Intermediary Relending Program

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1948, 1951 and 4274

RIN 0570-AA15

Intermediary Relending Program

AGENCIES: Rural Housing Service (RHS), Rural Business-Cooperative

Service (RBS), Rural Utilities Service (RUS), and Farm Service Agency

(FSA), USDA.

ACTION: Final rule.

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SUMMARY: The Rural Business-Cooperative Service (RBS) is amending the

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.

EFFECTIVE DATE: February 6, 1998.

FOR FURTHER INFORMATION CONTACT: M. Wayne Stansbery, Loan Specialist,

Rural Business-Cooperative Service, USDA, STOP 1521, 1400 Independence

Ave, S.W., Washington, DC 20250. Telephone (202) 720-6819. The TTD

number is (800) 877-8339 or (202) 708-9300.

SUPPLEMENTARY INFORMATION:

Classification

This rule has been determined to be significant and was reviewed by

OMB under Executive Order 12866.

Programs Affected

The Catalog of Federal Domestic Assistance program impacted by this

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 RBS.

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

successor to the Farmers Home Administration.

Paperwork Reduction Act

Under the Paperwork Reduction Act of 1995, no persons are required

to respond to a collection of information unless it displays a valid

OMB control number. The valid OMB control number assigned to the

collection of information in these final regulations is displayed at

the end of the affected section of the regulations. The reporting and

recordkeeping requirements contained in this regulation have been

approved by the Office of Management and Budget under the provisions of

44 U.S.C. chapter 35 and have been assigned OMB control number 0570-

0021 in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.

3507)

Intergovernmental Review

As set forth in the final rule related notice to 7 CFR part 3015,

subpart V, 48 FR 29115, June 24, 1983, Intermediary Relending Loans are

subject to the provisions of Executive Order 12372 which requires

intergovernmental consultation with State and Local officials. RBS has

conducted intergovernmental consultation with such state and local

officials in accordance with RD Instruction 1940-J, ``Intergovernmental

Review of Farmers Home Administration Programs and Activities.''

Civil Justice Reform

This final rule has been reviewed under Executive Order 12988,

Civil Justice Reform. In accordance with this rule: (1) All state and

local laws and regulations that are in conflict with this rule will be

preempted; (2) No retroactive effect will be given to this rule; and

(3) Administrative proceedings in accordance with the regulations of

the Agency at 7 CFR 1900, subpart B, or those regulations published by

the Department of Agriculture at 7 CFR part 11 to implement the

statutory provisions relating to the National Appeals Division as

mandated by the Department of Agriculture Reorganization Act of 1994

must be exhausted before filing suit to challenge action taken under

this rule.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR part 1940,

subpart G, ``Environmental Program.'' RBS has determined that this

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, Pub. L. 91-190, an

Environmental Impact Statement is not required.

Regulatory Flexibility Act

In compliance with the Regulatory Flexibility Act, RBS has

determined that this action would not have a significant economic

impact on a substantial number of small entities because the action

will not affect a significant number of small entities as defined by

the Regulatory Flexibility Act (5 U.S.C. 601). RBS made this

determination based on the fact that this regulation only impacts those

who choose to participate in the grant program. Small entity applicants

will not be impacted to a greater extent than large entity applicants.

The Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.

L. 104-4, establishes requirements for Federal agencies to assess the

effects of their regulatory actions on state, local, and tribal

governments and the private sector. Under section 202 of the UMRA, RBS

must prepare a written statement, including a cost-benefit analysis,

for proposed and final rules with ``Federal mandates'' that may result

in expenditures to State, local or tribal governments, in the

aggregate, or to the private sector, of $100 million or more in any one

year. When such a statement is needed for a rule, section 205 of UMRA

generally requires RBS to identify and consider a reasonable number of

regulatory alternatives and adopt the least costly, more cost effective

or least burdensome alternative that achieves the objectives of the

rule.

This rule contains no Federal mandates (under the regulatory

provisions of title II of the UMRA) for State, local, and tribal

governments or

[[Page 6046]]

the private sector. Thus this rule is not subject to the requirements

of sections 202 and 205 of UMRA.

National Performance Review

This regulatory action is being taken as part of the National

Performance Review program to eliminate unnecessary regulations and

improve those that remain in force.

Implementation

It is the policy of this Department that rules relating to public

property, loans, grants, benefits or contracts shall comply with 5

U.S.C. 553 notwithstanding the exemption of that section with respect

to such rules. Accordingly, this rule has previously been published as

a proposed rule, on January 18, 1995 (60 FR 3566), for public comment.

However, we are making this action effective upon publication of this

final rule rather than 30 days after publication. The net impact of

this rule is to interpret and clarify previous requirements, remove

restrictions, streamline requirements, and make the program a more

flexible and effective tool for rural economic development. Therefore

the Agency has determined that further delay in implementation of this

rule would not be in the public interest.

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

revolving funds, and which apply to all assets 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.. Those applications 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 with a delinquent outstanding Federal debt are not

eligible for program assistance.

6. Eligibility requirements are provided for ultimate recipients.

7. Eligible purposes for loans to ultimate recipients are revised

to authorize loans for refinancing, management consulting fees,

educational institutions, commercial fishing, revolving lines of

credit, and hotels, motels and other recreation and tourism facilities

(except golf courses, gambling and race tracks).

8. Security requirements are revised.

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 and

managing the intermediary revolving fund are clarified and a provision

is added for establishment of a reserve for bad debts.

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

RBS 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.

16. The requirement for a certification by the intermediary

regarding equity is removed.

17. Guidelines are provided for information to be submitted to RBS

regarding proposed loans to ultimate recipients and for RBS review and

response to the information.

Discussion of Comments

This rule was published in the Federal Register as a proposed rule

on January 18, 1995 (60 FR 3566). The proposed rule was published as a

revision to 7 CFR part 1948, subpart C. This final rule also renumbers

and redesignates the regulation as 7 CFR part 4274, subpart D. In

addition to publishing the proposed new regulation text for public

comment, the Agency specifically invited comments on several

alternatives. Eighty comments were received, most of which contained

comments on several issues. In general, the letters were very

supportive of the IRP and of the proposed rule. A summary of the

comments follows.

Section 1948.101(b) of the proposed rule included a broad purpose

statement in compliance with the authority contained in the authorizing

legislation. In response to a question asked by the Agency, 20 writers

said it would be helpful to have a more detailed and descriptive

mission statement in the regulation to set out the Agency intent to

emphasize alleviation of poverty, aid disadvantaged and remote

communities, assist smaller and emerging businesses, improve the

partnership with other public and private resources, and further

develop State and regional strategy based on identified community

needs. Nine writers thought the language in the proposed rule text was

adequate and that it would be better to have less, rather than more,

restrictive language in the purpose statement. The final rule contains

a purpose statement that clarifies what the Agency wants to emphasize

while maintaining sufficient flexibility to approve the loan purposes

set out in the eligible purposes section.

The proposed rule text would prohibit intermediaries from loaning

for revolving lines of credit. The Agency also asked for comments on

whether this is a service intermediaries should be providing. Ten

writers thought that loans for revolving lines of credit should not be

eligible. Some thought there is not much need. Others said this type of

credit entails too much risk and intermediaries would not have the

special expertise needed.

Twenty-eight writers felt that there is a crucial need for

revolving credit lines for small businesses and that intermediaries

should have the option of offering this service if they do have

expertise. The Agency is convinced that a significant need exists for

this type of credit, so the final rule allows intermediaries to provide

revolving lines of credit, if they meet guidelines that are included.

The proposed rule would allow intermediaries to make loans up to

$250,000. The Agency asked, however, if it might be appropriate to

retain the previous loan limit of $150,000. This

[[Page 6047]]

issue received more comments than any other single issue in the

proposed rule. Eleven writers were in favor of a $150,000 limit,

indicating that smaller loans are more difficult to obtain elsewhere

and that the program should be targeted toward small loans and small

businesses. However, 50 writers supported an increased loan limit of

$250,000. Many said they would not need that authority often, but

occasionally there is a very real need. Some thought the limit should

be even higher or the proposed restriction on the portion of the

portfolio that may be invested in loans of over $150,000 should be

removed.

