Intermediary Relending Program

Federal RegisterJan 18, 1995

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DEPARTMENT OF AGRICULTURE

Rural Housing and Community Development Service

Rural Business and Cooperative Development Service

Rural Utilities Service

Consolidated Farm Service Agency

7 CFR Parts 1948 and 1951

RIN 0575-AB83

Intermediary Relending Program

AGENCIES: Rural Housing and Community Development Service, Rural

Business and Cooperative Development Service, Rural Utilities Service,

and Consolidated Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Business and Cooperative Development Service is

proposing to amend regulations for the Intermediary Relending Program

(IRP). This action is needed to clarify and revise procedures and

requirements regarding a variety of issues. The amendments are expected

to clarify the roles of the Government and intermediaries, make the

program more responsive to the needs of intermediaries and ultimate

recipients, and facilitate continuing expansion of the program.

DATES: Comments must be received on or before March 20, 1995.

ADDRESSES: Submit written comments in duplicate to the Chief,

Regulations Analysis and Control Branch, Rural Economic and Community

Development Service, USDA, Ag. Box 0743, Washington, DC 20250-0743. All

written comments made pursuant to this notice will be available for

public inspection during regular working hours at the above office,

located in room 6348, South Agriculture Building, 14th and Independence

Avenue SW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: M. Wayne Stansbery, Business and

Industry Loan Specialist, Rural Business and Cooperative Development

Service, USDA, Ag. Box 3221, Washington, DC 20250, Telephone (202) 720-

6819.

SUPPLEMENTARY INFORMATION:

Classification

We are issuing this proposed rule in conformance with Executive

Order 12866, and have determined that it is a ``significant regulatory

action.''

Programs Affected

The Catalog of Federal Domestic Assistance program impacted by this

[[Page 3567]] action is: 10.767, Intermediary Relending Program.

Program Administration

Due to reorganization actions within the Department of Agriculture,

the Intermediary Relending Program is currently administered by the

Rural Business and Cooperative Development Service (RBCDS). The RBCDS

is a successor to the Rural Development Administration, which was a

successor to the Farmers Home Administration.

Paperwork Reduction Act

The information collection requirements contained in 7 CFR part

1951 subpart R have been approved by the Office of Management and

Budget (OMB) and assigned OMB control number 9575-0131, in accordance

with the Paperwork Reduction Act of 1980. The revised information

collection requirements contained in 7 CFR part 1948 subpart C will be

submitted to OMB for review under Section 3504(h) of the Paperwork

Reduction Act. Public reporting burden for this collection of

information is estimated to vary from 30 minutes to 56 hours per

response with an average of 3.27 hours per response, including time for

reviewing instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information. Please send written comments to the Office

of Information and Regulatory Affairs, OMB, Attention: Desk Officer for

USDA, Washington, DC 20503. Please send a copy of your comments to Jack

Holston, Agency Clearance Officer, USDA, RECD, Ag. Box 0743,

Washington, DC 20250.

Intergovernmental Review

As set forth in the final rule and related Notice to 7 CFR part

3015, subpart V, 48 FR 29112, June 24, 1993, Intermediary Relending

Loans are subject to the provisions of Executive Order 12372 which

requires intergovernmental consultation with State and local officials.

RBCDS conducts intergovernmental consultation in the manner delineated

in FmHA Instruction 1940-J, ``Intergovernmental Review of Farmers Home

Administration Programs and Activities.''

Civil Justice Reform

This document has been reviewed in accordance with Executive Order

12778. It is the determination of RBCDS that this action does not

unduly burden the Federal Court System in that it meets all applicable

standards provided in section 2 of the Executive Order.

Environmental Impact Statement

This document has been reviewed in accordance with FmHA Instruction

1940-G, ``Environmental Program.'' RBCDS has determined that this

proposed action does not constitute a major Federal action

significantly affecting the quality of the human environment, and in

accordance with the National Environmental Policy Act of 1969, Public

Law 91-190, an Environmental Impact Statement is not required.

Background

This regulatory package is an initiative to enhance the program

through revisions based on experience with operation of the program.

The primary changes include the following: -

1. The regulation is completely reorganized for improved clarity.

2. Definitions are provided for ``Agency IRP loan funds,'' ``IRP

revolving fund,'' ``revolved funds,'' and ``technical assistance.''

Throughout the document, clarifications are provided as to which

requirements apply only to Agency IRP loan funds, which apply to

revolved funds, and which apply to everything in the IRP revolving

fund.

3. Agency State Offices are authorized to accept and process all

applications except those from applicants located within Washington,

D.C., which will be processed by the National Office.

4. Eligibility requirements for intermediaries are revised to

clarify that a proposed intermediary that does not have lending

experience may still qualify for a loan if it will arrange for services

of people with lending experience.

5. Eligibility requirements are revised to provide that proposed

intermediaries that have an outstanding Federal judgement are not

eligible.

6. Eligibility requirements are provided for Ultimate recipients.

7. Eligible purposes for loans to ultimate recipients are revised

to be more consistent with the Business and Industry loan program,

authorize loans for refinancing and recreation facilities (except golf

courses, gambling and race tracks).

8. Security requirements are clarified.

9. General guidelines are provided for interest rates and terms of

loans to ultimate recipients, along with clarification that such rates

must be within limits established in the intermediary's work plan.

10. Loan ceilings are revised to provide that, subject to certain

conditions, intermediaries may receive a series of subsequent loans of

up to $1 million each to a combined total of up to $15 million. The

ceiling on loans to an ultimate recipient is raised to $250,000.

11. The intermediary's responsibilities for maintaining the

intermediary revolving fund are clarified and a provision is added for

establishment of a reserve for bad debts of 15 percent of the

intermediary's portfolio.

12. Loan disbursement procedures are revised to allow

intermediaries to draw up to 25 percent of their loan at loan closing.

The funds may be placed in an interest bearing account if they are not

immediately needed for loans to ultimate recipients.

13. The requirement for intermediaries to operate in accordance

with an approved work plan is clarified and guidelines are provided for

RBCDS approval of work plan revisions.

14. The contents of a complete application and work plan are

revised to eliminate some unnecessary items, provide more detail on

what should be covered regarding relending plans, add certifications

regarding debarment, Federal debt collection policies, and lobbying,

and provide for streamlined applications for subsequent loans.

15. The priority point scoring system is revised to adjust the

percentages required to qualify for points based on service area income

compared to the poverty line, provide for points based on service area

income compared to Statewide non-metropolitan income, provide for

points based on loans to underrepresented groups, and provide more

guidelines for the assigning of points by the Administrator.

16. The requirement for a certification by the intermediary

regarding equity is removed.

17. Guidelines are provided for information to be submitted to

RBCDS regarding proposed loans to ultimate recipients and for RBCDS

review and response to the information.

In addition, a number of issues were explored and alternatives were

considered in preparing this Proposed Rule. An internal taskforce of

State Directors and other State Office personnel has recommended

alternatives to some of the material in this proposed rule and

additional changes that have not been incorporated into this proposed

rule. We invite and encourage comments and suggestions in these areas

or in others germane to the mission and purpose of the program. To the

extent that comments received raise new issues or cause revision of the

proposed regulation which are outside the scope of the subject matter

area now contemplated by this proposal, the Agency will publish a new

proposal. We [[Page 3568]] are particularly interested in comments in

the following areas:

1. The specific mission of the IRP program in the context of the

USDA rural development missions.

The taskforce has recommended the following mission statement be

substituted in Sec. 1948.101(b) of the proposed rule: ``The purpose of

the program is to alleviate poverty and increase economic activity and

employment in rural communities, especially disadvantaged and remote

communities, through gap financing administered by community-based

organizations, targeted primarily towards smaller and emerging

businesses, in partnership with other public and private resources, and

in accordance with State and regional strategy based on identified

community needs. This purpose is achieved through loans made by the

Agency to intermediaries that establish programs for the purpose of

providing loans to ultimate recipients for business activities and

community development(s) in a rural area.'' Would it be helpful to have

this more detailed and descriptive mission statement in the regulation?

2. The type of credit needs for which IRP funding is most

appropriate.

What scale of business, type of asset financed, and range of risk

should be targeted? For example, should revolving or seasonal lines of

credit be eligible loan purposes? The taskforce believes there is a

crucial need for revolving credit lines for small businesses. The

Agency has been hesitant to allow IRP funds to be used for revolving

lines of credit because of the increased risks and special lender

expertise needed. Is this a service intermediaries should be providing?

3. Loan size limits for ultimate recipients.

The proposed rule would allow intermediaries to make some loans of

up to $250,000 (Sec. 1948.114(b)). This proposal was based primarily on

reports from some intermediaries of a need for commercial credit in the

$150,000 to $250,000 range. The taskforce is concerned that the

proposed higher loan limit to ultimate recipients might diminish the

effectiveness of the program in providing financing for micro-

enterprise revolving loan funds which are a target area for rural

development policy. Might it be appropriate to retain the existing loan

limit of $150,000? How great is the need for loans exceeding $150,000?

