirements.
USDA Non-Discrimination Statement
In accordance with Federal civil rights laws and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
Mission Areas, agencies, staff offices, 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.
Program information may be made available in languages other than
English. Persons with disabilities who require alternative means of
communication to obtain program information (e.g., Braille, large
print, audiotape, American Sign Language) should contact the
responsible Mission Area, agency, or staff office; or the 711 Relay
Service.
To file a program discrimination complaint, a complainant should
complete a Form AD-3027, USDA Program Discrimination Complaint Form,
which can be obtained online at https://www.usda.gov/sites/default/files/documents/ad-3027.pdf from any USDA office, by calling (866) 632-
9992, or by writing a letter addressed to USDA. The letter must contain
the complainant's name, address, telephone number, and a written
description of the alleged discriminatory action in sufficient detail
to inform the Assistant Secretary for Civil Rights (ASCR) about the
nature and date of an alleged civil rights violation. The completed AD-
3027 form or letter must be submitted 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; or
(2) Fax: (833) 256-1665 or (202) 690-7442; or
(3) Email: [email protected].
Severability
It is USDA's intention that the provisions of this rule shall
operate independently of each other. In the event that this rule or any
portion is ultimately declared invalid or stayed as to a particular
provision, it is USDA's intent that the rule nonetheless be severable
and remain valid with respect to those provisions not affected by a
declaration of invalidity or stayed. USDA concludes it would separately
adopt all of the provisions contained in this final rule.
USDA is an equal opportunity provider, employer, and lender.
List of Subjects in 7 CFR Part 5001
Business and industry, Community facility, Energy efficiency
improvement, Loan programs, Renewable energy, Rural areas, Rural
development, Water and waste disposal.
For the reasons set forth in the preamble, under the authority at 5
U.S.C. 301 and 7 U.S.C. 1989, 7 CFR part 5001 is amended as follows:
PART 5001--Guaranteed Loans
0
1. The authority citation for part 5001 continues to read as follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1926(a); 7 U.S.C. 1932(a);
and 7 U.S.C. 8107.
Subpart A--General Provisions
0
2. Amend Sec. 5001.1 by revising (b) to read as follows:
Sec. 5001.1 General.
* * * * *
(b) The applicability of the provision of this part for processing
and approving applications and for servicing guaranteed loans depend on
when a complete application is received. The Agency will process and
approve applications, and service guaranteed loans according to the
provisions of this part for all complete guaranteed loan applications
that it receives on or after October 1, 2020, including guaranteed loan
applications submitted under any of the programs whose authorization is
identified in this section. All complete applications received before
October 1, 2020, will be processed, and awarded and guaranteed loans
serviced in accordance with the existing regulations in effect at the
complete application date for the program under which the application
was submitted.
0
3. Amend Sec. 5001.2 by revising paragraphs (b) and (d) to read as
follows:
Sec. 5001.2 Structure.
* * * * *
(b) Subpart B. This subpart contains provisions for determining
project, borrower, and lender eligibility that are applicable to each
guaranteed loan made under this part. It also contains a list of
eligible and ineligible uses of loan funds, ineligible projects and
conditions that would make an otherwise eligible borrower ineligible.
The lender's agreement is addressed as well as maintenance of approved
lender status.
* * * * *
(d) Subpart D. This subpart contains provisions relating to
applications for a loan guarantee under this part, including
preliminary eligibility reviews, the application process, application
evaluation, and the application award processes that are applicable to
each guaranteed loan made under this part.
* * * * *
0
4. Amend Sec. 5001.3 by revising the definitions of ``Affiliate'',
``Agricultural producer'', ``Collateral'', ``Commercially available,
``Debt Collection Improvement Act'', ``Delinquency'', ``Energy
efficient equipment and
[[Page 79705]]
systems'', ``Federal debt'', ``Guarantor'', ``Hospital'', ``Hybrid'',
``Local owner'', ``Matching funds'', ``Natural resource value-added
product'', ``Professional service'', ``Refurbished'', ``Renewable
energy system (RES)'', ``Retrofitting'', ``Rural and rural area'',
``Simple payback'', ``Small business'', ``Total project costs'', and
``Underserved communities'' to read as follows:
Sec. 5001.3 Definitions.
* * * * *
Affiliate means a person that is connected with or controlled by
another organization. Factors such as ownership, management, current
and previous relationships with or ties to another person, and
contractual relationships, will be considered in determining whether
affiliation exists. Affiliation is determined using the principles
outlined in 13 CFR 121.103.
* * * * *
Agricultural producer means a person, including non-profits,
directly engaged in the production of agricultural products through
labor management and operations, including the cultivating, growing,
and harvesting plants and crops (including farming); breeding, raising,
feeding, or housing of livestock (including ranching); forestry
products; hydroponics; nursery stock; or aquaculture, whereby 50
percent or greater of their gross income is derived from the
operations. All gross income of the applicant entity is included for
agricultural producer eligibility. The percentage is calculated as the
average of gross agricultural operations income of the concern divided
by the gross non-farm income of the concern for the five most recent
years. If the concern has been in operation for less than 60 months but
for at least 12 months, average gross agricultural operations income,
and gross non-farm income for as long as the concern has been in
operation will be used. Agricultural operations income may include such
items as production contracts, crop insurance, commodity payments, etc.
Total income may include W-2 wages, schedule C income, and other income
not related to the agricultural operation. Calculations will be using
the applicant's five most recent tax years. Each year's gross
agricultural operations income will be divided by the applicant's gross
total income, then the five years will be averaged to determine
eligibility. An agricultural producer could be located in either a
rural or a non-rural area.
* * * * *
Collateral means the asset(s), including assignments of relevant
agreements, pledged by the borrower to the lender as security for the
guaranteed loan.
* * * * *
Debt Collection Improvement Act (DCIA) means the Debt Collection
Improvement Act of 1996, 31 U.S.C. 3701 et seq., which requires that
any nontax monies that are payable or may become payable from the
United States under contracts and other written agreements to any
person not an agency or subdivision of a state or local government may
be subject to certain collection options, such as administrative
offset, for a delinquent debt the person owes to the United States
implemented under 7 CFR part 3.
* * * * *
Delinquency means a situation that exists when a scheduled loan
payment on a guaranteed loan made under this part is more than 30
calendar days past due and cannot be cured within the next 30 calendar
days. For purposes of this part, delinquency provides guidance for
completing borrower status reports and is not used to define monetary
or non-monetary default or undertaking-related servicing actions.
* * * * *
Energy efficient equipment and systems (EEE) means equipment or
systems for agricultural production or processing that exceed any of
the following standards. Applications for energy efficient equipment
and systems must clearly demonstrate energy efficiency.
* * * * *
Essential community facility means a public improvement, operated
on a non-profit basis, needed for the orderly development of a rural
community where the rural community is a city or town, or its
equivalent county or multi- county area. The term ``facility'' refers
to both the physical structure financed, and the resulting service
provided to rural residents or rural businesses. Facilities may
include, but are not limited to, courthouses, community centers,
libraries, firehouses, health care, education, transportation, and
industrial parks. An industrial park consists of land and the necessary
access ways and utilities to the site, but not improvements erected on
such site.
* * * * *
Federal debt means debt owed to the Federal Government that is
subject to collection under the Debt Collection Improvement Act of
1996, 31 U.S.C. 3701, et seq.
* * * * *
Guaranteed loan means a loan made and serviced by a lender for
which the Agency and lender have entered into a lender's agreement and
for which the Agency has issued a loan note guarantee. Unless otherwise
specified, guaranteed loan refers to a loan that the Agency has
guaranteed under this part.
* * * * *
Guarantor means a person giving assurance to the Agency under an
Agency-approved written agreement that the borrower's obligations will
be fulfilled and promising its undertaking of responsibility for
repayment of a guaranteed loan if the borrower should default.
* * * * *
Hospital (1) For the purpose of refinancing rural hospital debt in
accordance with Sec. 5001.102(d)(5), hospital means the following
types of facilities defined in the Social Security Act, Section 1861
(42 U.S.C. 1395x):
(i) Hospital (section 1861(e)).
(ii) Psychiatric hospital (section 1861(f)).
(iii) Long-term care hospital (section 1861(ccc)); and shall also
include the following other provider types defined in the Social
Security Act, Section 1861 (42 U.S.C. 1395X):
(A) Critical access hospital (section 1861(mm)(1)).
(B) Religious nonmedical health care institution (section
1861(ss)(1)).
(2) The Agency will use the applicant provider's Centers for
Medicare and Medicaid Services (CMS) Certification Number (CCN) to
verify the applicant provider is listed as a ``Hospital'' for the
``Provider or Supplier Type'' category on the CMS Quality Certification
and Oversight Reports (QCOR) website qcor.cms.gov/index_new.jsp.
* * * * *
Hybrid means a combination of two or more renewable energy
technologies that are incorporated into a unified system to support a
single project. Projects which propose two or more different renewable
energy technologies that are not incorporated into a unified system and
projects which propose different renewable energy technologies at two
or more locations (a different technology at each site) are not
eligible. For example, installing wind technologies at one location and
solar technologies at another location is not considered hybrid but
installing wind and solar technologies that are incorporated into a
unified system to support a single project at both locations is
considered hybrid.
* * * * *
Local owner means an individual who owns any portion of an entity
that is the eligible borrower and whose primary residence is located
within the normal
[[Page 79706]]
commuting area, typically 100 miles or less, of the guaranteed loan
project.
* * * * *
Matching funds means the 25 percent of total eligible project costs
required by 7 U.S.C. 8107 (REAP) to be eligible to receive a guaranteed
loan. Funds provided by the borrower in excess of matching funds are
not matching funds.
* * * * *
Natural resource value-added product means a product derived from
any naturally occurring resource, including agricultural resources,
that is further processed to add value or used to generate energy or
renewable energy. For example, wind or the sun being used for energy
generation, grapes that are processed into wine or jam, or straw that
is processed into particle board. Feeding grain to livestock is not
considered as part of this definition.
* * * * *
Professional service means services used by the borrower for
planning and developing a project, including, but not limited to,
appraisals, architectural services, surveys, environmental impact
analyses, implementing mitigation measures, and establishing or
acquiring property rights. Such services are generally rendered by
persons licensed or certified by States or accreditation associations,
such as architects, engineers, accountants, attorneys, or appraisers,
and those rendered by loan packagers, but not including loan finders. A
loan finder fee is not considered a professional service.
* * * * *
Refurbished means a piece of equipment or renewable energy system
that has been brought into a commercial facility, thoroughly inspected,
and worn parts replaced and has a warranty that is approved by the
Agency or its designee An example of refurbished equipment is a diesel
engine that has been rebuilt to factory specifications. The purchase of
used equipment which has not been refurbished is not eligible.
* * * * *
Renewable energy system (RES) means a system that produces usable
energy from a renewable energy source. Co-firing with fossil fuels,
natural gas or petroleum-based products or materials such as coal and
other fuels, oils, chemicals, tires, or plastic are not eligible; and
may include:
(1) Distribution components necessary to move energy produced by
such system to the initial point of sale; and
(2) Other components and ancillary infrastructure of such system,
such as a storage system; however, such system may not include a
mechanism for dispensing energy at retail e.g., a flexible fuel pump.
* * * * *
Retrofitting means a modification to an existing building or
installed equipment that incorporates a function or feature(s) not
included in the original design when built or for the replacement of
existing components with components that improve the original design
and does not affect original warranty if the warranty is still in
existence. Examples of retrofitting include:
(1) Installing newly designed blades to an existing wind turbine to
enhance energy production.
(2) Adding equipment or processes to or altering or enhancing an
existing RES to improve production, efficiency, or financial viability,
such as a feedstock retreater on an existing biodiesel production
plant;
(3) Adding a battery system to an existing RES;
(4) Installing a steam turbine at an ethanol plant, or;
(5) Installing a combined heat and power system for a pellet
production facility.
* * * * *
Rural and rural area means any area of a State not in a city or
town that has a population of more than 50,000 inhabitants, and which
excludes certain populations pursuant to 7 U.S.C. 1991(a)(13)(H),
according to the latest decennial census of the United States and not
in the urbanized area contiguous and adjacent to a city or town that
has a population of more than 50,000 inhabitants. In making this
determination, the Agency will use the latest decennial census of the
United States. Applications cannot be approved subject to meeting rural
area requirements. Locations that are contiguous and adjacent to an
urbanized area will be delineated as a non-eligible area in the Rural
Development Property Eligibility Map found at: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do. This map is
maintained independently by another government agency and is oriented
through census tract data. The following exclusions apply:
(1) Any area in the urbanized area contiguous and adjacent to a
city or town that has a population of more than 50,000 inhabitants that
has been determined to be ``rural in character'' as follows:
(i) The determination that an area is ``rural in character'' will
be made by the Under Secretary of Rural Development. Rural in character
requests and determinations are project specific; e.g., if approved,
the determination does not apply to any future request made within the
same area. The process to request a determination under this provision
is outlined in paragraph (1)(ii) of this definition. The determination
that an area is ``rural in character'' under this definition will apply
to areas that are within:
(A) An urbanized area that has two points on its boundary that are
at least 40 miles apart, which is not contiguous or adjacent to a city
or town that has a population of greater than 150,000 inhabitants or
the urbanized area of such a city or town; or
(B) An urbanized area contiguous and adjacent to a city or town of
greater than 50,000 inhabitants that is within \1/4\ mile of a rural
area.
(ii) Units of local government may petition the Under Secretary of
Rural Development for a ``rural in character'' designation by
submitting a petition to the appropriate Rural Development State
Director for recommendation to the Administrator on behalf of the Under
Secretary. The petition shall document how the area meets the
requirements of paragraph (1)(i)(A) or (B) of this definition and
discuss why the petitioner believes the area is ``rural in character,''
including, but not limited to, the area's population density,
demographics, and topography and how the local economy is tied to a
rural economic base. Upon receiving a petition, the Under Secretary
will consult with the applicable governor or leader in a similar
position and request comments to be submitted within 5 business days,
unless such comments were submitted with the petition. The Under
Secretary will release to the public a notice of a petition filed by a
unit of local government not later than 30 days after receipt of the
petition by way of publication in a local newspaper and posting on the
Agency's website at rd.usda.gov/onerdguarantee, and the Under Secretary
will make a determination not less than 15 days, but no more than 60
days, after the release of the notice. Upon a negative determination,
the Under Secretary will provide to the petitioner an opportunity to
appeal a determination to the Under Secretary, and the petitioner will
have 10 business days to appeal the determination and provide further
information for consideration. The Under Secretary will make a
determination of the appeal in not less than 15 days, but no more than
30 days.
(iii) Rural Development State Directors may also initiate a request
to the Under Secretary to determine if an area is ``rural in
character.'' A written recommendation must document how
[[Page 79707]]
the area meets the statutory requirements of paragraph (1)(i)(B) of
this definition and discusses why the State Director believes the area
is ``rural in character,'' including, but not limited to, the area's
population density, demographics, topography, and how the local economy
is tied to a rural economic base. Upon receipt of such a request, the
Administrator will review the request for compliance with the ``rural
in character'' provisions and make a recommendation to the Under
Secretary. Provided a favorable determination is made, the Under
Secretary will consult with the applicable Governor and request
comments within 10 business days, unless gubernatorial comments were
submitted with the request. A public notice will be published by the
State Office in accordance with paragraph (1)(ii) of this definition.
There is no appeal process for requests made on the initiative of the
State Director.
(2) An area that is attached to the urbanized area of a city or
town with more than 50,000 inhabitants by a contiguous area of
urbanized census blocks that is not more than two census blocks wide.
Applicants from such an area should work with their Rural Development
State Office to request a determination of whether their project is
located in a rural area under this provision. This applies to areas
that would not be considered a rural area because they are attached to
the urbanized area of a city or town of greater than 50,000 inhabitants
by a ``string'' area that is two census blocks wide or less (which are
typically interstates or major highways). As long as the ``string''
area is two census blocks wide or less, the area outside of the
urbanized area, beginning with the ``string'' area, may be considered
rural. Once an area is approved as a string exception, any project
within that area is eligible.
(3) For the Commonwealth of Puerto Rico, the island is considered
Rural and eligible except for the San Juan Census Designated Place
(CDP) and any other CDP with greater than 50,000 inhabitants. Areas
within CDPs with greater than 50,000 inhabitants, other than the San
Juan CDP, may be determined to be Rural if they are ``not urban in
character.''
(4) For the State of Hawaii, all areas within the State are
considered rural and eligible except for the Honolulu CDP within the
County of Honolulu and any other CDP with greater than 50,000
inhabitants. Areas within CDPs with greater than 50,000 inhabitants,
other than the Honolulu CDP, may be determined to be rural if they are
``not urban in character.''
(5) For the purpose of defining a rural area in the Republic of
Palau, the Federated States of Micronesia, and the Republic of the
Marshall Islands, the Agency shall determine what constitutes rural and
rural Area based on available population data.
* * * * *
Simple payback means the estimated simple payback of a project
funded under this part as calculated using paragraph (1), (2), or (3)
of this definition, as applicable.
(1) Energy efficiency improvement projects simple payback = (Total
Project Costs) / (Dollar value of energy saved).
(i) Energy saved will be determined by subtracting the projected
energy (determined by the method in paragraph (1)(i)(B) of this
definition) to be consumed from the historical energy consumed
(determined by the method in paragraph (1)(i)(A) of this definition),
and converting the result to a monetary value using a constant value or
price of energy (determined by the method in paragraph (1)(i)(C) of
this definition).
(A) Actual energy used in the original building and/or equipment,
as applicable, prior to the EEI project, must be based on the actual
average annual total energy used in British thermal units (BTU) over
the most recent 12, 24, 36, 48, or 60 consecutive months of operation.
(B) Projected energy use if the proposed EEI project had been in
place for the original building and/or equipment, as applicable, for
the same time period used to determine that actual energy use under
paragraph (1)(i)(A) of this definition.
