7 CFR Part 4290 — Rural Business Investment Company (“Rbic”) Program

PART 4290—RURAL BUSINESS INVESTMENT COMPANY (“RBIC”) PROGRAM Authority: 7 U.S.C. 1989 and 2009cc et seq. Source: 69 FR 32204, June 8, 2004, unless otherwise noted. Editorial Note: Nomenclature changes to part 4290 appear at 85 FR 16522, Mar. 24, 2020. Subpart A—Introduction to Part 4290 § 4290.10 Description of the Rural Business Investment Company Program. The Rural Business Investment Company (“RBIC”) Program is a Developmental Capital program for the purpose of promoting economic development and the creation of wealth and job opportunities in Rural Areas and among individuals living in such Areas. To this end, the Agency will select and license RBIC Applicants that will agree to address the unmet Equity Capital needs of Smaller Enterprises primarily located in Rural Areas. § 4290.15 Leveraged and Non-leveraged Rural Business Investment Companies. The regulations in this part apply to rural business investment companies (RBICs) that seek leverage and to RBICs that do not seek leverage. The provisions of subparts A through N of this part apply to Leveraged RBICs and, except as indicated or as otherwise modified by subpart O of this part, to Non-leveraged RBICs. The provisions in subpart O of this part apply to Non-leveraged RBICs and, in addition, modify certain provisions in subparts A through N of this part as they apply to Non-leveraged RBICs. [76 FR 80221, Dec. 23, 2011] § 4290.20 Legal basis and applicability of this part 4290. The regulations in this part implement Subtitle H of the Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 2009cc et seq. § 4290.30 Amendments to Act and regulations. A RBIC is subject to all existing and future provisions of the Act and part 4290 of title 7 of the Code of Federal Regulations. § 4290.40 How to read this part 4290. (a) Center Headings. (b) Capitalizing defined terms. (c) “You.” (d) Forms. § 4290.45 Responsibility for implementing this part 4290. The Agency has delegated to the U.S. Small Business Administration (SBA), pursuant to an agreement under the Economy Act (31 U.S.C. 1535), the authority to implement the RBIC program, including implementing and enforcing the regulations in this part 4290. Therefore, unless specifically stated otherwise, SBA will exercise on behalf of the Agency all responsibilities and authorities assigned to the Agency in this part 4290. Subpart B—Definition of Terms Used in Part 4290 § 4290.50 Definition of terms. Act et seq. Administrator Affiliate Affiliates Agency Applicant Articles Assistance Assisted Associate (1)(i) An officer, director, employee or agent of a Corporate RBIC; (ii) A Control Person, employee or agent of a Partnership RBIC; (iii) A managing member of an LLC RBIC; (iv) An Investment Adviser/Manager of any RBIC, including any Person who contracts with a Control Person of a RBIC to be the Investment Adviser/Manager of such RBIC; or (v) Any Person regularly serving a RBIC on retainer in the capacity of attorney at law. (2) Any Person who owns or controls, or who has entered into an agreement to own or control, directly or indirectly, at least 10 percent of any class of stock of a Corporate RBIC or 10 percent of the membership interests of an LLC RBIC, or a limited partner's interest of at least 10 percent of the partnership capital of a Partnership RBIC. However, neither a limited partner in a Partnership RBIC nor a non-managing member in an LLC RBIC is considered an Associate if such Person is an Entity Institutional Investor whose investment in the Partnership, including commitments, represents no more than 33 percent of the capital of the RBIC and no more than five percent of such Person's net worth. (3) Any officer, director, partner (other than a limited partner), manager, agent, or employee of any Associate described in paragraph (1) or (2) of this definition. (4) Any Person that directly or indirectly Controls, or is Controlled by, or is under Common Control with, a RBIC. (5) Any Person that directly or indirectly Controls, or is Controlled by, or is under Common Control with, any Person described in paragraphs (1) and (2) of this definition. (6) Any Close Relative of any Person described in paragraphs (1), (2), (4), and (5) of this definition. (7) Any Secondary Relative of any Person described in paragraphs (1), (2), (4), and (5) of this definition. (8) Any concern in which— (i) Any person described in paragraphs (1) through (6) of this definition is an officer; general partner, or managing member; or (ii) Any such Person(s) singly or collectively Control or own, directly or indirectly, an equity interest of at least 10 percent (excluding interests that such Person(s) own indirectly through ownership interests in the RBIC). (9) Any concern in which any Person(s) described in paragraph (7) of this definition singly or collectively own (including beneficial ownership) a majority equity interest, or otherwise have Control. As used in this paragraph (9), “collectively” means together with any Person(s) described in paragraphs (1) though (7) of this definition. (10) For the purposes of this definition, any Associate relationship described in paragraphs (1) through (7) of this definition that exists at any time within six months before or after the date that a RBIC provides Financing, will be considered to exist on the date of the Financing. Capital Impairment Central Registration Agent CRA Close Relative (1) A current or former spouse; (2) A father, mother, guardian, brother, sister, son, daughter; or (3) A father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, or daughter-in-law. Commitment Common Control Community Development Finance Conflict of interest Control Control Person (1) A general partner of a Partnership RBIC; (2) Any Person serving as a general partner (in the case of a partnership), an officer or director (in the case of a corporation), or a manager (in the case of a limited liability company) of any entity that controls a RBIC, either directly or through an intervening entity; (3) Any Person that— (i) Controls or owns, directly or through an intervening entity, at least 10 percent of a Partnership RBIC, a LLC RBIC, or any entity described in paragraphs (1) or (2) of this definition; and (ii) Participates in the investment decisions of a general partner of such Partnership RBIC or of a managing member of such LLC RBIC; (4) Any Person that controls or owns, directly or through an intervening entity, at least 50 percent of a RBIC or any entity described in paragraphs (1) or (2) of this definition. Corporate RBIC Debenture Debt Securities Developmental Capital Distribution Enterprise (1) A public, private, or cooperative for-profit or non-profit organization; (2) A for-profit or nonprofit business controlled by an Indian tribe on a Federal or State reservation or other federally recognized Indian tribal group; or (3) Any other Person. Entity General Partner Entity Managing Member Equity Capital Equity Securities Farm Credit System Institution Financing Financed (1) Loans, with or without a right to acquire Equity Securities; (2) Debt Securities; (3) Equity Securities; (3) Subordinated Debt With Equity Features; (4) Guarantees; or (5) Purchases of securities of an Enterprise through or from an underwriter as permitted by § 4290.825. Guaranty Agreement Includible Non-Cash Gains Institutional Investor (1) Entity Institutional Investors. See also (i) A State or National bank, Farm Credit System Institution, trust company, savings bank, or savings and loan association, including an investment pool created entirely by such bank or savings association, the deposits of which are insured under the Federal Deposit Insurance Act. (ii) An insurance company. (iii) A 1940 Act Investment Company or Business Development Company (each as defined in the Investment Company Act of 1940, as amended (15 U.S.C. 80a-1 et seq. (iv) A holding company of any entity described in paragraph (l)(i), (ii) or (iii) of this definition. (v) An employee benefit or pension plan established for the benefit of employees of the Federal government, any State or political subdivision of a State, or any agency or instrumentality of such government unit. (vi) An employee benefit or pension plan (as defined in the Employee Retirement Income Security Act of 1974, as amended (Public Law 93-406, 88 Stat. 829), excluding plans established under § 401(k) of the Internal Revenue Code of 1986 (26 U.S.C. 401(k)), as amended). (vii) A trust, foundation or endowment exempt from Federal income taxation under the Internal Revenue Code of 1986, 26 U.S.C. 1, as amended. (viii) A corporation, partnership or other entity with a net worth (exclusive of unfunded commitments from investors) of more than $10 million. (ix) A State, a political subdivision of a State, or an agency or instrumentality of a State or its political subdivision. (x) An entity whose primary purpose is to manage and invest non-Federal funds on behalf of at least three Institutional Investors described in paragraphs (l)(i) through (ix) of this definition, each of whom must have at least a 10 percent ownership interest in the entity. (xi) Any other entity that the Agency determines to be an Institutional Investor. (2) Individual Institutional Investor. (A) An individual who is an Accredited Investor (as defined in the Securities Act of 1933, as amended (15 U.S.C. 77a-77aa)) and whose commitment to the RBIC is backed by a letter of credit from a State or National bank acceptable to the Agency. (B) An individual whose personal net worth is at least $2 million and at least ten times the amount of its commitment to the RBIC. The individual's personal net worth must not include the value of any equity in its most valuable residence. (C) An individual whose personal net worth, not including the value of any equity in its most valuable residence, is at least $10 million. (ii) Any individual who is not a permanent resident of the United States but who otherwise satisfies paragraph (2)(i) of this definition provided such individual has irrevocably appointed an agent within the United States for the service of process. Investment Adviser/Manager Lending Institution Leverage Leverageable Capital Leveraged RBIC LLC RBIC Loan Loans and Investments Management Expenses NAICS Manual 1940 Act Company 1980 Act Company Non-leveraged RBIC Operational Assistance Original Issue Price Participation Agreement Partnership RBIC Person Pool Portfolio Portfolio Concern Private Capital Publicly Traded and Marketable et seq. Qualified Non-private Funds (1) Funds directly or indirectly invested in any RBIC or Applicant on or after May 13, 2002 by any Federal agency other than USDA under a provision of law explicitly mandating the inclusion of those funds in the definition of “Private Capital;” and (2) The aggregate amount of funds invested in any Applicant or RBIC by one or more States, or any political subdivisions, agencies or instrumentalities thereof, including any guarantee extended by such entities. Regulatory Capital