If the $150,000 limit is retained should exception authority be

provided to the Administrator for higher amounts? If so, what should

the criteria be for approving an exception.

4. Outcome and performance measures.

There is a significant need for information which documents the

rural community and economic development outcome achieved as a result

of IRP activity. What are appropriate outcome and performance measures

and reporting requirements for the intermediary loan funds financed by

the program, and for the funded activities of the ultimate recipients

of the loans?

5. Experience requirements.

To enable more socially oriented community-based organizations to

use the program, the taskforce has suggested further revising the

eligibility requirements for intermediaries. They have proposed

allowing loans to intermediaries that have experience in assisting

rural business or community development, but not necessarily lending

experience. The proposed rule, as well as current policy, would allow

this, but only if the Intermediary will bring individuals with loan

making and servicing experience and expertise into the operation

(Sec. 1948.103(b)(2)). Would relaxing the requirement for individuals

with lending experience achieve the goal of bringing more socially

oriented intermediaries into the program?

6. Citizenship requirements.

The taskforce recommended further revising the eligibility

requirements for ultimate recipients to allow intermediaries to make

loans to businesses owned by non-U.S. citizens if the project funded

creates or retains jobs for U.S. residents. Such loans would be

restricted to fixed assets located in the U.S. and the business would

have to have managers that are U.S. citizens or legally admitted to the

U.S. for permanent residence. Would this provision significantly help

to provide jobs?

7. Management consultant fees.

The taskforce has suggested further revising the eligible loan

purposes for loans to ultimate recipients to include management

consultant fees. Could this enhance the likelihood of success for

ultimate recipients?

8. Technical assistance.

The taskforce has suggested further revising the eligible loan

purposes to allow intermediaries to use IRP funds to provide direct

technical assistance to ultimate recipients or prospective recipients.

Would this change be valuable? Is technical assistance an appropriate

use for IRP funds?

9. Security requirements.

When the IRP was initiated in 1988, the security required for most

loans to intermediaries was a blanket pledge of the IRP revolving fund.

In 1991, the regulation was revised to require assignments on all

promissory notes and security documents (Sec. 1948.113(a)(2)).

Intermediaries have complained from time to time about being required

to provide the assignments and the taskforce has suggested that the

requirement be removed. Is the providing of assignments an inordinate

burden on the intermediary?

10. Review and concurrence for loans to ultimate recipients.

Current regulations require intermediaries to obtain the

Government's review and concurrence in the IRP loans it proposes to

make to ultimate recipients. This proposed rule clarifies the limited

scope of review required for concurrence (Sec. 1948.128) and also

clarifies that the requirement for review and concurrence applies only

to Federal loan funds and does not apply to loans made from the

revolving fund from collections on previous loans. The taskforce, in

addition, suggests exempting intermediaries that have demonstrated a

successful track record of lending IRP funds and servicing loans from

the requirement. Most of the impact of this change would be on

subsequent loans to intermediaries. Another alternative would be to

simply not require Government review and concurrence on loans to

ultimate recipients made from subsequent loans to intermediaries.

Should it be necessary for intermediaries to obtain Government

concurrence on every proposed loan from Federal funds?

11. Multiple IRP revolving funds.

Intermediaries are required to establish separate bookkeeping

accounts and bank accounts for the IRP revolving fund. Intermediaries

that receive more than one IRP loan are required to establish a

separate revolving fund with separate accounts for each loan. The

proposed rule would allow the funds to be combined with Government

consent and under certain conditions (Sec. 1948.115(b)(5)). The

taskforce recommended alternate language that would allow the funds to

be combined without Government consent unless the purposes of the loans

were significantly different. Should intermediaries with more than one

IRP loan be required to obtain Government consent to avoid setting up

entirely separate funds for each?

12. Environmental assessments.

Are the intergovernmental and environmental review requirements

referenced in the proposed rule excessive for loan funds of this type?

How could they be streamlined?

13. Loan agreements.

[[Page 3569]]

In connection with implementation of the proposed rule the

Government plans to begin using a printed form as a loan agreement

rather than preparing a loan agreement for each loan based on an

exhibit to the regulation. The taskforce recommended an additional step

of having one loan agreement serve for multiple loans to the same

intermediary. The pertinent language suggested was: ``For subsequent

loans with no substantial changes to the intermediary's work plan, an

amendment to the existing loan agreement shall be executed at loan

closing for each subsequent loan.'' Should subsequent IRP loans to the

same intermediary be handled by amendments to the original loan

agreement rather than with entirely new loan agreements?

14. Applications.

Should there be more specific requirements for the intermediary's

workplan to address issues such as mission, goals, targeting criteria

for recipients, and accompanying technical assistance to recipients to

ensure that the IRP program achieves tangible outcomes for rural

community and economic development and functions in keeping with the

Government Performance and Results Act? The taskforce recommended

application requirements be further revised, in

Sec. 1948.122(a)(2)(iii) of the proposed rule, to provide that the

demonstration of need could be met through targeting criteria and

supporting evidence that such prospective ultimate recipients exist in

sufficient numbers to justify funding the intermediary's request. Would

this approach be appropriate? The taskforce recommended further

revising the application requirements by requiring the proposed

intermediary to provide a set of goals, strategies, and anticipated

outcomes for its program and a mechanism for evaluating the outcome of

its IRP loan program. The taskforce also recommended requiring each

proposed intermediary to provide specific information on how it will

ensure that technical assistance will be made available to ultimate

recipients. Are these reasonable and worthwhile requirements?

15. Community representation.

Should the 10 county service area limitation (for priority points,

Sec. 1948.123(c)(5)) be changed to 14 as recommended by the taskforce?

16. Targeting priorities.

Should the proposed scoring criteria be further modified to place

greater emphasis on such factors as community and beneficiary

targeting, conformance with regional or community development plans,

and encouragement of smaller-size loans, with proportionately less

emphasis on the intermediary's own resources and its ability to

leverage funds? Specifically, the taskforce recommended the following:

Reduce the available points for other funds (Sec. 1948.123(c)(1)(i))

from 10, 20, or 30 to 5, 10, or 15; Reduce the available points for

other intermediary funds (Sec. 1948.123(c)(1)(ii)) from 10, 20, or 30

to 5, 10, or 15; Reduce the available points for intermediary

contribution (Sec. 1948.123(c)(3)) from 15, 30, or 50 to 5, 10, or 15;

Add a new provision to award points based on the average size of loans

expected to be made to ultimate recipients, with 5 points for loans

over $125,000, 10 points for loans of $75,000 to $125,000, 15 points

for loans of $25,000 to $75,000, and 30 points for loans less than

$25,000; Add, to the guidelines for justifying administrator points

(Sec. 1948.123 (c)(6)), reference to a workplan in accord with a

strategic plan, particularly a plan prepared as part of a request for

an Empowerment Zone/Enterprise Community designation. Comments are

welcomed on each of these potential changes in the priority system.

17. Bad debt reserve.

Is 15 percent of the IRP portfolio an appropriate amount of bad

debt reserve for most intermediaries (1948.115(b)(2))? If not, what

level of reserve should be suggested or required?

18. Hotels and motels.

The proposed rule removes a general prohibition on loans for

recreation and tourism facilities, but retains a prohibition on loans

for hotels, motels, bed and breakfast establishments, and convention

centers. This prohibition was based on perceptions that loans on such

facilities were high risk and the jobs created were low paying. Are

these perceptions valid? Should these facilities be made eligible and

considered on the merits of each case?

Lists of Subjects

7 CFR Part 1948

Business and industry, Credit, Economic Development, Rural areas.

7 CFR Part 1951

Loan programs--Agriculture, Rural areas.

Accordingly, Title 7, Chapter XVIII, of the Code of Federal

Regulations is proposed to be amended as follows:

PART 1948--RURAL DEVELOPMENT

1. The authority citation for Part 1948 continues to read as

follows:

Authority: 7 U.S.C. 1932 note; 5 U.S.C. 301; 7 CFR 2.23; 7 CFR

2.70.

2. Subpart C of part 1948 is revised to read as follows:

Subpart C--Intermediary Relending Program (IRP)

Sec.

1948.101 Introduction.

1948.102 Definitions and abbreviations.

1948.103 Eligibility requirements--intermediary.

1948.104 Eligibility requirements--Ultimate recipients.

1948.105-1948.108 [Reserved]

1948.109 Loan purposes.

1948.110 Ineligible loan purposes.

1948.111 Loan terms.

1948.112 Interest rates.

1948.113 Security.

1948.114 Loan limits.

1948.115 Post award requirements.

1948.116 [Reserved]

1948.117 Other regulatory requirements.

1948.118 Loan agreements between the Agency and the intermediary.

1948.119-1948.121 [Reserved]

1948.122 Application.

1948.123 Filing and processing applications for loans.

1948.124 [Reserved]

1948.125 Letter of conditions.

1948.126 Loan approval and obligating funds.

1948.127 Loan closing.

1948.128 Requests to make loans to ultimate recipients.

1948.129-1948.142 [Reserved]

1948.143 Appeals.

1948.144-1948.147 [Reserved]

1948.148 Exception authority.

1948.149 [Reserved]

1948.150 OMB control number.

Subpart C--Intermediary Relending Program (IRP)

Sec. 1948.101 Introduction.