(C) Value or price of energy must be the actual average price paid
over the same time period used to calculate the actual energy used
under paragraph (1)(i)(A) of this definition.
(ii) Energy efficiency improvement projects simple payback does not
allow EEI to monetize benefits other than the dollar amount of the
energy savings the agricultural producer or rural small business
realizes as a result of the improvement.
(iii) Proposed additional energy consumption by a business which
would result in greater savings if implemented is not considered in the
payback calculation.
(2) Renewable energy systems projects simple payback = (total
project costs) / (dollar value of energy units replaced, credited,
sold, or used and fair market value of byproducts as applicable in a
typical year).
(i) Value of energy replaced will be calculated based on the
borrower entity's historical energy consumption with actual average
price paid for the energy replaced, following the methodology outlined
in paragraph (1)(i) of this definition RES replacement projects which
generate more energy than the applicant's historical records document,
may add to the replacement value, the value obtained by taking the
excess energy generated times a documented market price in order to
derive at total dollar value of energy units replaced, credited, sold,
or used.
(ii) Value of energy credited or sold will be calculated based on
the amount of energy units to be sold at the proposed rate per unit, as
documented in utility net metering or crediting policies and/or a
purchase agreement.
(iii) If proposed energy will be used in a new facility (includes
any direct-use project), value of energy used will be calculated based
on the amount of energy units to be used at the documented price per
unit of conventional fuel alternative.
(iv) Value of byproducts produced by and used in the project or
related enterprises should be documented at the fair market value to be
received for the byproducts in a typical year.
(v) Renewable energy systems projects simple payback does not
include any one-time benefits such as but not limited to construction
and investment-related benefits, nor credits which do not provide
annual income to the project, such as tax credits. These benefits may
be considered when appropriate for calculating repayment ability of
guaranteed loans.
(vi) For RES projects that involve a shared meter with a residence
where the cost of the system has been prorated, only the eligible
prorated amount of energy attributed to the rural business or
agricultural producer will be used in the payback calculation. For
projects that involve in-eligible expenses other than residential, the
full amount of energy production will be used in the payback
calculation.
(3) Energy efficiency equipment and systems projects simple payback
= (total project costs) / (dollar value of efficiency savings).
Efficiency savings will be determined by subtracting the annual value
of energy to be consumed by the proposed energy efficient equipment
from the annual value of energy that a conventional equipment
alternative would have consumed. Adequate documentation must be
provided for all consumption estimates and values utilized in the
calculation.
* * * * *
Small business means an entity that meets the requirements of
paragraphs (1) and (2) of this definition:
[[Page 79708]]
(1) An entity or utility, as applicable, as further defined in
paragraphs (1)(i) through (iv) of this definition and meeting the
requirements in paragraph (2) of this definition. With the exception of
the entities identified in this paragraph, all other non-profit
entities are not small businesses for the purposes of REAP program
eligibility:
(i) A private for-profit entity, including a sole proprietorship,
partnership, or corporation. The application must sufficiently describe
the operations of the applicant's business entity;
(ii) A cooperative (including a cooperative qualified under section
501(c)(12) of the Internal Revenue Code);
(iii) An electric utility (including a Tribal or governmental
electric utility) that provides service to rural consumers and operates
independent of direct government control; or
(iv) A Tribal corporation or other Tribal business entities that
are chartered under Section 17 of the Indian Reorganization Act (25
U.S.C. 5124) or have similar structures and relationships with their
Tribal governments and are acceptable to the Agency. The Agency will
determine the small business status of such Tribal entity without
regard to the resources of the Tribal government. This means that only
the applicant entity must meet the definition of a small business; and
(2) An entity that meets the requirements of (i) or (ii) below:
(i) The Small Business Administration size standards in accordance
with 13 CFR 121.301(a), and any successor regulation. The size of the
applicant alone (without affiliates) must not exceed the size standard
designated for the industry in which the applicant is primarily
engaged. Also, the size of the applicant combined with its affiliates
must not exceed the size standard designated for either the primary
industry of the applicant alone or the primary industry of the
applicant and its affiliates, whichever is higher. Size standards to be
utilized are found in 13 CFR 121.201, and any successor regulation. The
size standards themselves are expressed either in number of employees
or annual receipts in millions of dollars, unless otherwise specified.
The number of employees or annual receipts indicates the maximum
allowed for an entity and its affiliates and are calculated using the
following criteria:
(A) The number of employees is calculated using the guidance found
in 13 CFR 121.106, and any successor regulation. The average number of
employees is used based upon number of employees for each of the pay
periods for the preceding 24 months. Part-time and temporary employees
are counted as full-time employees. If the entity has not been in
business for 24 months, the average number of employees is used for
each of the pay periods during which it has been in business; or
(B) Annual receipts are calculated using the guidance found in 13
CFR 121.104, and any successor regulation. Federal income tax returns
and any amendments filed with the IRS on or before the date of
application must be used. If an entity has not filed a Federal income
tax return, the Agency will calculate the entities annual receipts
using any other available information such as regular books of account,
or audited financial statements; or
(ii) The size standard outlined in 13 CFR 121.301(b)(2), and any
successor regulation. Including its affiliates, the entity must not
have a tangible net worth in excess of $20 million, and average net
income after Federal income taxes (excluding carry over losses) for the
preceding two completed fiscal year not in excess of $6.5 million.
* * * * *
Total project costs means the sum of all costs associated with a
completed project. All costs associated with a completed project,
including ineligible project costs, must be included. Total project
costs for retrofitting an existing RES includes the costs associated
with the modifications or replacement of the existing components.
* * * * *
Underserved communities mean communities (including urban or rural
communities and Indian tribal communities) that have limited access to
affordable, healthy foods, including fresh fruits and vegetables, in
grocery retail stores or farmer-to-consumer direct markets and that
have either a high rate of hunger or food insecurity or a high poverty
rate as reflected in the most recent decennial census or other Agency-
approved census. For purposes of awarding priority points, when
applicable, this definition shall also include unserved or underserved
populations, including minorities or protected groups, persistent
poverty areas, or areas where Rural Development projects have not been
awarded in the past five years. High poverty rate is based on current
census data and is not the same as persistent poverty which uses data
for the last 30 years.
* * * * *
0
5. Amend Sec. 5001.6 by revising paragraph (b) to read as follows:
Sec. 5001.6 General lender responsibilities.
* * * * *
(b) Lenders can contract for services, but such contracting does
not relieve a lender from its responsibilities as identified in this
part or, where applicable, in the applicable guaranteed loan program
identified in Sec. 5001.1.
* * * * *
0
6. Revise Sec. 5001.7 to read as follows:
Sec. 5001.7 Agency's special initiatives.
Applicants submitting applications that support the implementation
of strategic or special initiatives are encouraged to review the
Agency's annual notice to determine if their projects are eligible for
receiving priority for projects. These projects may also support the
implementation of strategic economic development and community
development plans on a multi-jurisdictional and multi-sectoral basis in
accordance with section 6401 of the Agriculture Improvement Act of 2018
(Pub. L. 115-334).
0
7. Amend Sec. 5001.8 by revising paragraphs (e) introductory text and
(e)(1) to read as follows:
Sec. 5001.8 Approvals, regulations, and forms.
* * * * *
(e) 7 CFR part 5001 does not prohibit or consent to electronic
signatures. Rural Development will accept electronic signatures from
lenders for origination, loan closing, and servicing documents in
accordance with the E-Sign Act unless otherwise prohibited by law or
program. Lenders may use electronic signatures for electronic
promissory notes (eNotes), deeds of trust and other documents relevant
to the loan transaction, providing that the lender perfects and
maintains a first lien position, an enforceable promissory note, and
meets all other agency requirements including the following:
(1) Lenders may submit forms to Rural Development electronically
using USDA's Service Center Agencies Online Services website.
Registration is limited to individuals and each individual authorized
by the lender must register and upon registration may electronically
sign and submit certain forms on behalf of the lender.
* * * * *
0
8. Revise and republish Sec. 5001.9 to read as follows:
Sec. 5001.9 Standards for financial information.
(a) All financial information (e.g., financial statements, balance
sheets, financial projections, and income statements) must be prepared
and
[[Page 79709]]
submitted in accordance with accounting practices acceptable to the
Agency. Such practices can include, but are not limited to, Generally
Accepted Accounting Principles (GAAP) and the industry's standard
accounting practice. Unless the applicant or borrower meets the
threshold for an audit in accordance with 2 CFR part 200 subpart F, the
type of financial statement, e.g., borrower prepared, compiled,
reviewed, or audited, required is typically the decision of the lender.
(b) For sole proprietorships and other situations where business
assets are held personally, financial statements must be prepared using
only the assets and liabilities directly attributable to the
applicant's project. For these situations, assets, plus any
improvements, must be valued at the lower of cost or market value.
(c) A tax return is not an acceptable financial statement when
underwriting a loan guaranteed under this part; however, tax return
information may be used to prepare financial statements and to
determine REAP eligibility.
0
9. Amend Sec. 5001.101 by:
0
a. Revising paragraphs (a) and (b); and
0
b. Adding paragraph (f)
The revisions and addition read as follows:
Sec. 5001.101 Introduction.
* * * * *
(a) Project eligibility. Sections 5001.102 through 5001.108
identify requirements for projects to be eligible to receive a loan
guarantee under this part. Sections 5001.115 through 5001.119 identify
types of projects that are not eligible for a loan guarantee under this
part. The Agency will not issue a loan guarantee under this part for
any project that does not meet the applicable eligibility criteria as
specified.
(b) Borrower eligibility. Section 5001.126 identifies the types of
borrowers that are eligible to receive a loan guarantee for their
projects under this part. The types of borrowers eligible to receive
loan guarantees for their projects vary based on the guaranteed loan
program they are applying under and that guaranteed loan program's
authorizing statute as set forth in Sec. 5001.1. Section 5001.127
identifies conditions that would make an otherwise eligible borrower
ineligible for receiving a loan guarantee for its project under this
part.
* * * * *
(f) Use of funds. Section 5001.121 identifies eligible uses of
guaranteed loan funds and Sec. 5001.122 identifies ineligible uses of
guaranteed loan funds.
* * * * *
0
10. Amend Sec. 5001.102 by revising and republishing paragraph (d) to
read as follows:
Sec. 5001.102 Project eligibility--general.
* * * * *
(d) Debt refinancing. The Agency can guarantee loans for debt
refinancing, as described in paragraphs (d)(1) through (5) of this
section when the guaranteed loan extinguishes the debt being
refinanced. These paragraphs do not apply to REAP loans, see Sec.
5001.121(d)(14) for REAP refinancing provisions. Longer-term financing
to pay off a lender's interim construction loan after project
completion will not be treated as debt refinancing as long as it meets
the requirements for takeout of interim financing in Sec.
5001.121(c)(6). An eligible debt refinancing project is:
(1) Refinancing of debt on one or more loans owed to another
creditor. There is no limit on percent of total use of funds if a new
lender is refinancing debt owed to another creditor;
(2) Refinancing of debt owed to the applicant lender or any part
thereof provided that the applicant lender debt being refinanced does
not exceed 50 percent of the total use of funds in the new aggregated
federally-guaranteed debt, the applicant lender debt being refinanced
is in a current status for the past six months and the new guaranteed
loan is providing better rates or repayment terms. Better rates or
repayment terms can be shown in a variety of ways including the lender
providing a fixed rate over a lower variable rate provided the change
is advantageous to the borrower's long-term repayment ability. The
current status cannot be achieved by the lender forgiving the
borrower's debt or by servicing actions that impact the borrower's
repayment schedule; or
(3) Refinancing of debt owed directly to the Federal Government or
that is federally-guaranteed, including any guaranteed debt owed to the
applicant lender, when a refinance of this debt is consistent with
sections 333, ``Special Conditions and Limitations on Loans'' and
306(a)(24)(C), ``Loan Guarantees for Water, Wastewater, and Essential
Community Facilities Loans'' of the Consolidated Farm and Rural
Development Act (as amended by the Agriculture Improvement Act of 2018,
Pub. L. 115-334). Such guaranteed debt shall not be included in the
amount of applicant lender debt when calculating the maximum percentage
of the total use of funds in the new guaranteed loan as stated in
paragraph (d)(2) of this section; and,
(4) When the refinancing is in accordance with paragraphs (d)(1)
through (3) of this section, the following requirements must be met:
(i) The Agency has determined that the project is viable, and debt
refinancing is necessary to improve cash flow;
(ii) The debt is reflected on the borrower's balance sheet and the
original loan funds were used for project-eligible purposes.
Refinancing of existing of lines of credit is considered an eligible
purpose for debt refinancing in the B&I program;
(iii) For loans to existing businesses where debt refinancing is a
majority purpose of the guaranteed loan, the borrower must demonstrate
historical debt service coverage ratios using proposed debt service
requirements of not less than 1.1 times, or the borrower's current
financial performance demonstrates it has corrected or recovered from
impacts or issues adversely affecting its past financial performance.
The debt service coverage ratio computed based on the current income
statement must be at least 1:1 to demonstrate correction or recovery.
(5) For CF guaranteed loan requests only, refinancing of debt, not
including new construction, incurred by a rural hospital to preserve
access to a health service when the refinancing will meaningfully
improve the financial position of the hospital. The debt can be
existing Agency direct loan debt, Agency guaranteed debt, or another
lender's debt (including other non-Agency Federal guaranteed debt).
Loan requests to refinance rural hospital debt must demonstrate that
the new amount of annual debt repayment on the debt being refinanced
will be less than the existing amount of annual debt repayment and
provide a total debt service coverage ratio of at least 1.1 based on
historical cash flow. To calculate the ratio, the new debt service
amount will include annual capital expense reserve and annual debt
repayment reserve requirements. This information will be provided by
the lender on an Agency approved application for loan guarantee and its
associated supporting documentation.
0
11. Amend Sec. 5001.103 by:
0
a. Revising paragraphs (a)(1), (a)(3) and (b)(1); and
0
b. Adding paragraphs (d) and (e).
The revisions and additions read as follows:
Sec. 5001.103 Eligible CF projects and requirements.
* * * * *
(a) * * *
(1) Health care facilities and services, including but not limited
to hospitals and assisted living facilities providing
[[Page 79710]]
daily living and health care assistance in compliance with Federal,
Tribal and/or State licensure or certification requirements;
* * * * *
(3) Community, public, social, educational, or cultural facilities
or services, including but not limited to:
(i) Business incubators when not an inherently commercial
enterprise, and the applicant demonstrates the following:
(A) Applicant is a mission-driven organization such as a local or
regional economic development organization;
(B) The facility will be used to provide technical assistance,
training, workforce development, administrative support services and
vocational training to address workforce shortages in the community or
region; and
(C) Capacity building and support services that include at a
minimum the following with the borrower demonstrating expertise in one
or more of these services or presents a sustainable economically
feasible program to outsource such activities:
(1) Business plan development;
(2) Administrative support services;
(3) Training and technical assistance;
(4) Mentoring, coaching, and leadership;
(5) Finance and accounting workshops;
(6) Programs to access capital; and
(7) High-speed internet access;
(ii) Thrift stores that operate as charitable organizations to
enrich the quality of life for residents of the rural community they
serve demonstrated by the following activities:
(A) Collect and resell used or donated merchandise to community
residents and may also provide other services such as job training or
food pantries;
(B) Receive donations, gifts, or bequests of money to help fund the
organization and its purpose with a significant portion obtained from
the rural community it serves.
(C) Profits are reinvested in the facility or in charitable
activities in the rural community served to ensure the goals of the
organization are met.
(iii) Fairgrounds, agricultural exposition centers, farmers
markets, food distribution and food banks;
* * * * *
(b) * * *
(1) To demonstrate availability for public use, the borrower may
not restrict use of or membership to its facility or service based on
race, color, religion, sex, national origin, age, disability, sexual
orientation, or marital or familial status Veterans of Foreign Wars and
American Legion post facilities must be open and available for use by
appointment or lease to community residents or groups.
* * * * *
(d) Leased space. Eligible projects may include leased space to
ineligible organizations or leased space used for ineligible commercial
activities provided the floor space leased to ineligible organizations
or used for ineligible commercial activity is less than 25 percent of
the facility's floor space. The ineligible organization and the
ineligible commercial activity must be related to and enhance the
primary purpose of the eligible project. Examples include a hair salon
in an assisted living facility, or a pharmacy in a medical facility.
(e) Purchase of existing facility. When the project is to otherwise
improve an essential community facility through the purchase of an
existing facility as defined in Sec. 5001.3 the following are
required:
(1) An appraisal which demonstrates the purchase price is fair and
reasonable and represents the market value of the facility through an
arm's length transaction; and
(2) If the transaction is necessary to improve the facility,
documentation of the improvements that will be required and the plan,
including source of funding, to complete those improvements within a
reasonable timeframe; or
(3) If the transaction is necessary to prevent a loss of service,
documentation in the form of a financial analysis that demonstrates the
seller will not have the financial means to continue to operate the
facility and provide the needed services.
0
12. Amend Sec. 5001.104 by revising the introductory text and
paragraphs (a) and (d)(1) to read as follows:
Sec. 5001.104 Eligible WWD projects and requirements.
For a WWD project to be eligible for a loan guarantee under this
part, it must meet the criteria specified in Sec. 5001.102 and this
section and be for a borrower eligible to submit an application for the
project in accordance with Sec. 5001.126.
(a) Type of project. The project must be for one or more of the
following facilities:
(1) Drinking water facilities, including but not limited to water
source, treatment and distribution;
(2) Sanitary sewage facilities, including but not limited to
collection and treatment;
(3) Solid waste facilities; or,
(4) Stormwater facilities.
* * * * *
(d) * * *
(1) The project must be installed to serve any user within the
service area who desires service and can be feasibly and legally
served.
* * * * *
0
13. Amend Sec. 5001.105 by revising paragraphs (b)(7), (b)(10),
(b)(14), (b)(15)(i)(D), (b)(18)(i), (b)(18)(ii) introductory text,
(b)(20), (b)(22)(vii), (d) introductory text, and (d)(1)(iii) to read
as follows:
Sec. 5001.105 Eligible B&I projects and requirements.