Relevant Capital Finance Retained Earnings Available for Distribution Rural area (1) An area that is attached to the urbanized area of a city or town with more than 50,000 inhabitants by a contiguous area of urbanized census blocks that is not more than 2 census blocks wide. Applicants from such an area should work with their Rural Development State Office to request a determination of whether their project is located in a rural area under this provision. (2) For the purposes of this definition, cities and towns are incorporated population centers with definite boundaries, local self government, and legal powers set forth in a charter granted by the State. (3) For the Commonwealth of Puerto Rico, the island is considered rural and eligible for Business Programs assistance, except for the San Juan Census Designated Place (CDP) and any other CDP with greater than 50,000 inhabitants. CDPs with greater than 50,000 inhabitants, other than the San Juan CDP, may be determined to be eligible if they are “not urban in character.” (4) For the State of Hawaii, all areas within the State are considered rural and eligible for Business Programs assistance, except for the Honolulu CDP within the County of Honolulu. (5) For the purpose of defining a rural area in the Republic of Palau, the Federated States of Micronesia, and the Republic of the Marshall Islands, the USDA shall determine what constitutes rural and rural area based on available population data. (6) The determination that an area is “rural in character” will be made by the Under Agency of Rural Development. The process to request a determination under this provision is outlined in paragraph (6)(ii) of this definition. (i) The determination that an area is “rural in character” under this definition will apply to areas that are within: (A) An urbanized area that has two points on its boundary that are at least 40 miles apart, which is not contiguous or adjacent to a city or town that has a population of greater than 150,000 inhabitants or the urbanized area of such a city or town; or (B) An urbanized area contiguous and adjacent to a city or town of greater than 50,000 inhabitants that is within one-quarter mile of a rural area. (ii) Units of local government may petition the Under Agency of Rural Development for a “rural in character” designation by submitting a petition to both the appropriate Rural Development State Director and the Rural Business-Cooperative Service Administrator of USDA on behalf of the Under Agency. The petition shall document how the area meets the requirements of paragraph (6)(i)(A) or (B) of this definition and discuss why the petitioner believes the area is “rural in character,” including, but not limited to, the area's population density, demographics, and topography and how the local economy is tied to a rural economic base. Upon receiving a petition, the Under Agency will consult with the applicable Governor or leader in a similar position and request comments to be submitted within 5 business days, unless such comments were submitted with the petition. The Under Agency will release to the public a notice of a petition filed by a unit of local government not later than 30 days after receipt of the petition by way of publication in a local newspaper and posting on the Agency's Web site, and the Under Agency will make a determination not less than 15 days, but no more than 60 days, after the release of the notice. Upon a negative determination, the Under Agency will provide to the petitioner an opportunity to appeal a determination to the Under Agency, and the petitioner will have 10 business days to appeal the determination and provide further information for consideration. Rural Business Concern Rural Business Concern Investment Rural Business Investment Company RBIC SBA Secondary Relative (1) A grandparent, grandchild, or any other ancestor or lineal descendent who is not a Close Relative; (2) An uncle, aunt, nephew, niece, or first cousin; or (3) A spouse of any person described in paragraph (1) or (2) of this definition. Small Business Investment Company SBIC Smaller Enterprise (1) Meets the size standard established by SBA in 13 CFR 121.201, corresponding to each type of economic activity or industry described in the NAICS Manual for the industry in which it is primarily engaged on the date on which the Financing is made (the term “primarily engaged” for purposes of this definition is defined in 13 CFR 121.107); or (2) Has— (i) A net financial worth of not more than $6,000,000 as of the date on which the Financing is made; and (ii) An average net income for the two year period preceding the date on which the Financing is made of not more than $2,000,000, after Federal income taxes (excluding any carryover losses), except that, for purposes of this clause, if the Rural Business Concern is not required by law to pay Federal income taxes at the enterprise level, but is required to pass income through to the shareholders, partners, beneficiaries, or other equitable owners of the Rural Business Concern, its net income is determined by allowing a deduction in an amount equal to the total of— (A) If it is not required by law to pay State (and local, if any) income taxes at the enterprise level, the net income (determined without regard to this paragraph (2)(ii)(A)) multiplied by the marginal State income tax rate (or by the combined State and local income tax rates, as applicable) that would have applied if the Rural Business Concern were a corporation; and (B) The net income (so determined) less any deduction for State (and local) income taxes calculated under paragraph (2)(ii)(A) of this definition multiplied by the marginal Federal income tax rate that would have applied if the Rural Business Concern were a corporation. Smaller Enterprise Investment State Subordinated Debt Subordinated Debt With Equity Features Trust Trust Certificate Rate Trust Certificates (TCs) Trustee Undistributed Net Realized Earnings Unrealized Appreciation Unrealized Depreciation Unrealized Gain (Loss) on Securities Held Urban Area Federal Register Urban Area Investment USDA [69 FR 32204, June 8, 2004, as amended at 76 FR 80221, Dec. 23, 2011; 79 FR 76018, Dec. 19, 2014; 80 FR 9914, Feb. 24, 2015; 85 FR 16522, Mar. 24, 2020; 87 FR 38645, June 29, 2022] Subpart C—Qualifications for the RBIC Program Organizing a RBIC § 4290.100 Business form. (a) Newly-formed for-profit. (b) Purpose. (c) Articles. (1) Must specify in general terms: (i) The purposes for which the RBIC is formed; (ii) The name of the RBIC; (iii) The Rural Area or Areas in which it will operate; (iv) The place where the RBIC's headquarters will be located; and (v) The amount and classes of the RBIC's ownership interests. (2) May contain any other provisions consistent with the Act that the RBIC may determine is appropriate to adopt to regulate its business and the conduct of its affairs. (3) Are subject to the Agency's approval. (d) Duration Partnership RBICs. (i) You must have a minimum duration of 10 years, or two years following the maturity of your last-maturing Leverage security, whichever is longer. After 10 years, if all Leverage has been repaid or redeemed and all amounts due the Agency, its agent, or Trustee have been paid, the Partnership RBIC may be terminated by a vote of your partners; (ii) None of your general partner(s) may be removed or replaced by your limited partners without prior written approval of the Agency; (iii) Any transferee of, or successor in interest to, your general partner shall have only the rights and liabilities of a limited partner prior to the Agency's written approval of such transfer or succession; and (iv) You must incorporate all the provisions in this paragraph (d) in your limited partnership agreement. (2) LLC RBICs. (3) Corporate RBICs. § 4290.110 Qualified management. An Applicant must show, to the satisfaction of the Agency, that its current or proposed management team is qualified and has the knowledge, experience, and capability in Community Development Finance or Relevant Capital Finance, necessary for investing in the types of Enterprises contemplated by the Act, regulations in this part, and its business plan. In determining whether an Applicant's current or proposed management team has sufficient qualifications, the Agency will consider information provided by the Applicant and third parties concerning the background, capability, education, training and reputation (and any other managerial aspect identified by the USDA in a Federal Register [76 FR 80222, Dec. 23, 2011] § 4290.120 Plan to invest in Rural Areas. An Applicant must agree that if licensed as a RBIC, it will make Developmental Capital investments in Enterprises that will create wealth and job opportunities in Rural Areas and among individuals living in those areas. § 4290.130 Identified Rural Areas. A RBIC must identify the specific Rural Area or Areas in which it intends to make Developmental Capital investments and provide Operational Assistance under the RBIC program. The scope of the identified areas must be consistent with Applicant's business plan, especially as the plan relates to the Applicant's ability to operate actively, soundly, and profitably in such areas. § 4290.140 Approval of initial Management Expenses. A RBIC must have its Management Expenses approved by the Agency at the time it is licensed. ( See § 4290.150 Management and ownership diversity requirement. (a) Diversity requirement. (b) Percentage ownership requirement. (c) Non-affiliation requirement. (1) Entities whose overall activities are regulated and periodically examined by State, Federal or other governmental authorities satisfactory to the Agency; (2) Entities listed on the New York Stock Exchange; (3) Entities that are publicly-traded and that meet both the minimum numerical listing standards and the corporate governance listing standards of the New York Stock Exchange; (4) Public or private employee pension funds; (5) Trusts, foundations, or endowments, but only if exempt from Federal income taxation; and (6) Other Institutional Investors satisfactory to the Agency. (d) Voting requirement. (e) Requirement to maintain diversity. (1) Notify the Agency within 10 days; and (2) Re-establish diversity within six months after loss of diversity. § 4290.160 Special rules for Partnership RBICs and LLC RBICs. (a) Entity General Partner or Entity Managing Member. (2) The Agency must approve any person who will serve as an officer, director, manager, or general partner of the Entity General Partner or Entity Managing Member and of an entity that Controls the Entity General Partner or Entity Managing Member. This provision must be stated in an Entity General Partner's or Entity Managing Member's articles of incorporation or charter and bylaws if a corporation, operating agreement if a limited liability company, or partnership agreement if a partnership. (3) An Entity General Partner or Entity Managing Member is subject to the same examination and reporting requirements as a RBIC under sections 