(a) This subpart contains regulations for loans made by the Agency

to eligible intermediaries and applies to borrowers and other parties

involved in making such loans. The provisions of this subpart supersede

conflicting provisions of any other subpart. The servicing and

liquidation of such loans will be in accordance with subpart R of part

1951 of this chapter.

(b) The purpose of the program is to finance business facilities

and community development projects in rural areas. This purpose is

achieved through loans made to intermediaries that establish programs

for the purpose of providing loans to ultimate recipients for business

facilities and community developments in a rural area.

relationship or association with an Agency employee. Such assistance is

restricted by FmHA Instruction 2045-BB. Any processing or servicing

activity conducted pursuant to this subpart involving authorized

assistance to [[Page 3570]] Agency employees, members of their

families, known close relatives, or business or close personal

associates, is subject to the provisions of subpart D of part 1900 of

this chapter.

(d) Copies of all forms, regulations, and Instructions referenced

in this subpart are available in the National Office or any State

Office.

Sec. 1948.102 Definitions and abbreviations.

(a) General definitions. The following definitions are applicable

to the terms used in this subpart.

Agency. The Federal agency within the United States Department of

Agriculture (USDA) with responsibility assigned by the Secretary of

Agriculture to administer the IRP.

Agency IRP loan funds. Cash proceeds of a loan obtained from the

Agency through the IRP, including the portion of an IRP revolving fund

directly provided by the Agency IRP loan. Agency IRP loan funds are

Federal funds.

Intermediary. The entity requesting or receiving Agency IRP loan

funds for establishing a revolving fund and relending to ultimate

recipients.

IRP revolving fund. A group of assets, obtained through or related

to an Agency IRP loan and recorded by the intermediary in a bookkeeping

account or set of accounts and accounted for, along with related

liabilities, revenues, and expenses, as an entity or enterprise

separate from the intermediary's other assets and financial activities.

All Agency IRP loan funds received by an intermediary must be deposited

into an IRP revolving fund. The intermediary may transfer additional

assets into the IRP revolving fund. Loans to ultimate recipients are

advanced from the IRP revolving fund. The receivables created by making

loans to ultimate recipients, the intermediary's security interest in

collateral pledged by ultimate recipients, collections on the

receivables, interest, fees, and any other income or assets derived

from the operation of the IRP revolving fund are a part of the IRP

revolving fund.

Principals of intermediary. Members, officers, directors, and other

individuals or entities directly involved in the operation and

management of an intermediary.

Processing office/officer. The processing office for an IRP

application is the office within the Agency administrative organization

with assigned authority and responsibility to process the application.

The processing office is the primary contact for the proposed

intermediary and maintains the official application case file. The

processing officer for an application is the person in charge of the

processing office. The processing officer is responsible for ensuring

that all regulations and Instructions are complied with in regard to

applications under her/his jurisdiction.

Revolved funds. The cash portion of an IRP revolving fund that is

not Agency loan funds, including funds that result from loaning out the

Agency IRP loan funds and then collecting all or part of the loans, and

including fees and interest collected on such loans. Revolved funds

shall not be considered Federal funds.

Rural area. All territory of a State that is not within the outer

boundary of any city having a population of 25,000 or more, according

to the latest decennial census.

Servicing office/officer. The servicing office for an IRP loan is

the office within the Agency administrative organization with assigned

authority and responsibility to service the loan. The servicing office

is the primary contact for the borrower and maintains the official case

file after the loan is closed. The servicing officer for a loan is the

person in charge of the servicing office. The servicing officer is

responsible for ensuring that all regulations and Instructions are

complied with in regard to loans under her/his jurisdiction.

State. Any of the 50 States, the Commonwealth of Puerto Rico, the

Virgin Islands of the United States, Guam, American Samoa, and the

Commonwealth of the Northern Mariana Islands.

Technical Assistance. A function performed for the benefit of an

ultimate recipient or proposed ultimate recipient, which is a problem

solving activity. The Agency will determine whether a specific activity

qualifies as technical assistance.

Ultimate recipient. An entity or individual that receives a loan

from an intermediary's IRP revolving fund.

(b) Abbreviations. The following are applicable to this subpart:

(1) B&I--Business and Industry

(2) FmHA--Farmers Home Administration

(3) IRP--Intermediary Relending Program

(4) OGC--Office of the General Counsel

(5) OIG--Office of the Inspector General

(6) OMB--Office of Management and Budget

(7) RDLF--Rural Development Loan Fund

(8) USDA--United States Department of Agriculture

Sec. 1948.103 Eligibility requirements--Intermediary.

(a) The types of entities which may become intermediaries are:

(1) Private nonprofit corporations.

(2) Public agencies--Any State or local government, or any branch

or agency of such government having authority to act on behalf of that

government, borrow funds, and engage in activities eligible for funding

under this subpart.

(3) Indian groups--Indian tribes on a Federal or State reservation

or other federally recognized tribal groups.

(4) Cooperatives--Incorporated associations, at least 51 percent of

whose members are rural residents, whose members have one vote each,

and which conduct, for the mutual benefit of their members, such

operations as producing, purchasing, marketing, processing or other

activities aimed at improving the income of their members as producers

or their purchasing power as consumers.

(b) The intermediary must:

(1) Have the legal authority necessary for carrying out the

proposed loan purposes and for obtaining, giving security for, and

repaying the proposed loan.

(2) Have a proven record of successfully assisting rural business

and industry, or, for intermediaries that propose to finance community

development, a proven record of successfully assisting rural community

development projects of the type planned.

(i) Except as provided in paragraph (b)(2)(ii) of this section,

such record will include recent experience in loan making and servicing

with loans that are similar in nature to those proposed for the IRP and

a delinquency and loss rate acceptable to the Agency.

(ii) The Agency may approve an exception to the requirement for

loan making and servicing experience provided:

(A) The proposed intermediary has a proven record of successfully

assisting rural business and industry or rural community development

projects of the type planned but the assistance is other than lending;

and

(B) The proposed intermediary will, before the loan is closed,

bring individuals with loan making and servicing experience and

expertise into the operation of the IRP revolving fund.

(3) Have the services of a staff with loan making and servicing

expertise acceptable to the Agency.

(4) Have capitalization acceptable to the Agency.

(1) There is adequate assurance of repayment of the loan based on

the fiscal and managerial capabilities of the proposed

intermediary. [[Page 3571]]

(2) The loan is not otherwise available on reasonable (i.e., usual

and customary) rates and terms from private sources or other Federal,

State, or local programs.

(3) The amount of the loan, together with other funds available, is

adequate to assure completion of the project or achieve the purposes

for which the loan is made.

(d) At least 51 percent of the outstanding interest or membership

in any nonpublic body intermediary must be citizens of the United

States or reside in the United States after being legally admitted for

permanent residence.

(e) An outstanding judgment against the proposed intermediary

obtained by the United States in a Federal court (other than in the

United States Tax Court), which has been recorded, shall cause the

proposed intermediary to be ineligible to receive any loan until the

judgment is paid in full or otherwise satisfied. Agency loan funds may

not be used to satisfy the judgment.

Sec. 1948.104 Eligibility requirements--Ultimate recipients.

(a) Ultimate recipients may be individuals, public or private

organizations, or other legal entities, with authority to incur the

debt and carry out the purpose of the loan.

(b) To be eligible to receive loans from the IRP revolving loan

fund:

(1) At least 51 percent of the outstanding membership or ownership

of the ultimate recipient must be either citizens of the United States

or residents of the United States after being legally admitted for

permanent residence.

(2) Must be located in a rural area.

(3) Must be unable to finance the proposed project from its own

resources or through commercial credit or other Federal, State, or

local programs at reasonable rates and terms.

obtained by the United States in a Federal court (other than in the

United States Tax Court), which has been recorded, shall cause the

proposed ultimate recipient to be ineligible to receive a loan from

Agency IRP loan funds until the judgment is paid in full or otherwise

satisfied. Agency IRP loan funds may not be used to satisfy the

judgment.

Secs. 1948.105-1948.108 [Reserved]

Sec. 1948.109 Loan purposes.

(a) Intermediaries. Agency IRP loan funds must be placed in the

intermediary's IRP revolving fund and used by the intermediary to

provide direct loans to eligible ultimate recipients.