* * * * *
(b) * * *
(7) Agricultural production, when not eligible for Farm Service
Agency (FSA) farm loan programs assistance and when it is part of an
integrated business also involved in the processing of agricultural
products. Any agricultural production considered for guaranteed loan
financing must be owned, operated, and maintained by the business
receiving the guaranteed loan. Examples of potentially eligible
agricultural production include but are not limited to an apple orchard
in conjunction with a food processing plant; poultry buildings linked
to a meat processing operation; or sugar beet production coupled with
storage and processing.
* * * * *
(10) Development and construction of broadband and
telecommunication systems, including modification of existing systems,
that are not otherwise eligible for funding in the RUS program or if
funding is unavailable in the RUS program, subject to the public notice
filing requirements of 7 CFR 1738.106(a) and the additional reporting
requirements of 7 CFR 1738.107.
* * * * *
(14) Leasehold improvements when the lease contains no reverter
clauses or restrictive clauses that would impair the use or value of
the property as security for the loan. The term of the lease must be
equal to or greater than the term of the loan. Leasehold improvements
are physical enhancements made to property by or on behalf of the
property's lessee. When improvements are made to real property and
those improvements are permanently affixed to the property, the title
to those improvements automatically transfers to the owner of the
property upon termination of the lease.
(15) * * *
(i) * * *
(D) Includes an appropriate agreement with retail and institutional
clients to inform consumers that they are
[[Page 79711]]
purchasing or consuming locally or regionally produced agricultural
food products. The agreement(s) must be in place prior to issuance of
the loan note guarantee and stated as part of the lender's
certification at loan closing.
* * * * *
(18) * * *
(i) Guaranteed loans to eligible cooperatives may be made in
principal amounts up to $40 million if the project is located in a
rural area, the cooperative facility being financed provides for the
value-added processing of agricultural commodities, and the total
amount of guaranteed loans exceeding $25 million does not exceed 10
percent of the funds available for the fiscal year. Guaranteed loans in
excess of $25 million in accordance with this provision may only be
approved by the Secretary, whose authority may not be redelegated.
(ii) Guaranteed loans to eligible cooperatives may also be made in
non-rural areas provided:
* * * * *
(20) Nursing homes and assisted living facilities where constant
medical care is provided and available onsite to the residents.
Independent living facilities are not eligible in accordance with Sec.
5001.118(a). Independent living facilities are considered residential
property as they have many similarities to a multi-family housing
complex, whereas nursing home and assisted living facility tenants rely
on those entities to provide needed personal or medical care.
Properties consisting of both assisted care facilities and independent
senior living may be eligible if the availability of the on-site
medical services is an optional service to the independent living
residents, or if the predominant residents of the facility require
assisted living care.
* * * * *
(22) * * *
(vii) Operations and maintenance. The demonstration of technical
merit is the completion of two operating cycles at its designed
production level. ``Operating cycle'' is the average time between the
acquisition of materials or the providing of services and the final
cash realization of that acquisition or provision of services.
* * * * *
(d) Capital and equity. Borrowers are required to have sufficient
capital or equity to mitigate the ongoing financial and operational
risks of the business. The capital/equity requirement must be met in
the form of either cash or earning assets contributed to the business
and reflected on the borrower's balance sheet. Transfers of assets at
fair market value between related parties, which are not arm's length
transactions, must be in accordance with GAAP and require evidence that
the transaction was entered into at market terms. Equity cannot include
appraisal surplus or bargain purchase gains. Subordinated debt may be
included when the subordinated debt is in exchange for cash injected
into the business that remains in the business for the life of the
guaranteed loan. The note or other form of evidence must be submitted
to the Agency in order for subordinated debt to count towards meeting
the balance sheet equity requirement. Balance sheet equity will be
determined based upon current and projected borrower financial
statements. A balance sheet as of loan closing is required and should
reflect the new debt and use of proceeds. If there are multiple
borrowers, consolidated financial statements should be presented. The
following capital and equity requirements must be met at the time of
lender's closing of the guaranteed loan.
(1) * * *
(iii) Owner contributed capital, as reflected in the equity section
of the balance sheet, that is equal to or greater than 10 percent of
net total fixed assets plus depreciation.
* * * * *
0
14. Amend Sec. 5001.106 by revising the introductory text, paragraphs
(d)(2), (e)(2) and (e)(3) introductory text to read as follows:
Sec. 5001.106 Eligible REAP-Renewable Energy System (RES) projects
and requirements.
For a REAP RES project to be eligible for a loan guarantee under
this part, it must meet the criteria specified in Sec. 5001.102(a)
through (c) and in paragraphs (a) through (e) of this section and be
for a borrower eligible to submit an application for the project in
accordance with Sec. 5001.126.* * *
* * * * *
(d) * * *
(2) The borrower may install or elect to conditionalize funding
upon the installation of a device (such as a second meter) that results
in 100 percent of the energy generated by the RES project to be used
only by the agricultural operation or rural small business.
* * * * *
(e) * * *
(2) Pass/pass with conditions/fail assignments. The Agency will
assign each area of the technical report, as specified in paragraph
(e)(1) of this section, a ``pass,'' ``pass with conditions,'' or
``fail.'' An area will receive a ``pass'' if the information provided
for the area has no weaknesses and meets or exceeds any requirements
specified for the area. An area will receive a ``pass with conditions''
if the information provided for the area has minor weaknesses which
could be conditioned and reasonably resolved by the borrower.
Otherwise, if the information provided for the area is conclusively
deemed to be a major weakness, or if the area has not been addressed by
the applicant, the area will receive a fail.
(3) Determination. The Agency will compile the results for each
area of the technical report to determine if the project has technical
merit.
* * * * *
0
15. Amend Sec. 5001.107 by revising and republishing paragraph (a) to
read as follows:
Sec. 5001.107 Eligible REAP--Energy Efficiency Improvement (EEI)
projects and requirements.
* * * * *
(a) The EEI project must use less energy on an annual basis than
the original building and/or equipment that it will improve or replace
as demonstrated in an energy assessment or energy audit as applicable.
(1) If the project's total project cost is greater than $80,000,
the energy assessment must be conducted by an energy auditor, an energy
assessor, or an individual supervised by either an energy assessor or
energy auditor. The final energy assessment must be validated and
signed by the energy assessor, the energy auditor who conducted the
energy assessment, or by the supervising energy assessor or energy
auditor of the individual who conducted the assessment, as applicable.
(2) If the project's total project cost is $80,000 or less, the
energy assessment may be conducted in accordance with paragraph (a)(1)
of this section or by a person that has at least 3 years of experience
and completed at least five energy assessments or energy audits on
similar type projects. Eligible EEI include, but are not limited to:
(i) Efficiency improvements to existing RES; and
(ii) Construction of a new building only when the new building is
used for the same purpose as the existing building and if, based on an
energy assessment or energy audit, as applicable, it is more cost
effective to construct a new building that will use less energy on
annual basis than to improve the energy efficiency of the existing
building.
* * * * *
[[Page 79712]]
0
16. Amend Sec. 5001.108 by revising the introductory text to read as
follows:
Sec. 5001.108 Eligible REAP--Energy Efficient Equipment and Systems
(EEE) projects and requirements.
For a REAP EEE project to be eligible for a loan guarantee under
this part, it must meet the criteria specified in Sec. 5001.102(a)
through (c) and in paragraphs (a) through (d) of this section and be
for a borrower that is an agricultural producer eligible to submit an
application for the project in accordance with Sec. 5001.126. The EEE
project can be located in a rural or non-rural area as long as the
energy efficient equipment or systems are used for agricultural
production or processing in accordance with paragraph (a) of this
section. If the borrower plans to use taxable bonds as debt instruments
the provision Sec. 5001.105(b)(19) must be met.
* * * * *
0
17. Amend Sec. 5001.115 by revising paragraphs (l), (n) and (r) to
read as follows:
Sec. 5001.115 Ineligible projects--general.
* * * * *
(l) Telephone systems. In certain circumstances, when not eligible
for assistance through the Agency's telecommunications program these
projects may be eligible for assistance under this part.
* * * * *
(n) Except as provided in Sec. 5001.105(b)(8), owner-occupied
housing. Owner-occupied housing, such as bed and breakfasts, and hotels
and motels, are only eligible when the pro-rata value of the owner's
living quarters, based on square footage, is deducted from the loan
proceeds.
* * * * *
(r) Loans supporting inherently religious activities, such as
worship, religious instruction, proselytization, or to pay costs
associated with acquisition, construction, or rehabilitation of
structures for inherently religious activities, including the financing
of multi-purpose facilities where religious activities will be among
the activities conducted. However, religious organizations may
participate in projects eligible for funding under section 306(a)(24)
of the Consolidated Farm and Rural Development Act, 7 U.S.C.
1926(a)(24), provided they do not use Agency assistance for inherently
religious activities in accordance with 7 CFR part 16, ``Equal
Opportunity for Religious Organizations.'' If an organization conducts
religious activities, they must be offered separately, in time, or
location from programs or services supported with the guaranteed loan.
Participation in the religious activities must be voluntary, and not
mandatory, for the beneficiaries of the program or services. Religious
organizations may not discriminate against a beneficiary or prospective
beneficiary, on the basis of religion or religious beliefs.
Sanctuaries, chapels, or other rooms that are used as a principal place
of worship are ineligible for guaranteed financing under this part.
* * * * *
0
18. Amend Sec. 5001.116 by revising paragraphs (b) and (e) to read as
follows:
Sec. 5001.116 Ineligible CF projects.
* * * * *
(b) Inherently commercial enterprises: This type of project is
typically operated by a private enterprise with an essential
characteristic to produce profits. This term does not include projects
operated by private enterprises on a not-for-profit basis that provide
education, childcare, geriatric care, or health care to rural
communities. Inherently commercial enterprises include but are not
limited to: grocery stores; television and radio services or
facilities; that portion of a water and/or waste disposal facility
normally provided by a business or industrial user; and
telecommunication facilities or services, including broadband or fiber
network services that do not meet the requirements of Sec.
5001.103(a)(6). See Sec. 5001.103(d) for the eligibility of a
commercial enterprise leasing space in an eligible project;
* * * * *
(e) Projects involving the purchase of existing facilities in which
the transaction's purpose is to primarily retire the debt of the seller
in order for the seller to continue to use the facility at a lower
cost. Characteristics of ineligible purchase transactions may include
the following:
(1) An entity, which may or may not be an eligible CF borrower,
forms a new eligible entity or uses an existing eligible related entity
to purchase all or part of its assets;
(2) The new entity uses CF guaranteed loan funds to purchase the
assets at the agreed upon price and leases the assets back to the
seller, generally at a rate which equates to the new debt payments; and
(3) The seller uses the proceeds of the sale to retire its high-
cost debt and continues to use the facilities at a lower cost.
0
19. Amend Sec. 5001.121 by revising the introductory text, paragraphs
(a)(2), (a)(3)(iv), (b), (c)(6), (d) introductory text, and (d)(14)
introductory text to read as follows:
Sec. 5001.121 Eligible uses of loan funds.
Guaranteed loan funds can only be used for the items specified in
this section and any other items the Agency identifies in the Federal
Register. In addition, RD may allow a recipient of a loan guarantee
under this part to use up to 10 percent of project funds to construct,
improve, or acquire broadband infrastructure subject to the
requirements of 7 CFR part 1980, subpart M.
* * * * *
(a) * * *
(2) To pay the cost of conduit, such as pipe, tube, or tile for
protecting electric wires or cables, and its installation in
conjunction with financing facilities authorized in Sec. 5001.103,
when the cost of the conduit is less than 25 percent of the total
project cost and the conduit is not essential to the operation of the
eligible essential facility or service to be financed. The borrower
must be the owner of the conduit. The conduit must be installed at the
time of project construction and must be for public use. A project
example is construction of a road. While work is being completed in
preparation for the eligible road project, the borrower takes advantage
of the construction to install underground conduit in anticipation of
installing fiber optic cables in the near future.
(3) * * *
(iv) Interest on guaranteed loans until the facility is self-
supporting, but not for more than three years; interest on guaranteed
loans secured by general obligation bonds until tax revenues are
available for payment, but not for more than two years; and when the
borrower obtains interim financing for the eligible project, the
guaranteed loan proceeds may be used to pay off the interim financing
as well as the interest on interim financing;
* * * * *
(b) WWD projects. Guaranteed loan funds for a WWD project receiving
a loan guarantee may be used to pay the following:
(1) Constructing, extending, or otherwise improving an eligible
facility outlined in Sec. 5001.104(a), and may include the cost of
materials and labor in addition to the following:
(i) Cost of acquiring interests in land, rights (e.g., water
rights, leases, permits, rights-of-way), and other evidence of land or
water control or protection necessary for development of the project.
[[Page 79713]]
(ii) Purchasing or renting equipment necessary to construct, or
extend the facility services, for owner construction.
(iii) Cost of additional borrower labor and other expenses
necessary to install, extend, or protect the facility.
(iv) Interest incurred during construction in conjunction with
interim financing, and the payoff of the interim loan with the
permanent financing.
(v) Initial operating expenses, including interest, for a period
ordinarily not exceeding one year when the borrower is unable to pay
such expenses, for construction of a new facility. The lender must
provide justification and the Agency must document the reason for
granting the longer time.
(vi) Professional service fees and charges provided the Agency
approves the amounts as reasonable and customary in the area.
(vii) Water reuse, renewable energy, and other construction
projects to improve the sustainability or resilience of an eligible
facility.
(2) Stand-alone projects not involving construction may also be
made for the following purposes:
(i) Costs of acquiring interests in land, rights (e.g., water
rights, leases, permits, rights-of-way), and other evidence of land or
water control or protection necessary for the maintenance or operation
of the facility.
(ii) Purchase of equipment to operate, maintain, or protect
facilities, such as computers, generators, vehicles, backhoes, meters,
pipe, and pumps, etc. The purchase of equipment must include
installation and not be for the sole purpose of increasing inventory.
Owner construction or installation is an option.
(iii) The purchase or acquisition of existing facilities when it is
necessary either to improve service or prevent the loss of service.
(iv) The purchase and installation of RESs for use by an eligible
facility (even if it does not include construction).
(v) Planning, studies, and designs for incorporating renewable
energy or water reuse, or to improve the sustainability or resilience
of an eligible facility.
(vi) The Agency may allow a recipient of a loan guarantee under
this part to use up to 10 percent of project funds to construct,
improve, or acquire broadband infrastructure subject to the
requirements of 7 CFR part 1980, subpart M.
(vii) Professional service fees for engineering and environmental
services that provide services for preplanning evaluation procedures,
such as leak detection, or inflow and infiltration analysis, as
reasonable and customary in the area to evaluate an existing facility's
need for improvements or repairs. Such services will be in accordance
with professional service agreements with copies of analysis to be
provided in the application package for such reports as preliminary
engineering report, final design with plans and specifications, bidding
documents, or the completed environmental review analysis.
(viii) Refinancing in accordance with Sec. 5001.102(d).
(3) Other expenses related to any project under (b)(1) and (2),
including:
(i) Guarantee fees, as determined under Sec. 5001.454.
(ii) Lender fees, as provided in Sec. 5001.403.
(iii) Payoff of interim financing including principal and interest.
(c) * * *
(6) Takeout of interim financing: Guaranteeing a loan that provides
for permanent, long-term financing after project completion to pay off
a lender's interim loan will not be treated as debt refinancing
provided that the lender submits a complete request for preliminary
eligibility review or complete application that proposes such interim
financing prior to closing the interim loan. The borrower must take no
action until the conclusion of the environmental review process prior
to any action that would have an adverse effect on the environment or
limit the choices of any reasonable alternatives to be considered by
the Agency. Interim financing is typically used to pay costs associated
with a planned project, such as construction or installation of
equipment, however, the Agency will consider, on a case-by-case basis,
other reasons to use interim financing. The term for interim financing
loans should be for the construction period plus a reasonable time for
the business to begin generation of working capital to amortize the
loan. Guaranteed promissory notes that do not convert the interim
financing payment schedule to an amortizing permanent schedule in the
same note are not allowed. In certain cases, the applicant lender may
use interim financing to pay-off a borrower's maturing loan with
another lender if it is in the best interests of the borrower. The
takeout of interim financing is only eligible when the permanent loan
on which the guarantee will be placed takes out the interim financing
that financed the planned project and when the lender submits a
complete preliminary eligibility review or application to the Agency
that proposes the interim financing prior to closing the interim loan.
If the interim financing does not meet these requirements, it is
considered debt refinancing and must comply with Sec. 5001.102(d). If
the guarantee is issued prior to construction, the promissory note must
contain and convert the terms of the interim financing to permanent
financing. The Agency will not guarantee takeout of interim financing
loans that prevent a meaningful environmental assessment prior to
Agency loan approval. Even for projects with interim financing, the
Agency cannot approve the loan nor issue a conditional commitment until
the environmental process is complete. The Agency assumes no
responsibility or obligation for interim loans.
* * * * *
(d) REAP projects. Guaranteed loan funds for a project receiving a
loan guarantee under REAP may be used to pay the expenses associated
with the items identified in paragraphs (d)(1) through (14) of this
section, provided such items are directly related to and their use and
purpose are limited to the RES, EEI, or EEE project. The expenses
associated with the items specified in paragraphs (d)(8) through (11)
of this section cannot exceed more than ten percent of the loan amount.
Ten percent is an aggregate amount, not ten percent for each item.
* * * * *
(14) Refinancing outstanding long-term debt. It is not considered
refinancing if loans were structured as construction or bridge loans
for short-term financing needs (interim financing) in preparation for a
long-term loan. Refinancing will be considered when--
* * * * *
0
20. Amend Sec. 5001.122 by revising the introductory text and
paragraphs (a), (k) and (l), and adding paragraph (n) to read as
follows:
Sec. 5001.122 Ineligible uses of loan funds.