The strong support by the comments, for the proposed higher limit,

reinforces the Agency belief that more flexibility is needed to allow

intermediaries to decide what size projects are best in their areas.

Therefore, the language of the proposed rule on this issue is retained

in the final rule.

The Agency requested comments on 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. Twenty-five writers commented on

this issue, but there was little consensus. Most writers recognized the

need for information for program evaluation, but most were also

concerned about the amount of burden on intermediaries to provide

information. Five writers thought the program should be evaluated on

little more than the amount of funds loaned out and the repayment to

the Agency. Six said reports should be made to the Agency on an annual

or semi-annual basis rather than quarterly. Fourteen writers thought

the number of jobs created or saved should be an evaluation criterion.

Three considered leveraging of other funds an item that should be

monitored. Three indicated that the fund balance, net profit, and

solvency of the intermediary should be considered. Five writers

suggested monitoring trends in the tax base of the service area as an

indicator of the success of an intermediary's program. One writer

suggested the Agency check on standard revolving loan fund reporting

requirements developed by the Economic Development Administration.

Other possible measures or report items suggested by 1 or more writers

included sales volume, taxes paid and gross payroll of ultimate

recipients, Standard Industrial Classification of ultimate recipients,

summary of delinquent loans and actions taken, accomplishments

regarding public policy, networking, outreach, and technical

assistance, housing units and square feet of facilities constructed,

and unemployment rate and per capita income trends in service area.

Comments were requested on this issue as a tool to obtain ideas. There

was no consensus among the writers, and the Agency believes more study

is needed before making regulatory changes. No change from the proposed

rule has been made in the final rule regarding this issue. The Agency

will continue, however, to work on the development of an improved

reporting form.

The proposed rule text would require intermediaries to have a

successful lending record or to bring individuals with loan making and

servicing experience and expertise into the operation. In the interest

of enabling more socially oriented community-based organizations to use

the program, the Agency asked for comments on allowing loans to

intermediaries that have experience in assisting rural business or

community development, but not lending experience.

Several writers expressed the desire to be sure of flexibility as

to how such expertise may be achieved when the applicant intermediary

does not have the experience in-house prior to filing the application.

Hiring new staff with the needed experience, contracting for services,

and creating a review or advisory board with experienced lenders as

members are all options that one or more writers wanted to be sure were

available. Only six writers advocated not requiring lending experience

in some form for intermediary eligibility. Twenty six writers felt

lending experience is important. Several writers were quite adamant

that intermediaries cannot be expected to be successful and should not

be approved unless they have lending experience or will acquire the

services of someone with lending experience before receiving Federal

funds.

It was the intent of the proposed rule language to require lending

experience in some form, but to allow considerable flexibility as to

how the experience is brought into the intermediaries' decision

processes. A preponderance of the writers seemed to agree with that

concept. Therefore, no change from the proposed rule language is made

in the final rule on this issue.

The proposed rule text requires that at least 51 percent of the

ownership interest or membership of both intermediaries and ultimate

recipients be citizens of the United States or legally admitted to the

United States for permanent residence. The Agency asked for comments on

the concept of allowing loans to ultimate recipients owned by persons

who are not United States citizens or admitted for permanent residence,

provided 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. Seventeen writers

expressed approval of the concept. They generally indicated that this

provision would help to create jobs and that foreign investment may be

particularly helpful to the U.S. economy. Three writers opposed this

concept, generally on the grounds that profits from businesses with

Federal assistance should not leave the country. Since the publication

of the proposed rule, questions have been raised as to how this

provision may relate to provisions of the Welfare Reform Act. Because

of uncertainty regarding that issue, the change allowing the ultimate

recipients to not be citizens or lawfully admitted residents has not

been adopted in the final rule.

The Agency asked for comments on revising the eligible loan

purposes for loans to ultimate recipients to include management

consultant fees. Five writers were opposed to making management

consultant fees an eligible loan purpose. They pointed out that if

management is a problem it should be solved before a loan is approved

and that Small Business Development Centers and the Service Core of

Retired Executives can assist with management questions. They did not

think the services the ultimate recipients would receive would be worth

the cost or would improve repayment ability.

Nineteen writers thought intermediaries should be able to offer

loans for management consultant fees. This group of writers tended to

believe that management consultants would be likely to help some

businesses enough for the business to become successful and to return

additional profits sufficient to pay for the cost of the consultant

fees. This group also tended to believe that intermediaries should be

able to make the decision, without federal restriction. The Agency

agrees that this use of funds could be effective in some cases and that

intermediaries should be able to decide if this assistance should be an

eligible loan purpose. The final rule includes management consultant

fees as an eligible loan purpose for loans to ultimate recipients.

The Agency requested comments on a suggestion to revise the

eligible loan

[[Page 6048]]

purposes to allow intermediaries to use IRP funds to provide direct

technical assistance to ultimate recipients or prospective recipients.

Ten of the respondents did not believe it is financially feasible to

fund technical assistance from IRP loan funds. If the intermediary is

allowed to use part of the funds loaned by the Agency to pay for the

intermediary's costs for providing assistance to ultimate recipients,

then that amount of funds is no longer available to be loaned to

ultimate recipients. Therefore, that amount of funds is owed by the

intermediary to the Agency, but is not producing revenue for the

intermediary. This group of respondents indicated that all funds

received by the intermediary from the agency should be reloaned by the

intermediary to generate repayment ability.

Twenty respondents favored allowing IRP funds to be used by the

intermediary to pay costs of providing technical assistance, primarily

based on the grounds that such assistance is needed for many potential

ultimate recipients to become successful. The Agency agrees that

technical assistance is a valuable tool for assisting new or struggling

businesses and the ability to provide more or better technical

assistance would enable intermediaries to assist more businesses in

communities where the assistance is most needed. However, the Agency

agrees with the commenters questioning the financial feasibility of the

concept. No one has solved the problem of how an intermediary would

repay the funds it used to pay for technical assistance. No change from

the proposed rule is made on this issue.

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. The proposed rule attempted to

clarify, but not change, the requirement that promissory notes be

transferred to the Agency and assignment documents be provided but not

recorded. Intermediaries have complained from time to time about being

required to provide the assignments and the Agency asked for comments

on whether the providing of assignments is an inordinate burden on the

intermediary.

Forty-two respondents to the proposed rule said the assignments

should not be required and seven said they did not object to continuing

the assignments. The objectors generally cited such things as the legal

costs for having assignments prepared, the administrative burden on

both the intermediary and the Agency of transferring documents back and

forth and monitoring them, and the additional complications of

releasing paid-in-full loans, foreclosure, and other servicing actions.

Those that did not object generally indicated that the burden of

assignments is not great and the requirement is consistent with sound

lending practice. In the interest of reducing administrative burden on

both intermediaries and Agency staff and providing more flexibility for

intermediaries to operate their programs, the requirement for

assignments has been removed from the final rule.

Three writers objected to the requirement that intermediaries

agree, in the loan agreement, to provide additional security as the

Agency may require at any time during the life of the loan if an

assessment indicates the need for such security to protect the

Government's interest. When the original IRP regulation was published

in 1988, four writers objected to this provision. It was retained then

because the Agency believed that it was needed to protect the

Government's interest. The basic concept is retained now for the same

reason, although the language has been amended as part of the amended

security requirements. The assets of a revolving fund, which make up

the security for most IRP loans, continually change. The value can

easily deteriorate, either because of economic conditions outside the

control of the intermediary or because of poor decisions by the

intermediary. In such cases, if the intermediary has other assets that

could be used to repay the IRP loan, the Agency has a responsibility to

the taxpayers to use whatever tools are available to ensure loan

repayment.

Current regulations require intermediaries to obtain the

Government's review and concurrence in the IRP loans the intermediaries

propose to make to ultimate recipients. The proposed rule clarifies the

limited scope of review required for concurrence and also clarifies

that the requirement for review and concurrence applies only when

Federal loan funds are involved. The requirement does not apply to

loans made from the revolving fund from collections on previous loans.

In addition, the Agency requested comments on a suggestion to exempt

intermediaries that have demonstrated a successful track record of

lending IRP funds and servicing loans from the requirement or to simply

not require Government review and concurrence on loans to ultimate

recipients made from subsequent loans to intermediaries.