(b) Ultimate recipients. Loans from the intermediary to the

ultimate recipient using the IRP revolving fund must be for community

development projects, the establishment of new businesses, expansion of

existing businesses, creation of employment opportunities, and/or

saving existing jobs. Such loans may include, but are not limited to:

(1) Business and industrial acquisitions when the loan will keep

the business from closing, prevent the loss of employment

opportunities, or provide expanded job opportunities.

(2) Business construction, conversion, enlargement, repair,

modernization, or development.

(3) Purchase and development of land, easements, rights-of-way,

buildings, facilities, leases, or materials.

(4) Purchase of equipment, leasehold improvements, machinery, or

supplies.

(5) Pollution control and abatement.

(6) Transportation services.

(7) Start-up operating costs and working capital.

(8) Interest (including interest on interim financing) during the

period before the facility becomes income producing, but not to exceed

3 years.

(9) Feasibility studies.

(10) Debt refinancing.

(i) A complete review will be made by the intermediary to determine

whether the loan will restructure debts on a schedule that will allow

the ultimate recipient to operate successfully rather than merely take

over an unsound loan. The intermediary will obtain the proposed

ultimate recipient's complete debt schedule which should agree with the

proposed ultimate recipient's latest balance sheet; and

(ii) Refinancing debts may be allowed only when it is determined by

the intermediary that the project is viable and refinancing is

necessary to create new or save existing jobs or create or continue a

needed service; and

(iii) On any request for refinancing of existing secured loan(s),

the intermediary is required, as a minimum, to obtain the previously

held collateral as security for the loan(s) and must not pay off a

creditor in excess of the value of the collateral. Additional

collateral will be required when refinancing of unsecured loans is

unavoidable to accomplish the necessary strengthening of the ultimate

recipient's position.

(11) Reasonable fees and charges only as specifically listed in

this paragraph. Authorized fees include loan packaging fees,

environmental data collection fees, and other fees for services

rendered by professionals. Professionals are generally persons licensed

by States or accreditation associations, such as Engineers, Architects,

Lawyers, Accountants, and Appraisers. The maximum amount of fee will be

what is reasonable and customary in the community or region where the

project is located. Any such fees are to be fully documented and

justified.

(12) Aquaculture including conservation, development, and

utilization of water for aquaculture. Aquaculture is defined as the

culture or husbandry of aquatic animals or plants by private industry

for commercial purposes including the culture and growing of fish by

private industry for the purpose of granting or augmenting publicly-

owned or regulated stocks of fish.

(13) Tourist and recreational facilities except as prohibited by

Sec. 1948.110 of this subpart.

Sec. 1948.110 Ineligible loan purposes.

Agency IRP loan funds may not be used for payment of the

intermediary's own administrative costs or expenses. The IRP revolving

fund may not be used for:

(a) Assistance in excess of what is needed to accomplish the

purpose of the ultimate recipient's project.

(b) Distribution or payment to the owner, partners, shareholders,

or beneficiaries of the ultimate recipient or members of their families

when such persons will retain any portion of their equity in the

ultimate recipient.

organizations affiliated with or sponsored by churches, and fraternal

organizations.

(d) Assistance to government employees, military personnel or

principals or employees of the intermediary or organizations for which

such persons are directors or officers or have major ownership (20

percent or more).

(e) A loan to an ultimate recipient which has an application

pending with or a loan outstanding from another intermediary involving

an IRP revolving fund.

(f) Any line of credit.

(g) Agricultural production, which means the cultivation,

production (growing), harvesting, either directly or through integrated

operations, of agricultural products (crops, animals, birds, and marine

life, either for fiber or food for human consumption, and disposal or

marketing thereof, and the raising, housing, feeding, breeding,

hatching, control, and/or management of farm and domestic animals).

Exceptions to this definition are:

(1) Aquaculture as identified under Sec. 1948.109(b) of this

subpart. [[Page 3572]]

(2) Commercial nurseries primarily engaged in the production of

ornamental plants and trees and other nursery products such as bulbs,

florists' greens, flowers, shrubbery, flower and vegetable seeds, sod,

or the growing of vegetables from seed to the transplant stage.

(3) Forestry, which includes establishments primarily engaged in

the operation of timber tracts, tree farms, forest nurseries, and

related activities such as reforestation.

(4) The growing of mushrooms or hydroponics.

(h) The transfer of ownership unless the loan will keep the

business from closing, or prevent the loss of employment opportunities

in the area, or provide expanded job opportunities.

(i) Community antenna television services or facilities.

(j) Any illegal activity.

(k) Any project that is in violation of either a Federal, State or

local environmental protection law or regulation or an enforceable land

use restriction unless the assistance given will result in curing or

removing the violation.

(l) Hotels, motels, tourist homes, bed and breakfast

establishments, or convention centers.

(m) Lending and investment institutions and insurance companies.

(n) Golf courses, race tracks, or gambling facilities.

Sec. 1948.111 Loan terms.

(a) No loans to intermediaries shall be extended for a period

exceeding 30 years. Interest and principal payments will be scheduled

at least annually. The initial principal payment may be deferred

(during the period before the facility becomes income producing) by the

Agency, but not more than 3 years.

(b) Loans made by an intermediary to an ultimate recipient from the

IRP revolving fund will be scheduled for repayment over a term

negotiated by the intermediary and ultimate recipient. The term must be

reasonable and prudent considering the purpose of the loan, expected

repayment ability of the ultimate recipient, and the useful life of

collateral, and must be within any limits established by the

intermediary's work plan.

Sec. 1948.112 Interest rates.

(a) Loans made by the Agency pursuant to this subpart shall bear

interest at a fixed rate of 1 percent per annum over the term of the

loan.

(b) Interest rates charged by intermediaries to ultimate recipients

on loans from the IRP revolving fund shall be negotiated by the

intermediary and ultimate recipient. The rate must be within limits

established by the intermediary's work plan approved by the Agency. The

rate should normally be the lowest rate sufficient to cover the loan's

proportional share of the IRP revolving fund's debt service costs,

reserve for bad debts, and administrative costs.

Sec. 1948.113 Security.

(a) Intermediaries. Security for all loans to intermediaries must

be such that the repayment of the loan is reasonably assured, when

considered along with the intermediary's financial condition, work

plan, and management ability. It is the responsibility of the

intermediary to make loans to ultimate recipients in such a manner that

will fully protect the interests of the intermediary and the

Government.

(1) Security for such loans may include, but is not limited to:

(i) Any realty, personalty, or intangibles capable of being

mortgaged, pledged, or otherwise encumbered by the intermediary in

favor of the Agency; and

(ii) Any realty, personalty, or intangibles capable of being

mortgaged, pledged, or otherwise encumbered by an ultimate recipient in

favor of the Agency.

(2) Security will normally consist of a lien on the IRP revolving

fund. The Agency will obtain assignments of security pledged by

ultimate recipients including an assignment of the promissory notes

given by the ultimate recipients and take possession of the promissory

notes.

(i) The assignment documents will not be filed or recorded in the

public records unless the intermediary is in default on its IRP loan.

They will be held by the Agency and may be filed at the sole discretion

of the Agency, after an event of default, if the Agency determines the

filing is necessary to protect the Government's interest.

(ii) The perfection of assignments when intermediaries close loans

is not required. Assignment documents will be obtained and held to

facilitate the perfection of assignments at a later date if the

intermediary fails to meet its obligations.

(3) The Agency may require additional security or additional

documents needed to perfect liens at any time during the term of a loan

to an intermediary if, after review and monitoring, an assessment

indicates the need for such security or documentation to protect the

Government's interest.

(b) Ultimate recipients. Security for a loan from an intermediary's

IRP revolving fund to an ultimate recipient will be negotiated by the

intermediary and ultimate recipient, within the general security

policies established by the intermediary and approved by the Agency.

Sec. 1948.114 Loan limits.

(a) Intermediary.

(1) No loan to an intermediary will exceed the maximum amount the

intermediary can reasonably be expected to relend to eligible ultimate

recipients, in an effective and sound manner, within 1 year after loan

closing.

(2) The first IRP loan to an intermediary will not exceed $2

million.

(3) Intermediaries that have received one or more IRP loans may

apply for and be considered for subsequent IRP loans provided:

(i) At least 80 percent of the Agency IRP loan funds the

intermediary was approved for have been disbursed to eligible ultimate

recipients.

(ii) The intermediary is promptly relending all collections from

loans made from its IRP revolving fund in excess of what is needed for

required debt service, reasonable administrative costs approved by the

Agency, and a reasonable reserve for debt service and uncollectible

accounts.

(iii) The outstanding loans of the intermediary's IRP revolving

fund are generally sound.

(iv) The intermediary is in compliance with all applicable

regulations and its loan agreement(s) with the Agency.

(4) Subsequent loans will not exceed $1 million each and not more

than one loan will be approved for an intermediary in any one fiscal

year.

(5) Total outstanding IRP indebtedness of an intermediary to Agency

will not exceed $15 million at any time.