Projects that receive a loan guarantee under this part cannot use
the guaranteed loan funds for those expenses or purposes identified in
paragraphs (a) through (n) of this section and for any other item the
Agency identifies in accordance with Sec. 5001.10.
(a) Payment in excess of actual costs (e.g., profit, overhead,
indirect costs, and wages to owners) incurred by the contractor or
other service provider on a contract or agreement that has been entered
into at less than an arm's length transaction or has a potential for a
conflict of interest. In situations where there is common ownership or
an otherwise closely related company is being paid to do construction
or installation work for a borrower, only documented costs associated
with the
[[Page 79714]]
construction or installation can be paid with guaranteed loan funds and
cannot include any profit or wages to such related person.
* * * * *
(k) Agricultural tillage equipment, used equipment, and vehicles
are ineligible for loans as specified under REAP. Costs include costs
for RES and/or EEI projects that are used to improve a vehicle's
ability to propel itself are ineligible uses for loan funds. For
example, modifying an existing vehicle's engine to run on renewable
fuels or replacing an older vehicle with a new more efficient vehicle
are ineligible uses of loan funds. Projects similar to purchasing and
installing solar panels to power a refrigerator or the replacement of a
refrigerator for a more efficient one on a food truck may be considered
eligible uses of loan funds if all other borrower and project
eligibility requirements are met.
(l) Distribution or payment to an individual or entity that will
retain an ownership interest in the borrower or distribution or payment
to a beneficiary of the borrower. Distribution or payment to a member
of the immediate family of an owner, partner, or stockholder will not
be permitted, except for change in ownership interest and the Agency
determines the price paid to be reasonable based upon an appraisal.
This prohibition does not apply to transfers of ownership for ESOPs or
worker cooperatives, to cooperatives where the cooperative pays the
member for product or services, or where member stock is transferred
among members of the cooperative in accordance with Sec. 5001.140 of
this part. This paragraph does not preclude the former owner from
remaining an employee of the business during a reasonable transition
period. The payment of personal debt is considered a distribution or
payment to an owner, except for the refinancing of debt for an asset
that is used in the business when the owner is a co-borrower on the
loan.
* * * * *
(n) Lease payments, including lease to own or capitalized leases.
This does not preclude a REAP applicant from leasing out REAP financed
and installed equipment to a third party (lessee) such as a non-profit,
school district, or municipal government. The third party (lessee) must
directly utilize the equipment to fulfill the statutory purposes of
REAP, to generate renewable energy or provide energy savings. The
borrower must maintain ownership and control of the project for the
entire useful life of the project, including site, income and expenses
via the lease agreement. Additionally, all other REAP requirements,
must be reviewed in this scenario to ensure complete eligibility is
obtained with a lease in place. This includes, but is not limited to,
project eligibility, including prohibitions on residential use and
other prescribed eligible project costs. A REAP applicant may lease out
a commercial building, improved with REAP funds, to various tenants.
This may include an office complex in which a Federal Government Agency
is a tenant. This is allowable as long as conflict of interest
requirements are complied with.
0
21. Amend Sec. 5001.126 by revising the introductory text, paragraphs
(a) introductory text, (a)(1), (b)(2)(i), (c)(2), (d)(3) introductory
text, (d)(3)(iii), (d)(4), (e)(1) and (2) to read as follows:
Sec. 5001.126 Borrower eligibility.
To be eligible for a loan guarantee under this part, a borrower
must meet the requirements specified in this section at the time of
each guaranteed loan's approval and through issuance of the loan note
guarantee. A borrower must meet the eligibility requirements specified
in paragraph (a) of this section and in paragraphs (b) through (e), as
applicable, of this section.
(a) Legal authority and responsibility. The borrower must have, or
obtain before issuance of the loan note guarantee, the legal authority
necessary to construct, operate, and maintain the proposed facility and
services and to obtain, give security for, and repay the proposed loan.
(1) Operate and maintain the facility. The borrower is responsible
for operating, maintaining, and managing the facility and providing for
its continued availability and use. The borrower will retain this
responsibility even though the facility may be operated, maintained, or
managed by a third party under contract, management agreement, or
written lease. Leases may be used for certain projects when they are
the only feasible way to provide the service or facility, are the
customary practice to provide such service or facility within the
industry or in the State and provide for the borrower's management
control of the project. Contracts, management agreements, or written
leases must not contain options or other provisions for transfer of
ownership unless approved by the Agency. The borrower must own and
retain control of the facility at all times; however, various types of
ownership structures are permitted to bring in passive investor equity.
These include but are not limited to partnership flips and inverted
leases, which are common in the renewable energy industry. The
anticipated release of passive tax credit investor entities resulting
in a change in ownership control that does not impact the financial
performance of the loan, as outlined at time of loan closing, does not
constitute a transfer or assumption, nor require concurrence from the
Agency.
* * * * *
(b) * * *
(2) * * *
(i) Association with or control by a public body or bodies
typically evidenced in the organizational documents of the borrower; or
* * * * *
(c) * * *
(2) Credit elsewhere. In accordance with 7 U.S.C. 1983, certify in
writing, subject to Agency verification, that the borrower is unable to
finance the proposed project from their own resources or through
commercial credit without a guarantee, at reasonable rates and terms. A
loan guarantee will not be provided to borrowers who are able to obtain
sufficient credit elsewhere to finance project costs at reasonable
rates and terms, taking into consideration prevailing private and
cooperative rates and terms in the community in or near where the
borrower resides, for loans for similar purposes and periods of time,
or to borrowers who are able to finance project costs from their own
resources. All lenders are required to provide written certification
that their borrowers are unable to afford commercial credit at
reasonable rates and terms without the guarantee.
* * * * *
(d) * * *
(3) A borrower who is an individual must meet the requirements of
(i) through (iii) below. Applications will neither be approved, nor a
conditional commitment issued subject to meeting the citizenship
requirement.
* * * * *
(iii) Be a citizen or resident of the Republic of Palau, the
Federated States of Micronesia, American Samoa, Guam, the Commonwealth
of the Northern Mariana Islands, or the Republic of the Marshall
Islands.
(4) A borrower must demonstrate, to the Agency's satisfaction, that
guaranteed loan funds will remain in the United States and the project
being financed will primarily create new or save existing jobs for
rural U.S. residents. To ensure that loan funds remain in the United
States, loans must be collateralized with fixed assets that remain in
the United States.
(e) * * *
[[Page 79715]]
(1) Type of borrower. The borrower must be either an agricultural
producer or a rural small business if applying for RES or EEI funding.
The borrower must be an agricultural producer if applying for EEE
funding. For-profit rural small businesses that provide long-term care
services that benefit residents, such as nursing homes and assisted
living facilities, are eligible. For-profit rural small businesses that
provide short-term housing, such as hotels, are also eligible. Newly
formed special purpose entities or equivalents that are clearly created
solely for the circumvention of provisions prohibited by REAP statute
are not eligible.
(2) Ownership. The borrower at the time of application or no later
than guaranteed loan closing and for the term of the guaranteed loan
must:
(i) Own the project; and
(ii) Own or control the site for the project at the time of
application and for the term of the guaranteed loan.
* * * * *
0
22. Amend Sec. 5001.127 by revising paragraphs (a) introductory text,
(a)(3), (a)(4), (d), and (f) to read as follows:
Sec. 5001.127 Borrower ineligibility conditions.
* * * * *
(a) An entity is ineligible if any of the conditions identified in
paragraphs (a)(1) through (4) of this section applies to the borrower,
any owner with more than 20 percent ownership interest in the borrower
(does not include passive investors), or any owner with control of the
borrower. Entities with delinquent debt, as identified in paragraphs
(a)(1) through (a)(4), under a repayment plan are not eligible until
the debt is paid in full.
* * * * *
(3) Delinquency on Federal debt.
(4) Debarment or suspension from receiving Federal assistance. The
lender is responsible for verification of the borrower's status.
Verification can be done at sam.gov.
* * * * *
(d) An entity is ineligible if it derives income from illegal
drugs, drug paraphernalia, or any other illegal product or activity as
defined under Federal statute. A borrower that intends to lease space
or enter into a power purchase agreement with a marijuana dispensary is
not eligible given our borrower would be receiving income from the
marijuana operation which is a violation of Federal laws as marijuana
is a controlled substance under Federal law and subject to Federal
prosecution under the Controlled Substances Act (21 U.S.C. 812).
* * * * *
(f) An entity is ineligible if its lender or any of the lender's
officers has an ownership interest in the borrower or is an officer or
director of the borrower with management control or where the borrower
or any of its officers, directors, stockholders, or other owners have
more than a five percent ownership interest in the lender. Any of the
lender's directors, stockholders, or other owners that are officers,
directors, stockholders, or other owners of the borrower without
management control or ownership less than 5 percent must be recused
from any decision-making process associated with the guaranteed loan.
* * * * *
0
23. Amend Sec. 5001.130 by:
0
a. Redesignating (a)(3) through (a)(6) as (a)(4) through (a)(7) and
adding new paragraph (a)(3);
0
b. Revising paragraphs (c)(1)(iii), (c)(2) introductory text,
(c)(2)(viii)(H), (c)(4) introductory text, (c)(4)(iv);
0
c. Adding paragraph (c)(4)(v);
0
d. Revising paragraphs (d)(2) introductory text, (d)(4) introductory
text, and (d)(4)(iv) ; and,
0
e. Adding paragraph (d)(4)(v).
The additions and revisions read as follows:
Sec. 5001.130 Lender eligibility requirements.
* * * * *
(a) * * *
(3) Be free from default and delinquency on any debt owed to the
Federal Government;
* * * * *
(c) * * *
(1) * * *
(iii) Have and agree to maintain balance sheet equity in accordance
with Sec. 5001.105(d) of this part of at least 10 percent of assets
and sufficient funds available to disburse the guaranteed loans it
proposes to approve within the first six months of being approved as a
lender;
* * * * *
(2) Written request. A non-regulated lending entity that seeks to
become a lender must submit a written request to the Agency via
[email protected], and must include the following
information:
* * * * *
(viii) * * *
(H) Proposed interest rate structure and loan fees, including any
loan origination, loan preparation, and servicing fees.
* * * * *
(4) Renewals. To maintain its status as an approved lender, the
non-regulated lending entity must submit a written request to the
Agency for renewal of its approved lender status at least 60, but not
more than 120, calendar days prior to the expiration of the existing
lender's agreement to be assured of a timely renewal. A review of the
lender's performance will be completed to determine whether the lender
has continually met the eligibility criteria described in paragraphs
(c) and (d) of this section. The lender's activity in the program and
its delinquency/default rate will also be considered when making a
determination regarding renewal. Any action by the lender since it was
designated an eligible lender that could be cause for revoking its
status, in accordance with Sec. 5001.132, will be considered cause for
denying the renewal of eligible status. The lender will be notified in
writing whether the request is approved, reasons for denial, or any
conditions the lender must meet for approval. The lender's written
request must provide the information specified in paragraphs (c)(2)(i)
and (iii) through (v) of this section; and
* * * * *
(iv) The Agency may require lenders with limited guaranteed loan
activity over the previous five years, or a lender that has originated
guaranteed loans with servicing issues or a loss to the Agency, to
resubmit all the information required by paragraph (c)(2) of this
section. A lender who is not active in the Agency guaranteed loan
programs should provide evidence that they remain active in other
commercial lending activity with acceptable underwriting and servicing
performance. Lenders with loans that cause a loss to the Agency are a
concern and those projects will be reviewed to determine the cause of
the loss, including whether the lender's analysis or servicing
processes were insufficient.
(v) The renewal will be for a term of 5 years.
(d) * * *
(2) Written request. A non-regulated lending entity serving Tribal
trust lands that seeks to become a lender must submit a written request
to the Agency via [email protected] that includes the
following information:
* * * * *
(4) Renewals. To maintain its status as an approved lender, the
non-regulated lending entity serving Tribal trust land must submit a
written request to the Agency for renewal of its approved lender status
at least 60 and not more than 120 calendar days prior to the expiration
of the existing lender's agreement to be assured of a timely renewal. A
review of the lender's
[[Page 79716]]
performance will be completed to determine whether the lender has
continually met the eligibility criteria described in paragraphs (c)
and (d) of this section. The lender's activity in the program and its
delinquency/default rate will also be considered when making a
determination regarding renewal. Any action by the lender since it was
designated an eligible lender that could be cause for revoking its
status, in accordance with Sec. 5001.132, will be considered cause for
denying the renewal of eligible status. The lender will be notified in
writing whether the request is approved, reasons for denial, or any
conditions the lender must meet for approval. The lender's written
request must provide the information specified in paragraphs (c)(2)(i)
and (iii) through (v) of this section; and
* * * * *
(iv) The Agency may require lender with limited guaranteed loan
activity over the previous five years, or a lender that has originated
guaranteed loans with servicing issues or a loss to the Agency, to
submit updated information required by paragraph (c)(2) of this
section.
(v) The renewal will be for a term of 5 years.
* * * * *
0
24. Revise Sec. 5001.131 to read as follows:
Sec. 5001.131 Lender's agreement.
When approved to participate as a lender under this part, the
lender must execute a lender's agreement before the Agency will issue a
loan note guarantee. A new lender's agreement must be executed with any
existing lender making new loans on or after October 1, 2020. Approval
under one program is approval for all programs. The eligibility
expiration date for non-regulated lenders will be five years from the
date of the original execution of a lender's agreement as specified in
Sec. 5001.130(c) and (d). There will be only one lender's agreement
issued for each lending entity based on their tax identification
number. Lender's agreements will not be issued for individual branches.
Subsequent loans do not require a new lender's agreement. A lender who
fails to renew its lender's agreement and loses its approved lender
status must continue to service any outstanding guaranteed loans in
conformance with the lender's agreement last in effect and the
applicable regulation under which the lender became an approved lender.
Such lenders cannot submit requests for new loan guarantees.
* * * * *
0
25. Amend Sec. 5001.132 by revising paragraphs (a)(3) and (4), (b)
introductory text, (b)(14), and (c) to read as follows:
Sec. 5001.132 Maintenance of approved lender status.
* * * * *
(a) * * *
(3) Is a regulated lending entity and fails to remain in good
standing with its regulator;
(4) Is a non-regulated lending entity and fails to renew its
approval status within 5 years of the expiration date of the lender's
agreement.
(b) Revocation of approved status and debarment of lender. The
Agency can revoke a lender's status as an approved lender at any time
for cause as specified in the lender's agreement. A decision to revoke
a lender's approved status will be made by the Agency and the lender
will be notified in writing. The revocation may apply to all branches
of the lender, specific branches, or personnel, as appropriate. The
lender must revoke the level II eAuthentication privileges of all
individuals included in the revocation notice. Cause for revoking
lender status includes, but is not necessarily limited to, the
circumstances identified in paragraphs (b)(1) through (14) of this
section.
* * * * *
(14) Violation of applicable nondiscrimination laws, including, but
not limited to, statutes, regulations, USDA Departmental Regulations,
the USDA Non-Discrimination Statement, and the Equal Credit Opportunity
Act. USDA's Non-Discrimination Statement is located on the Agency's
website, see usda.gov/non-discrimination-statement. In addition to
revoking the lender's status, the Agency may debar the lender in
compliance with 2 CFR part 180.
(c) Servicing of outstanding loans. Any lender who loses its status
as an approved lender under any of the conditions identified in
paragraph (a) or (b) of this section must reapply under the provisions
of Sec. 5001.130 to be reinstated as an approved lender. A lender who
loses its approved lender status must continue to service any
outstanding guaranteed loans in conformance with the lender's agreement
last in effect and the applicable regulation under which the lender
became an approved lender. In addition, such lenders cannot submit
requests for new loan guarantees.
0
26. Amend Sec. 5001.140 by revising paragraphs (a)(4), (b)
introductory text and (d)(3) to read as follows:
Sec. 5001.140 Cooperative stock/cooperative equity.
* * * * *
(a) * * *
(4) The lender will, at a minimum, obtain a valid lien on the
stock, an assignment of any patronage refund, and the ability to
transfer the stock to another party, or any other right or ability
necessary to liquidate and dispose of the collateral in the event of a
default by the borrower. The lender and borrower understand that the
borrower is fully liable for the entire debt, regardless of the success
or failure of the cooperative. The lender is expected to maximize
recovery on the loan, including collection of personal, partnership and
corporate guarantees. In addition, provisions of the DCIA may impose
significant restrictions on delinquent Federal debtors, including
eligibility for other Federal programs.
* * * * *
(b) Purchase of transferable stock shares. The Agency may also
guarantee loans for the purchase of transferable stock shares of any
type of existing cooperative, which would primarily involve new or
incoming members. Such stock may provide delivery or some form of
participation rights and may only be traded among cooperative members.
The lender and borrower understand that the borrower is fully liable
for the entire debt, regardless of the success or failure of the ESOP.
The lender is expected to maximize recovery on the loan, including
collection of personal, partnership and corporate guarantees. In
addition, provisions of the DCIA may impose significant restrictions on
delinquent Federal debtors, including eligibility for other Federal
programs.
* * * * *
(d) * * *
(3) The lender must, at a minimum, obtain a valid lien on the
stock, an assignment of any patronage refund, and the ability to
transfer the stock to another party, or otherwise liquidate and dispose
of the collateral in the event of a default by a borrower. The lender
and borrower understand that the borrower is fully liable for the
entire debt, regardless of the success or failure of the cooperative or
ESOP. The lender is expected to maximize recovery on the loan,
including collection of personal, partnership and corporate guarantees.
In addition, provisions of the DCIA may impose significant restrictions
on delinquent Federal debtors, including eligibility for other Federal
programs.
* * * * *
0
27. Amend Sec. 5001.141 by:
[[Page 79717]]
0
a. Revising the section heading, the introductory text, and paragraphs
(b)(1)(iii), (b)(4), (6) and (8); and
0
b. Adding (b)(14).