Thirty-nine respondents to the proposed rule said that Agency

review and concurrence should not be required for intermediaries that

have established a successful record. Several of those respondents

would like all prior Agency review eliminated, even on initial loans.

One said Agency review and concurrence is not a burden and should be

continued. One indicated Agency review and concurrence helps protect

the intermediary against the possibility of future findings that a loan

was not eligible and the process would not be a burden if it did not

include an environmental impact assessment and intergovernmental

consultation. The objectors generally seemed to feel that Agency review

is an unnecessary additional step that slows service to the ultimate

recipients. An intermediary is reviewed before its loan is approved for

ability to carry out the program and then monitored through periodic

visits, reports, and audits. The intermediaries would like the ability

to make their day-to-day lending decisions independently.

The Agency has determined that loans to ultimate recipients made

from Agency IRP loan funds, regardless of whether the funds are from an

initial or subsequent loan to an intermediary, constitute Federal

financial assistance. Therefore, the Agency has a responsibility to

ensure that the funds are used for authorized purposes. More

specifically, the National Environmental Policy Act imposes certain

responsibilities on the Agency to consider environmental impacts and

Executive Order 12372 imposes responsibilities on the Agency to provide

opportunity for intergovernmental consultation and consider comments

from designated representatives of State government before approving

the financial assistance. These are specific requirements imposed on

the Agency that the Agency does not have legal authority to delegate or

to fail to perform. The Agency cannot meet these responsibilities

unless it retains prior approval authority for all loans to ultimate

recipients that are made from agency funds. No change from the proposed

rule in made on this issue.

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. The

[[Page 6049]]

Agency invited comments on the alternative of allowing the funds to be

combined without Government consent unless the purposes of the loans

were significantly different.

Thirty-eight writers commented on this issue and all of them were

opposed to keeping separate accounts if it can be avoided. The Agency

is generally in agreement, but there are situations where there is no

logical alternative to separate funds. For example, there are several

intermediaries now that have one loan made without a requirement for

assignments of promissory notes and collateral documents to the Agency

and another loan that does have that requirement. To know which

ultimate recipient loans must have assignments, such an intermediary

must either keep separate funds or provide assignments for all loans.

The decision to remove the requirement for assignments will solve this

issue, but there may be other similar issues in the future.

The real issue, therefore, appears to be whether the burden should

be on the intermediary to request consent to combine funds when it may

be appropriate or on the Agency to impose the requirement for separate

funds when necessary. To accommodate the comments to the extent

feasible, the final rule has been amended from the proposed rule to

place the burden on the Agency to impose the requirement when

necessary.

The Agency invited comments on the intergovernmental and

environmental review requirements referenced in the proposed rule and

how they could be further streamlined. Four respondents indicated that

environmental assessments are important and not much can be done to

make the process more streamlined than it already is. Twenty-six

respondents thought the environmental review and the intergovernmental

consultation process is excessive. Most of the comments were in

reference to environmental concerns. Several comments appeared to

indicate that the writers were considering environmental review in

terms of protection against reduced collateral value due to site

contamination with hazardous material. That is a credit quality issue

and most of the Agency environmental review procedure does not address

that issue. The Agency review is addressed toward assessing the

possibility that financing the proposed project will result in some

future environmental impact. Some of the suggestions were for

procedures that are already authorized under Agency regulations and

some were for items that would put the Agency in violation of its

environmental responsibilities.

The National Environmental Policy Act (NEPA) and the regulations of

the Council on Environmental Quality require environmental assessments

of proposed Agency actions and sets out general procedures and

requirements for meeting the requirements. Executive Order 12372

requires an opportunity for State comments on proposed Federal actions

and sets out general procedures. The Agency is always looking for ways

to meet these requirements more rapidly and in a manner more convenient

for the people the Agency serves. The comments have not identified

further changes that could be made at this time that would streamline

the process and keep the Agency in compliance with NEPA and Executive

Order 12372. Therefore, no changes from the proposed rule have been

made regarding these issues.

In connection with implementation of the proposed rule the Agency

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. Comments were invited on a possible additional step of

having one loan agreement serve for multiple loans to the same

intermediary by having a supplemental loan agreement extending the

coverage of the original loan agreement to include the additional loan

executed at loan closing for each subsequent loan.

One writer thought that it was a good idea to have a new loan

agreement for each loan as new members of the board or management team

would be more likely to read it if a new agreement must be signed.

Twenty-eight writers were in favor of simply having an amendment or

supplement to the original loan agreement for subsequent loans.

Accordingly, the final rule provides for a supplemental loan agreement

to be executed in connection with subsequent loans to make the original

loan agreement applicable to the subsequent loan.

The Agency asked for comments on several alternative application

requirements recommended by a task force but not incorporated into the

proposed rule text. Nine writers were generally in favor of the

suggested further revisions to the application. One of these writers

said intermediaries would have the information and could share it.

Another was willing to trade more due diligence at the application

stage for more independence later. Eight writers were opposed to the

additional application information. They generally seemed to feel that

the language in the proposed rule text is adequate and the changes

suggested would complicate the process, make it more time consuming,

require more paperwork, and cause more inconsistencies.

The task force recommended application requirements be further

revised, in section 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. One of the writers was adamant that the show of

need should not be based on targeting information, but rather, better

documentation should be required to show that an adequate number of

potential ultimate recipients exist. The Agency believes that it is

important to realize that need for jobs does not necessarily equal

demand for business loans. To create loan demand, there must also be

existing or potential businesses willing and able to borrow and repay

funds for startups or expansion. The Agency does, however, want to

encourage the identification of areas of greatest need and target

program assistance to those areas when feasible. Therefore, the final

rule includes the option to include targeting information in the

demonstration of need, provided it is accompanied by evidence that such

prospective ultimate recipients exist in sufficient numbers to justify

the loan.

The task force 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

Agency believes it is important for intermediaries to develop goals,

strategies, and anticipated outcomes in order to obtain the maximum

result from program funds. Therefore, the final rule includes a

requirement for goals, strategies and anticipated outcomes for the

intermediary's IRP loan program. To avoid further increasing the

paperwork burden, there is no requirement included for a method of

measuring outcome. The Agency will continue to study ways to measure

outcomes in a consistent manner throughout the country.

The task force 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. The

Agency believes that having technical assistance available to ultimate

recipients may be an important factor in the success of many revolving

loan funds. However, some intermediaries may not be able to

[[Page 6050]]

arrange for such services but can operate a successful relending

program without it. Such intermediaries should not be denied

assistance. Therefore, the final rule requires applicants to describe

what technical assistance will be available to its ultimate recipients,

without requiring that such assistance be universally available.

As proposed, priority points for community representation are

limited to intermediaries with service areas not exceeding 10 counties.

The Agency believes it should retain the category to encourage local

participation in intermediary management, but remove some of the

objections raised. The change to 14 counties is adopted in the final

rule.

The Agency invited comments on further modifications to proposed

scoring criteria 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.

Regarding the reduction of priority points for leveraging and

intermediary contribution, six writers commented in favor and eleven

commented in opposition, primarily based on differences of opinion on

what is most important for the public good.

Regarding the creation of a new category of points for smaller

loans, three writers were in favor and sixteen were opposed. The

opposition seemed to be based on belief that the size of loans has

little or no impact on the effectiveness of the program, intermediaries

need flexibility to meet the needs in their particular areas, and

intermediaries could too easily say they were going to make small

loans, to get the points, and then not do it.

Regarding the awarding of points to intermediaries that propose to

operate in accordance with a strategic plan, particularly one developed

for an empowerment zone or enterprise community, writers were nearly

equally divided, on philosophical grounds, with eight commenting in

favor and nine commenting in opposition.

In the final rule, the reductions in points for leveraging are

adopted, to shift more relative weight toward social factors. The

previous points for intermediary contribution are maintained because

that is a very important contributor to improved collectability of the

Agency's loan. The suggested new points for small loans are not adopted

because we believed that such a change would detract from program

effectiveness. The suggested language regarding strategic plans and

Empowerment Zones and Enterprise Communities is adopted as guidance for

items that could justify Administrator points because the Agency

generally wants to encourage strategic planning and assistance to

Empowerment Zones and Enterprise Communities.