(b) Ultimate recipients. Loans from intermediaries to ultimate

recipients using the IRP revolving fund will not exceed the lessor of:

(1) $250,000; or

(2) 75% of the total cost of the ultimate recipient's project for

which the loan is being made.

an intermediary may be used for loans to ultimate recipients that

exceed $150,000. This limit does not apply to revolved funds.

Sec. 1948.115 Post award requirements.

(a) Applicability. Intermediaries receiving loans under this

program shall be governed by these regulations, the loan agreement, the

approved work plan, security interests, and any other conditions which

the Agency may [[Page 3573]] impose in awarding a loan. Whenever this

subpart imposes a requirement on loans made from the ``IRP revolving

fund,'' such requirement shall apply to all loans made by an

intermediary to an ultimate recipient from the intermediary's IRP

revolving fund, as defined in Sec. 1948.102(a) of this subpart, so long

as any portion of the intermediary's IRP loan from the Agency remains

unpaid. Whenever this subpart imposes a requirement on loans made by

intermediaries from ``Agency IRP loan funds,'' without specific

reference to the IRP revolving fund, such requirement shall apply only

to loans made by an intermediary using Agency IRP loan funds, as

defined in Sec. 1948.102(a) of this subpart, and will not apply to

loans made from revolved funds.

(b) Maintenance of IRP revolving fund. So long as any part of an

IRP loan to an intermediary remains unpaid, the intermediary must

maintain the IRP revolving fund in accordance with the definition of

IRP revolving fund found in Sec. 1948.102(a) of this subpart. The

portion of the IRP revolving loan fund that is Agency IRP loan funds

may only be used for making loans in accordance with Sec. 1948.109 of

this subpart. The portion that is revolved funds as defined in

Sec. 1948.102(a) of this subpart may be used for debt service,

reasonable administrative costs, or reserves in accordance with this

section, or for making additional loans.

(1) The intermediary must submit an annual budget of proposed

administrative costs for Agency approval. The amount removed from the

IRP revolving fund for administrative costs in any year must be

reasonable, must not exceed the actual cost of operating the IRP

revolving fund, including loan servicing and providing technical

assistance, and must not exceed the amount approved by the Agency in

the budget.

(2) A reasonable amount of revolved funds should be used to create

a reserve for bad debts. Reserves should be accumulated over a period

of years. The total amount should not exceed maximum expected losses,

considering the quality of the intermediary's portfolio of loans.

Unless the intermediary provides loss and delinquency records that, in

the opinion of the Agency, justifies different amounts, a reserve for

bad debts of 15 percent of outstanding loans should be accumulated over

5 years and then maintained.

(3) Any cash in the IRP revolving fund from any source that is not

needed for debt service, approved administrative costs, or reasonable

reserves must be available for additional loans to ultimate recipients.

(4) All reserves and other cash in the IRP revolving loan fund not

immediately needed for loans to ultimate recipients or other authorized

uses should be deposited in an interest bearing account in a bank or

other financial institution covered by a form of Federal deposit

insurance. Such accounts and any interest earned thereon remain a part

of the IRP revolving fund.

(5) If an intermediary receives more than one IRP loan, a separate

IRP revolving fund must be established and maintained for each loan

unless the Agency gives written permission for the IRP revolving funds

to be combined. The Agency may give such permission only if there are

no significant differences in the loan agreements and other

requirements imposed by Agency for the loans or if the intermediary

agrees in writing to operate the combined revolving funds in accordance

with the most stringent loan agreements and requirements.

Sec. 1948.116 [Reserved]

Sec. 1948.117 Other regulatory requirements.

(a) Intergovernmental consultation. The IRP is subject to the

provisions of Executive Order 12372 which requires intergovernmental

consultation with State and local officials. The approval of a loan to

an intermediary will be the subject of intergovernmental consultation.

For each ultimate recipient to be assisted with a loan from Agency IRP

loan funds and for which the State in which the ultimate recipient is

to be located has elected to review the program under their

intergovernmental review process, the State Single Point of Contact

must be notified. Notification, in the form of a project description,

can be initiated by the intermediary or the ultimate recipient. Any

comments from the State must be included with the intermediary's

request to use the Agency loan funds for the ultimate recipient. Prior

to the Agency's decision on the request, compliance with the

requirements of intergovernmental consultation must be demonstrated for

each ultimate recipient. These requirements should be carried out in

accordance with FmHA Instruction 1940-J.

(b) Environmental requirements.

(1) Unless specifically modified by this section, the requirements

of subpart G of part 1940 of this chapter apply to this subpart.

Intermediaries and ultimate recipients must consider the potential

environmental impacts of their projects at the earliest planning stages

and develop plans to minimize the potential to adversely impact the

environment. Both the intermediaries and the ultimate recipients must

cooperate and furnish such information and assistance as the Agency

needs to make any of its environmental determinations.

(2) For each application for a loan to an intermediary, the Agency

will review the application, supporting materials, and any required

Forms FmHA 1940-20, ``Request for Environmental Information,'' and

complete a Class II environmental assessment. This assessment will

focus on the potential cumulative impacts of the projects as well as

any environmental concerns or problems that are associated with

individual projects that can be identified at this time.

Neither the completion of the environmental assessment nor the

approval of the application is an Agency commitment to the use of loan

funds for a specific project; therefore, no public notification

requirements for a Class II assessment will apply to the application.

The affected public has not been sufficiently identified at this stage

of the Agency review.

(3) For each proposed loan from an intermediary to an ultimate

recipient using Agency IRP loan funds, the Agency will complete the

environmental review required by subpart G of part 1940 of this chapter

including public notification requirements. The results of this review

will be used by the Agency in making its decision on concurrence in the

proposed loan. The Agency will prepare an Environmental Impact

Statement for any application for a loan from Agency IRP loan funds

determined to have a significant effect on the quality of the human

environment.

(1) In accordance with Title V of Pub. L. 93-495, the Equal Credit

Opportunity Act, and Section 504 of the Rehabilitation Act for

Federally Conducted Programs and Activities, neither the intermediary

nor the Agency will discriminate against any proposed intermediary or

proposed ultimate recipient on the basis of sex, marital status, race,

color, religion, natural origin, age, physical or mental handicap

(provided the proposed intermediary or proposed ultimate recipient has

the capacity to contract), because all or part of the proposed

intermediary's or proposed ultimate recipient's income is derived from

public assistance of any kind, or because the proposed intermediary or

proposed ultimate recipient has in good faith exercised any

[[Page 3574]] right under the Consumer Credit Protection Act, with

respect to any aspect of a credit transaction anytime Agency loan funds

are involved.

(2) The regulations contained in subpart E of part 1901 of this

chapter apply to this program.

(3) The Administrator will assure that equal opportunity and

nondiscrimination requirements are met in accordance with Title VI of

the Civil Rights Act of 1964, ``Nondiscrimination in Federally Assisted

Programs,'' 42 U.S.C. 2000d-4, Section 504 of the Rehabilitation Act

for Federally Conducted Programs and Activities, and the Age

Discrimination Act of 1975, as amended.

Sec. 1948.118 Loan agreements between the Agency and the intermediary.

A loan agreement must be executed by the intermediary and the

Agency at loan closing for each loan. The loan agreement will be

prepared by the Agency using Form FmHA 1948-4, ``Intermediary Relending

Program Loan Agreement,'' and reviewed by OGC and the intermediary

prior to loan closing. The loan agreement, as a minimum, must contain

the following provisions:

(a) The loan agreement will set out:

(1) The amount of the loan.

(2) The interest rate.

(3) The term and repayment schedule.

(4) The provisions for late charges. The intermediary shall pay a

late charge of 4 percent of the payment due of principal and/or

interest if payment for either of these is not received within 15

calendar days following the due date. The late charge shall be

considered unpaid if not received within 30 calendar days of the missed

due date for which it was imposed. Any unpaid late charge shall be

added to principal and be due as an extra payment at the end of the

term. Acceptance of a late charge by the Agency does not constitute a

waiver of default.

(5) Disbursement procedure. Disbursement of loan funds by the

Agency to the intermediary shall take place after the loan agreement

and promissory note are executed, and any other conditions precedent to

disbursement of funds are fully satisfied. The date of each draw down

shall constitute the date the funds are advanced under the loan

agreement for purposes of computing interest.

(i) The intermediary may initially draw up to 25 percent of the

loan funds. If the intermediary does not have loans to ultimate

recipients ready to close sufficient to use the initial draw, the funds

should be deposited in an interest bearing account in accordance with

Sec. 1948.115 (b)(4) of this subpart until needed for such loans. The

initial draw must be used for loans to ultimate recipients before any

additional Agency IRP loan funds may be drawn by the intermediary. Any

funds from the initial draw that have not been used for loans to

ultimate recipients within 1 year from the date of the draw must be

returned to the Agency as an extra payment on the loan. Agency IRP loan

funds must not be used for administrative expenses of the intermediary.

