Current through Register Vol. 49, No. 13, September 23, 2024
Subpart 1.
Loan transactions and security.
A. The authority shall make loans to eligible
borrowers for eligible purposes pursuant to a loan agreement between the
authority as lender and the eligible borrower as borrower. The loans must be
evidenced by promissory notes payable to the authority or its assigns, and
except as provided in item E must be unsecured.
B. A loan may not be made if it violates any
of the restrictions in subitems (1) to (6).
(1) The amount of a loan, together with the
amount of any similar loan made to the same borrower or a related person or
entity, may not exceed $250,000.
(2) Ninety-five percent of the loan proceeds
must be expended for an eligible purpose, and not more than two percent of the
loan proceeds may be used to pay loan transaction costs.
(3) The maturity of a loan or portion of a
loan made to finance improvements or depreciable property to be used in an
agricultural business enterprise may not exceed 120 percent of the useful life
of the improvements or property under the code.
(4) Not more than five percent of the loan
proceeds may be used to refinance existing indebtedness, or to finance the
purchase or improvement of a residence or working capital or inventory. Use of
loan proceeds for reimbursement of costs incurred before adoption by the
authority of a preliminary resolution approving a loan and the issuance of a
bond to fund it as described in part
1652.0060 or money borrowed to pay
such costs constitutes use of loan proceeds for working capital or
refinancing.
(5) All loan proceeds
must be expended within six months of the loan closing or the first date on
which loan proceeds are disbursed, whichever is later, or all proceeds must be
expended within 18 months of the loan closing or the first date on which loan
proceeds are disbursed, whichever is later, in which event the borrower must
furnish to the authority all information as to the investment of loan proceeds
and any money required to be rebated to the United States under section 148 of
the code.
(6) Loan proceeds may not
be used to finance the purchase of land, improvements, or depreciable property
from a related person or entity.
C. The authority shall issue a bond to
provide money to fund each loan. The authority has no other money available for
this purpose. The bond must be issued to the eligible lender who has agreed
with the eligible borrower to finance the eligible borrower's loan by jointly
submitting a loan application in accordance with part
1652.0050. The bond must be issued
in fully registered form pursuant to a loan agreement between the lender and
the authority.
D. The bond must be
a special, limited obligation of the authority payable solely from loan
payments payable by the eligible borrower under the borrower's loan agreement
and the promissory note evidencing the loan, which will be assigned to the
lender and pledged to the payment of the principal of and interest on the bond,
without recourse to the authority. The bond must not be a general obligation of
the authority, the state of Minnesota, or any department, agency, or political
subdivision of the state, and the full faith and credit of the authority, the
state, or any department, agency, or political subdivision of the state must
not be pledged for its payment.
E.
A bond may be additionally secured by a mortgage on or security interest in the
property financed or other property provided by the borrower, or by personal
guaranties made by the borrower or another individual. All agreements and
documents providing or evidencing such additional security must be entered into
between the borrower or another individual and the lender. The authority may
not be a party to the agreement or document and may not be responsible in any
way with respect to the authorization, execution, effectiveness, or adequacy of
the additional security.
Subp.
2.
Loan evaluation.
The lender must determine and evaluate the eligible borrower's
financial condition, net worth, and ability to repay the loan of the bond
proceeds to be made by the authority, and the lender is solely responsible for
that determination. The authority may not make any independent evaluation of
any of these matters, but must rely upon certifications provided to it by the
applicant and the lender as part of an application.
Subp. 3.
Loan terms.
The payment terms of each loan and the bond that will be issued
to fund the loan must be identical and, subject to the applicable provisions of
state and federal law or the code, must be established by the eligible borrower
and the lender.
Subp. 4.
Loan documents.
Except as provided in subpart
1 with respect to certain
loan security agreements, all loan and bond transactions must be evidenced by
use of the authority's standard loan documents. The documentation must include
loan agreements, a promissory note, a bond, various closing certificates, legal
opinions, and other documents the authority requires.
Subp. 5.
Tax exemption.
A. The authority shall try to issue each bond
as a "qualified small issue bond" within the meaning of section 144(a) of the
code. Interest payable on a qualified small issue bond is not includable in
gross income of the recipient for federal income tax purposes, or in net income
of individuals, estates, or trusts for Minnesota income tax purposes. At the
loan closing, the authority shall furnish to the lender an opinion of an
attorney or firm of attorneys nationally recognized as bond counsel as to the
validity of the bond and the tax-exempt nature of the interest payable on the
bond, addressed to the lender. The form of that opinion is available upon
request to the authority by any eligible lender joining in a loan
application.
B. The lender may not
rely upon information provided by the authority as to state and federal tax
warranties or covenants made by the authority in the loan documents, but may
rely on the legal opinion.
C. The
lender is responsible to determine the applicability and effect of other state
and federal laws on the lender's income, deductions, or tax status for state
and federal tax purposes as a result of the purchase of a bond.
Subp. 6.
Use of bond
proceeds; certification.
Bond proceeds may not be used for a purpose other than an
eligible purpose or by a person other than an eligible borrower. Following
disbursement of the bond proceeds, the lender and borrower may be required to
certify to the authority that the proceeds were used for an eligible purpose by
an eligible borrower, and evidencing compliance with subpart
1, item B.
Subp. 7.
Assignment of bond.
A lender may assign a bond in whole or in part to any person,
but the lender is responsible for compliance with all state and federal laws
applicable to the assignment. Servicing of the loan may also be assigned, but
must at all times be with an eligible lender. The authority must be notified in
writing prior to assignment of servicing of a loan.
Subp. 8.
Assumption of loans,
substitution of collateral, and transfer of property.
Loans may not be assumed without the prior approval of the
authority, and then only if the purchaser of the property is an eligible
borrower. The benefits of the loan made at the tax-exempt rate from the
proceeds of an authority bond must remain with an eligible borrower, and no
other person or entity to whom property is traded or otherwise transferred may
obtain the benefits of the authority loan.
Statutory Authority: MS s
41C.13