384K and 384L of the Act. The restrictions and obligations imposed upon a RBIC by §§ 4290.1810, 4290.30, 4290.410 through 4290.450, 4290.470, 4290.500, 4290.510, 4290.585, 4290.600, 4290.680, 4290.690 through 4290.692, and 4290.1910 apply also to an Entity General Partner or Entity Managing Member of a RBIC. (4) The general partner(s) of your Entity General Partner(s) or Entity Managing Member(s) will be considered your general partner. (5) If your Entity General Partner or Entity Managing Member is a limited partnership, its limited partners may be considered your Control Person(s) if they meet the definition for Control Person in § 4290.50. (b) Liability of general partner of Partnership RBIC. (c) Special Leverage requirement for Partnership RBICs and LLC RBICs. § 4290.165 Obligations of Control Persons. All Control Persons are bound by the provisions of sections 384O and 384P of the Act and by the conflict-of-interest rules under § 4290.730. The term RBIC, as used in §§ 4290.30, 4290.460, and 4290.680, includes all of the RBIC's Control Persons. Capitalizing a RBIC § 4290.200 Adequate capital for RBICs. You must meet the requirements of §§ 4290.210 through 4290.230 in order to qualify as a RBIC. [76 FR 80222, Dec. 23, 2011] § 4290.210 Minimum capital requirements for RBICs. (a) General Rule. Federal Register (b) Exception. (i) Has satisfied all eligibility criteria for licensing as a RBIC as described in § 4290.390(a) of this part, except the capital requirement specified in paragraph (a)(1) of that section, as determined solely by the Agency; (ii) Has a viable business plan reasonably projecting profitable operations; and (iii) Has a reasonable timetable for achieving Regulatory Capital of at least $10,000,000. (2) A RBIC licensed under this exception is not eligible to receive Leverage until it has complied with paragraph (a) of this section. (c) Time frame. (d) Closing. [69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011; 85 FR 16522, Mar. 24, 2020] § 4290.230 Private Capital for RBICs. (a) General. (b) Contributed capital. (c) Exclusions from Private Capital. (1) Funds borrowed by an Applicant or a RBIC from any source. (2) Funds obtained through the issuance of Leverage. (3) Funds obtained directly or indirectly from the Federal government or any State (including by a political subdivision, agency or instrumentality of the Federal government or a State), except that the following categories of such funds are not excluded from Private Capital— (i) Funds obtained directly or indirectly from the business revenues (excluding any governmental appropriation) of any federally-chartered or government-sponsored enterprise established prior to May 13, 2002; (ii) Funds invested by an employee welfare benefit plan or pension plan; and (iii) Qualified Non-private Funds in an amount not to exceed 33 percent of the total Private Capital of any Applicant or RBIC, provided, however, (4) Any portion of an unfunded commitment from an Institutional Investor with a net worth of less than $10 million that exceeds 10 percent of such Institutional Investor's net worth. (5) An unfunded commitment from an investor if the Agency determines that the collectability of the commitment is questionable. (d) Non-cash capital contributions. (e) Contributions with borrowed funds. (1) Such Person's net worth is at least twice the amount borrowed; or (2) The Agency gives its prior written approval of the capital contribution. [69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020] § 4290.240 Limitations on non-cash capital contributions in Private Capital. Non-cash capital contributions to a RBIC or Applicant are included in Private Capital only if they are approved by the Agency and they fall into one of the following categories: (a) Direct obligations of, or obligations guaranteed as to principal and interest by, the United States having a term of no more than one year. (b) Services rendered or to be rendered to you, priced at no more than their fair market value. (c) Other non-cash assets approved by the Agency. Subpart D—Application and Approval Process for RBIC Licensing § 4290.300 When and how to apply for a RBIC License. (a) Notice of Funds Availability (“NOFA”). Federal Register (b) Application form. [69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011] § 4290.310 Contents of application. Each Applicant must submit a complete application, including the following: (a) Management team experience. (b) Amount of Regulatory Capital. (1) A showing of special circumstances and good cause for the exception: (2) Will satisfy all eligibility criteria for licensing as a RBIC as set forth in § 4290.390(a) of this part, except the capital requirement specified in paragraph (a)(1) of that section, as determined solely by the Agency; (3) Has a viable business plan reasonably projecting profitable operations; and (4) Has a reasonable timetable for achieving Regulatory Capital in an amount that satisfies the requirements of § 4290.210(a) of this part. (c) Comprehensive business plan. § 4290.320 Contents of comprehensive business plan. (a) Plan for Developmental Capital investing. (b) Working with Rural Area community-based organizations. (c) Market analysis. (d) Operational capacity and investment strategies. (e) Plan to raise Regulatory Capital. (f) Plan for providing Operational Assistance. (g) Projected amount of investment in Rural Areas. (h) Projected impact. (1) A description of the extent to which it will concentrate its Developmental Capital investments and Operational Assistance activities in identified Rural Areas; (2) An estimate of the economic development benefits to be created within identified Rural Areas over the next five years or more as a result of its activities; (3) A description of the criteria to be used to measure the benefits created as a result of its activities; (4) A discussion about the amount of such benefits created that it will consider to constitute successfully meeting the objectives of the RBIC program. (i) Affiliates and business relationships. § 4290.330 Guarantee fee. In cases of Leveraged Applications, the Applicant must pay to the Agency an issuance fee for each grant or debenture guarantee. The Agency may charge such fees as the Agency considers appropriate, so long as those fees are proportionally equal for each rural business investment company, with respect to any guarantee or grant issued under this subchapter. [85 FR 16523, Mar. 24, 2020] Subpart E—Evaluation and Selection of RBICs § 4290.340 Evaluation and selection—general. The Administrator of RBS and the Administrator on behalf of SBA, in their sole discretion, will evaluate and select an Applicant to participate in the RBIC program based on a review of the Applicant's application materials, interviews or site visits with the Applicant (if any), and background investigations conducted by the Agency and other Federal agencies. The Agency's evaluation and selection process is intended to— (a) Ensure that Applicants are evaluated on a competitive basis and in a fair and consistent manner; (b) Take into consideration the unique proposals presented by Applicants; (c) Ensure that each Applicant licensed as a RBIC can fulfill successfully the goals of its comprehensive business plan; and (d) Ensure that the Agency selects Applicants in such a way as to promote nationwide geographic distribution of Developmental Capital investments. [69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020] § 4290.350 Eligibility and completeness. The Agency will not consider any application that is not complete or that is submitted by an Applicant that does not meet the eligibility criteria described in subpart C of this part. The Agency at its sole discretion, may request from an Applicant additional information concerning eligibility criteria or easily completed portions of the application in order to facilitate consideration of its application. § 4290.360 Initial review of Applicant's management team's qualifications. The Agency will review the information submitted by the Applicant concerning the qualifications of the Applicant's management team to determine in its sole discretion whether the team meets the minimum requirements deemed by the Agency to be critical to successful capital investing. In making this determination, the Agency will consider, among other things, the general business reputation of the owners and managers of the Applicant. Only those Applicants considered to have a management team qualified for venture capital investing will be further considered for selection as a RBIC. § 4290.370 Evaluation criteria. Of those Applicants whose management team is considered qualified for venture capital investing and who have submitted an eligible and complete application, the Administrator of RBS and the Administrator on behalf of SBA, in their sole discretion, will evaluate and select an Applicant for participation in the RBIC program by considering the following criteria: (a) Whether the Applicant's management team has the knowledge, experience, and capability necessary to manage a sound, economically viable RBIC and to comply with the Act; (b) The quality of the Applicant's comprehensive business plan in terms of meeting the objectives of the RBIC program; (c) The likelihood that the Applicant will achieve the goals described in its comprehensive business plan; (d) The strength and likelihood for success of the Applicant's operations and investment strategies, including whether the Applicant has projected adequate profitability and financial soundness; (e) Whether the Applicant will be able to operate soundly and profitably over the long term; (f) Whether the Applicant will be able to operate actively in its identified Rural Areas in accordance with its business plan; (g) The need for Developmental Capital investments in the Rural Areas in which the Applicant intends to invest; (h) The extent to which the Applicant will concentrate its activities on serving Smaller Enterprises located in the Rural Area in which it intends to invest, including the ratio of resources that it proposes to invest in such Enterprises as compared to other Enterprises; (i) The Applicant's demonstrated understanding of the markets in the Rural Areas in which it intends to focus its activities; (j) The likelihood that and the time frame within which the Applicant will be able to raise the Regulatory Capital it proposes to raise for its investments; (k) The strength of the Applicant's proposal to provide Operational Assistance to Smaller Enterprises in which it plans to invest; (l) The extent to which the activities proposed by the Applicant will promote economic development and the creation of wealth and job opportunities in the Rural Areas in which it intends to invest and among individuals living in such Areas; and (m) The strength of the Applicant's application compared to applications submitted by other Applicants intending to invest in the same or proximate Rural Areas. [69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020] § 