Also, an additional category of priority points has been added

based on reduction in population of the service area. This was done

because it came to the Agency's attention after the comment period was

over that some areas have a low unemployment rate because of out

migration. The percentage of the population seeking employment is low

because many of the people needing employment have already left.

Therefore, unemployment rate alone does not adequately reflect the need

for economic development and jobs to enable the existing population to

stay and former residents to return.

The proposed rule would require intermediaries to establish a bad

debt reserve in the amount of 15 percent of the IRP portfolio unless a

different amount is justified by the intermediary and approved by the

Agency. The Agency asked for comments on whether 15 percent of the IRP

portfolio is an appropriate amount of bad debt reserve for most

intermediaries.

Most writers that commented on this issue agreed that a bad debt

reserve is needed and sixteen writers thought 15 percent was an

acceptable amount.

However, twenty-six writers disagreed with the 15 percent, with

most of them saying it is too high. Many of the writers wanted the

amount of the reserve required for each intermediary to be established

based on that intermediary's history and situation. The Agency agrees

that there should be flexibility, and the proposed rule language would

allow for flexibility, but the Agency also wants to provide a general

guideline from which adjustments can be made as appropriate. From the

writers who mentioned any particular amount, most suggestions ranged

between 3 and 10 percent of the portfolio. The final rule adopts a

guideline amount of six percent because the program history seems to

justify that amount as sufficient for the losses that have occurred.

The proposed rule would remove a general prohibition on loans for

recreation and tourism facilities, but retain a prohibition on loans

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

centers. Thirty-nine writers favored making hotels, motels, bed and

breakfasts and convention centers eligible, compared to three who

agreed with keeping them ineligible. It was pointed out that such

facilities are very important to the potential economic development of

many rural areas and that it is unfair to treat them as a group rather

than consider each on its own merits.

The final rule adopts hotels, motels, bed and breakfasts, and

convention centers as eligible. The Agency agrees that such facilities

can be an important economic development tool in some areas and that

each should be evaluated on its own merits.

One writer wanted virtually unrestricted use of IRP for financing

agricultural production. The Agency believes that agricultural

production is a specialized type of financing, the Department of

Agriculture has special lending programs for agricultural production,

and IRP should, for the most part, be restricted to other general

business development. The recommendation is not adopted.

One writer wanted cranberry production to be made an eligible loan

purpose, and pointed out that Senate Report 103-290, ``Agriculture,

Rural Development, Food and Drug Administration, and Related Agencies

Appropriation Bill, 1995,'' suggested the Department to make regulatory

changes to allow Maine cranberry growers to qualify for IRP assistance.

The Agency has determined that singling out one product, such as

cranberry production, as an exception to the prohibition on loans for

agriculture production is not justified. Therefore, the suggestion

regarding cranberries is not adopted and other exceptions to the

prohibition are also eliminated.

One writer said that commercial fishing should be an eligible loan

purpose. Commercial fishing was inadvertently made ineligible through

the definition of agriculture production. The recommendation is adopted

by revising the definition.

Six writers were opposed to the provision that would limit

subsequent loans to intermediaries to $1 million per year. These

writers prefer that the loan amounts be limited only by factors such as

the intermediary applicant's lending record or the demand for funds in

the service area. The demand for funds is very difficult to determine

accurately and may change drastically with little or no notice. Slow

use by intermediaries of approved loan funds is still a major Agency

concern in IRP in spite of Agency efforts to limit loan amounts

according to demand. Limiting all subsequent loans to $1 million per

year reduces the likelihood that intermediaries will borrow more than

they can use in 1 year. The demand by

[[Page 6051]]

intermediaries for IRP funds from the Agency far exceeds the available

funds. Limiting subsequent loans to $1 million per year will help to

ensure distribution of each year's available funds to more applicants,

while still allowing intermediaries with large needs to eventually

obtain large amounts of funds. This provision of the proposed rule is

unchanged.

Three writers requested that the term underrepresented be defined.

The final rule includes a definition of underrepresented group as a

group of U. S. citizens with identifiable common characteristics that

have not received IRP assistance or have received a lower percentage of

total IRP dollars than the percentage the group represents of the

general population.

Three writers wanted intermediaries to be allowed to use IRP funds

to guarantee loans, as a alternative to making direct loans to ultimate

recipients. They were apparently interested in the intermediaries

having greater flexibility to determine how to best use the IRP funds

to meet the needs of their service areas.

The Agency feels that an important benefit of the IRP is that, due

to the low cost of money provided by the Agency and the nonprofit

nature of most intermediaries, intermediaries can often offer below

market interest rates to businesses that cannot afford market rates. By

offering guarantees rather than direct loans, the interest rate would

be established by commercial lenders, based on their cost of money and

profit goals, and the interest rate advantage would be lost. Offering

loan guarantees instead of direct loans also brings in a new set of

management concerns and risks. Guaranteeing a loan does not require any

cash, so the IRP loan funds would not be ``used'' to make the

guarantee. Guaranteeing a loan creates a contingent liability,

requiring the guarantor to pay an unknown amount at an unknown future

date in the event a loss occurs. Presumably, IRP funds would be placed

by the intermediary in secure investments and held to be available to

pay losses if necessary. Some intermediaries might use this type of

program as an excuse to place an excessive amount of funds in safe

investments to accumulate interest earnings rather than help ultimate

recipients. Other intermediaries might place too small an amount in

safe investments and then be unable to meet their commitments in the

event of losses that exceed expectations. This recommendation is not

adopted.

Two writers wanted intermediaries to be allowed to purchase

participation agreements in bank loans. Many intermediaries cooperate

with banks, making referrals to each other and sharing risks through

joint financing of ultimate recipient needs. The Agency strongly

encourages this cooperation and joint financing. However, we have

required that in a joint financing arrangement, the intermediary and

bank each make a separate loan with separate debt instruments. When an

organization buys a participation agreement it normally is not making a

loan; it is purchasing an investment. The loan is made by the bank. The

bank holds the promissory note and the collateral. The bank does the

loan servicing, collects the payments, and forwards the appropriate

portion of the payment to the holder of the participation agreement.

The holder of the participation agreement has no responsibility for and

no control over the servicing and no direct relationship with the

borrower. It is an investor, not a lender. It would be too easy for the

intermediary to use the purchase of participation agreements as a

mechanism to simply invest in loans the bank would make anyway.

The Agency believes that, to properly carry out the intent of the

program, intermediaries should have a direct lender-borrower

relationship with the ultimate recipients. The intermediary should be

in position to deal directly with the ultimate recipient to service the

loan. If necessary, the Agency should be able to influence the

servicing of the loan by the intermediary or to foreclose on a

defaulted loan to an intermediary and take over the servicing and

collection of the loan to the ultimate recipient.

The IRP regulation has always required intermediaries to make loans

and the Agency has held that buying participations is not making loans.

The word direct was inserted in the proposed rule to further clarify

the intent. The language of the proposed rule is maintained in the

final rule.

Three writers recommended elimination of the provision that

ultimate recipients cannot obtain loans from more than one

intermediary. This recommendation has been adopted. However, the

language has been revised to clarify that the limits on loan amount to

one ultimate recipient apply to the total dollar amount of IRP debt,

regardless of whether it is one loan from one intermediary or several

loans from several intermediaries.

Two writers also objected to the provision that IRP funds cannot

finance more than 75 percent of total project costs. This provision

helps to ensure wider distribution of limited program funds and reduced

risk through ultimate beneficiary contribution or leveraging of other

funding sources, and so the recommendation is not adopted.

Two writers requested a preferred lender status be established for

experienced and successful intermediaries that target assistance to

certain populations. Only one writer indicated what special benefits a

preferred status should carry. Rather than create a special class of

intermediaries, the agency is moving toward providing all the

discretion and benefits it considers reasonable to all intermediaries.

Therefore, the recommendation is not adopted.

The one writer who suggested specific benefits for preferred

lenders proposed a moratorium on loan principal and interest payments

to the Agency so long as the lender met certain performance standards.

If the lender did not maintain the standards, it would lose its

preferred lender status and be expected to resume normal loan

repayment. Presumably, the interest that accrued and the principal that

came due while the moratorium was in effect would be forgiven.