The revisions and addition read as follows:
Sec. 5001.141 New Markets Tax Credits Program.
The New Markets Tax Credits (NMTC) Program is administered by the
U.S. Department of the Treasury's (Treasury) Community Development
Financial Institutions (CDFI) Fund with NMTC credits allocated to
Treasury-certified Community Development Entities (CDE) across the
United States to make Qualified Equity Investments (QEI) in low-income
communities. NMTC related definitions and terms in this section are
governed by section 45(D) of the Internal Revenue Code (26 U.S.C. 45D),
and applicable Treasury regulations (26 CFR 1.45D-1). A CDE will
generally establish a new subsidiary of a CDE (sub-CDE) for individual
NMTC projects. Lenders and their borrowers with guaranteed loan
projects that include NMTC investments must comply with the provisions
in this section. To be a lender for a guaranteed loan project that
involves financing under the NMTC provisions, the lending entity must
meet the applicable eligibility criteria in Sec. 5001.130. The Agency
will not waive its servicing rights to a guaranteed loan or be a party
to any forbearance agreement in conjunction with a NMTC project.
Requests for loan guarantees that include NMTC are subject to all
applicable program eligibility requirements, credit analysis, and due
diligence required by part 5001. In all cases the Agency will undertake
efforts to protect the best financial interests of the Federal
government and collection of its guaranteed loan. The Agency will not
consider any tax benefit or loss of tax benefits to the CDE, sub-CDE or
NMTC investor in the servicing actions of a guaranteed loan.
* * * * *
(b) * * *
(1) * * *
(iii) When the borrower is a leveraged lender entity it must relend
one hundred percent of the guaranteed loan funds to an investor fund
entity. In all cases one hundred percent of the guaranteed loan funds
are or will be invested by the investment fund entity in one or more
sub-CDEs that will then be loaned directly to a QALICB, as defined by
applicable regulations of the Internal Revenue Service, through a
direct tracing method, and such guaranteed loan funds are, or will be
used by the QALICB in accordance with the eligibility requirements in
subpart B of this part. The QALICB's project must be the ultimate use
of one hundred percent of the guaranteed loan funds.
* * * * *
(4) The loan terms found in Sec. 5001.402 of this part apply to
both the borrower and the QALICB. The maturity and related payment
schedule of the lender's guaranteed loan to the borrower must be no
longer than the maturity and related payment schedule of the sub-CDE's
loan to the QALICB. An Agency approved unequal or escalating schedule
of principal and interest payments can be used for a NMTC loan. The
lender may require additional principal repayment by a co-borrower,
such as an owner or principal participant of the QALICB. The provisions
of Sec. 5001.402(b)(3) notwithstanding, the Agency may consider the
payment of interest-only payments by a borrower pursuant to an
interest-only term not to exceed seven years on a loan made under an
NMTC structure if the lender requires:
(i) A debt repayment reserve fund or sinking fund in an amount at
least equal to the guaranteed loan's principal amortization that would
have otherwise applied to the loan if equally amortized payments were
collected during the seven-year term; and
(ii) Such reserve funds or sinking funds are applied to the
guaranteed loan as an additional payment of principal at the end of
such interest-only term. The debt repayment reserve fund or sinking
fund may be accumulated during the loan terms, or the full amount may
be funded at loan closing.
* * * * *
(6) The personal, partnership and corporate guarantee provisions of
Sec. 5001.204 of this part apply when the guaranteed loan borrower is
a leveraged lender entity in a NMTC project. Guaranteed loans made
directly to an investor fund entity as the borrower do not require a
personal, partnership, or corporate guarantee from the investor fund
entity's owner, who is the NMTC tax credit investor and considered a
passive investor. The Agency shall obtain the personal, partnership or
corporate guarantee from the QALICB ownership for a guaranteed loan to
an investor fund entity in compliance with Sec. 5001.204, subject to
the eligibility requirements of the NMTC program. The Agency may
require additional personal, partnership or corporate guarantees if
warranted by an Agency evaluation of potential financial risk. The
QALICB is the ultimate user of the guaranteed loan funds, and their
owners should provide a guarantee of the guaranteed loan as stipulated
in Sec. 5001.204.
* * * * *
(8) The financial report provisions of Sec. 5001.504 of this part
apply to both the borrower and the QALICB.
* * * * *
(14) Agency concurrence of the NMTC structure is required on all
projects leveraging the NMTC program.
* * * * *
0
28. Amend 5001.202 by revising the introductory text, paragraphs (a),
(b)(5) introductory text, and (b)(6)(iii), (iv) and (vi) to read as
follows:
Sec. 5001.202 Lender's credit evaluation.
For each application, the lender must prepare a credit evaluation
that is consistent with Agency standards found in this part. Lenders
are required to only submit complete loan applications that have been
approved by their institution after completion of their internal credit
evaluation. The components of a lender's credit evaluation will include
a written review and comment on the ``Five Cs'' of credit that are
outlined in Sec. 5001.202(b)(1) through (5). The Agency should be able
to obtain sufficient details on the project, the borrower, and the
borrower's ability to repay the loan from the lender's credit
evaluation.
(a) Lender's evaluation guidelines. The lender must conduct a
credit evaluation using credit documentation procedures and
underwriting processes that are consistent with generally accepted
prudent lending practices for commercial, public and project financing,
and also consistent with the lender's own policies, procedures, and
lending practices. The underwriting process must include a review of
each loan for which a loan guarantee is being sought under this part.
Applications involving affiliated entities must include a global credit
evaluation and if applicable a global historical and projected debt
service coverage analysis. The lender should evaluate the relationships
between all associated parties to determine potential risks which may
affect our borrower and its ability to repay the loan. Entities which
may have an impact on the borrower or significantly contribute to the
repayment ability of the loan should provide financials for global
analysis. Applications involving guarantor(s) must also include a
global debt service coverage analysis of the guarantor(s) including the
cash flow of the guarantor(s). In addition, the lender must review all
applicable contracts, management agreements, and leases to determine
they will not adversely affect
[[Page 79718]]
either the borrower's repayment ability or the value of the collateral
securing the guaranteed loan. The lender's evaluation must address any
financial or other credit weaknesses of the borrower and project and
discuss risk mitigation requirements imposed by the lender.
(b) * * *
(5) Conditions. This paragraph (b)(5) refers to the general
business environment, including the regulatory environment affecting
the business or industry, and status of the borrower's industry.
Consideration will be given to items listed in paragraphs (b)(5)(i)
through (ix) of this section and when applicable the lender should
submit supporting documentation (e.g., feasibility study, market study,
preliminary architectural or engineering reports, etc.) in accordance
with Sec. Sec. 5001.304 through 5001.307:
* * * * *
(6) * * *
(iii) Spreadsheets and analysis of the financial statements
provided in accordance with Sec. 5001.303, with appropriate ratios and
comparisons with industry standards (such as Dun & Bradstreet or the
Risk Management Association). The spreadsheets should enable a reviewer
to easily scan the data, spot trends, and make comparisons. Steps taken
or proposed to address any financial or industry weakness must be
reasonable and adequately addressed.
(iv) Financial projections deviating from historical financial
performance must be substantiated and documented. The borrower's
projections should be consistent with their past performance. Increases
to revenues, profit margins or profitability should be reasonable and
substantiated in the analysis.
* * * * *
(vi) Operational cash flow analysis on a quarterly basis from the
current financial statements through start-up or occupancy for projects
involving construction when lenders are requesting the loan note
guarantee prior to completion of construction The lender and borrower
are required to provide a construction schedule with their application
for a loan guarantee prior to construction completion. The projected
cash flow needs should mirror the quarterly construction costs as the
project is being completed. The cash flow analysis must indicate
whether this cash flow is being provided by the guaranteed loan,
borrower equity, or other sources.
0
29. Amend Sec. 5001.203 by revising the introductory text, paragraphs
(b), (c), (d)(1), (f) and (h) to read as follows:
Sec. 5001.203 Appraisals.
Appraisals of collateral are required as set forth in this section.
The lender is responsible for ensuring that appraisal values adequately
reflect the actual value of the collateral based on an arm's length
transaction. Completed appraisals should be submitted when the
application is filed. If the appraisal has not been completed when the
application is filed, the lender must submit an estimated appraised
value. Prior to the issuance of the loan note guarantee, the estimated
value must be supported with an appraisal acceptable to the approval
official. If an appraisal is received containing any value attributed
to business valuation or as a going concern, the business valuation or
going concern value must be deducted from the reconciled market value
prior to discounting. The Agency expects that, for appraisals of
existing facilities, the appraiser will physically visit the property
unless prior permission from the Agency is obtained. Appraisals are not
typically required when security consists of either a revenue or
general obligation bond or liens on real estate for WWD projects which
rely on revenues of the facilities for loan repayment.
* * * * *
(b) Existing chattel. The lender must obtain appraisal(s) for
existing chattel collateral when its value exceeds $250,000 and will be
used to meet loan to value requirements.
(c) Real estate. The lender must obtain appraisals for real estate
collateral when the value of the collateral exceeds $250,000 or the
current limitation established under the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA) Public Law 101-73, 103 Stat. 183
(1989). Real estate and chattels with a value below these thresholds
must be evaluated in accordance with the lender's primary regulator's
policies relating to appraisals and evaluations or, if the lender is
not regulated, in accordance with normal banking practices and
generally accepted methods of determining value. For construction
projects, the lender must obtain the ``As is'' market value and the
``prospective'' market value as of the date of construction completion
to determine the value of the real estate property.
(d) * * *
(1) Each real estate appraisal must be conducted by an independent
qualified appraiser in accordance with the USPAP or similar Agency
approved standard. The appraiser must have the specific qualification,
experience, and competency to appraise the type of facility being
financed. All real estate appraisals must meet the requirements
contained in the FIRREA, and the appropriate guidelines contained in
Standards 1 and 2 of the USPAP or similar Agency approved standard,
and, unless approved by the Agency approval official, be performed by a
State Certified General Appraiser licensed in the State in which the
real estate is located.
* * * * *
(f) Environmental considerations. When the Agency will take a lien
on real property, the real estate appraisals must include consideration
of the potential effects from a release of hazardous substances or
petroleum products or other environmental hazards on the market value
of the collateral, as determined in accordance with the appropriate
ASTM International Real Estate Assessment and Management environmental
standards. Potential contamination that has been observed on the
property or identified through research or interviews with individuals
knowledgeable about the property should be immediately reported to the
Agency.
* * * * *
(h) Appraisal fees. Unless otherwise stated in this part, appraisal
fees or any other associated costs will not be paid by the Agency.
Appraisal fees are eligible loan purposes. The Agency does not pay for
appraisals required at the time of loan application. Appraisals for
servicing actions are handled in accordance with section 5001 subpart
F.
0
30. Amend Sec. 5001.204 by revising paragraphs (b)(2) and (3) to read
as follows:
Sec. 5001.204 Personal, partnership, and corporate guarantees.
* * * * *
(b) * * *
(2) Guarantees from any person or entity owning less than a 20-
percent interest or membership in the borrower; and
(3) Guarantees from persons whose ownership interest in the
borrower is held indirectly through intermediate or affiliated
entities.
* * * * *
0
31. Amend Sec. 5001.205 by revising and republishing paragraph (a),
and revising paragraphs (b)(1), (e)(1), (e)(2)(iii), (iv), (vii) and
(f)(1)(i) to read as follows:
Sec. 5001.205 General project monitoring requirements.
* * * * *
(a) Design requirements. The lender must ensure that all facilities
[[Page 79719]]
constructed with guaranteed loan funds are:
(1) Designed using accepted architectural, engineering, and design
practices, taking into consideration any Agency comments when the
facility is being designed;
(2) Designed in conformance to applicable Federal, Tribal, State,
and local codes and requirements;
(3) Constructed to support operations at the level and quality
contemplated by the borrower using accepted architectural and
engineering practices; and
(4) Compliant with applicable domestic procurement preference
requirements including section 70914 of the Build America, Buy America
Act (BABAA) within the Infrastructure Investment and Jobs Act (Pub. L.
117-58).
(b) * * *
(1) Obtained valid, continuous, and adequate rights-of-way and
easements, in compliance with Uniform Relocation Assistance and Real
Property Acquisition Policies Act of 1970 (URA) if applicable, needed
for the construction, operation, and maintenance of a project; and
* * * * *
(e) * * *
(1) Construction inspections. The lender must notify the Agency of
any scheduled field inspections during construction. The Agency may
attend any field inspections the lender may conduct. Any Agency
inspection, including those with the lender, are for the benefit of the
Agency only (and not for the benefit of other parties in interest) and
do not relieve any parties of interest of their responsibilities to
conduct necessary inspections. On a case-by-case basis in the event
that the Agency determines that there is additional risk to the
government, the Agency may require the use of a qualified, independent
inspector to inspect construction to ensure the project is being
adequately built to meet the borrower's requirements of the borrower's
approved project and comply with all applicable codes and legal
requirements.
(2) * * *
(iii) The borrower and lender have agreed to a detailed timetable
for the project with a corresponding budget of costs setting forth the
parties responsible for payment. The timetable and budget will be
confirmed as adequate for the planned development by a qualified
independent consultant (e.g., the project architect or engineer) with
demonstrated experience relating to the project's industry. The lender
must provide evidence that there is sufficient cash flow to complete
the project construction, including contingencies for cost overruns,
plus working capital during the business start-up period;
(iv) The borrower has entered into a firm, fixed-price construction
contract with an independent general contractor with costs outlined in
detail and terms specifying change order approvals, the agreed
retainage percentage, and the disbursement schedule. In all cases,
borrower equity must be injected prior to any guaranteed loan funds;
* * * * *
(vii) When applicable, the borrower has entered into a contract
with an independent technology development firm guaranteeing completion
of the project with the necessary technology to successfully run the
project and system performance for projects that utilize integrated
processing equipment and systems, such as biorefineries, RESs, and
chemical manufacturing plants. The credit underwriting of the
independent technology development firm must be satisfactory to and
approved by the Agency. This is not limited only to renewable energy
projects, but may include energy efficiency, renewable chemical, and
biobased manufacturing projects. The intent of the provision is to
ensure that all technology proposed for the project can be successfully
integrated together to ensure successful installation and performance
of the system. The respective technology providers usually guarantee
their specific technology with quality parameters of input such that
the end-product is what is proposed in both quality and yield. An
engineering, procurement, construction (EPC) provider is responsible
for the construction and assembly of the plant or facility. They adopt
the quality limits and guarantee that the integrated facility that is
built will perform according to specifications such that the input and
operational bounds are met. The provision is likely applicable to the
following types of projects:
(A) Anaerobic digester. An anaerobic digester project which uses a
biological process that requires specific conditions and environment to
be able to produce the product of biogas that can be refined to
renewable natural gas (RNG). In some simpler cases the gas will be used
for heat or electricity, but in other more involved cases, it will be
cleaned and refined to make RNG that is marketable, and quality
assessed to enter an interconnect pipeline. These types of projects
should be approved and verified by an independent technology firm, for
integrated performance integrity and operability as well as yield
integrity.
(B) Landfill biogas. Like anaerobic digesters projects, a landfill
biogas project will have multiple steps and processes such as
collection, clean-up, flaring and refinement to a fuel or the gas can
be used to produce electricity. These types of projects should be
approved and verified by an independent technology firm for integrated
performance integrity and operability, as well as yield integrity.
(C) Biofuel, biomass, ethanol, biodiesel. A biofuel, ethanol,
biomass, or biodiesel system will have multiple steps in which it must
operate in line with the design proposed that has been from
demonstration campaigns. It is paramount that an independent technology
firm verify and guarantee the operation and performance of these
integrated systems as they will have multiple processes which need to
work in concert for the project to be successful. These types of
projects should be approved and verified by an independent technology
firm for integrated performance integrity and yield.
(D) Solar thermal. Solar thermal systems must have multiple
processes in order to provide the end product of power, hot water, or
heat. Due to their potential complexity, these systems should be
approved and verified by an independent technology firm for performance
integrity and operability.
(E) Hydrogen. These types of projects should be approved and
verified by an independent technology firm for integrated performance
integrity.
(F) Geothermal. Depending on system complexity and if it has
multiple processes, the project should be fortified with a guarantee
that the system will operate definitively.
(G) Renewable chemical. A project utilizing a series of chemical
processes and reactions to produce a polymer that can be sold to make
biodegradable plastics. An example of a BBP project utilizing
gasification technology to produce a biochar or soil amendment as an
end-user product.
* * * * *
(f) * * *
(1) * * *
(i) Certification by the independent engineer or qualified
consultant to the lender that the work referred to in the draw has been
successfully completed; and;
* * * * *
0
32. Amend Sec. 5001.206 by revising paragraph (b) to read as follows:
[[Page 79720]]
Sec. 5001.206 Compliance with USDA Departmental Regulations,
Policies, and other Federal laws.
* * * * *
(b) Other Federal laws. Lenders and borrowers must comply with
other applicable Federal laws including, but not limited to the
following:
(1) Equal Employment Opportunity.
(2) Americans with Disabilities Act.
(3) Equal Credit Opportunity Act.
(4) Fair Housing Act.
(5) Uniform Relocation Assistance and Real Property Acquisition
Policies Act of 1970 (URA).
(6) Section 70914 of the Build America, Buy America Act (BABAA)
within the Infrastructure Investment and Jobs Act (Pub. L. 117-58).
(7) 31 U.S.C. 3354 Do Not Pay Initiative.
0
33. Amend Sec. 5001.207 by revising paragraphs (a)(1), and (b)(2) to
read as follows:
Sec. 5001.207 Environmental responsibilities.
* * * * *
(a) * * *
(1) The lender is responsible for becoming familiar and ensuring
compliance with Federal environmental requirements. The lender must
alert the Agency to any environmental issues related to a project or
items that may require extensive environmental review. Proposals that
minimize the potential of any project to adversely impact the
environment must be developed and provided upon request by the Agency.