4290.380 Selection. From among the Applicants that have submitted eligible and complete applications, the Administrator of RBS and the Administrator on behalf of SBA, in their sole discretion, will select some, all, or none of such Applicants to participate in the RBIC program. Selection will entitle the Applicant to proceed with obtaining a license as a RBIC but only if the Applicant also meets the conditions set forth in § 4290.390. [69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020] § 4290.390 Licensing as a RBIC. (a) Eligibility criteria for licensing as a RBIC. (1) Raise the specific amount of Regulatory Capital that the Applicant had projected in its application that it would raise (see § 4290.210 for additional information). (2) Raise $500,000 in Leverageable Capital as required by § 4290.210; (3) Complete and submit to the Agency all legal and other documentation concerning the RBIC, including but not limited to its Articles and updated financial information concerning the RBIC in order to qualify for a Leverage commitment; and (4) Enter into a Participation Agreement with the Agency. (b) Licensing as a RBIC. (c) Failure to meet eligibility criteria for licensing. (d) Effect of a RBIC license. (1) Approval to operate as a RBIC under the Act; (2) A commitment of Leverage; and (3) An Operational Assistance grant award. [69 FR 32204, June 8, 2004, as amended at 77 FR 4885, Feb. 1, 2012; 85 FR 16523, Mar. 24, 2020] Subpart F—Changes in Ownership, Structure, or Control Changes in Control or Ownership of RBIC § 4290.400 Changes in ownership of 10 percent or more of RBIC but no change of Control. You must obtain the Agency's prior written approval for any proposed transfer or issuance of ownership interests that results in the ownership (beneficial or of record) by any Person, or group of Persons acting in concert, of at least 10 percent of any class of your stock, partnership capital or membership interests. § 4290.410 Changes in Control of RBIC (through change in ownership or otherwise). You must obtain the Agency's prior written approval for any proposed transaction or event that results in Control by any Person(s) not previously approved by the Agency. § 4290.420 Prohibition on exercise of ownership or Control rights in RBIC before approval. Without the Agency's prior written approval, no change of ownership or Control may take effect and no officer, director, employee or other Person acting on your behalf shall: (a) Register on your books any transfer of ownership interest to the proposed new owner(s); (b) Permit the proposed new owner(s) to exercise voting rights with respect to such ownership interest (including directly or indirectly procuring or voting any proxy, consent or authorization as to such voting rights at any meeting of shareholders, partners or members); (c) Permit the proposed new owner(s) to participate in any manner in the conduct of your affairs (including exercising control over your books, records, funds or other assets; participating directly or indirectly in any disposition thereof; or serving as an officer, director, partner, manager, employee or agent); or (d) Allow ownership or Control to pass to another Person. § 4290.430 Notification of transactions that may change ownership or Control. You must promptly notify the Agency as soon as you have knowledge of transactions or events that may result in a transfer of Control or ownership of at least 10 percent of your Regulatory Capital. If the effect of a particular transaction or event is unclear, you must report all pertinent facts to the Agency. § 4290.440 Standards governing prior approval for a proposed transfer of Control. The Agency's approval of a proposed transfer of Control is contingent upon full disclosure of the real parties in interest, the source of funds for the new owners' interest, and other data requested by the Agency. As a condition of approving a proposed transfer of control, the Agency may: (a) Require an increase in your Regulatory Capital; (b) Require the new owners or the transferee's Control Person(s) to assume, in writing, personal liability for your Leverage, effective only in the event of their direct or indirect participation in any transfer of Control not approved by the Agency; or (c) Require compliance with any other conditions set by the Agency, including compliance with the requirements for minimum capital and management-ownership diversity in effect at such time for new RBICs. § 4290.450 Notification of pledge of RBIC's shares. (a) You must notify the Agency in writing, within 30 calendar days, of the terms of any transaction in which: (1) Any Person, or group of Persons acting in concert, pledges shares of your stock (or equivalent ownership interests) as collateral for indebtedness; and (2) The shares pledged constitute at least 10 percent of your Regulatory Capital. (b) If the transaction creates a change of ownership or Control, you must comply with § 4290.400 or § 4290.410, as appropriate. Restrictions on Common Control or Ownership of Two or More RBICs § 4290.460 Restrictions on Common Control or ownership of two (or more) RBICs. Without the Agency's prior written approval, you must not have an officer, director, manager, Control Person, or owner (with a direct or indirect ownership interest of at least 10 percent) who is also: (a) An officer, director, manager, Control Person, or owner (with a direct or indirect ownership interest of at least 10 percent) of another RBIC; or (b) An officer or director of any Person that directly or indirectly controls, or is controlled by, or is under Common Control with, another RBIC. Change in Structure of RBIC § 4290.470 Prior approval of merger, consolidation, or reorganization of RBIC. You may not merge, consolidate, change form of organization (corporation, limited liability company, or limited partnership) or reorganize without the Agency's prior written approval. Any such merger, consolidation, or change of form is subject to § 4290.440. § 4290.480 Prior approval of changes to RBIC's business plan. Without the Agency's prior written approval, no change in your business plan, upon which you were selected and licensed as a RBIC, may take effect. Subpart G—Managing the Operations of a RBIC General Requirements § 4290.500 Lawful operations under the Act. You must engage only in the activities permitted by the Act and in no other activities. § 4290.502 Representations to the public. You may not represent or imply to anyone that the Agency, the U.S. Government, or any of its agencies or officers has approved any ownership interests you have issued, obligations you have incurred, or Financings you have made. You must include a statement to this effect in any solicitation provided to investors. Example: You may not represent or imply that “USDA stands behind the RBIC” or that “Your capital is safe because the Agency's experts review proposed investments to make sure they are safe for the RBIC.” § 4290.503 RBIC's adoption of an approved valuation policy. (a) Valuation guidelines. http://www.sba.gov/sites/default/files/files/inv_valuation.pdf. (b) The Agency's approval of valuation policy. (1) Adopt without change the model valuation policy set forth in section III of the Valuation Guidelines for SBICs; or (2) Obtain the Agency's prior written approval of an alternative valuation policy. (c) Responsibility for valuations. (d) Frequency of valuations. (2) On a case-by-case basis, the Agency may require you to perform valuations more frequently. (3) You must report material adverse changes in valuations at least quarterly, within 30 days following the close of the quarter. (e) Review of valuations by independent public accountant. (2) The independent public accountant's report on your audited annual financial statements (SBA Form 468 or other USDA-approved form(s)) must include a statement that your valuations were prepared in accordance with your approved valuation policy. [69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011] § 4290.504 Equipment of USDA or SBA officials. (a) Computer capability. (b) Facsimile capability. (c) Accessible office. [69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011] § 4290.506 Safeguarding the RBIC's assets/Internal controls. You must adopt a plan to safeguard your assets and monitor the reliability of your financial data, personnel, Portfolio, funds and equipment. You must provide your bank and custodian with a certified copy of your resolution or other formal document describing your control procedures. § 4290.507 Violations based on false filings and nonperformance of agreements with the Agency or SBA. The following shall constitute a violation of this part: (a) Nonperformance. (b) False statement. (1) Any false statement knowingly made; or (2) Any misrepresentation of a material fact; or (3) Any failure to state a material fact. (4) A material fact is any fact that is necessary to make a statement not misleading in light of the circumstances under which the statement was made. § 4290.508 Compliance with non-discrimination laws and regulations applicable to federally-assisted programs. In conducting your operations and providing Assistance to your Portfolio Concerns, you must comply with Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d-1 et seq. et seq. § 4290.509 Employment of USDA or SBA officials. (a) Without the Agency's prior written approval, for a period of two years after the date of your most recent issuance of Leverage or after the receipt of any assistance as defined in paragraph (b) of this section, whichever is later, you are not permitted to employ, offer employment to, or retain for professional services, any person who: (1) Served as an officer, attorney, agent, or employee of SBA or USDA within one year before such date; and (2) In that capacity, occupied a position or engaged in activities which, in SBA's or the Agency's determination, involved discretion with respect to the issuing of Leverage or the granting of such assistance. (b) For purposes of this section, “assistance” means financial, contractual, grant, managerial, or other aid, including licensing, certifications, and other eligibility determinations made by USDA or SBA, and any express decision to compromise or defer possible litigation or other adverse action. [69 FR 32204, June 8, 2004, as amended at 76 FR 80222, Dec. 23, 2011] Management and Compensation § 4290.510 Approval of RBIC's Investment Adviser/Manager. (a) General. (b) Management contract. (1) Specify the services the Investment Adviser/Manager will render to you and to your Portfolio Concerns; and (2) Indicate the basis for computing Management Expenses. (c) Material change to approved management contract. § 4290.520 Management Expenses of a RBIC. The Agency must approve your initial Management Expenses and any increases in your Management Expenses. (a) Definition of Management Expenses. (1) Salaries; (2) Office expenses; (3) Travel; (4) Business development, including finders' fees; (5) Office and equipment rental; (6) Bookkeeping; and (7) Expenses related to developing, investigating and monitoring investments. (b) Management Expenses do not include services provided by specialized outside consultants, outside lawyers and independent public accountants, if they perform services not generally performed by a capital company. Cash Management by a RBIC § 4290.530 Restrictions on investments of idle funds by RBICs. (a) Permitted investments of idle funds. (1) Direct obligations of, or obligations guaranteed as to principal and interest by, the United States, which mature within 15 months from the date of the investment; or (2) Repurchase agreements with federally insured institutions, with a maturity of seven days or less. The securities underlying the repurchase agreements must be direct obligations of, or obligations guaranteed as to principal and interest by, the United States. The securities must be maintained in a custodial account at a federally insured institution; or (3) Certificates of deposit with a maturity of one year or less, issued by a federally insured institution; or (4) A deposit account in a federally insured institution, subject to a withdrawal restriction of one year or less; or (5) A checking account in a federally insured institution; or (6) A reasonable petty cash fund. (b) Deposit of funds in excess of the insured amount General rule. (2) Exception. (c) Deposit of funds in Associate institution. Secured Borrowing by RBICs § 4290.550 Prior approval of secured third-party debt of RBICs. (a) Definition. (b) General rule. (c) Conditions for approval. (d) Thirty-day approval. (1) You are in regulatory compliance; (2) The security interest in your assets is limited to either those assets being acquired with the borrowed funds or an asset coverage ratio of no more than 2:1; and (3) Your request is for approval of a secured line of credit that would not cause your total outstanding borrowings (not including Leverage) to exceed 50 percent of your Leverageable Capital. [69 FR 32204, June 8, 2004, as amended at 76 FR 80223, Dec. 23, 2011] Voluntary Decrease in Regulatory Capital § 4290.585 Voluntary decrease in RBIC's Regulatory Capital. You must obtain the Agency's prior written approval to reduce your Regulatory Capital by more than two percent in any fiscal year. At all times, you must retain sufficient Regulatory Capital to meet the minimum capital requirements in the Act and § 4290.210, and sufficient Leverageable Capital to avoid having excess Leverage in violation of section 384E(d) of the Act. Subpart H—Recordkeeping, Reporting, and Examination Requirements for RBICs Recordkeeping Requirements for RBICs § 4290.600 General requirement for RBIC to maintain and preserve records. (a) Maintaining your accounting records. You must establish and maintain your accounting records using SBA's standard chart of accounts for SBICs, unless the Agency approves otherwise. You may obtain this chart of accounts from SBA or at http://www.sba.gov/sites/default/files/files/inv_charts_ of_accounts.pdf. (b) Location of records. (1) All your accounting and other financial records; (2) All minutes of meetings of directors, stockholders, executive committees, partners, members, or other officials; and (3) All documents and supporting materials related to your business transactions, except for any items held by a custodian under a written agreement between you and a Portfolio Concern or lender, or any securities held in a safe deposit box, or by a licensed securities broker in an amount not exceeding the broker's per-account insurance coverage. (c) Preservation of records. (1) You must preserve for at least 15 years or, in the case of a Partnership RBIC or LLC RBIC, at least two years beyond the date of liquidation: (i) All your accounting ledgers and journals, and any other records of assets, asset valuations, liabilities, equity, income, and expenses; (ii) Your Articles, bylaws, minute books, and RBIC application; and (iii) All documents evidencing ownership of the RBIC including ownership ledgers and ownership transfer registers. (2) You must preserve for at least six years all supporting documentation (such as vouchers, bank statements, or canceled checks) for the records listed in paragraph (b)(l) of this section. (3) After final disposition of any item in your Portfolio, you must preserve for at least six years: (i) Financing applications and Financing instruments; (ii) All loan, participation, and escrow agreements; (iii) All certifications listed in § 4290.610 of this part; (iv) Any capital stock certificates and warrants of the Portfolio Concern that you did not surrender or exercise; and (v) All other documents and supporting material relating to the Portfolio Concern, including correspondence. (4) You may substitute a microfilm or computer-scanned or generated copy for the original of any record covered by this paragraph (c). (d) Additional requirement. [69 FR 32204, June 8, 2004, as amended at 76 FR 80223, Dec. 23, 2011; 79 FR 76018, Dec. 19, 2014] § 4290.610 Required certifications for Loans and Investments. For each of your Loans and Investments, you must have the documents listed in this section. You must keep these documents in your files and make them available to the Agency upon request. (a) For each Financing made to a Rural Business Concern or Smaller Enterprise, a certification by the Portfolio Concern stating the basis for its qualification as a Rural Business Concern or Smaller Enterprise. (b) A certification by the Portfolio Concern that it will not discriminate in violation of Title VI of the Civil Rights Act of 1964, the Age Discrimination Act of 1975, and Title V of the Equal Credit Opportunity Act. (c) A certification by the Portfolio Concern of the intended use of the proceeds. For securities purchased from an underwriter in a public offering, you may substitute a prospectus indicating the intended use of proceeds. [69 FR 32204, June 8, 2004, as amended at 76 FR 80223, Dec. 23, 2011; 85 FR 16523, Mar. 24, 2020] § 4290.620 Requirements to obtain information from Portfolio Concerns. All the information required by this section is subject to the requirements of § 4290.600 and must be in English. (a) Information for initial Financing decision. (b) Updated financial and economic development information. (i) Evaluate the financial condition of the Portfolio Concern for the purpose of valuing your investment; (ii) Determine the continued eligibility of the Portfolio Concern; (iii) Verify the use of Financing proceeds; (iv) Evaluate the economic development impact of the Financing; and (v) In the case of any Portfolio Concern that is not a Rural Business Concern, the number and percentage of its employees residing in Rural Areas. (2) The president, chief executive officer, treasurer, chief financial officer, general partner, or proprietor of the Portfolio Concern must certify the information submitted to you. (3) For financial and valuation purposes, you may accept a complete copy of the Federal income tax return filed by the Portfolio Concern (or its proprietor) in lieu of financial statements, but only if appropriate for the size and type of the Enterprise involved. (4) The requirements in this paragraph (b) do not apply when you acquire securities from an underwriter in a public offering ( see (c) Information required for examination purposes. Reporting Requirements for RBICs § 4290.630 Requirement for RBICs to file financial statements and supplementary information with the Agency. (a) Annual filing. (1) Audit of annual filing form. (2) Insurance requirement for public accountant. (b) Interim filings. (c) Standards for preparation. http://www.sba.gov/content/accounting-standards-sbics. (d) Where to file. Federal Register, (e) Reporting of economic development impact information for each Financing. (f) Reporting of economic development information for certain Financings. (1) The economic development benefits achieved as a result of the Financing; (2) How and to what extent such benefits fulfilled the goals of your comprehensive business plan and Participation Agreement; and (3) Whether you consider the Financing or the results of the Financing to have fulfilled the objectives of the RBIC program. [69 FR 32204, June 8, 2004, as amended at 76 FR 80223, Dec. 23, 2011] § 4290.640 Requirement to file portfolio financing reports with the Agency. For each Financing you make (excluding guarantees), you must submit a Portfolio Financing Report on SBA Form 1031 or other USDA-approved form(s) within 30 days of the closing date. [76 FR 80223, Dec. 23, 2011] § 4290.650 Requirement to report portfolio valuations to the Agency You must determine the value of your Loans and Investments in accordance with § 4290.503. You must report such valuations to the Agency within 90 days of the end of the fiscal year in the case of annual valuations, and within 30 days following the close of other reporting periods. You must report material adverse changes in valuations at least quarterly, within 30 days following the close of the quarter. § 4290.660 Other items required to be filed by RBIC with the Agency. (a) Reports to owners. (b) Documents filed with SEC. (c) Litigation reports. (1) The proceedings covered by this paragraph (c) include any action by you, or by your security holder(s) in a personal or derivative capacity, against an officer, director, Investment Adviser/Manager or other Associate of yours for alleged breach of official duty. (2) The Agency may require you to submit copies of the pleadings and other documents it may specify. (3) Where proceedings have been terminated by settlement or final judgment, you must promptly advise the Agency of the terms. (4) This paragraph (c) does not apply to collection actions or proceedings to enforce your ordinary creditors' rights. (d) Notification of criminal charges. (e) Reports concerning Operational Assistance grant funds. (f) Other reports. [69 FR 32204, June 8, 2004, as amended at 79 FR 76019, Dec. 19, 2014] § 4290.680 Reporting changes in RBIC not subject to prior approval. (a) Changes to be reported for post-approval. (b) Approval by the Agency. Examinations of RBICs by the Agency for Regulatory Compliance § 4290.690 Examinations. All RBICs must submit to annual examinations by or at the direction of the Agency for the purpose of evaluating regulatory compliance. § 4290.691 Responsibilities of RBIC during examination. You must make all books, records and other pertinent documents and materials available for the examination, including any information required by the examiner under § 4290.620(c). In addition, the agreement between you and the independent public accountant performing your audit must provide that any information in the accountant's working papers be made available to the examiners upon request. § 4290.692 Examination fees. (a) General. (b) Base fee. (c) Adjustments to base fee. (1) If you have no outstanding regulatory violations at the time of the commencement of the examination or the Agency did not identify any violations as a result of the most