Current through Register Vol. 48, No. 38, September 20, 2024
Each application will be reviewed by the Department to assure
compliance with the technical program requirements as specified in subsections
(a) through (d) of this Section.
a)
Loan Project Type - The application will be evaluated to assure that:
1) the loan project meets the requirements
for a Rural Diversification Project or an Agricultural Diversification Project
as defined in Section
640.30 of this
Part;
2) the entity meets the
conditions outlined as an eligible loan applicant as contained in Section
640.40 of
this Part;
3) that the rural
business or agribusiness costs being funded are allowable expenses as defined
in Section
640.50 of
this Part; and
4) that applicant
certifications in accordance with Section
640.130
of this Part have been signed.
b) Evidence of Need for Loan Program Funding
- The applicant must show the essential need which must be documented for
agricultural or rural diversification financing as evidenced by (Section
6(b)(i) of the Act):
1) the project's
inability to acquire financing from other State authorities or agencies
(Section 6(b)(i) of the Act) with proof, such as a denial letter, failure to
respond within the applicable program(s)' specified time frame(s),
identification of the project's ineligibility for other public programs or
other evidence that other State and federal program funding has been
considered;
2) calculation showing
the rate of return is below the average return on investment for the company or
industry, or similar evidence showing Department participation is needed at an
interest rate and term which makes the project viable;
3) compelling economic benefit to the State
for the business project because of interstate competition for facilities
(Section 6(b)(i) of the Act); or
4)
lender documentation that capital is not available to complete the
project.
c) Leverage
Financing - The rural business or agribusiness must:
1) Provide a minimum of fifteen (15) percent
of the equity in the project (Section 7(c) of the Act);
2) Show evidence that the loan will be
leveraged with other funds such that program financing covers no more than 25
percent of the total costs of the diversification project unless the Director
of the Department waives the 25 percent limitation (Section 7(c) of the Act) in
accordance with Section
640.110.
d) Financial Statements - The
applicant's financial statements, including annual balance sheets and profit
and loss statements for the past three years as well as an interim statement
not more than ninety (90) days old; actual and pro forma income statements; a
three-year projected balance sheet and profit and loss statement as well as a
one-year monthly cash flow statement will be reviewed through a standard credit
analysis. This credit analysis will determine the financial viability of the
business as compared to similar data for the industry using the 1990 "RMA
Annual Statement Studies" (published by Robert Morris Associates, P.O. Box
8500, S-1140, Philadelphia, PA 19178) if such commerce or industry is evaluated
by this source. The application must:
1)
Demonstrate liquidity and debt coverage for the project showing that balance
sheet indicators support the project size; that days receivable, days payable,
and inventory are within a normative range; and that working capital is
positive.
2) Address quality of
debt and debt management showing the debt-to-equity ratio is within the
industry's normative range, that short-term and long-term sources and uses of
funds are matched; and that contingent liabilities with parent companies,
subsidiaries, partners, and other related parties will not have a material
adverse effect on loan repayments.
3) Reflect positive and stable sales growth,
profit margins, operating margins, and overhead, and show other positive,
supportive trends and projections.
4) Show projected market prospects and
earnings report that demonstrate a consistency between past performance,
assumptions, and projected performance.
5) Demonstrate a positive cash flow as
evidenced by a net income before taxes of five (5) percent of the gross income
of the rural business or agribusiness based on actual or projected income and
expenses (Section 7(c) of the Act).