The Agency does not have the legal authority to forgive debt except

in debt settlement situations when it is documented that the borrower

does not have repayment ability. Also, as a matter of good credit

program management, the Agency does not believe loan programs should be

mixed with the characteristics of grant programs. If a grant is

appropriate, the assistance should be authorized as a grant and

recognized as a grant by all parties from the beginning. If a loan is

made, it should be clearly set out in writing exactly what repayment is

required. Then collection should be pursued in accordance with the

lenders rights, so long as the borrower has repayment ability. To set

up a loan with the understanding that a certain payment is required

under normal circumstances but will be reduced under certain conditions

would invite misunderstanding and dispute over the borrower's

liability, create servicing problems, and foster law suits to enforce

or prevent collection. The recommendation is not adopted.

One writer requested that intermediaries be able to provide equity

investment for ultimate recipients. Another requested the conflict of

interest paragraph from the existing regulation be kept in place so

that it applies to all loans from the IRP revolving fund. In the

proposed rule the requirement was moved and would only apply to loans

from Agency IRP loan funds. The conflict of interest paragraph provides

that an intermediary and its principal officers (including immediate

[[Page 6052]]

family) must hold no legal or financial interest or influence in the

ultimate recipient, and the ultimate recipient and its principal

officers (including immediate family) must hold no legal or financial

interest or influence in the intermediary. This not only prevents an

intermediary from using Agency IRP loan funds for equity investment, it

prevents the intermediary from making a loan from Agency IRP loan funds

to an ultimate recipient to which it has provided equity investment

from another source of funding.

The Agency recognizes that there is a need for equity investment or

venture capital for new businesses in rural areas. However, providing

equity investment means purchasing an ownership interest in the

business. The Agency is concerned that if an intermediary is

considering a loan to a business in which it owns an interest, the

intermediary's credit quality analysis and loan approval decision may

be influenced by its desire to assist or protect the value of its

ownership interest. The final rule does not authorize the use of IRP

loan funds for equity investment and the conflict of interest

restriction has been rewritten so that it applies to all loans made

from the IRP revolving loan fund.

One writer wanted the definition of rural to be amended so that

loans could be made to ultimate recipients in cities of up to 50,000

people. The Agency believes that retaining the 25,000 population limit

will help direct the limited funding to the areas of greatest need. The

recommendation is not adopted.

One writer indicated that the definitions of Agency IRP loan funds,

IRP revolving fund, and revolved funds are not sufficiently clear. The

writer wanted a statement included, consistent with an existing

Administrative Notice, to provide that revolved funds are not subject

to the requirements of Agency regulations. The writer also wanted a

paragraph to set out what regulatory procedures are required of

intermediaries administering non-Federal funds. The Agency believes

that the definitions of Agency IRP loan funds, IRP revolving funds, and

revolved funds are as clear as can be achieved. The Agency believes

that the broad statement in the previous regulation regarding non-

federal funds not being subject to the regulations has been the cause

of past confusion about what requirements apply in different

situations. The Agency has intentionally avoided such broad statements

in the new regulation. Also, the Agency intentionally wrote the

proposed rule to apply the requirements differently than under the

Administrative Notice that provided interpretation of the previous

regulation. The Agency has attempted to end the confusion over these

issues by clearly stating in each section of the regulation whether

that section applies to Agency IRP loan funds only or to the IRP

revolving fund. Section 4274.332(a) explains that if the reference is

to the IRP revolving fund, the requirement applies to both revolved (or

non-Federal) funds and Agency IRP loan funds. If the reference is to

Agency IRP loan funds, without reference to the IRP revolving fund,

then the requirement applies only to Agency IRP loan funds. The

language of the proposed rule on this issue is not changed.

One writer recommended the restrictive language regarding interest

rates to ultimate recipients be removed to allow intermediaries

flexibility. The proposed rule only provides a general guideline

regarding how interest rates should be established and requires that

limits be established in the work plan. There is also a provision for

amending the work plan that could be used should the limits established

at the application stage become a problem in the future.

Some guidelines and limits are needed to deal with two extremes

that continue to occur from time to time. Some intermediaries propose

to charge interest rates so low that sufficient revenues would not be

produced to maintain the revolving fund and meet the repayment schedule

to the Agency. These intermediaries must be counseled and encouraged to

plan for higher rates in order for the loan from the Agency to be

feasible. There are other intermediaries that propose interest rates so

high that it raises questions as to whether the intermediary is trying

to help ultimate recipients and the community or just trying to bring

in revenues.

The Agency believes that the language in the proposed rule gives

the intermediary considerable flexibility while also providing

sufficient guidelines to allow the Agency to prevent unreasonable

extremes. The recommendation is not adopted.

One writer requested that the ban on loans to charitable and

educational institutions be removed because they can be valid

businesses. Another writer wanted certain organizations that the writer

considered charitable to be eligible. The prohibition of loans to

educational institutions has been removed in the interest of allowing

more flexibility and the reference to charitable has been clarified.

The Agency's concern is that loans not be made if the recipient will

depend on donations, rather than sales or fees, to repay the loan or

administer the revolving loan fund.

One writer objected to the requirement that the intermediary's

interest in insurance required of the ultimate recipient be assigned to

the Agency. The Agency agrees that valid assignment of all such

insurance is an unnecessary administrative burden. The final rule has

been modified to require assignments of insurance only if the

intermediary is in default.

In addition to responding to the public comments, the final rule

differs from the proposed rule by providing that any applicant that is

delinquent on any Federal debt is not eligible to receive assistance

from Agency IRP funds. This provision was added to comply with Public

Law 104-132 dated April 26, 1996 (31 U.S.C. 3720B).

Lists of Subjects

7 CFR Part 1948

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

7 CFR Part 1951

Loan programs--Agriculture, Rural areas.

7 CFR Part 4274

Community development, Economic development, Loan programs--

Business, Rural areas.

Accordingly, Title 7, Chapters XVIII and XLII, of the Code of

Federal Regulations are amended as follows:

CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE

SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT

OF AGRICULTURE

PART 1948--RURAL DEVELOPMENT

1. The authority citation for part 1948 is revised to read as

follows:

Authority: 5 U.S.C. 301, 7 U.S.C. 1932 note.

Subpart C--[Removed and Reserved]

2. Subpart C, part 1948 is removed and reserved.

PART 1951--SERVICING AND COLLECTIONS

3. The authority citation for part 1951 has been revised to read as

follows:

Authority: 5 U.S.C. 301, 7 U.S.C. 1932 Note, 7 U.S.C. 1989, 42

U.S.C. 1480.

Subpart R--Rural Development Loan Servicing

4. Section 1951.852(b)is amended by removing the numeric paragraph

designations and by removing the

[[Page 6053]]

abbreviation for ``FmHA or its successor agency under Pub. L. 103-

354''.

5. Section 1951.853 is amended by revising in paragraph (a) the

words ``FmHA or its successor agency under Public Law 103-354'' to read

``the Agency'' and by revising paragraph (b)(2)(ix) to read as follows:

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.

* * * * *

6. Section 1951.883 is amended by revising paragraph (a)(2) to read

as follows:

Sec. 1951.883 Reporting requirements.

(a) * * *

(2) Quarterly or semiannual reports (due 30 days after the end of

the period).

(i) Reports will be required quarterly during the first year after

loan closing and, if all loan funds are not utilized during the first

year, quarterly reports will be continued until at least 90 percent of

the Agency IRP loan funds have been advanced to ultimate recipients.

Thereafter, reports will be required semiannually. Also, the Agency may

require quarterly reports if the intermediary becomes delinquent in

repayment of its loan or otherwise fails to fully comply with the

provisions of its work plan or Loan Agreement, or the Agency determines

that the intermediary's IRP revolving fund is not adequately protected

by the current sound worth and paying capacity of the ultimate

recipients.

(ii) These reports shall contain only information 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 revolving fund from the

Agency a separate report shall be made for each of the IRP revolving

funds.

(iii) The reports will include, on a form provided by the Agency,

information on the intermediary's lending activity, income and

expenses, financial condition, and a summary of names and

characteristics of the ultimate recipients the intermediary has

financed.