(ii) After the initial draw of funds, an intermediary may draw down

only such funds as are necessary to cover a 30-day period in

implementing its approved work plan. Advances will be requested by the

intermediary in writing. The intermediary may use Form FmHA 440-11,

``Estimate of Funds Needed for 30-day Period Commencing __________,''

to request the funds.

(6) Provisions regarding default. On the occurrence of any event of

default, the Agency may declare all or any portion of the debt and

interest to be immediately due and payable and may proceed to enforce

its rights under the loan agreement or any other instruments securing

or relating to the loan and in accordance with the applicable law and

regulations. Any of the following may be regarded as an ``event of

default'' in the sole discretion of the Agency:

(i) Failure of the intermediary to carry out or comply with the

specific activities in its loan application as approved by the Agency,

or loan terms and conditions, or any terms or conditions of the loan

agreement, or any applicable Federal or State laws, or with such USDA

or Agency regulations as may become generally applicable at any time.

(ii) Failure of the intermediary to pay within 15 calendar days of

its due date any installment of principal or interest on its promissory

note to the Agency.

(iii) The occurrence of:

(A) The intermediary's becoming insolvent, or ceasing, being

unable, or admitting in writing its inability to pay its debts as they

mature, or making a general assignment for the benefit of, or entering

into any composition or arrangement with creditors; or,

(B) proceedings for the appointment of a receiver, trustee, or

liquidator of the intermediary, or of a substantial part of its assets,

being authorized or instituted by or against it.

(iv) Submission or making of any report, statement, warranty, or

representation by the intermediary or agent on its behalf to USDA or

the Agency in connection with the financial assistance awarded

hereunder which is false, incomplete, or incorrect in any material

respect.

(v) Failure of the intermediary to remedy any material adverse

change in its financial or other condition (such as the

representational character of its board of directors or policymaking

body) arising since the date of the Agency's award of assistance

hereunder, which condition was an inducement to Agency's original

award.

(7) Insurance requirements.

(i) Hazard insurance with a standard mortgage clause naming the

intermediary as beneficiary will be required by the intermediary on

every ultimate recipient's project funded from the IRP revolving fund

in an amount that is at least the lesser of the depreciated replacement

value of the property being insured or the amount of the loan. Hazard

insurance includes fire, windstorm, lightning, hail, business

interruption, explosion, riot, civil commotion, aircraft, vehicle,

marine, smoke, builder's risk, public liability, property damage, flood

or mudslide, or any other hazard insurance that may be required to

protect the security. The intermediary's interest in the insurance will

be assigned to the Agency.

(ii) Ordinarily, life insurance, which may be decreasing term

insurance, is required for the principals and key employees of the

ultimate recipient funded from the IRP revolving fund and will be

assigned or pledged to the intermediary and subsequently to the Agency.

A schedule of life insurance available for the benefit of the loan will

be included as part of the application.

(iii) Workmen's compensation insurance on ultimate recipients is

required in accordance with the State law.

(iv) The intermediary is responsible for determining if an ultimate

recipient funded from the IRP revolving fund is located in a special

flood or mudslide hazard area anytime. If the ultimate recipient is in

a flood or mudslide area, then flood or mudslide insurance must be

provided in accordance with subpart B of part 1806 of this chapter

(FmHA Instruction 426.2).

(v) Intermediaries will provide fidelity bond coverage for all

persons who have access to intermediary funds. Coverage may be provided

either for all individual positions or persons, or through ``blanket''

coverage providing protection for all appropriate employees and/or

officials. The Agency may also require the intermediary to carry other

appropriate insurance, such as public liability, workers compensation,

and/or property damage.

(A) The amount of fidelity bond coverage required by the Agency

will normally approximate the total annual [[Page 3575]] debt service

requirements for the Agency loans.

(B) Form FmHA 440-24, ``Position Fidelity Schedule Bond

Declarations,'' may be used. Similar forms may be used if determined

acceptable to the Agency. Other types of coverage may be considered

acceptable if it is determined by the Agency that they fulfill

essentially the same purpose as a fidelity bond.

and other appropriate insurance coverage by loan closing. Adequate

coverage in accordance with this section must then be maintained for

the life of the loan. It is the responsibility of the intermediary and

not that of the Agency to assure and provide evidence that adequate

coverage is maintained. This may consist of a listing of policies and

coverage amounts in annual reports required by paragraph (b)(4) of this

section or other documentation.

(8) Authority to operate. The loan agreement will provide that the

intermediary has permission and authority to collect on all notes given

to it, service all loans it makes, and manage the relending program as

if the Agency had not taken assignments on security pledged by ultimate

recipients. It is the responsibility of the intermediary to make and

service loans to ultimate recipients in such a manner that will fully

protect the interests of the intermediary and the Government. After an

event of default by the intermediary, the Agency may terminate this

permission and authority by providing the intermediary with written

notice.

(9) That if any part of the loan has not been used in accordance

with the intermediary's work plan by a date 3 years from the date of

the loan agreement, the Agency may cancel the approval of any funds not

yet delivered to the intermediary and demand the return, as an extra

payment on the loan, any funds delivered to the intermediary that have

not been used by the intermediary in accordance with the work plan. The

Agency, at its sole discretion, may allow the intermediary additional

time to use the loan funds by delaying cancellation of the funds by not

more than 3 additional years. If any loan funds have not been used by 6

years from the date of the loan agreement, the approval will be

cancelled of any funds that have not been delivered to the intermediary

and the intermediary will return, as an extra payment on the loan, any

funds it has received and not used in accordance with the work plan. In

accordance with Form FmHA 1948-3, ``Intermediary Relending Program

Promissory Note,'' regular loan payments will be based on the amount of

funds actually drawn by the intermediary.

(b) The intermediary will agree:

(1) Not to make any changes in the intermediary's articles of

incorporation, charter, or by-laws without the concurrence of the

Agency.

(2) Not to make a loan commitment to an ultimate recipient to be

funded from Agency IRP loan funds without first receiving the Agency's

written concurrence.

(3) To maintain a separate ledger and segregated account for the

IRP revolving fund.

(4) To Agency reporting requirements by providing:

(i) An annual audit.

(A) Dates of audit report period need not necessarily coincide with

other reports on the IRP. Audits shall be due 90 days following the

audit period. Audits must cover all of the intermediary's activities.

Audits will be performed by an independent certified public accountant

or by an independent public accountant licensed and certified on or

before December 31, 1970, by a regulatory authority of a State or other

political subdivision of the United States. An acceptable audit will be

performed in accordance with generally accepted Government auditing

standards and include such tests of the accounting records as the

auditor considers necessary in order to express an opinion on the

financial condition of the intermediary. The Agency does not require an

unqualified audit opinion as a result of the audit. Compilations or

reviews do not satisfy the audit requirement.

(B) It is not intended that audits required by this subpart be

separate and apart from audits performed in accordance with State and

local laws or for other purposes. To the extent feasible, the audit

work should be done in connection with these audits. Intermediaries

covered by OMB Circular A-128 or A-133 should submit audits made in

accordance with those circulars.

(ii) Quarterly reports (due 30 days after the end of the period).

(A) The Agency at its option may change this requirement to

semiannual reports. These reports shall contain information only on the

IRP revolving loan fund, or if other funds are included, the IRP loan

program portion shall be segregated from the others; and in the case

where the intermediary has more than one IRP loan from the Agency a

separate report shall be made for each of these IRP loans unless the

Agency has given permission for the IRP revolving funds to be combined.

(B) The reports will include Form FmHA 1951-4, ``Report of IRP/RDLF

Lending Activity.'' This report will include information on the

intermediary's lending activity, income and expenses, and financial

condition and a summary of names and characteristics of the ultimate

recipients the intermediary has financed.

(iii) Annual proposed budget for the following year.

(iv) Other reports as the Agency may require from time to time.

(5) Before the first relending of Agency funds to an ultimate

recipient, to obtain written Agency approval of:

(i) All forms to be used for relending purposes, including

application forms, loan agreements, promissory notes, and security

instruments.

(ii) Intermediary's policy with regard to the amount and form of

security to be required.

(6) To obtain written approval of the Agency before making any

significant changes in forms, security policy, or the work plan. The

servicing officer may approve changes in forms, security policy, or

work plans at any time upon a written request from the intermediary and

determination by the Agency that the change will not jeopardize

repayment of the loan or violate any requirement of this subpart or

other Agency regulations. The intermediary must comply with the

workplan approved by the Agency so long as any portion of the

intermediary's IRP loan is outstanding.

(7) To secure the indebtedness by pledging its portfolio of

investments derived from the proceeds of the loan award, including

providing assignments to the Agency of security pledged by ultimate

recipients including the promissory notes of ultimate recipients and

transferring possession to the Agency of promissory notes given by

ultimate recipients, and/or pledging its real and personal property,

and other rights and interests as the Agency may require.