* * * * *
(b) * * *
(2) The lender must assist in the collection of additional data
when the Agency needs such data to complete its environmental review of
the project and mitigation of environmental issues.
0
34. Revise Sec. 5001.301 to read as follows:
Sec. 5001.301 Beginning the application process.
(a) The lender must file applications and related documents through
their Agency contact.
(b) The lender may complete either a request for preliminary
eligibility review in accordance with Sec. 5001.302 or a full
application in accordance with Sec. Sec. 5001.303 through 5001.307, as
applicable, to begin the process for obtaining a guaranteed loan. The
Agency encourages, but does not require, lenders to file requests for
preliminary eligibility reviews in order to obtain Agency comments
before submitting a full application.
0
35. Amend Sec. 5001.303 by revising paragraph (c)(15) and (d) to read
as follows:
Sec. 5001.303 Applications for loan guarantee.
* * * * *
(c) * * *
(15) Securities and Exchange Commission (SEC) Form 10-K, ``Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934,'' as noted in Sec. 5001.306(a)(4).
* * * * *
(d) Application modification. Once a complete application is
accepted by the Agency and prior to Agency award of a loan note
guarantee, any modification to the application will be treated as a new
application and the Agency will process the information accordingly.
The submission date of record for a modified application is the date
the Agency receives the modified application information.
0
36. Amend Sec. 5001.304 by revising the introductory text and (a)(4)
introductory text to read as follows:
Sec. 5001.304 Specific application requirements for CF projects.
In addition to the requirements specified in Sec. 5001.303 as
applicable, a lender seeking a loan guarantee for a CF project must
submit a financial feasibility report prepared by a qualified firm or
individual acceptable to the Agency. All projects financed under this
section must meet the financial feasibility requirements of this
section and must be based on projected taxes, assessments, revenues,
fees, or other sources of revenues in an amount sufficient to provide
for project operation and maintenance, debt payments, and compliance
with lender reserve requirements, when applicable. Other sources of
revenue or existence of payment guarantors are particularly important
in considering the feasibility of eligible recreation projects. The
financial feasibility report must take into consideration any interest
rate adjustment that may be instituted under the terms of the
promissory note. Financial projections for projects that are assisted
living facilities, skilled nursing facilities, or similar types of
eligible residential facilities must be based on no more than 90
percent occupancy. Utility projects dependent on user fees for debt
repayment shall base their income and expense forecast on user
estimates supported by either a State statute or local ordinance
requiring mandatory hookup or signed and enforceable user agreements.
If the primary use of the essential community facility is by a business
and the success or failure of the facility is dependent on that
business, then the economic viability of that business must also be
assessed. For projects that include the purchase and installation of
RES that meet the eligibility requirements of Sec. 5001.103(a)(8), a
technical report on the RES as outlined in Sec. 5001.307(e)(1) and
(2), as applicable, will be included with the applicable financial
feasibility report. The type of financial feasibility report required
will depend upon the size of the guaranteed loan, the collateral
securing the guaranteed loan, and the financial history of the
borrower. The two types of financial feasibility report and when they
are required are described in paragraphs (a) and (b) of this section.
(a) * * *
(4) The Agency may require a feasibility study when the lender's
analysis, borrower's business plan, or project information is not
sufficient to determine the technical feasibility, market feasibility,
or economic viability of the project.
* * * * *
0
37. Amend Sec. 5001.305 by revising paragraph (a)(2) and adding
paragraph (d) to read as follows:
Sec. 5001.305 Specific application requirements for WWD projects.
* * * * *
(a) * * *
(2) The lender must ensure that the project is designed utilizing
accepted architectural and engineering practices and conforms to
applicable Federal requirements (e.g., the seismic requirements of
Executive Order 12699 (55 FR 835, 3 CFR, 1990 Comp., p. 269), the
debarment requirements of 2 CFR part 180 as supplemented by 2 CFR part
417, American Iron and Steel (Section 746 of Title VII of the
Consolidated Appropriations Act of 2017), and the Copeland Anti-
Kickback Act (18 U.S.C. 874)); State, local and Tribal codes and
requirements; and facility plans or plans and specifications reviewed
and approved by the applicable State, local and/or Tribal regulatory
agency. The lender must also ensure that the planned project will be
completed within the available funds and once completed, will be
suitable for the borrower's needs. Upon completion of the project, the
lender must certify that all applicable Federal requirements were met.
* * * * *
(d) Domestic procurement preference. (1) American Iron and Steel
(AIS). Guaranteed loans must comply with AIS requirements. Lenders and
borrowers are responsible for meeting the AIS requirements of Section
746 of Title VII of the Consolidated Appropriations Act of 2017 and the
continuing resolutions adopted thereafter.
[[Page 79721]]
(2) Build America, Buy America Act (BABAA). BABAA was enacted as
part of the Infrastructure and Jobs Act (Pub. L. 117-58) on November
15, 2021 and became effective on May 14, 2022. Under Section 70914(a)
of BABAA, ``none of the funds made available for a Federal financial
assistance program for infrastructure may be obligated for a project
unless all of the iron, steel, manufactured products, and construction
materials used in the project are produced in the United States.''
Additional information may be found on the Agency's Build America, Buy
America website at https://www.rd.usda.gov/build-america-buy-america.
(3) Compliance. Owners are ultimately responsible for compliance
with the domestic procurement preference requirements and should
consult with the Agency early in project development. Compliance must
be certified to prior to the issuance of the loan note guarantee. The
lender must include any domestic preference language, provided by the
Agency, in the loan agreement and other appropriate loan documents.
* * * * *
0
38. Amend Sec. 5001.306 by revising paragraphs (a)(3) introductory
text and (b) introductory text to read as follows:
Sec. 5001.306 Specific application requirements for B&I projects.
* * * * *
(a) * * *
(3) The Agency may require a feasibility study when the lender's
analysis, borrower's business plan, or project information is not
sufficient to determine the technical feasibility, market feasibility,
or economic viability of the project.
* * * * *
(b) Applications requesting a guaranteed loan in an amount of
$600,000 or less. Guaranteed loan applications may be processed under
this paragraph (b) if the amount of the guaranteed loan does not exceed
$600,000, provided the Agency determines that the lender's analysis,
borrower's business plan, or other project or borrower information
submitted by the lender is sufficient to determine the technical
feasibility, market feasibility, and economic viability of the project.
If any of the items in paragraphs (a)(1) through (4) of this section
apply, the lender must collect the information and maintain it in their
file. A lender may need to resubmit or modify an application if the
application does not contain sufficient information for the Agency to
make an informed loan approval decision.
* * * * *
0
39. Amend Sec. 5001.307 by revising paragraphs (a)(1) and (2), (b)
introductory text, (e) introductory text, (e)(1)(ii), (e)(1)(v)
introductory text, (e)(1)(v)(A)(2) and (3), (e)(1)(v)(C)(2) and (3) to
read as follows:
Sec. 5001.307 Specific application requirements for REAP projects.
* * * * *
(a) * * *
(1) Eligible borrowers must meet the definition of agricultural
producer or rural small business as defined in Sec. 5001.3.
Agricultural producers seeking funding for a RES or EEI project may
apply as either a rural small business or as an agricultural producer,
provided they meet the applicable eligibility requirements.
Agricultural producers seeking funding for an EEE project must be
eligible and apply as an agricultural producer.
(2) The borrower must provide the primary NAICS code applicable to
the borrower's business concern and certify on the Agency approved
application form or system that it meets the definition of agricultural
producer or rural small business. The Agency reserves the right to
request supporting documentation to verify borrower eligibility.
(b) Borrower description. Describe the ownership of the borrower,
including the information specified in paragraphs (b)(1) through (3) of
this section, as applicable. Include a description of the borrower's
existing farm, ranch, or business operation, including how long the
borrower has been in operation. Rural small businesses and agriculture
operations owned by Tribes should provide documentation to adequately
show the separation of the applicant and the Tribal government.
* * * * *
(e) Technical report. All eligible projects must have technical
merit and provide information as identified in Sec. 5001.106(e), Sec.
5001.107, or Sec. 5001.108 and (e)(1) through (3) of this section.
(1) * * *
(ii) For RES projects, sufficient information to enable the
calculation of the percentage of historical use of energy compared to
the amount of renewable energy that will be generated once the project
is operating at its steady state operating level. If the project is
closely associated with a residence, satisfactory demonstration must be
made that 50 percent or more of the projected renewable energy will
benefit the agricultural operation or rural small business; and
* * * * *
(v) For total project costs in the amount of $80,000 or less, a
technical report, as identified in Sec. 5001.303(c)(16), prepared in
accordance with the following paragraphs, as applicable:
(A) * * *
(2) Vendor/installer certification that the EEI project uses
commercially available technology;
(3) Vendor/installer certified projections on the quantity of
energy to be saved;
* * * * *
(C) * * *
(2) Vendor/installer certification that the EEE project uses
commercially available technology;
(3) Vendor/installer certification of the proposed energy
consumption quantity and price per unit of the energy efficiency
equipment to be installed;
* * * * *
0
40. Amend Sec. 5001.315 by revising paragraphs (a) introductory text,
(b) introductory text, (c)(1) and (2), (d)(4) and (e)(2) to read as
follows:
Sec. 5001.315 Application evaluation and award provisions.
(a) General. The Agency will evaluate all applications according to
the provisions of this part and may require the lender to obtain
additional assistance in those areas where the lender does not have the
necessary expertise to originate or service the guaranteed loan. For
the purposes of this paragraph (a), ``those areas'' mean:
* * * * *
(b) Evaluation and eligibility determinations. The Agency will
review each complete application to make a formal determination as to:
the eligibility of the borrower, lender, project, and guaranteed loan
purpose and proposed use of funds; if there is a reasonable assurance
of repayment ability; if sufficient collateral and equity exists; if
the proposed guaranteed loan complies with all applicable statutes and
regulations; and if the environmental review is complete. The Agency
will only guarantee loans that are sound and that have a reasonable
assurance of repayment.
* * * * *
(c) * * *
(1) Lenders must provide necessary information related to
determining the priority score, if requested by the Agency. To the
extent possible, lenders should consider the established priorities of
the Agency when submitting projects for a loan guarantee.
[[Page 79722]]
Higher scoring applications will receive first consideration for
funding.
(2) The Agency may establish a minimum priority score for each
guarantee program. The Agency will, if established, publish the minimum
score in a document in the Federal Register. Applications that do not
meet the applicable minimum score will compete with all other
guaranteed loan applications for each specific program in a competition
on the first business day of September of the Federal fiscal year in
which the application is ready for funding.
* * * * *
(d) * * *
(4) If a lender agrees to the lower loan guarantee amount offered
by the Agency under either paragraph (d)(1) or (2) of this section, the
lender must certify that the purpose(s) of the project can still be met
at the lower funding level and must provide documentation that the
borrower has obtained the remaining funds needed to complete the
project as originally proposed.
(e) * * *
(2) If an unfunded application has a priority score less than any
applicable minimum score and remains unfunded after the competition
held on the first business day of September of the fiscal year in which
the application is ready for funding, the Agency will notify the
applicant in writing and withdraw the application from further funding
consideration.
* * * * *
0
41. Amend Sec. 5001.316 by adding a paragraph heading to paragraph (e)
and paragraph and revising paragraph (e)(2) to read as follows:
Sec. 5001.316 CF project priority point system and reservation of
funds.
* * * * *
(e) Rural priority. * * *
* * * * *
(2) On July 1 of each year, the Agency will evaluate the dollar
amount of complete applications on hand for projects in rural areas
with a population of not more than 20,000 inhabitants. The dollar
amount of the complete applications will be subtracted from the
reserved allocation identified in this paragraph (e) and the remaining
amount will be made available through the end of the Federal fiscal
year for projects in rural areas with a population of not more than
50,000 inhabitants.
0
42. Amend Sec. 5001.318 by revising paragraph (b) introductory text to
read as follows:
Sec. 5001.318 B&I project priority point system.
* * * * *
(b) Location priority. An application is eligible to receive points
under each of the categories identified in paragraphs (b)(1) through
(3) of this section if the project is located within:
* * * * *
0
43. Amend Sec. 5001.319 by revising the introductory text, paragraphs
(a) introductory text, (b)(1)(i) introductory text, (b)(2)(i)
introductory text, (b)(2)(i)(A), (b)(2)(ii), (b)(2)(iii) introductory
text, (d) introductory text, (e), (f) introductory text, (f)(1)
introductory text and (g)(6) introductory text to read as follows:
Sec. 5001.319 REAP project priority point system.
This section applies to REAP projects seeking a loan guarantee. On
a periodic basis, and subject to the availability of funds, the Agency
will compete each complete and eligible RES, EEI, and EEE application
that is ready to be funded and whose priority score, as determined in
this section, meets, or exceeds the minimum priority score.
Applications that do not meet the applicable minimum score will be
considered as provided in Sec. 5001.315(c)(2). A maximum score of 90
points is possible.
(a) Environmental benefits. The Agency will award up to 5 points
under this criterion based on documentation or the applicant's
indication in the application that the project will have a positive
effect on resource conservation, public health, and the environment. If
the project will have a positive impact on:
* * * * *
(b) * * *
(1) * * *
(i) Renewable energy systems. The quantity of energy generated or
replaced per guaranteed loan dollar requested will be determined by
dividing the projected total annual energy generated or replaced by the
RES or RES retrofit (minus energy for residential use), which will be
converted to BTUs, by the guaranteed loan dollars requested.
Applications for retrofitting of a RES that are not projecting to
increase the amount of renewable energy that the RES is generating,
while still eligible for REAP, will not be awarded points under this
criteria. Off-the-grid projects and direct-use projects which are not
replacements, will be awarded points based on proposed energy
generation. Points will be awarded under this sub-criterion based on
the annual amount of energy generated or replaced (minus energy for
residential use) per dollar of guaranteed loan amount requested for the
RES project. The Agency will award up to 10 points as determined under
paragraph (b)(1)(i)(A) and (B) of this section below. If the annual
amount of energy generated per dollar of guaranteed loan amount
requested calculated under paragraph (b)(1)(ii) of this section is:
* * * * *
(2) * * *
(i) Energy replacement. The Agency will award points under this
sub-criterion for an RES project based on the amount of energy replaced
by the project compared to the amount of energy used by the applicable
process(es) over a 12-month period. If the estimated energy produced is
more than 150 percent of the energy used by the applicable process(es),
the project will be scored as an energy generation project under
paragraph (b)(2)(ii) of this section. When calculating the percentage
of energy being replaced and whether it is categorized as a replacement
or generation, the entire amount of energy produced by the new system
will be used in the calculation, regardless of whether the project is
being prorated because it shares a meter with a residence or if it has
ineligible project costs.
(A) Documentation for energy replacement. For a RES project to
qualify as energy replacement, the borrower must provide documentation
in its application on prior energy use incurred by the borrower.
Documentation must be shown that the borrower entity incurred the cost
of the historical energy to be replaced, in order for the project to
qualify as energy replacement. Replacement of existing direct use
renewable energy can be considered in the replacement calculation as
long as the borrower entity owns the existing RES system. For a project
involving a recent acquisition, historical energy costs of the previous
owner can be used to document prior energy use. Applicant entities
cannot utilize historical energy costs of affiliate businesses to
document prior energy use. Proposed energy use, such as that attributed
to an expansion, is not considered in the replacement calculation. For
a RES project involving new construction and being installed to serve
the new facility, the project can be classified as energy replacement
only if the borrower can document prior energy use from a facility that
is within plus or minus 10 percent of the size of the facility it is
replacing. The estimated quantities of energy must be converted to
either BTUs, watts, or similar energy equivalents to facilitate
scoring.
* * * * *
(ii) Energy generation. If the RES project is intended for
production of
[[Page 79723]]
energy or is a proposed retrofitting of an existing RES which increases
the amount of energy generated, the Agency will award 10 points.
Applications for retrofitting of an RES that are not projecting to
increase the amount of renewable energy that the RES is generating,
while still eligible for REAP, will not be awarded points under this
criteria. If the borrower cannot document prior energy use, the project
will be scored as an energy generation project, regardless of whether
or not there is an agreement in place to sell the power.
(iii) Energy saved. The Agency will award up to 15 points under
this sub-criterion for an EEI project based on the percentage of
estimated energy saved by the installation of the project as determined
by the projections in the applicable vendor certification, energy
assessment or energy audit. If the estimated energy expected to be
saved over the same period used in the energy assessment or energy
audit, as applicable, will be--
* * * * *
(d) Previous grantees or borrowers. The Agency will award up to 15
points under this criterion based on whether the borrower has received
and accepted a REAP grant award under 7 CFR part 4280 or a guaranteed
loan commitment under either this part or 7 CFR part 4280. Received and
accepted means REAP grant funds were disbursed and/or a REAP loan note
guarantee was issued by the Agency. The determination is based on the
fiscal year in which the obligation was made.
* * * * *
(e) Existing businesses. A maximum of 5 points will be awarded for
an existing agricultural producer business or rural small business that
meets the definition of existing business in Sec. 5001.3. The business
must be in operation for at least one full year, not simply a year
since legal business formation.
(f) Simple payback. A maximum of 15 points will be awarded for this
criterion based on the simple payback of the project as defined in
Sec. 5001.3. Points will be awarded for either RES, EEI, or EEE;
points will not be awarded for more than one category. See definition
of simple payback for calculations. Simple payback calculations will be
calculated based only on the documented information provided with the
application.
(1) Renewable energy systems. RESs includes replacement,
generation, and direct-use RES projects. If the simple payback of the
project is:
* * * * *
(g) * * *
(6) The project is located in an area where 20 percent or more of
its population is living in poverty, as defined by the United States
Census Bureau, for the last 30 years; an underserved community; or an
area which has experienced long-term population decline, or loss of
employment.