recent prior examination, you will receive a 15% discount on your base fee; and (2) If you were fully responsive to the letter of notification of examination (that is, you provided all requested documents and information within the time period stipulated in the notification letter in a complete and accurate manner, and you prepared and had available all information requested by the examiner for on-site review), you will receive a 10% discount on your base fee. (d) Examination delay fee. [69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011] Subpart I—Financing of Enterprises by RBICs Determining Eligibility of an Enterprise for RBIC Financing § 4290.700 Requirements concerning types of enterprises to receive financing. (a) Financing requirements. (1) Rural Business Concerns. (2) Smaller Enterprises. (3) Urban Areas. (b) Non-compliance. [85 FR 16523, Mar. 24, 2020] § 4290.720 Enterprises that may be ineligible for Financing. (a) Re-lenders or re-investors. (b) Passive Enterprises. (1) Definition. (i) It is not engaged in a regular and continuous business operation (for purposes of this paragraph (b), the mere receipt of payments such as dividends, rents, lease payments, or royalties is not considered a regular and continuous business operation); or (ii) Its employees are not carrying on the majority of day to day operations, and the Enterprise does not provide effective control and supervision, on a day to day basis, over persons employed under contract; or (iii) It passes through substantially all of the proceeds of the Financing to another entity. (2) Exception for pass-through of proceeds to subsidiary. (3) Exception for certain Partnership RBICs or LLC RBICs. (c) Real Estate Enterprises. (i) Any Enterprise classified under sector 233 (Building, Developing, and General Contracting) of the NAICS Manual, or (ii) Any Enterprise listed under sector 531 (Real Estate) unless at least 80 percent of its revenue is derived from non-Affiliate sources. (2) You are not permitted to finance an Enterprise, regardless of NAICS classification, if the Financing is to be used to acquire or refinance real property, unless the Enterprise: (i) Is acquiring an existing property and will use at least 51 percent of the usable square footage for an eligible business or commercial purpose; or (ii) Is constructing or renovating a building and will use at least 67 percent of the usable square footage for an eligible business or commercial purpose; or (iii) Occupies the subject property and uses at least 67 percent of the usable square footage for an eligible business or commercial purpose. (d) Project Financing. (1) The assets of the Enterprise are to be reduced or consumed, generally without replacement, as the life of the Enterprise progresses, and the nature of the Enterprise requires that a stream of cash payments be made to the Enterprise's financing sources, on a basis associated with the continuing sale of assets. Examples include real estate development projects and oil and gas wells; or (2) The primary purpose of the Financing is to fund production of a single item or defined limited number of items, generally over a defined production period, and such production will constitute the majority of the activities of the Enterprise. Examples include motion pictures. (e) Farm land purchases. (f) Public interest. (g) Foreign investment General rule. (i) The funds will be used substantially for a foreign operation; or (ii) At the time of the Financing or within one year thereafter, more than 49 percent of the employees or tangible assets of the Enterprise are located outside the United States (unless you can show, to the Agency's satisfaction, that the Financing was used for a specific domestic purpose). (2) Exception. (i) A Financing used to acquire foreign materials and equipment or foreign property rights for use or sale in the United States; or (ii) A Financing in a subsidiary based in the United States of foreign-owned entities with at least 51 percent U.S. ownership. (h) Financing RBICs, SBICs, or New Markets Capital Companies (NMVC Companies). (i) To purchase stock in or otherwise provide capital to a RBIC, SBIC or NMVC Company; or (ii) To repay an indebtedness incurred for the purpose of investing in a RBIC, SBIC, or NMVC Company. (2) “NMVC Company” is defined in 13 CFR 108.50. (i) Entities ineligible for Farm Credit System Assistance. et seq. (j) Gaming establishments. (k) Change in control of an Enterprise. [69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011; 85 FR 16523, Mar. 24, 2020] § 4290.730 Financings which constitute conflicts of interest. (a) General rule. (1) Provide Financing to any of your Associates, except for an Enterprise that satisfies all of the following conditions: (i) Your Associate relationship with the Enterprise is described by paragraph (8) or (9) of the definition of Associate (ii) No Person triggering the Associate relationship identified in paragraph (a)(1)(i) of the definition of Associate in § 4290.50 is a Close Relative or Secondary Relative of any Person described in paragraphs (1), (2), (4), or (5) of the definition of Associate (iii) No single Associate of yours has either a voting interest or an economic interest in the Enterprise exceeding 20 percent, and no two or more of your Associates have either a voting interest or an economic interest exceeding 33 percent. Economic interests shall be computed on a fully diluted basis, and both voting and economic interests shall exclude any interest owned through the RBIC. (2) Provide Financing to an Associate of another RBIC if one of your Associates has received or will receive any direct or indirect Financing or a Commitment from that RBIC or any other RBIC (including Financing or Commitments received under any understanding, agreement, or cross dealing, reciprocal or circular arrangement). (3) Borrow money from: (i) An Enterprise Financed by you; (ii) An officer, director, or owner of at least a 10 percent equity interest in such Enterprise; or (iii) A Close Relative of any such officer, director, or equity owner. (4) Provide Financing to an Enterprise to discharge an obligation to your Associate or free other funds to pay such obligation. This paragraph (a)(4) does not apply if the obligation is to an Associate Lending Institution and is a line of credit or other obligation incurred in the normal course of business. (b) Rules applicable to Associates. (1) Borrow money from any Person described in paragraph (a)(3) of this section. (2) Receive from an Enterprise any compensation or anything of value in connection with Assistance you provide (except as permitted under § 4290.825(c)), or anything of value for procuring, attempting to procure, or influencing your action with respect to such Assistance. (c) Applicability of other laws. (d) Financings with Associates Financings with Associates requiring prior approval. (2) Other Financings with Associates. (3) Exceptions to paragraphs (d)(1) and (d)(2) of this section. (i) Your Associate is a Lending Institution that is providing financing under a credit facility in order to meet the operational needs of the Enterprise and the terms of such financing are usual and customary. (ii) Your Associate invests in the Enterprise on the same terms and conditions and at the same time as you. (iii) Both you and your Associate are RBICs. (e) Use of Associates to manage Portfolio Concerns. (1) Have any other direct or indirect financial interest in the Portfolio Concern that exceeds, or has the potential to exceed, the percentages of the Portfolio Concern's equity set forth in paragraph (a)(1) of this section. (2) Receive any income or anything of value from the Portfolio Concern unless it is for your benefit, with the exception of director's fees, expenses, and distributions based upon the Associate's ownership interest in the Concern. (f) 1940 and 1980 Act Companies: SEC exemptions. (g) Restriction on options obtained by RBIC's management and employees. (1) They participate in the Financing on a pari passu (2) The Agency gives prior written approval; or (3) The options received are compensation for service as a member of the board of directors of the Portfolio Concern, and such compensation does not exceed that paid to other outside directors. In the absence of such directors, fees must be reasonable when compared with amounts paid to outside directors of similar companies. § 4290.740 Portfolio diversification (“overline” limitation). (a) Without the Agency's prior written approval, you may provide Financing or a Commitment to an Enterprise only if the resulting amount of your aggregate outstanding Financings and Commitments to that Enterprise and its Affiliates does not exceed 10 percent of the sum of: (1) Your Regulatory Capital as of the date of the Financing or Commitment; plus (2) Any permitted Distribution(s) you made during the five years preceding the date of the Financing or Commitment which reduced your Regulatory Capital; plus (3) The total amount of Leverage provided to the Rural Business Investment Company by the Agency since it was licensed under § 4290.390. (b) For the purposes of paragraph (a) of this section, you must measure each outstanding Financing at its original cost plus any amount of the Financing that was previously written off. [69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011] § 4290.760 How a change in size or activity of a Portfolio Concern affects the RBIC and the Portfolio Concern. (a) Effect on RBIC of a change in size of a Portfolio Concern. (1) Subject to the overline limitations of § 4290.740, you may provide additional Financing to the Portfolio Concern up to the time it makes a public offering of its securities. (2) Even after the Portfolio Concern makes a public offering, you may exercise any stock options, warrants, or other rights to purchase Equity Securities which you acquired before the public offering, or fund Commitments you made before the public offering. (b) Effect of a change in business activity occurring within one year of RBIC's initial Financing Retention of Financing. (2) Request for approval to retain Financing. (3) Additional Financing. (c) Effect of a change in business activity occurring more than one year after the initial Financing. (1) Retain your investment; and (2) Provide additional Financing to the Portfolio Concern to the extent necessary to protect against the loss of the amount of your original investment, subject to the overline limitations of § 4290.740. [69 FR 32204, June 8, 2004, as amended at 85 FR 16523, Mar. 24, 2020] Structuring RBIC Financing of Eligible Enterprises—Types of Financings § 4290.800 Financings in the form of Equity Securities. You may purchase the Equity Securities of an Enterprise. You may not, inadvertently or otherwise: (a) Become a general partner in any unincorporated business; or (b) Become jointly or severally liable for any obligations of an unincorporated business. § 4290.810 Financings in the form of Loans. You are permitted to make Loans to an Enterprise only if: (a) The maturity or term of the Loan is five years or less; and (b) You determine that making the Loan is necessary to preserve an existing Financing (other than a Loan) in that same Enterprise. § 4290.815 Financings in the form of Debt Securities. (a) General rule. (b) Restriction of options obtained by RBIC's management and employees. (1) They participate in the Financing on a pari passu (2) The Agency gives its prior written approval; or (3) The options received are compensation for services as a member of the board of directors of the Enterprise, and such compensation does not exceed that paid to other outside directors. In the absence of such directors, fees must be reasonable when compared with amounts paid to outside directors of similar Enterprises. [69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011] § 4290.820 Financings in the form of guarantees. (a) General rule. (b) Exception. (1) You would become subject to State regulation as an insurance, guaranty or surety business; or (2) The amount of the guaranty plus any direct Financings to the Enterprise exceed the overline limitations of § 4290.740, except that a pledge of the Equity Securities of the issuer or a subordination of your lien or creditor position does not count toward your overline. (c) Pledge of RBIC's assets as guaranty. § 4290.825 Purchasing securities from an underwriter or other third party. (a) Securities purchased through or from an underwriter. (1) You purchase such securities within 90 days of the date the public offering is first made; (2) Your purchase price is no more than the original public offering price; and (3) The amount paid by you for the securities (less ordinary and reasonable underwriting charges and commissions) has been, or will be, paid to the issuer, and the underwriter certifies in writing that this requirement has been met. (b) Recordkeeping requirements. (c) Underwriter's requirements. (d) Securities purchased from another RBIC. (e) Purchases of securities from other non-issuers. § 4290.830 Minimum term of Financing. (a) General rule. (b) Restrictions on mandatory redemption of Equity Securities. (c) Special rules for Loans and Debt Securities Term. (2) Prepayment. (3) Prepayment penalties. § 4290.835 Exceptions to minimum term of Financing. You may make a Financing with a term of less than one year but only if such Financing is in contemplation of another Financing, with a term of one year or more, to the same Enterprise. § 4290.840 Maximum term of Financing. The maximum term of any Debt Security must be no longer than 20 years. § 4290.845 Maximum rate of amortization on Loans and Debt Securities. The principal of any Loan, or the loan portion of any Debt Security, with a term of one year or less, cannot be amortized faster than straight line. If the term is greater than one year, the principal cannot be amortized faster than straight line for the first year. § 4290.850 Restrictions on redemption of Equity Securities. (a) Restriction on redemption. (1) The Portfolio Concern makes a public offering, or has a change of management or control, or files for protection under the provisions of the Bankruptcy Code, or materially breaches your Financing agreement; or (2) You make a follow-on Financing, in which case the new securities may be redeemed in less than one year, but no earlier than the redemption date associated with your earliest Financing of the Portfolio Concern. (b) Redemption price. (1) A fixed amount that is no higher than the price you paid for the securities; or (2) An amount that cannot be fixed or determined before the time of the redemption. In this case, the redemption price must be based on: (i) A reasonable formula that reflects the performance of the Portfolio Concern (such as one based on earnings or book value); or (ii) The fair market value of the Portfolio Concern at the time of redemption, as determined by a professional appraisal performed under an agreement acceptable to both parties. (c) Method. § 4290.860 Financing fees and expense reimbursements a RBIC may receive from an Enterprise. (a) General rule. (b) Application fee. (1) No more than one percent of the amount of Financing requested (or, if two or more RBICs participate in the Financing, their combined application fees are no more than one percent of the total Financing requested); and (2) Agreed to in writing by the Financing applicant. (c) The Agency's review of application fees. (d) Closing fee—Loans. (1) The fee is no more than two percent of the Financing amount (or, if two or more RBICs participate in the Financing, their combined closing fees are no more than two percent of the total Financing amount); and (2) You charge the fee no earlier than the date of the first disbursement. (e) Closing fee—Debt or Equity Financings. (1) The fee is no more than four percent of the Financing amount (or, if two or more RBICs participate in the Financing, their combined closing fees are no more than four percent of the total Financing amount); and (2) You charge the fee no earlier than the date of the first disbursement. (f) Limitation on dual fees. (g) Expense reimbursements. (h) Breakup fee. § 4290.880 Assets acquired in liquidation of Portfolio securities. (a) General rule. (b) Timely disposition of assets. (c) Permitted expenditures to preserve assets. (2) You may incur reasonably necessary expenditures for improvements to render such assets saleable. (3) You may make payments of mortgage principal and interest (including amounts in arrears when you acquired the asset), pay taxes when due, and pay for necessary insurance coverage. (d) The Agency approval of expenditures. (1) Your total expenditures under paragraphs (c)(1) and (c)(2) of this section plus your total Financing(s) to the Portfolio Concern must not exceed your overline limit under § 4290.740; and (2) Your total expenditures under paragraph (b) of this section plus your total Financing(s) to the Portfolio Concern must not exceed 35 percent of your Regulatory Capital. Limitations on Disposition of Assets § 4290.885 Disposition of assets to RBIC's Associates or to competitors of Portfolio Concerns. Except with the Agency's prior written approval, you are not permitted to dispose of assets (including assets acquired in liquidation) to any Associate or to competitors of Portfolio Concerns if you have outstanding Leverage. As a prerequisite to such approval, you must demonstrate that the proposed terms of disposal are at least as favorable to you as the terms obtainable elsewhere. § 4290.900 Management fees for services provided to an Enterprise by RBIC or its Associate. (a) General. (b) The Agency's approval. (c) Permitted management fees. (1) You or your Associate have entered into a written contract with the Portfolio Concern; (2) The fees charged are for services actually performed; (3) Services are provided on an hourly fee, project fee, or other reasonable basis; (4) You can demonstrate to the Agency, upon request, that the rate does not exceed the prevailing rate charged for comparable services by other organizations in the geographic area of the Portfolio Concern; and (5) All of the management services fees paid to your Associate by a Portfolio Concern for management services provided by the Associate are allocated back to you for your benefit. (d) Fees for service as a board member. (e) Approval required. (f) Transaction fees. (2) Your Associate may charge market rate investment banking fees to a Portfolio Concern on that portion of a Financing that you do not provide. (g) Recordkeeping Requirements. Subpart J—Financial Assistance for RBICs (Leverage) General Information About Obtaining Leverage § 4290.1100 Type of Leverage and application procedures. (a) Type of Leverage available. (b) Applying for Leverage. See (c) Where to send your application. § 4290.1120 General eligibility requirements for Leverage. To be eligible for Leverage, you must be in compliance with the Act, the regulations in this part, and your Participation Agreement. § 4290.1130 Leverage fees payable by RBIC. (a) Leverage fee. (b) Additional charge. (c) Other Leverage fees. § 4290.1140 RBIC's acceptance of remedies under § 4290.1810. If you issue Leverage, you automatically agree to the terms and conditions in § 4290.1810 as it exists at the time of issuance. The effect of these terms and conditions is the same as if they were fully incorporated in the terms of your Leverage. Maximum Amount of Leverage for Which a RBIC Is Eligible § 4290.1150 Maximum amount of Leverage for a RBIC. The face amount of a RBIC's outstanding Debentures may not exceed the lesser of 200 percent of its Leverageable Capital or $105,000,000. Conditional Commitments To Reserve Leverage for a RBIC § 4290.1200 Leverage commitment to a RBIC—application procedure, amount, and term. (a) General. (b) Applying for a Leverage commitment. (c) Limitations on the amount of a Leverage commitment. Federal Register (d) Term of Leverage commitment. § 4290.1220 Requirement for RBIC to file financial statements at the time of request for a draw. (a) If you submit a request for a draw against your Leverage commitment more than 90 days following your submission of an annual SBA Form 468 or a SBA Form 468 (Short Form) or other USDA-approved form(s), you must: (1) Give the Agency a financial statement on Form 468 (Short Form) or other USDA-approved form(s), and (2) File a statement of no material adverse change in your financial condition since your last filing of SBA Form 468 or other USDA-approved form(s). (b) You will not be eligible for a draw if you are not in compliance with this § 4290.1220. [69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011] § 4290.1230 Draw-downs by RBIC under Leverage commitment. (a) RBIC's authorization of the Agency to guarantee securities. (b) Limitations on amount of draw. Federal Register (c) Effect of regulatory violations on RBIC's eligibility for draws General rule. i.e., (2) Exception to general rule. (i) The Agency determines that your outstanding violations are of non-substantive provisions of the Act or this part or your Participation Agreement and that you have not repeatedly violated any non-substantive provisions; or (ii) You have agreed with the Agency in writing on a course of action to resolve your violations and such agreement does not prevent you from issuing Leverage. (d) Procedures for funding draws. (1) A statement certifying that there has been no material adverse change in your financial condition since your last filing of SBA Form 468 or other USDA-approved form(s) (see also § 4290.1220 for filing requirements). (2) If your request is submitted more than 30 days following the end of your fiscal year, but before you have submitted your annual filing of SBA Form 468 or other USDA-approved form(s) in accordance with § 4290.630(a), a preliminary unaudited annual financial statement on SBA Form 468 (Short Form) or other USDA-approved form(s). (3) A statement certifying that to the best of your knowledge and belief, you are in compliance with all provisions