(8) To provide additional security and execute any additional lien

instruments as the Agency may require at any time during the term of

the loan if, after review and monitoring, an assessment indicates the

need for such security to protect the Government's interest.

Secs. 1948.119-1948.121 [Reserved]

Sec. 1948.122 Application.

(a) An application will consist of:

(1) Form FmHA 1948-1, ``Application for Loan (Intermediary

Relending Program).''

(2) A written work plan and other evidence the Agency requires to

[[Page 3576]] demonstrate the feasibility of the intermediary's program

to meet the objectives of this program. The plan must, at a minimum:

(i) Document the intermediary's ability to administer an IRP in

accordance with the provisions of this subpart. In order to adequately

demonstrate the ability to administer the program, the intermediary

must provide a complete listing of all personnel responsible for

administering this program along with a statement of their

qualifications and experience. The personnel may be either members or

employees of the intermediary's organization or contract personnel

hired for this purpose. If the personnel are to be contracted for, the

contract between the intermediary and the entity providing such service

will be submitted for Agency review and the terms of the contract and

its duration must be sufficient to adequately service the Agency loan

through to its ultimate conclusion. If the Agency determines the

personnel lack the necessary expertise to administer the program, the

loan request will not be approved.

(ii) Document the intermediary's ability to commit financial

resources under the control of the intermediary to the establishment of

an IRP. This should include a statement of the source(s) of non-Agency

funds for administration of the the intermediary's operations and

financial assistance for projects.

(iii) Demonstrate a need for loan funds. As a minimum, the

intermediary should identify a sufficient number of proposed and known

ultimate recipients it has on hand to justify Agency funding of its

loan request.

(iv) Include a list of proposed fees and other charges it will

assess the ultimate recipients it funds.

(v) Demonstrate to Agency satisfaction that the intermediary has

secured commitments of significant financial support from public

agencies and private organizations.

(vi) Provide evidence to Agency satisfaction that the intermediary

has a proven record of obtaining private and/or philanthropic funds for

the operation of similar programs to the one contained in this subpart.

(vii) Include the intermediary's plan (specific loan purposes) for

relending the loan funds. The plan must be of sufficient detail to

provide the Agency with a complete understanding of what the

intermediary will accomplish by lending the funds to the ultimate

recipient and the complete mechanics of how the funds will get from the

intermediary to the ultimate recipient. The service area, eligibility

criteria, loan purposes, fees, rates, terms, collateral requirements,

limits, priorities, application process, method of disposition of the

funds to the ultimate recipient, monitoring of the ultimate recipient's

accomplishments, and reporting requirements by the ultimate recipient's

management are some of the items that must be addressed by the

intermediary's relending plan.

(3) Form FmHA 1940-20 for all projects positively identified as

proposed ultimate recipient loans that are Class I or Class II actions

under subpart G of part 1940 of this chapter.

(4) Comments from the State single point of contact, if the State

has elected to review the program under Executive Order 12372.

(5) A pro forma balance sheet at start-up and for at least 3

additional projected years; financial statements for the last 3 years,

or from inception of the operations of the intermediary if less than 3

years; and projected cash flow and earnings statements for at least 3

years supported by a list of assumptions showing the basis for the

projections. The projected earnings statement and balance sheet must

include one set of projections that shows the IRP revolving fund only

and a separate set of projections that shows the proposed intermediary

organization's total operations. Also, if principal repayment on the

IRP loan will not be scheduled during the first 3 years, the

projections for the IRP revolving fund must extend to include a year

with a full annual installment on the IRP loan.

(6) A written agreement will be signed by the intermediary to

assure that there is not misunderstanding concerning Agency audit

requirements.

(7) Form FmHA 400-4, ``Assurance Agreement.''

(8) Complete organizational documents, including evidence of

authority to conduct the proposed activities.

(9) Evidence that the loan is not available at reasonable rates and

terms from private sources or other Federal, State, or local programs.

(10) Latest audit report, if available.

(11) Form FmHA 1910-11, ``Applicant Certification Federal

Collection Policies for Consumer or Commercial Debts.''

(12) Form AD-1047, ``Certification Regarding Debarment, Suspension,

and Other Responsibility Matters--Primary Covered Transactions.''

(13) Exhibit A-1 of FmHA Instruction 1940-Q.

(b) Applications from intermediaries that already have an active

IRP loan may be streamlined as follows:

(1) The material required by paragraphs (a)(6), (a)(8), and (a)(10)

of this section may be omitted.

(2) A statement that the new loan would be operated in accordance

with the work plan on file for the previous loan may be submitted in

lieu of a new work plan.

(3) The financial information required by paragraph (a)(5) of this

section may be limited to projections for the proposed new IRP

revolving loan fund.

Sec. 1948.123 Filing and processing applications for loans.

(a) Intermediaries' contact. Intermediaries desiring the assistance

in this subpart may file applications with the State Office for the

State in which the intermediary's headquarters is located.

Intermediaries headquartered in the District of Columbia may file the

application with the National Office, B&I Division, Washington, DC

20250-3221.

(b) Filing applications. Intermediaries must file the complete

application, in one package. Applications received by the Agency will

be reviewed and ranked quarterly and funded in the order of priority

ranking. The Agency will retain unsuccessful applications for

consideration in subsequent reviews, through a total of four quarterly

reviews.

proposed intermediaries based on the following factors. Points will be

allowed only for factors indicated by well documented, reasonable plans

which, in the opinion of the Agency, provide assurance that the items

have a high probability of being accomplished. The points awarded will

be as specified in paragraphs (c)(1) through (c)(6) of this section. If

an application does not fit one of the categories listed, it receives

no points for that paragraph or subparagraph.

(1) Other funds. Points allowed under this paragraph should be

based on documented successful history or written evidence that the

funds are available.

(i) The intermediary will obtain non-Federal loan or grant funds to

pay part of the cost of the ultimate recipients' projects. The amount

of funds from other sources will average:

(A) At least 10% but less than 25% of the total project cost--10

points.

(B) At least 25% but less than 50% of the total project cost--20

points.

(ii) The intermediary will provide loans to the ultimate recipient

from its own funds (not loan or grant) to pay part of the costs of the

ultimate recipients' [[Page 3577]] projects. The amount of non-Agency

derived intermediary funds will average:

(A) At least 10% but less than 25% of the total project costs--10

points.

(B) At least 25% but less than 50% of total project costs--20

points.

(2) Employment. For computations under this paragraph, income data

should be from the latest decennial census of the United States,

updated according to changes in consumer price index (CPIU). The

poverty line used will be as defined in Section 673 (2) of the

Community Services Block Grant Act (42 U. S. C. 9902 (2)). Unemployment

data used will be that published by the Bureau of Labor Statistics,

U.S. Department of Labor.

(i) The median household income in the service area of the proposed

intermediary equals the following percentage of the poverty line for a

family of four:

(A) At least 150% but not more than 175%--5 points.

(B) At least 125% but less than 150%--10 points.

(ii) The intermediary certifies that the following percentage of

the loans it makes from Agency IRP loan funds will be in counties with

median household income below 80 percent of the statewide non-

metropolitan median household income. (To receive priority points under

this category, the intermediary must provide a list of counties in the

service area that have qualifying income.)

(A) At least 50% but less than 75%--5 points.

(B) At least 75% but less than 100%--10 points.

(iii) The unemployment rate in the intermediary's service area

equals the following percentage of the national unemployment rate:

(A) At least 100% but less than 125%--5 points.

(B) At least 125% but less 150%--10 points.

(iv) The intermediary will require, as a condition of eligibility

for a loan to an ultimate recipient from Agency IRP loan funds, that

the ultimate recipient certify in writing that it will employ the

following percentage of its workforce from members of families with

income below the poverty line.

(A) At least 10% but less than 20% of the workforce--5 points.

(B) At least 20% but less than 30% of the workforce--10 points.

(v) The intermediary has a demonstrated record of providing

assistance to members of underrepresented groups, has a realistic plan

for targeting loans to members of underrepresented groups, and, based

on the intermediary's record and plans, it is expected that the

following percentages of its loans made from Agency IRP loan funds will

be made to entities owned by members of underrepresented groups.

(A) At least 10% but less than 20%--5 points.

(B) At least 20% but less than 30%--10 points.

(3) Intermediary contribution. All assets of the IRP revolving fund

will serve as security for the IRP loan and the intermediary will

contribute funds not derived from the Agency into the IRP revolving

fund along with the proceeds of the IRP loan. The amount of non-Agency

derived funds contributed to the IRP revolving fund will equal the

following percentage of the Agency IRP loan:

(i) At least 5% but less than 15%--15 points.

(ii) At least 15% but less than 25%--30 points.

(iii) 25% or more--50 points.

(4) Experience. The intermediary has actual experience in making

and servicing commercial loans, with a successful record, for the

following number of full years:

(i) At least 1 but less than 3 years--5 points.