* * * * *
0
44. Revise and republish appendix C to subpart D of part 5001 to read
as follows:
Appendix C to Subpart D of Part 5001--Technical Reports for Energy
Efficiency Improvement (EEI) Projects With Total Project Costs of More
Than $80,000
For all EEI projects with total project costs of more than
$80,000, provide the information specified in Sections A and D and
in Section B or Section C, as applicable. If the application is for
an EEI project with total project costs of $80,000 or less, please
see Sec. 5001.307(e) for the technical report information to be
submitted with your application.
If the application is for an EEI project with total project
costs of $200,000 and greater, you must conduct an energy audit
(EA). However, if the application is for an EEI project with total
project costs of less than $200,000, you may conduct either an
energy assessment or an energy audit. Energy audits that meet the
American Society of Heating, Refrigeration and Air-Conditioning
Engineers (ASHREA) Level II Energy Survey; Analysis and American
National Standards Institute (ANSI); or American Society of
Agricultural and Biological Engineers (ASABE) S162 Standard for
performing on farm energy audits will be considered by the Agency to
be acceptable audits.
Section A. Project Information
Describe how all the improvements to or replacement of an
existing building and/or equipment meet the requirements of being
commercially available. Describe how the design, engineering,
testing, and monitoring are sufficient to demonstrate that the
proposed project will meet its intended purpose, ensure public
safety, and comply with applicable laws, regulations, agreements,
permits, codes, and standards. Describe how all equipment required
for the EEI(s) is available and able to be procured and delivered
within the proposed project development schedule. In addition,
present information regarding component warranties and the
availability of spare parts.
Section B. Energy Audit
If conducting an EA, provide the following information.
(1) Situation Report. Provide a narrative description of the
existing building and/or equipment, its energy system(s) and usage,
and activity profile. Also include average price per unit of energy
(electricity, natural gas, propane, fuel oil, renewable energy,
etc.) paid by the customer for the most recent 12 months, or an
average of 2, 3, 4, or 5 years, for the building and equipment being
audited. Any energy conversion should be based on use rather than
source.
(2) Potential Improvement Description. Provide a narrative
summary of the potential improvement and its ability to reduce
energy consumption or improve energy efficiency, including a
discussion of reliability and durability of the improvements.
(i) Provide preliminary specifications for critical components.
(ii) Provide preliminary drawings of project layout, including
any related structural changes.
(iii) Identify significant changes in future related operations
and maintenance costs.
(iv) Describe explicitly how outcomes will be measured.
(3) Technical Analysis. Give consideration to the interactions
among the potential improvements and the current energy system(s).
(i) For the most recent 12 months, or an average of 2, 3, 4, or
5 years, prior to the date the application is submitted, provide
both the total amount and the total cost of energy used for the
original building and/or equipment, as applicable, for each
improvement identified in the potential project. In addition,
provide for each improvement identified in the potential project an
estimate of the total amount of energy that would have been used and
the total cost that would have been incurred if the proposed project
were in operation for this same time period.
(ii) Calculate all direct and attendant indirect costs of each
improvement;
(iii) Rank potential improvements measures by cost-
effectiveness; and
(iv) Provide an estimate of simple payback, including all
calculations, documentation, and any assumptions.
(4) Qualifications of the auditor. Provide the qualifications of
the individual or entity which completed the energy audit.
Section C. Energy Assessment
If conducting an energy assessment, provide the following
information.
(1) Situation Report. Provide a narrative description of the
existing building and/or equipment, its energy system(s) and usage,
and activity profile. Also include average price per unit of energy
(electricity, natural gas, propane, fuel oil, renewable energy,
etc.) paid by the customer for the most recent 12 months, or an
average of 2, 3, 4, or 5 years, for the building and equipment being
evaluated. Any energy conversion shall be based on use rather than
source.
(2) Potential Improvement Description. Provide a narrative
summary of the potential improvement and its ability to reduce
energy consumption or improve energy efficiency.
(3) Technical Analysis. Giving consideration to the interactions
among the potential improvements and the current energy system(s),
provide the information specified in paragraphs (3)(i) through (iii)
of this appendix.
(i) For the most recent 12 months, or an average of 2, 3, 4, or
5 years, prior to the date the application is submitted, provide
both the total amount and the total cost of energy used for the
original building and/or
[[Page 79724]]
equipment, as applicable, for each improvement identified in the
potential project. In addition, provide for each improvement
identified in the potential project an estimate of the total amount
of energy that would have been used and the total cost that would
have been incurred if the proposed project were in operation for
this same time period.
(ii) Document baseline data compared to projected consumption,
together with any explanatory notes on source of the projected
consumption data. When appropriate, show before-and-after data in
terms of consumption per unit of production, time, or area.
(iii) Provide an estimate of simple payback, including all
calculations, documentation, and any assumptions.
(4) Qualifications of the Assessor. Provide the qualifications
of the individual or entity that completed the assessment. If the
energy assessment for a project with total project costs of $80,000
or less is not conducted by energy auditor or energy assessor, then
the individual or entity must have at least 3 years of experience
and completed at least five energy assessments or energy audits on
similar type projects.
Section D. Qualifications
Provide a resume or other evidence of the contractor or
installer's qualifications and experience with the proposed EEI
technology. Any contractor or installer with less than 2 years of
experience may be required to provide additional information in
order for the Agency to determine if they are qualified installer/
contractor.
0
45. Revise and republish appendix D to subpart D of part 5001 to read
as follows:
Appendix D to Subpart D of Part 5001--Technical Reports for Renewable
Energy System (RES) Projects With Total Project Costs of Less Than
$200,000 but More Than $80,000
Provide the information specified in Sections A through D for
each technical report prepared under this appendix.
A renewable energy site assessment may be used in lieu of
Sections A through C if the renewable energy site assessment
contains the information requested in Sections A through C. In such
instances, the technical report would consist of Section D and the
renewable energy site assessment.
Note: If the total project cost for the RES project is $80,000
or less, this appendix does not apply. Instead, for such projects,
please provide the information specified in Sec. 5001.307(e).
Section A. Project Description
Provide a description of the project, including its intended
purpose and a summary of how the project will be constructed and
installed. Describe how the system meets the definition of
commercially available. Identify the project's location and describe
the project site.
Section B. Resource Assessment
Describe the quality and availability of the renewable resource
to the project. Identify the amount of renewable energy generated
that will be generated once the proposed project is operating at its
steady state operating level. If applicable, also identify the
percentage of energy being replaced by the system.
If the application is for a bioenergy project, provide
documentation that demonstrates that any and all woody biomass
feedstock from National Forest System land or public lands cannot be
used as a higher value wood-based product.
Section C. Project Economic Assessment
Describe the projected financial performance of the proposed
project. The description must address total project costs, energy
savings, and revenues, including applicable investment and other
production incentives accruing from government entities. Revenues to
be considered shall accrue from the sale of energy, offset or
savings in energy costs, byproducts, and green tags. Provide an
estimate of simple payback, including all calculations,
documentation, and any assumptions.
Section D. Project Construction and Equipment Information
Describe how the design, engineering, testing, and monitoring
are sufficient to demonstrate that the proposed project will meet
its intended purpose, ensure public safety, and comply with
applicable laws, regulations, agreements, permits, codes, and
standards. Describe how all equipment required for the RES is
available and able to be procured and delivered within the proposed
project development schedule. In addition, present information
regarding component warranties and the availability of spare parts.
Section E. Qualifications of Key Service Providers
Describe the key service providers, including the number of
similar systems installed and/or manufactured, professional
credentials, licenses, and relevant experience. When specific
numbers are not available for similar systems, estimations will be
acceptable.
0
46. Revise and republish appendix E to subpart D of part 5001 to read
as follows:
Appendix E to Subpart D of Part 5001--Technical Reports for Renewable
Energy System (RES) Projects With Total Project Costs of $200,000 and
Greater
Provide the information specified in Sections A through G for
each technical report prepared under this appendix.
Provide the resource assessment under Section C that is
applicable to the project. For hybrid projects, technical reports
must be prepared for each technology that comprises the hybrid
project.
Section A. Qualifications of the Project Team
Describe the project team, their professional credentials, and
relevant experience. The description shall support that the project
team key service providers have the necessary professional
credentials, licenses, certifications, and relevant experience to
develop the proposed project.
Section B. Agreements and Permits
Describe the necessary agreements and permits (including any for
local zoning requirements) required for the project and the
anticipated schedule for securing those agreements and permits. For
example, interconnection agreements and power purchase agreements
are necessary for all renewable energy projects electrically
interconnected to the utility grid.
Section C. Resource Assessment
Describe the quality and availability of the renewable resource
and the amount of renewable energy generated through the deployment
of the proposed system. For all bioenergy projects, except anaerobic
digesters projects, complete Section C.3 of this appendix. For
anaerobic digester projects, complete Section C.6 of this appendix.
(1) Wind. Provide adequate and appropriate data to demonstrate
the amount of renewable resource available. Indicate the source of
the wind data and the conditions of the wind monitoring when
collected at the site or assumptions made when applying nearby wind
data to the site.
(2) Solar. Provide adequate and appropriate data to demonstrate
the amount of renewable resource available. Indicate the source of
the solar data and assumptions.
(3) Bioenergy/Biomass Project. Provide adequate and appropriate
data to demonstrate the amount of renewable resource available.
Indicate the type, quantity, quality, and seasonality of the
renewable biomass resource, including harvest and storage, where
applicable. Where applicable, also indicate shipping or receiving
method and required infrastructure for shipping. For proposed
projects with an established resource, provide a summary of the
resource. Document that any and all woody biomass feedstock from
National Forest System land or public lands cannot be used as a
higher value wood-based product.
(4) Geothermal Electric Generation. Provide adequate and
appropriate data to demonstrate the amount of renewable resource
available. Indicate the quality of the geothermal resource,
including temperature, flow, and sustainability and what conversion
system is to be installed. Describe any special handling of cooled
geothermal waters that may be necessary. Describe the process for
determining the geothermal resource, including measurement setup for
the collection of the geothermal resource data. For proposed
projects with an established resource, provide a summary of the
resource and the specifications of the measurement setup.
(5) Geothermal Direct Generation. Provide adequate and
appropriate data to demonstrate the amount of renewable resource
available. Indicate the quality of the geothermal resource,
including temperature,
[[Page 79725]]
flow, and sustainability and what direct use system is to be
installed. Describe any special handling of cooled geothermal waters
that may be necessary. Describe the process for determining the
geothermal resource, including measurement setup for the collection
of the geothermal resource data. For proposed projects with an
established resource, provide a summary of the resource and the
specifications of the measurement setup.
(6) Anaerobic Digester Project/Biogas. Provide adequate and
appropriate data to demonstrate the amount of renewable resource
available. Indicate the substrates used as digester inputs,
including animal wastes or other renewable biomass in terms of type,
quantity, seasonality, and frequency of collection. Describe any
special handling of feedstock that may be necessary. Describe the
process for determining the feedstock resource. Provide either
tabular values or laboratory analysis of representative samples that
include biodegradability studies to produce gas production estimates
for the project on daily, monthly, and seasonal basis. If an
anerobic digester project, identify the type of operation (e.g.,
dairy, swine, layer, etc.), along with breed, herd population size
and demographics, and the type of waste collection method and
frequency information available. For the biogas produced, identify
the type of digester (e.g., mixed, plug-flow, attached film, covered
lagoon, etc.), if applicable, or the method of capture (landfill,
sewage waste treatment, etc.) and treatment. Identify the system
designer and determine the digester design assumptions such as the
number and type of animals, the bedding type and estimated annual
quantity used, the manure and wastewater volumes, and the treatment
of digester effluent (e.g., none, solids separation by screening,
etc. with details including use or method of disposal).
(7) Hydrogen Project. Provide adequate and appropriate data to
demonstrate the amount of renewable resource available. Indicate the
type, quantity, quality, and seasonality of the renewable biomass
resource. For solar, wind, or geothermal sources of energy used to
generate hydrogen, indicate the renewable resource where the
hydrogen system is to be installed. Local resource maps may be used
as an acceptable preliminary source of renewable resource data. For
proposed projects with an established renewable resource, provide a
summary of the resource.
(8) Hydroelectric/Ocean Energy Projects. Provide adequate and
appropriate data to demonstrate the amount of renewable resource
available. Indicate the quality of the resource, including
temperature (if applicable), flow, and sustainability of the
resource, including a summary of the resource evaluation process and
the specifications of the measurement setup and the date and
duration of the evaluation process and proximity to the proposed
site. If less than 1 year of data is used, a qualified consultant
must provide a detailed analysis of the correlation between the site
data and a nearby, long-term measurement site.
(9) Renewable Energy Systems with Storage Components. Provide
adequate and appropriate data to demonstrate the amount of renewable
resource available. Indicate the type, quantity, quality, and
seasonality of the renewable energy resource, where applicable.
Indicate the storage system specifications and the integrity of the
system in conjunction with the RES it is integrated with, including
application, size, lifetime, response time, capital and maintenance
costs associated with the operation as well as the distribution of
the stored resource(s).
Section D. Design and Engineering
Describe the intended purpose of the project and the design,
engineering, testing, and monitoring needed for the proposed
project. The description shall support that the system will be
designed, engineered, tested, and monitored to meet its intended
purpose, ensure public safety, and comply with applicable laws,
regulations, agreements, permits, codes, and standards. In addition,
identify that all major equipment is commercially available,
including proprietary equipment, and justify how this unique
equipment is needed to meet the requirements of the proposed design.
In addition, information regarding component warranties and the
availability of spare parts must be presented.
Section E. Project Development
Describe the overall project development method, including the
key project development activities and the proposed schedule,
including proposed dates for each activity. The description shall
identify each significant historical and projected activity, its
beginning and end, and its relationship to the time needed to
initiate and carry the activity through to successful project
completion. The description shall address applicant project
development cash flow requirements. Details for equipment
procurement and installation shall be addressed in Section F of this
Appendix. Applications should include a concise development schedule
with timelines for activities.
Section F. Equipment Procurement and Installation
Describe the availability of the equipment required by the
system. The description shall support that the required equipment is
available and can be procured and delivered within the proposed
project development schedule.
Describe the plan for site development and system installation,
including any special equipment requirements. In all cases, the
system or improvement shall be installed in conformance with
manufacturer's specifications and design requirements, and comply
with applicable laws, regulations, agreements, permits, codes, and
standards.
Section G. Operations and Maintenance
Describe the operations and maintenance requirements of the
system, including major rebuilds and component replacements
necessary for the system to operate as designed over its useful
life. The warranty must cover and provide protection against both
breakdown and a degradation of performance. The performance of the
RES or EEI shall be monitored and recorded as appropriate to the
specific technology.
0
47. Amend Sec. 5001.401 by revising the introductory text and
paragraph (c) to read as follows:
Sec. 5001.401 Interest rate provisions.
Interest rates, interest rate caps, and incremental interest rate
adjustment limitations on a guaranteed loan are negotiated between the
lender and the borrower. The interest rate for a guaranteed loan can be
either fixed or variable, or a combination thereof, as long as it is a
legal rate. Interest rates cannot be more than those rates the lender
customarily charges its borrowers for non-guaranteed loans in similar
circumstances in the ordinary course of business. The Agency encourages
each lender to use the secondary market and pass interest-rate savings
on to the borrower. If an interest rate swap is utilized, the guarantee
will only cover principal and interest. The lender must provide the
Agency with the overall effective interest rate charged to the borrower
in the swap transaction. The Agency guarantee does not cover any fees
related to the swap.
* * * * *
(c) Multi-rates. When multi-rates are used, the lender must provide
the Agency with the overall effective interest rate for the entire
loan.
* * * * *
0
48. Amend Sec. 5001.402 by revising paragraph (b)(2) to read as
follows:
Sec. 5001.402 Term length, loan schedule, and repayment.
* * * * *
(b) * * *
(2) Guaranteed loans must require a periodic payment schedule that
will retire the debt over the term of the loan without a balloon
payment. Balloon maturities are not allowed, unless required as a loan
servicing action. Payments must be amortized to maximize successful
loan repayment and may vary by type of business or cash flow.
* * * * *
0
49. Amend Sec. 5001.403 by revising paragraph (b) to read as follows:
Sec. 5001.403 Lender fees.
* * * * *
(b) Default charges, penalty interest, late payment fees, and
additional interest expenses are not covered by the loan note guarantee
and cannot be added to the principal or interest due under any loan
note guarantee in the event of a loss claim as prescribed in Sec.
5001.521 or a repurchase as prescribed in Sec. 5001.511.
[[Page 79726]]
0
50. Amend Sec. 5001.406 by revising paragraphs (c) and (d)
introductory text to read as follows:
Sec. 5001.406 Guaranteed loan amounts.
* * * * *
(c) B&I projects. The maximum total amount of B&I guaranteed loans
(including the guaranteed and unguaranteed portions of any B&I
guaranteed loans, the outstanding principal and interest balance of any
existing B&I guaranteed loans, and any new B&I guaranteed loan that is
the subject of an application) that may be made to a borrower is
limited to a maximum amount of $25 million. The Secretary, whose
authority may not be redelegated, may approve, at the Secretary's
discretion, guaranteed loans in excess of $25 million and up to $40
million for rural cooperatives that process value-added agricultural
commodities in accordance with Sec. 5001.105(b)(18)(i). In addition to
the borrower loan limit, there is a guarantor loan limit of $100
million.
(d) REAP projects. The amount of a guaranteed loan that will be
made available to an eligible project and borrower under this part will
be at least $5,000, not to exceed 75 percent of eligible project costs.
Borrowers must demonstrate evidence of a financial contribution in the
project of not less than 25 percent of total eligible project costs.
* * * * *
0
51. Amend Sec. 5001.408 by revising paragraphs (a)(5) and (e)(1) to
read as follows:
Sec. 5001.408 Participation or assignment of guaranteed loans.
* * * * *
(a) * * *
(5) Secondary market. The lender must properly close their loan and
fully disburse loan funds of a promissory note for the purposes
intended prior to assignment of the guaranteed portion of the
promissory note(s) on the secondary market. The lender can assign all
or part of the guaranteed portion of the loan only if the loan is not
in default. Default includes a borrower default in payments or a lender
default by unpaid periodic guarantee retention fees. A lender using the
multi-note system may sell the guarantee on the secondary market for a
specific note once that note is fully disbursed, even if other
guaranteed notes for the project have not been fully disbursed.