* * * * *

CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES

SERVICE, DEPARTMENT OF AGRICULTURE

7. Chapter XLII, title 7, Code of Federal Regulations is amended by

adding a new part 4274 to to read as follows:

PART 4274--DIRECT AND INSURED LOANMAKING

Subparts A-C--[Reserved]

Subpart D--Intermediary Relending Program (IRP)

Sec.

4274.301 Introduction.

4274.302 Definitions and abbreviations.

4274.303-4274.306 [Reserved]

4274.307 Eligibility requirements--Intermediary.

4274.308 Eligibility requirements--Ultimate recipients.

4274.309-4274.313 [Reserved]

4274.314 Loan purposes.

4274.315-4274.318 [Reserved]

4274.319 Ineligible loan purposes.

4274.320 Loan terms.

4274.321-4274.324 [Reserved]

4274.325 Interest rates.

4274.326 Security.

4274.327-4274.330 [Reserved]

4274.331 Loan limits.

4274.332 Post award requirements.

4274.333-4274.336 [Reserved]

4274.337 Other regulatory requirements.

4274.338 Loan agreements between the Agency and the intermediary.

4274.339-4274.342 [Reserved]

4274.343 Application.

4274.344 Filing and processing applications for loans.

4274.345-4274.349 [Reserved]

4274.350 Letter of conditions.

4274.351-4274.354 [Reserved]

4274.355 Loan approval and obligating funds.

4274.356 Loan closing.

4274.357-4274.360 [Reserved]

4274.361 Requests to make loans to ultimate recipients.

4274.362-4274.372 [Reserved]

4274.373 Appeals.

4274.374-4274.380 [Reserved]

4274.381 Exception authority.

4274.382-4274.399 [Reserved]

4274.400 OMB control number.

Authority: 5 U.S.C. 301; 7 U.S.C. 1932 note; 7 U.S.C. 1989.

Subpart D--Intermediary Relending Program (IRP)

Sec. 4274.301 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 part 1951, subpart

R, of this title.

(b) The purpose of the program is to alleviate poverty and increase

economic activity and employment in rural communities, especially

disadvantaged and remote communities, through financing 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 to intermediaries that establish programs

for the purpose of providing loans to ultimate recipients for business

facilities and community developments in a rural area.

(c) Proposed intermediaries are required to identify any known

relationship or association with a USDA Rural Development employee. Any

processing or servicing Agency activity conducted pursuant to this

subpart involving authorized assistance to United States Department of

Agriculture (USDA) Rural Development employees, members of their

families, 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 Agency procedures

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

Rural Development State Office.

Sec. 4274.302 Definitions and abbreviations.

(a) General definitions. The following definitions are applicable

to the terms used in this subpart:

Agency. The Federal agency within the USDA with responsibility

assigned by the Secretary of Agriculture to administer IRP. At the time

of publication of this rule, that Agency was the Rural Business-

Cooperative Service (RBS).

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

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

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

Federal funds.

Agricultural production or agriculture production. The cultivation,

production, growing, raising, feeding, housing, breeding, hatching, or

managing of crops, plants, animals, or birds, either for fiber, food

for human consumption, or livestock feed.

[[Page 6054]]

Initial Agency IRP loan. The first IRP loan made by the Agency to

an intermediary.

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.

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

individuals or entities directly involved in the operation and

management (including setting policy) of an intermediary.

Processing office or 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 Agency procedures are complied with in regard

to applications under the office's jurisdiction.

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

not composed of Agency loan funds, including funds that are repayments

of Agency IRP 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 or 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

Agency procedures are complied with in regard to loans under the

office's jurisdiction.

State. Any of the 50 States, the District of Columbia, the

Commonwealth of Puerto Rico, the Virgin Islands of the United States,

Guam, American Samoa, the Commonwealth of the Northern Mariana Islands,

the Republic of Palau, the Federated States of Micronesia, and the

Republic of the Marshall Islands.

Subsequent IRP loan. An IRP loan from the Agency to an intermediary

that has received one or more IRP loans previously.

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.

Underrepresented group. U.S. citizens with identifiable common

characteristics, that have not received IRP assistance or have received

a lower percentage of total IRP dollars than the percentage they

represent of the general population.

United States. The 50 States of the United States of America, the

District of Columbia, the Commonwealth of Puerto Rico, the Virgin

Islands of the United States, Guam, American Samoa, the Commonwealth of

the Northern Mariana Islands, the Republic of Palau, the Federated

States of Micronesia, and the Republic of the Marshall Islands.

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

B&I--Business and Industry

IRP--Intermediary Relending Program

OGC--Office of the General Counsel

OIG--Office of Inspector General

OMB--Office of Management and Budget

RBS--Rural Business-Cooperative Service, or any successor agency

RDLF--Rural Development Loan Fund

USDA--United States Department of Agriculture

Secs. 4274.303-4274.306 [Reserved]

Sec. 4274.307 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 (other than through lending) rural business and industry or

rural community development projects of the type planned; 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.

(c) No loans will be extended to an intermediary unless:

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

the fiscal and managerial capabilities of the proposed intermediary.

(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 composed of citizens of the

United

[[Page 6055]]

States or individuals who reside in the United States after being

legally admitted for permanent residence.

(e) Any delinquent debt to the Federal Government by the

intermediary or any principal of the intermediary shall cause the

intermediary to be ineligible to receive any IRP loan. Agency loan

funds may not be used to satisfy the debt.

Sec. 4274.308 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, ultimate recipients;

(1) Must be citizens of the United States or reside in the United

States after being legally admitted for permanent residence. In the

case of an organization, at least 51 percent of the outstanding

membership or ownership 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 of a State.

(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.

(4) Must, along with its principal officers (including their

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

the intermediary. Also, the intermediary and its principal officers

(including immediate family) must hold no legal or financial interest

or influence in the ultimate recipient. However, this paragraph shall

not prevent an intermediary that is organized as a cooperative from

making a loan to one of its members.

(c) Any delinquent debt to the Federal Government by the ultimate

recipient or any of its principals shall cause the proposed ultimate

recipient to be ineligible to receive a loan from Agency IRP loan

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

delinquency.

Secs. 4274.309-4274.313 [Reserved]

Sec. 4274.314 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, 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 and pay off the loan

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 loans, the

intermediary is required, at a minimum, to obtain the previously held

collateral as security for the loans and must not pay off a creditor in

excess of the value of the collateral. Additional collateral will be

required when the 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, management consultant 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) Hotels, motels, tourist homes, bed and breakfast

establishments, convention centers, and other tourist and recreational

facilities except as prohibited by Sec. 4274.319.

(13) Educational institutions.

(14) Revolving lines of credit: Provided,

(i) The portion of the intermediary's total IRP revolving fund that

is committed to or in use for revolving lines of credit will not exceed

25 percent at any time;

(ii) All ultimate recipients receiving revolving lines of credit

will be required to reduce the outstanding balance of the revolving

line of credit to zero at least one time each year;

(iii) All revolving lines of credit will be approved by the

intermediary for a specific maximum amount and for a specific maximum

time period, not to exceed two years;

(iv) The intermediary will provide a detailed description, which

will be incorporated into the intermediary's work plan and be subject

to Agency approval, of how the revolving lines of credit will be

operated and managed. The description will include evidence that the

intermediary has an adequate system for:

(A) Interest calculations on varying balances, and

(B) Monitoring and control of the ultimate recipients' cash,

inventory, and accounts receivable; and

(v) If, at any time, the Agency determines that an intermediary's

operation of revolving lines of credit is causing excessive risk of

loss for the intermediary or the Government, the Agency may terminate

the intermediary's authority to use the IRP revolving fund for

revolving lines of credit. Such termination will be by written notice

and will prevent the intermediary from approving any new lines of

credit or extending any existing revolving lines of credit beyond the

effective date of termination contained in the notice.

Secs. 4274.315-4274.318 [Reserved]

Sec. 4274.319 Ineligible loan purposes.

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

intermediary's 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 .

[[Page 6056]]

(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.

(c) Charitable institutions that would not have revenue from sales

or fees to support the operation and repay the loan, churches,

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 in which they have ownership

of 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 if the total IRP loans would exceed the limits

established in Sec. 4274.331(b).

(f) Agricultural production.

(g) 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.

(h) Community antenna television services or facilities.

(i) Any illegal activity.

(j) 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.