(ii) At least 3 but less than 5 years--10 points.

(iii) At least 5 but less than 10 years--20 points.

(iv) 10 or more years--30 points.

(5) Community representation. The service area is not more than 10

counties and the intermediary utilizes local opinions and experience by

including community representatives on its board of directors or

equivalent oversight board. For purposes of this section, community

representatives are people, such as civic leaders, business

representatives, or bankers, who reside in the service area and are not

employees of the intermediary.

(i) At least 10% but less than 40% of the board members are

community representatives--5 points.

(ii) At least 40% but less than 75% of the board members are

community representatives--10 points.

(iii) At least 75% of the board members are community

representatives--15 points.

(6) Administrative. The Administrator may assign up to 35

additional points to an application to account for items not adequately

covered by the other priority criteria set out in this section. Such

items may include, but are not limited to, a particularly successful

business development record, a service area with no other IRP coverage,

a service area with severe economic problems, a service area with

emergency conditions caused by a natural disaster or loss of a major

industry, or excellent utilization of a previous IRP loan.

Sec. 1948.124 [Reserved]

Sec. 1948.125 Letter of conditions.

If the Agency is able to provide the loan, it will provide the

intermediary a letter of conditions listing all requirements for such

loan. Immediately after reviewing the conditions and requirements in

the letter of conditions, the intermediary should complete, sign and

return the Form FmHA 1942-46, ``Letter of Intent To Meet Conditions,''

to the Agency. If certain conditions cannot be met, the borrower may

propose alternate conditions to the Agency. The Agency loan approval

official must concur with any changes made to the initially issued or

proposed letter of conditions.

Sec. 1948.126 Loan approval and obligating funds.

The loan will be considered approved on the date the signed copy of

Form FmHA 1940-1 is mailed to the intermediary. The approving official

may request an obligation of funds when available and according to the

following:

(a) Form FmHA 1940-1, authorizing funds to be reserved, may be

executed by the loan approving official providing the intermediary has

the legal authority to contract for a loan, and to enter into required

agreements and has signed Form FmHA 1940-1.

(b) An obligation of funds established for an intermediary may be

transferred to a different (substituted) intermediary provided:

(1) The substituted intermediary is eligible to receive the

assistance approved for the original intermediary;

(2) The substituted intermediary bears a close and genuine

relationship to the original intermediary; and

(3) The need for and scope of the project and the purpose(s) for

which Agency IRP loan funds will be used remain substantially

unchanged.

Sec. 1948.127 Loan closing.

(a) At loan closing, the intermediary must certify to the

following:

(1) No major changes have been made in the work plan except those

approved in the interim by the Agency. [[Page 3578]]

(2) All requirements of the letter of conditions have been met.

(3) There has been no material adverse change in the intermediary

nor its financial condition since the issuance of the letter of

conditions. If there have been adverse changes, they must be explained.

The adverse changes may be waived, at the sole discretion of the

Agency. Financial data must not be more than 60 days old at loan

closing.

(b) Agency personnel shall not sign any documents other than those

specifically provided for in this subpart.

the letter of conditions. The processing officer will approve only

minor changes which do not materially affect the project, its capacity,

employment, original projections, or credit factors. Changes in legal

entities or where tax consideration are the reason for change will not

be approved.

(d) At loan closing the intermediary will provide sufficient

evidence to enable Agency to ascertain that no claim or liens of

laborers, materialmen, contractors, subcontractors, suppliers of

machinery and equipment, or other parties are against the security of

the intermediary, and that no suits are pending or threatened that

would adversely affect the security of the intermediary when the

security instruments are filed.

Sec. 1948.128 Requests to make loans to ultimate recipients.

(a) When an intermediary proposes to use Agency IRP loan funds to

make a loan to an ultimate recipient, and prior to final approval of

such loan, the intermediary must submit the following material to the

Agency:

(1) A request for Agency concurrence in approval of the proposed

loan.

(2) Certification by the intermediary that:

(i) The proposed ultimate recipient is eligible for the loan.

(ii) The proposed loan is for eligible purposes.

(iii) The proposed loan complies with all applicable statutes and

regulations.

(iv) The ultimate recipient is unable to finance the proposed

project through commercial credit or other Federal, State, or local

programs at reasonable rates and terms.

(v) The intermediary and its principal officers (including

immediate family) hold no legal or financial interest or influence in

the ultimate recipient, and the ultimate recipient and its principal

officers (including immediate family) hold no legal or financial

interest or influence in the intermediary.

(3) For projects that meet the criteria for a Class I or Class II

environmental assessment or environmental impact statement as provided

in subpart G of part 1940 of this chapter, a completed and executed

Form FmHA 1940-20.

(4) All comments obtained in accordance with Sec. 1948.117 (a) of

this subpart, regarding intergovernmental consultation.

(5) Copies of sufficient material from the ultimate recipient's

application and the intermediary's related files, to allow the Agency

to determine:

(i) The name and address of the ultimate recipient.

(ii) The loan purposes.

(iii) The interest rate and term.

(iv) The location, nature, and scope of the project being financed.

(v) The other funding included in the project.

(vi) The nature and lien priority of the collateral.

(6) Such other information as the Agency may request on specific

cases.

(b) Upon receipt of a request for concurrence in a loan to an

ultimate recipient from Agency IRP loan funds the Agency will:

(1) Review the material required by paragraph (a) of this section

for completeness and compliance with regulations.

(2) Complete an environmental review in accordance with subpart G

of part 1940 of this chapter, including public notice requirements and

provisions for mitigation measures as appropriate. This review will be

conducted by the Agency in the same manner it would be conducted if the

Agency were considering a direct loan to the ultimate recipient. The

results of the environmental review will be used by the Agency in

making its decision on the request for loan concurrence.

(3) Consider any comments received through the intergovernmental

consultation process. Prior to the Agency's decision on loan

concurrence, compliance with the requirements of intergovernmental

consultation in accordance with FmHA Instruction 1940-J must be

demonstrated.

(4) When all requirements have been met, issue a letter concurring

in the loan.

(5) If the Agency determines it is unable to concur in the loan,

the intermediary will be notified in writing, given the reasons for

denial, and informed of its rights for review and appeal in accordance

with subpart B of part 1900 of this chapter.

Secs. 1948.129-1948.142 [Reserved]

Sec. 1948.143 Appeals.

Any appealable adverse decision made by the Agency which affects

the intermediary may be appealed upon written request of the aggrieved

party in accordance with subpart B of part 1900 of this chapter.

Secs. 1948.144-1948.147 [Reserved]

Sec. 1948.148 Exception authority.

The Administrator may in individual cases grant an exception to any

requirement or provision of this subpart which is not inconsistent with

an applicable law or opinion of the Comptroller General, provided the

Administrator determines that application of the requirement or

provision would adversely affect the Government's interest. The basis

for this exception will be fully documented. The documentation will:

Demonstrate the adverse impact; identify the particular requirement

involved; and show how the adverse impact will be eliminated.

Sec. 1948.149 [Reserved]

Sec. 1948.150 OMB control number.

The reporting and recordkeeping requirements contained in this

regulation have been approved by the Office of Management and Budget

and have been assigned OMB control number 0575-0130. Public reporting

burden for this collection of information is estimated to vary from 1

to 120 hours per response, with an average of 12 hours per response

including time for reviewing instructions, searching existing data

sources, gathering and maintaining the data needed, and completing and

reviewing the collection of information. Send comments regarding this

burden estimate or any other aspect of this collection of information,

including suggestions for reducing this burden, to Department of

Agriculture, Clearance Officer, OIRM, Ag. Box 7630, Washington, DC

20250; and to the Office of Management and Budget, Paperwork Reduction

Project (OMB# 0575-0130), Washington, DC 20503.

PART 1951--SERVICING AND COLLECTIONS

3. The authority citation for part 1951 continues to read as

follows:

Authority: 7 U.S.C. 1989; 7 U.S.C. 1932 Note; 42 U.S.C. 1480; 5

U.S.C. 301; 7 C.F.R. 2.23 and 2.70.

Subpart R--Rural Development Loan Servicing

4. Section 1951.853 is amended by revising paragraph (b)(2)(ix) to

read as follows: [[Page 3579]]

Sec. 1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.

* * * * *

(b) * * *

(2) * * *

(ix) Reasonable fees and charges only as specifically listed in

this subparagraph. Authorized fees include loan packaging fees,

environmental data collection fees, and other professional fees

rendered by professionals generally licensed by individual State or

accreditation associations, such as Engineers, Architects, Lawyers,

Accountants, and Appraisers. The amount of fee will be what is

reasonable and customary in the community or region where the project

is located. Any such fees are to be fully documented and justified.

* * * * *

Dated: December 9, 1994.

Bob J. Nash,

Under Secretary, Rural Economic and Community Development.

[FR Doc. 95-1193 Filed 1-17-95; 8:45 am]

BILLING CODE 3410-32-U

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.