* * * * *
(e) * * *
(1) A guarantee and right to require purchase in accordance with
Sec. 5001.511 will be directly enforceable by a holder notwithstanding
any fraud or misrepresentation by the lender or any unenforceability of
the loan guarantee by the lender, except for fraud or misrepresentation
of which the holder had actual knowledge at the time it became the
holder or in which the holder participates or condones.
* * * * *
0
52. Amend Sec. 5001.450 by revising paragraphs (b)(1), (c)(1)
introductory text, (c)(1)(iii) and (c)(2) to read as follows:
Sec. 5001.450 General.
* * * * *
(b) * * *
(1) The entire loan must be secured by the same collateral with
equal lien priority for the guaranteed and unguaranteed portions of the
loan. The unguaranteed portion of the guaranteed loan will neither be
paid first nor given any preference or priority over the guaranteed
portion. A parity or junior lien position in the guaranteed loan
collateral may be considered on a case-by-case basis and must be
approved by the Agency during the loan approval process. Requirements
for guaranteed loans to purchase cooperative stock are found in Sec.
5001.140.
* * * * *
(c) * * *
(1) If the lender owns all or a portion of the guaranteed portion
of the guaranteed loan or makes a protective advance, the Agency, in
its sole discretion, may cover interest on the guaranteed portion for
the 90 days from the most recent delinquency effective date. Per
paragraph (c)(2) of this section, if applicable, the lender should
issue an interest termination letter to any holder(s) and provide the
Agency with a copy. The Agency will entertain the payment of interest
up to 180 days past the most recent delinquency effective date only if:
* * * * *
(iii) Concurrence for inclusion of the extended period of interest
to the lender is received from the Agency. The lender must request an
extension of accrued interest in writing and document their collection
efforts and timeframe for full resolution, which must be within 180
days from the most recent delinquency. Approved collection efforts that
will extend longer than 180 days from the most recent delinquency date
will be limited to 90 days of accrued interest payment from the Agency.
(2) If the guaranteed loan has one or more holders, the lender will
issue an interest termination letter to each holder establishing the
termination date for interest accrual and provide the Agency with a
copy. The loan note guarantee will not cover interest to any holder
accruing after 90 days from the date of the interest termination
letter. The Agency at its sole discretion may notify each holder of the
interest termination provisions if it is determined that lender
correspondence to holders is inadequate.
0
53. Amend Sec. 5001.452 by:
0
a. Revising paragraphs (a) and (b)(8)(iii)(U);
0
b. Adding paragraphs (b)(8)(iii)(W) and (X); and
0
c. Revising paragraph (c).
The revisions and additions to read as follows:
Sec. 5001.452 Loan closing and conditions precedent to issuance of
loan note guarantee.
(a) The lender must not close the guaranteed loan until all
conditions of the conditional commitment are met. If, at a later date,
it is discovered that all conditions were not met, the lender will be
advised in writing that full enforceability of the guarantee by the
lender may be compromised if the deficiencies are not corrected.
(b) * * *
(8) * * *
(iii) * * *
(U) For all RES and EEI projects, the lender must provide
certification that the project has been performing or will perform at a
steady state operating level in accordance with the technical
requirements, plans, and specifications. Any modification to the 30-day
steady state operating level requirement will be based on the Agency's
review of the technical report or vendor certification and will be
incorporated into the conditional commitment.
* * * * *
(W) For WWD projects, if applicable, the lender must certify that
the project complied with American Iron and Steel requirements.
(X) For B&I, the capital/equity requirement set forth in the
Conditional Commitment was met, as evidenced by a balance sheet as of
the date the guaranteed loan was closed, giving effect to the entirety
of the loan in the calculation whether or not the loan itself is fully
advanced. A copy of the borrower's loan closing balance sheet must be
included with the lender's certification.
(c) For RES projects where applicable, the lender must provide to
the Agency a copy of the executed power purchase agreement and/or a
permission to operate letter from the energy off-taker.
* * * * *
0
54. Amend Sec. 5001.454 by revising the introductory text, paragraphs
(b)
[[Page 79727]]
introductory text, (d)(4) and (5) to read as follows:
Sec. 5001.454 Guarantee Fee.
The guarantee fee is a one-time, non-refundable fee paid by the
lender to the Agency at or before loan closing and is required to be
paid before the Agency will issue the loan note guarantee. The
guarantee fee rate applied will be the rate as established in the
Federal Register for the fiscal year in which a guaranteed loan is
obligated. The lender may pass the guarantee fee on to the borrower.
* * * * *
(b) Guarantee fee rates. The guarantee fee rate is established by
the Agency in an annual document published in the Federal Register.
While the fee rate may vary annually, they will not exceed the limits
in table 1. Once the guarantee is obligated, the guarantee fee rate in
effect at the time of obligation will remain in place even if the
guarantee fee rate changes before the loan note guarantee is issued.
* * * * *
(d) * * *
(4) Is part of a strategic economic development and community
development plan on a multi-jurisdictional and multi-sectoral basis in
accordance with Section 6401 of the Agriculture Improvement Act of 2018
(Pub. L. 115-334); or
(5) Provides an additional market for existing local businesses by
purchasing substantial amounts of products or services from, selling
product to, or providing services to existing local and regional
businesses. The additional market for existing local businesses means
that the borrower uses industry clusters in the same community as a
substantial part of their product manufacturing or service delivery, or
the borrower is part of a product chain where they are a substantial
part of another local business' product manufacturing or service
delivery. The use of local janitorial or maintenance firms, for
example, does not meet this criteria.
0
55. Amend Sec. 5005.457 by revising paragraph (b)(1)(ii) to read as
follows:
Sec. 5001.457 Changes prior to loan closing.
* * * * *
(b) * * *
(1) * * *
(ii) Borrower's written plan, scope of work, or the purpose or
intent of the project.
* * * * *
0
56. Amend Sec. 5005.459 by revising paragraph (b)(1) to read as
follows:
Sec. 5001.459 Replacement of loan note guarantee, and assignment
guarantee agreement.
* * * * *
(b) * * *
(1) Be issued by a qualified surety company holding a certificate
of authority from the Secretary of the Treasury and listed in Treasury
Department Circular 570, except when the outstanding principal balance
and accrued interest due the present holder, in accordance with Sec.
5001.450(c), is less than $1 million as verified by the lender via a
written letter of certification of balance due;
* * * * *
0
57. Amend Sec. 5005.502 by revising paragraph (d) to read as follows:
Sec. 5001.502 Oversight and monitoring.
* * * * *
(d) Access to the project. Until the loan note guarantee is
terminated, the borrower must allow the lender and therefore the Agency
access to the project and its performance information and permit
periodic inspections of the project by an authorized representative of
the lender or the Agency.
0
58. Amend Sec. 5005.505 by revising paragraphs (a), (b)(3)
introductory text, (b)(3)(iii) to read as follows:
Sec. 5001.505 Collateral inspection and release.
* * * * *
(a) Inspection of collateral. The lender must inspect the
collateral as often as necessary to properly service the guaranteed
loan.
(b) * * *
(3) Sale or release transaction. The sale or release of collateral
must be based on an arm's length transaction, unless otherwise
approved, in writing, by the Agency when the sale or release of
collateral results in paying the guaranteed loan in full and
termination of the loan note guarantee. There must be adequate
consideration at market value for the release of collateral. Such
consideration may include, but is not limited to:
* * * * *
(iii) Application of the net proceeds from the sale of collateral
to the borrower's guaranteed loan or to its business operation in such
a manner that a significant improvement to the borrower's debt service
ability will be clearly demonstrated. The lender's written request must
detail how the borrower's debt service ability will be improved; and
* * * * *
0
59. Amend Sec. 5001.506 by revising paragraphs (e) and (k) to read as
follows:
Sec. 5001.506 Loan transfers and assumptions
* * * * *
(e) Loan agreement. A new loan agreement or an assumption
agreement, acceptable to the Agency must be executed to establish the
terms and conditions of the loan being assumed.
* * * * *
(k) Appraisals. If the proposed transfer and assumption is for less
than the full amount of the guaranteed loan, an appraisal is required
on all the collateral being transferred, and the amount of the
assumption must not be less than this appraised value. The lender is
responsible for obtaining the appraisal, which must conform to the
requirements of Sec. 5001.203 of this part. However, if the original
appraisal is more than one year old, but less than two years old, the
lender may provide an appraisal with a new effective date of evaluation
in lieu of a completely new appraisal.
* * * * *
0
60. Amend Sec. 5001.507 by revising paragraphs (a)(3) and (d) to read
as follows:
Sec. 5001.507 Lender transfer.
* * * * *
(a) * * *
(3) Agrees in writing to acquire title to the unguaranteed portion
of the loan held by the original lender and assumes all original loan
requirements, including liabilities and servicing responsibilities; and
* * * * *
(d) In cases when there is a transfer to a new lender or when a
lender has been merged with or acquired by another lender, the Agency
and the new lender must execute a new lender's agreement, unless the
new lender already has a valid lender's agreement with the Agency.
* * * * *
0
61. Amend Sec. 5001.510 by revising paragraph (b)(3) to read as
follows:
Sec. 5001.510 Subordination of lien position.
* * * * *
(b) * * *
(3) Remaining collateral is sufficient to provide for adequate
collateral coverage of the guaranteed loan after taking into account
the lender's discount of collateral consistent with the lender's sound
loan-to-discounted value practices and satisfactory justification of
the discount used. The Agency may require a current independent
appraisal in accordance with Sec. 5001.203. However, if the original
appraisal is more than one year old, but less than two years old, the
[[Page 79728]]
lender may provide an appraisal with a new effective date of evaluation
in lieu of a completely new appraisal;
* * * * *
0
62. Amend Sec. 5001.511 by revising paragraphs (b) introductory text,
(c)(9) and (10) to read as follows:
Sec. 5001.511 Repurchase from holders.
* * * * *
(b) Repurchase by lender for loan servicing purposes. If the
lender, borrower, and holder are unable to agree to restructuring of
loan repayment, interest rate, or loan terms to resolve any loan
problem or resolve any default and repurchase of the guaranteed portion
of the loan is necessary to adequately service the loan, the holder
must reassign the guaranteed portion of the loan to the lender. The
reassignment must be for an amount not less than the holder's unpaid
principal and accrued interest, in accordance with Sec. 5001.450(c) of
this part, on such portion less the lender's servicing fee.
* * * * *
(c) * * *
(9) Accelerated loan. When the lender has accelerated the loan and
the lender holds all or a portion of the guaranteed loan, an estimated
loss claim must be filed by the lender with the Agency within 60
calendar days from the date the loan was accelerated. Accrued interest
paid to the lender in accordance with Sec. 5001.450(c)(1).
(10) Interest termination during bankruptcy. When a borrower files
a Chapter 7 liquidation plan, the lender shall immediately notify the
Agency and submit a liquidation plan. The Agency will establish an
interest termination date based on the date interest was last paid to
the lender. When a borrower files either a Chapter 9 or Chapter 11
bankruptcy restructuring plan, the Agency and lender shall meet to
discuss the bankruptcy procedure, the ability of the borrower to meet
their restructuring plan, the lender's treatment of accruing interest,
and potentially establish an interest termination date for the
guaranteed loan. If the restructuring bankruptcy Chapter 9 or Chapter
11 is converted to a liquidation bankruptcy Chapter 7 by court order,
the interest termination date will be the date of such conversion.
0
63. Amend Sec. 5001.516 by revising paragraphs (c) and (d) to read as
follows:
Sec. 5001.516 Protective advances.
* * * * *
(c) A lender must obtain written Agency approval for any protective
advance that will cumulatively amount to more than $200,000, or 10
percent of the aggregate outstanding balance of principal and interest,
whichever is less, to the same borrower. Payment of real estate taxes
by the lender is not considered a protective advance and does not
require Agency approval.
(d) Protective advances constitute an indebtedness of the borrower
to the lender and must be secured by collateral to the same extent as
the original guaranteed loan. It is the lender's responsibility to
ensure that any protective advances are secured by the collateral of
the guaranteed loan.
* * * * *
0
64. Amend Sec. 5001.517 by revising paragraphs (c)(1), (c)(2),
(c)(6)(i), (c)(10), (c)(11), (d), (e)(1)(i), and (f)(2) to read as
follows:
Sec. 5001.517 Liquidation.
* * * * *
(c) * * *
(1) Such proof as the Agency requires to establish the lender's
ownership of the guaranteed loan promissory note and related security
instruments. Such proof may include copies of executed notes; and
copies of mortgages or deeds of trust recorded in the appropriate
jurisdiction;
(2) A copy of the payment ledger, if available, or other
documentation that reflects the current outstanding loan balance,
accrued interest to date, and the method of computing the accrued
interest. If the interest rate was a variable rate, the lender must
include documentation of changes in the agreed upon base rate and when
the changes in the loan rate became effective.
* * * * *
(6) * * *
(i) These values or estimates of the collateral must be obtained by
the lender through an independent appraisal. If the outstanding balance
of principal and interest is less than $250,000, the lender may,
instead of an appraisal, obtain these values or estimates by using
their primary regulator's policies relating to appraisals and
evaluations or, if the lender is not regulated, normal banking
practices and generally accepted methods of determining value. A copy
of the appraisal or valuation will be provided to the Agency with the
liquidation plan or as soon as it is available.
* * * * *
(10) An itemized list of estimated liquidation expenses expected to
be incurred along with justification for each expense. These may
include attorney, auctioneer, and other professional fees for services
the lender will need to contract to maximize recovery on the loan. Cost
could also include legal representation to protect Agency/lender joint
interest in bankruptcy or receivership;
(11) Estimated protective advance amounts with justification.
Protective advances include, but are not limited to, advances made for
taxes, annual assessments, ground rent, hazard and flood insurance
premiums affecting the collateral, and other expenses necessary to
protect the collateral. Protective advances may include advances
necessary to maintain services or address unique situations with proper
justification. If the lender has advanced funds without agency approval
during the life of the loan, such expenditures or loans will not be
guaranteed;
* * * * *
(d) Partial liquidation plan. If actions are necessary to
immediately preserve and protect the collateral, the lender may submit
a partial liquidation plan and, when approved by the Agency, submit a
complete liquidation plan prepared by the lender in accordance with
paragraph (c) of this section.
(e) * * *
(1) * * *
(i) Proceed expeditiously with liquidation. The lender must
actively market the collateral for a reasonable period of time. If
after this period of time the lender is unable to sell the collateral,
then consideration should be given to submission of a final loss claim
based on the fair market value of the collateral prior to its ultimate
disposition;
* * * * *
(f) * * *
(2) The lender must provide the Agency a copy of the acceleration
notice, or other acceleration document sent to the borrower.
* * * * *
0
65. Amend Sec. 5001.519 by revising paragraph (d)(2)(i) to read as
follows:
Sec. 5001.519 Bankruptcy.
* * * * *
(d) * * *
(2) * * *
(i) The lender must request a bankruptcy loss payment of the
guaranteed portion of the accrued interest and principal discharged by
the court for all bankruptcies when all or a portion of the debt has
been discharged. Unless a final court decree approves a subsequent
change to the bankruptcy plan that is adverse to the lender, only one
bankruptcy loss payment is allowed during the bankruptcy. Once a final
court decree has discharged all or part of the guaranteed loan and any
appeal period has run, the lender must submit
[[Page 79729]]
the documentation necessary for the Agency to review and adjust the
bankruptcy loss claim to reflect any actual discharge of principal and
interest.
* * * * *
0
66. Amend Sec. 5001.521 by revising paragraphs (d)(2), (e)(3), (e)(4),
and (e)(8)(iii) to read as follows:
Sec. 5001.521 Loss calculations and payment.
* * * * *
(d) * * *
(2) Non-compliance with the requirements of Sec. 5001.205(a) or
Sec. 5001.305(a) will result in a reduction of loss claims payable.
The Agency's review of the non-compliance could result in a total
reduction of the loss claim payable. The Agency's review of the non-
compliance could result in a total reduction of the loss claim payable.
The lender must ensure during loan making and project development that
the project is designed utilizing accepted architectural and
engineering practices and conforms to applicable Federal requirements
including the seismic requirements of Executive Order 12699 (55 FR 835,
January 5, 1990), State and local codes and requirements, and facility
plans or plans and specifications reviewed and approved by the
applicable State regulatory agency. The lender must also ensure that
the planned project will be completed within the available funds and
once completed, will be suitable for the borrower's needs.
* * * * *
(e) * * *
(3) Audit. Upon receipt of the final accounting and report of loss,
the Agency may audit all applicable documentation to determine the
final loss. The lender must make its records available to and otherwise
assist the Agency in making any investigation or audit of the report of
loss. The documentation accompanying the report of loss must support
the amounts reported. The Agency must be satisfied that the lender has
maximized the collections in conducting the liquidation.
(4) Guarantees. The lender must determine the collectability of
unsecured personal and corporate guarantees required in accordance with
Sec. 5001.204 of this part. The lender must promptly collect or
otherwise dispose of such guarantees prior to completion of the final
loss report. However, if collection from the guarantors appears
unlikely or will require a prolonged period of time, the lender must
file the report of loss when all other collateral has been liquidated.
Unsecured personal or corporate guarantees outstanding at the time of
the submission of the final report of loss will be treated as a future
recovery with the net proceeds to be shared on a pro rata basis by the
lender and the Agency.
* * * * *
(8) * * *
(iii) If a restructuring of a guaranteed loan includes the
capitalization of interest, the guarantee will not cover the interest
accrued on the capitalized interest.
* * * * *
Basil I. Gooden,
Under Secretary, Rural Development.
[FR Doc. 2024-21920 Filed 9-27-24; 8:45 am]
BILLING CODE 3410-15-P