(k) Lending and investment institutions and insurance companies.

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

Sec. 4274.320 Loan terms.

(a) No loan to an intermediary 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. Sec. 4274.321-4274.324 [Reserved]

Sec. 4274.325 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. 4274.326 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 intangible capable of being

mortgaged, pledged, or otherwise encumbered by the intermediary in

favor of the Agency; and

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

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

favor of the Agency.

(2) Initial security will consist of a pledge by the intermediary

of all assets now in or hereafter placed in the IRP revolving fund,

including cash and investments, notes receivable from ultimate

recipients, and the intermediary's security interest in collateral

pledged by ultimate recipients. Except for good cause shown, the Agency

will not obtain assignments of specific assets at the time a loan is

made to an intermediary or ultimate recipient. The intermediary will

covenant that, in the event the intermediary's financial condition

deteriorates or the intermediary takes action detrimental to prudent

fund operation or fails to take action required of a prudent lender,

the intermediary will provide additional security, execute any

additional documents, and undertake any reasonable acts the Agency may

request to protect the Agency's interest or to perfect a security

interest in any asset, including physical delivery of assets and

specific assignments to the Agency. All debt instruments and collateral

documents used by an intermediary in connection with loans to ultimate

recipients must be assignable.

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

IRP revolving fund to an ultimate recipient will be negotiated between

the intermediary and ultimate recipient, within the general security

policies established by the intermediary and approved by the Agency.

Secs. 4274.327-4274.330 [Reserved]

Sec. 4274.331 Loan limits.

(a) Intermediary.

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

intermediary can reasonably be expected to lend to eligible ultimate

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

closing.

(2) The initial Agency IRP loan as defined in Sec. 4274.302(a) 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 approved for

the intermediary 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 uncollectable

accounts;

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

fund are generally sound; and

(iv) The intermediary is in compliance with all applicable

regulations and its loan agreements 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 the

Agency will not exceed $15 million at any time.

(b) Ultimate recipients. Loans from intermediaries to ultimate

recipients using the IRP revolving fund must not exceed the lesser of:

(1) $250,000; or

(2) Seventy five percent of the total cost of the ultimate

recipient's project for which the loan is being made.

(c) Portfolio. No more than 25 percent of an IRP loan approved may

be used for

[[Page 6057]]

loans to ultimate recipients that exceed $150,000. This limit does not

apply to revolved funds.

Sec. 4274.332 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 impose in making 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 for as

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, and will

not apply to loans made from revolved funds.

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

an IRP loan to an intermediary remains unpaid, the intermediary must

maintain the IRP revolving fund. 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. All cash of the IRP revolving fund shall be deposited in a

separate bank account or accounts. No other funds of the intermediary

will be commingled with such money. All moneys deposited in such bank

account or accounts shall be money of 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.

(1) The portion of the IRP revolving fund that consists of Agency

IRP loan funds, on a last-in-first-out basis, may only be used for

making loans in accordance with Sec. 4274.314 of this subpart. The

portion of the IRP revolving fund which consists of revolved funds may

be used for debt service, reasonable administrative costs, or reserves

in accordance with this section, or for making additional loans.

(2) 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 intermediary's annual budget.

(3) A reasonable amount of revolved funds must be used to create a

reserve for bad debts. Reserves must 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 6 percent of outstanding loans must be accumulated over 3

years and then maintained.

(4) 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.

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

immediately needed for loans to ultimate recipients or other authorized

uses will be deposited in accounts in banks or other financial

institutions. Such accounts will be fully covered by Federal deposit

insurance or fully collateralized with U.S. Government obligations, and

must be interest bearing. Any interest earned thereon remains a part of

the IRP revolving fund.

(6) If an intermediary receives more than one IRP loan, it need not

establish and maintain a separate IRP revolving loan fund for each

loan; it may combine them and maintain only one IRP revolving fund,

unless the Agency requires separate IRP revolving funds because there

are significant differences in the loan purposes, work plans, loan

agreements, or requirements for the loans. The Agency may allow loans

with different requirements to be combined into one IRP revolving fund

if the intermediary agrees in writing to operate the combined revolving

funds in accordance with the most stringent requirements as required by

the Agency.

Secs. 4274.333--4274.336 [Reserved]

Sec. 4274.337 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,

must 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. (See RD Instruction 1940-J (available in any

Rural Development State Office)).

(b) Environmental requirements.

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

of part 1940, subpart G, of this title 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

environmental information required from the intermediary 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.

(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 part 1940, subpart G, of this title

including public notification requirements. The results of this review

will be used by the Agency in making its decision on

[[Page 6058]]

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.

(c) Equal opportunity and nondiscrimination requirements.

(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 employee, intermediary, or

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

color, religion, national origin, age, physical or mental disability

(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 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

title apply to this program.

(3) The Administrator will assure that equal opportunity and

nondiscrimination requirements are met in accordance with the Equal

Credit Opportunity Act, 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, the Age Discrimination Act of 1975, and the

Americans With Disabilities Act.

(d) Seismic safety of new building construction.

(1) The Intermediary Relending Program is subject to the provisions

of Executive Order 12699 that requires each Federal agency assisting in

the financing, through Federal grants or loans, or guaranteeing the

financing, through loan or mortgage insurance programs, of newly

constructed buildings to assure appropriate consideration of seismic

safety.

(2) All new buildings financed with Agency IRP loan funds shall be

designed and constructed in accordance with the seismic provisions of

one of the following model building codes or the latest edition of that

code providing an equivalent level of safety to that contained in the

latest edition of the National Earthquake Hazard Reduction Programs

(NEHRP) Recommended Provisions for the Development of Seismic

Regulations for New Building (NEHRP Provisions):

(i) 1991 International Conference of Building Officials (ICBO)

Uniform Building Code;

(ii) 1993 Building Officials and Code Administrators International,

Inc. (BOCA) National Building Code; or

(iii) 1992 Amendments to the Southern Building Code Congress

International (SBCCI) Standard Building Code.

(3) The date, signature, and seal of a registered architect or

engineer and the identification and date of the model building code on

the plans and specifications shall be evidence of compliance with the

seismic requirements of the appropriate code.

Sec. 4274.338 Loan agreements between the Agency and the intermediary.

A loan agreement or a supplement to a previous 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 and reviewed by

the intermediary prior to loan closing.

(a) The loan agreement will, as a minimum, 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 if payment 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) The 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. For purposes of computing

interest, the date of each draw down shall constitute the date the

funds are advanced under the loan agreement;

(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

must be deposited in an interest bearing account in accordance with

Sec. 4274.332(b)(5) 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;

(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 must be requested by the

intermediary in writing;

(6) The 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 the specific

activities in its loan application as approved by the Agency or comply

with the loan terms and conditions of the loan agreement, any

applicable Federal or State laws, or with such USDA or Agency

regulations as may become applicable;

(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 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; or

(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

[[Page 6059]]

Agency's award of assistance hereunder, which condition was an

inducement to Agency's original award.

(7) The 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, upon the Agency's request, in the event of default by the

intermediary.

(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, in the event

of request by the Agency following default by the intermediary, 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) Flood Insurance. 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. 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.

(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

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

appropriate insurance, such as public liability, workers compensation,

and property damage.

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

will normally approximate the total annual debt service requirements

for the Agency loans;

(B) 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;

(C) Intermediaries must provide evidence of adequate 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 to

assure and provide evidence that adequate coverage is maintained. This

may consist of a listing of policies and coverage amounts in reports

required by paragraph (b)(4) of this section or other documentation.

(b) The intermediary will agree in the loan agreement:

(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. Audit reports 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. 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 or semiannual reports (due 30 days after the end of

the period);

(A) Reports will be required quarterly during the first year after

loan closing and, if all loan funds are not utilized during the first

year, quarterly reports will be continued until at least 90 percent of

the Agency IRP loan funds have been advanced to ultimate recipients.

Thereafter, reports will be required semiannually. Also, the Agency may

require quarterly reports if the intermediary becomes delinquent in

repayment of its loan or otherwise fails to fully comply with the

provisions of its work plan or Loan Agreement, or the Agency determines

that the intermediary's IRP revolving fund is not adequately protected

by the current sound worth and paying capacity of the ultimate

recipients.

(B) 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 revolving fund from the

Agency a separate report shall be made for each of the IRP revolving

funds.

(C) The reports will include, on a form provided by the Agency,

information on the intermediary's lending activity, income and

expenses, 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; and

(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 work

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

intermediary's IRP loan is outstanding;

(7) To secure the indebtedness by pledging the IRP revolving fund,

including its portfolio of investments derived from the proceeds of the

loan

[[Page 6060]]

award, and pledging its real and personal property and other rights and

interests as the Agency may require;

(8) In the event the intermediary's financial condition

deteriorates or the intermediary takes action detrimental to prudent

fund operation or fails to take action required of a prudent lender, to

provide additional security, execute any additional documents, and

undertake any reasonable acts the Agency may request, to protect the

agency's interest or to perfect a security interest in any assets,

including physical delivery of assets and specific assignments; and

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

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

of the loan agreement, the Agency may cancel the approval of any funds

not yet delivered to the intermediary and the intermediary will 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 canceled 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 the Intermediary

Relending Program promissory note, regular loan payments will be based

on the amount of funds actually drawn by the intermediary.

Secs. 424.339--4274.342 [Reserved]

Sec. 4274.343 Application.

(a) The application will consist of:

(1) An application form provided by the Agency.

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

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 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

IRP. This should include a statement of the sources of non-Agency funds

for administration of 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, or include well developed targeting criteria for ultimate

recipients consistent with the intermediary's mission and strategy for

IRP, along with supporting statistical or narrative evidence that such

prospective recipients exist in sufficient numbers to justify Agency

funding of the loan request;

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

assess the ultimate recipients;

(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 or philanthropic funds for the

operation of similar programs to IRP;

(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;

(viii) Provide a set of goals, strategies, and anticipated outcomes

for the intermediary's program. Outcomes should be expressed in

quantitative or observable terms such as jobs created for low income

area residents or self empowerment opportunities funded, and should

relate to the purpose of IRP (see Sec. 4274.301(b)); and

(ix) Provide specific information as to whether and how the

intermediary will ensure that technical assistance is made available to

ultimate recipients and potential ultimate recipients. Describe the

qualifications of the technical assistance providers, the nature of

technical assistance that will be available, and expected and committed

sources of funding for technical assistance. If other than the

intermediary itself, describe the organizations providing such

assistance and the arrangements between such organizations and the

intermediary.

(3) Environmental information on a form provided by the Agency 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 title;

(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 projected balance

sheets for at least 3 additional 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 of the intermediary to the Agency audit

requirements;

(7) An agreement on a form provided by the Agency assuring

compliance with

Title VI of the Civil Rights Act of 1964;

(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

[[Page 6061]]

from private sources or other Federal, State, or local programs;

(10) Latest audit report, if available;

(11) A form provided by the Agency in which the applicant certifies

its understanding of the Federal collection policies for consumer or

commercial debts;

(12) A Department of Agriculture form containing a certification

regarding debarment, suspension, and other responsibility matters for

primary covered transactions; and

(13) A statement on a form provided by the Agency regarding

lobbying, as required by 7 CFR part 3018.

(b) Applications from intermediaries that already have an active

IRP loan may be streamlined as follows:

(1) The requirements of 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; and

(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. 4274.344 Filing and processing applications for loans.

(a) Intermediaries' contact. Intermediaries desiring assistance

under 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, Rural Business-Cooperative

Service, USDA, Specialty Lenders Division, STOP 1521, 1400 Independence

Avenue SW, Washington, DC 20250-1521.

(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.

(c) Loan priorities. Priority consideration will be given to

proposed intermediaries. 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 are to 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--5

points;

(B) At least 25% but less than 50% of the total project cost--10

points; or

(C) 50% or more of the total project cost--15 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' projects. The amount of non-Agency derived

intermediary funds will average:

(A) At least 10% but less than 25% of the total project costs--5

points;

(B) At least 25% but less than 50% of total project costs--10

points; or

(C) 50% or more of total project costs--15 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 the consumer price index. 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; or

(C) Below 125%--15 points.

(ii) The following percentage of the loans the intermediary 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; or

(C) 100%--15 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; or

(C) 150% or more--15 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; or

(C) 30% of the workforce or more--15 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; or

(C) 30% or more--15 points.

(vi) The population of the service area according to the most

recent decenial census was lower than that recorded by the previous

decenial census by the following percentage:

(A) At least 10 percent but less than 20 percent--5 points;

(B) At least 20 percent but less than 30 percent--10 points; or

(C) 30 percent or more--15 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; or

(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:

[[Page 6062]]

(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; or

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

(5) Community representation. The service area is not more than 14

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. Points will be assigned as follows:

(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; or

(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 the following items

not adequately covered by the other priority criteria set out in this

section. The items that may be considered are the amount of funds

requested in relation to the amount of need; a particularly successful

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

a service area with severe economic problems, such as communities that

have remained persistently poor over the last 60 years or have

experienced long-term population decline or job deterioration; a

service area with emergency conditions caused by a natural disaster or

loss of a major industry; a work plan that is in accord with a

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

an Empowerment Zone/Enterprise Community designation; or excellent

utilization of a previous IRP loan.

Secs. 4274.345--4274.349 [Reserved]

Sec. 4274.350 Letter of conditions.

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

intermediary a letter of conditions listing all requirements for the

loan. Immediately after reviewing the conditions and requirements in

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

return the form provided by the Agency indicating the intermediary's

intent to meet the conditions. If certain conditions cannot be met, the

intermediary 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 prior to acceptance.

Secs. 4274.351--4274.354 [Reserved]

Sec. 4274.355 Loan approval and obligating funds.

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

the obligation of funds document is mailed to the intermediary. The

approving official may request an obligation of funds when available

and according to the following:

(a) The obligation of funds document 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 the obligation of funds document.

(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 purposes for

which Agency IRP loan funds will be used remain substantially

unchanged.

Sec. 4274.356 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.

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

(3) There has been no material change in the intermediary nor its

financial condition since the issuance of the letter of conditions. If

there have been changes, they must be explained. The changes may be

waived, at the sole discretion of the Agency.

(4) That no claim or liens of laborers, materialmen, contractors,

subcontractors, suppliers of machinery and equipment, or other parties

are pending 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.

(b) 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.

Secs. 4274.357--4274.360 [Reserved]

Sec. 4274.361 Requests to make loans to ultimate recipients.

(a) An intermediary may use revolved funds to make loans to

ultimate recipients without obtaining prior Agency concurrence. 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, Agency

concurrence is required.

(b) A request for Agency concurrence in approval of a proposed loan

to an ultimate recipient must include:

(1) 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; and

(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 except the interest and

influence of a cooperative member when the intermediary is a

cooperative;

(2) 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 title, a completed and executed

request for environmental information on a form provided by the Agency;

(3) All comments obtained in accordance with Sec. 4274.337(a),

regarding intergovernmental consultation;

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

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

to determine the:

(i) Name and address of the ultimate recipient;

(ii) Loan purposes;

(iii) Interest rate and term;

(iv) Location, nature, and scope of the project being financed;

(v) Other funding included in the project; and

(vi) Nature and lien priority of the collateral.

[[Page 6063]]

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

cases.

Secs. 4274.362--4274.372 [Reserved]

Sec. 4274.373 Appeals.

Any appealable adverse decision made by the Agency which affects

the intermediary may be appealed in accordance with USDA appeal

regulations found at 7 CFR part 11.

Secs. 4274.374--4274.380 [Reserved]

Sec. 4274.381 Exception authority.

The Administrator may, in individual cases, grant an exception to

any requirement or provision of this subpart which is not inconsistent

with any applicable law, provided the Administrator determines that

application of the requirement or provision would adversely affect

USDA's interest.

Secs. 4274.382--4274.399 [Reserved]

Sec. 4274.400 OMB control number.

The reporting and recordkeeping requirements contained in this

regulation have been approved by the Office of Management and Budget

under the provisions of 44 U.S.C. chapter 35 and have been assigned OMB

control number 0570-0021 in accordance with the Paperwork Reduction Act

of 1995 (44 U.S.C. 3507).

Dated: January 9, 1998.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 98-3044 Filed 2-5-98; 8:45 am]

BILLING CODE 3410-XY-U