of the Act and this part ( i.e., (i) An officer of the RBIC; (ii) An officer of a corporate general partner or managing member of the RBIC; (iii) An individual who is authorized to act as or for a general partner of the RBIC; or (iv) An individual who is authorized to act as or for a managing member of the RBIC. (4) A statement that the proceeds are needed to fund one or more particular Enterprises or to provide liquidity for your operations. If required by the Agency, the statement must include the name and address of each Enterprise, and the amount and anticipated closing date of each proposed Financing. (e) Reporting requirements after drawing funds. (2) If the Agency required you to provide information concerning a specific planned Financing under paragraph (d)(4) of this section, and such Financing has not closed within 60 calendar days after the anticipated closing date, you must provide a written explanation of the failure to close. (3) If you do not comply with this paragraph (e), you will not be eligible for additional draws. The Agency may also determine that you are not in compliance with the terms of your Leverage under § 4290.1810. [69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011] § 4290.1240 Funding of RBIC's draw request through sale to third-party. (a) RBIC's authorization of the Agency to arrange sale of Debentures to third-party. (1) The sale of your Debenture to a third-party at a price approved by the Agency; and (2) The purchase of your Debenture from the third-party and the pooling of your Debenture with other Debentures with the same maturity date. (b) Sale of Debentures to a third-party. Distributions by RBICs With Outstanding Leverage § 4290.1500 Restrictions on distributions to RBIC investors while RBIC has outstanding Leverage. (a) Restriction on distribution. (b) Amount of prepayment. (c) Effect of prepayment. Funding Leverage by Use of Guaranteed Trust Certificates (“TCs”) § 4290.1600 Agency's authority to issue and guarantee Trust Certificates. (a) Authorization. (b) Authority to arrange public or private fundings of Leverage. (c) Pass-through provisions. (d) Formation of a Pool or Trust holding Leverage Securities. [69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011] § 4290.1610 Effect of prepayment or early redemption of Leverage on a Trust Certificate. (a) The rights, if any, of a RBIC to prepay any Debenture is established by the terms of such security, and no such right is created or denied by the regulations in this part. (b) The Agency's rights to purchase or prepay any Debenture without premium are established by the terms of the Guaranty Agreement relating to the Debenture. (c) Any prepayment of a Debenture pursuant to the terms of the Guaranty Agreement relating to such security shall reduce the Agency's guarantee of timely payment of principal and interest on a TC in proportion to the amount of principal that such prepaid Debenture represents in the Trust or Pool backing such TC. (d) The Agency shall be discharged from its guarantee obligation to the holder or holders of any TC, or any successor or transferee of such holder, to the extent of any such prepayment, whether or not such successor or transferee shall have notice of any such prepayment. (e) Interest on prepaid Debentures shall accrue only through the date of prepayment. (f) In the event that all Debentures constituting a Trust or Pool are prepaid, the TCs backed by such Trust or Pool shall be redeemed by payment of the unpaid principal and interest on the TCs; provided, however, that in the case of the prepayment of a Debenture pursuant to the provisions of the Guaranty Agreement relating to the Debenture, the Central Registration Agent (CRA) shall pass through pro rata to the holders of the TCs any such prepayments including any prepayment penalty paid by the obligor RBIC pursuant to the terms of the Debenture. § 4290.1620 Functions of agents, including Central Registration Agent, Selling Agent and Fiscal Agent. (a) Agents. (1) Selling Agent. (i) Selecting qualified entities to become pool or Trust assemblers (“Poolers”). (ii) Receiving guaranteed Debentures as well as negotiating the terms and conditions of sales or periodic offerings of Debentures and/or TCs on behalf of RBICs. (iii) Directing and coordinating periodic sales of Debentures and/or TCs. (iv) Arranging for the production of Offering Circulars, certificates, and such other documents as may be required from time to time. (2) Fiscal Agent. (i) Establish performance criteria for Poolers. (ii) Monitor and evaluate the financial markets to determine those factors that will minimize or reduce the cost of funding Debentures. (iii) Monitor the performance of the Selling Agent, Poolers, CRA, and the Trustee. (iv) Perform such other functions as the Agency, from time to time, may prescribe. (3) Central Registration Agent. (i) Form an approved Pool or Trust; (ii) Issue the TCs in the prescribed form; (iii) Transfer the TCs upon the sale of original issue TCs in any secondary market transaction; (iv) Receive payments from RBICs; (v) Make periodic payments as scheduled or required by the terms of the TCs, and pay all amounts required to be paid upon prepayment of Debentures; (vi) Hold, safeguard, and release all Debentures constituting Trusts or Pools upon instructions from the Agency; (vii) Remain custodian of such other documentation as the Agency shall direct by written instructions; (viii) Provide for the registration of all pooled Debentures, all Pools and Trusts, and all TCs; and (ix) Perform such other functions as the Agency may deem necessary to implement the provisions of this section. (b) Functions. § 4290.1630 Regulation of Brokers and Dealers and disclosure to purchasers of Leverage or Trust Certificates. (a) Brokers and Dealers. see (b) Suspension and/or termination of Broker or Dealer. (1) If such broker's or dealer's authority to engage in the securities business has been revoked or suspended by a supervisory agency. When such authority has been suspended, the Agency will suspend such broker or dealer for the duration of such suspension by the supervisory agency. (2) If such broker or dealer has been indicted or otherwise formally charged with a misdemeanor or felony bearing on its fitness, such broker or dealer may be suspended while the charge is pending. Upon conviction, participation may be terminated. (3) If such broker or dealer has suffered an adverse final civil judgment holding that such broker or dealer has committed a breach of trust or violation of law or regulation protecting the integrity of business transactions or relationships, participation in the market for Debentures or TCs may be terminated. (c) Termination/suspension proceedings. § 4290.1640 Agency's access to records of the CRA, Brokers, Dealers and Pool or Trust assemblers. The CRA and any broker, dealer and Pool or Trust assembler operating under the regulations in this part shall make all books, records and related materials associated with Debentures and TCs available to the Agency for review and copying purposes. Such access shall be at such party's primary place of business during normal business hours. Miscellaneous § 4290.1700 Agency's transfer of interest in a RBIC's Leverage security. Upon such conditions and for such consideration as it deems reasonable, the Agency may sell, assign, transfer, or otherwise dispose of any Debenture held by or on behalf of the Agency. Upon notice by the Agency, a RBIC will make all payments of principal and interest as shall be directed by the Agency. A RBIC will be liable for all damage or loss which the Agency may sustain by reason of the RBIC's failure to follow such payment instructions, up to the amount of the RBIC's liability under such security, plus court costs and reasonable attorney's fees incurred by the Agency. § 4290.1710 Agency's authority to collect or compromise claims. The Agency may, upon such conditions and for such consideration as it deems reasonable, collect or compromise all claims relating to obligations it holds or has guaranteed, and all legal or equitable rights accruing to it. § 4290.1720 Characteristics of Agency's guarantee. If the Agency agrees to guarantee a RBIC's Debentures, such guarantee will be unconditional, irrespective of the validity, regularity or enforceability of the Debentures or any other circumstances that might constitute a legal or equitable discharge or defense of a guarantor. Pursuant to its guarantee, the Agency will make timely payments of principal and interest on the Debentures. Subpart K—RBIC's Noncompliance With Terms of Leverage § 4290.1810 Events of default and the Agency's remedies for RBIC's noncompliance with terms of Debentures. (a) Applicability of this section. (b) Automatic events of default. (1) Insolvency. (2) Voluntary assignment. (3) Bankruptcy. (c) Remedies for automatic events of default. (1) Without notice, presentation or demand, the entire indebtedness evidenced by your Debentures, including accrued interest, and any other amounts owed with respect to your Debentures, is immediately due and payable; and (2) You automatically consent to the appointment of the Agency or its designee, as your receiver under section 384M of the Act. (d) Events of default with notice. (1) Fraud. (2) Fraudulent transfers. (3) Willful conflicts of interest. (4) Willful non-compliance. (5) Repeated Events of Default. (6) Transfer of Control. (7) Non-cooperation under § 4290.1810(h). (8) Non-notification of Events of Default. (9) Non-notification of defaults to others. (e) Remedies for events of default with notice. (1) The Agency may declare the entire indebtedness evidenced by your Debentures, including accrued interest and/or any other amounts owed the Agency with respect to your Debentures, immediately due and payable: and (2) The Agency may avail itself of any remedy available under the Act, specifically including institution of proceedings for its, or its designee's appointment as your receiver under section 384M(c) of the Act. (f) Events of default with opportunity to cure. (1) Excessive Management Expenses. (2) Improper Distributions. (i) Distributions permitted under § 4290.585; and (ii) Payments from Retained Earnings Available for Distribution based on either the shareholders' or members' pro-rata interests or the provisions for profit distributions in your partnership agreement, as appropriate. (3) Failure to make payment. (4) Failure to maintain Regulatory Capital. (5) Capital Impairment. (6) Cross-default. (7) Nonperformance. (8) Noncompliance. (9) Failure to maintain diversity. (g) Remedies for events of default with opportunity to cure. (i) The Agency may declare the entire indebtedness evidenced by your Debentures, including accrued interest, and/or any other amounts owed the Agency with respect to your Debentures, immediately due and payable; and (ii) The Agency may avail itself of any remedy available under the Act, specifically including institution of proceedings for the appointment of the Agency or a designee as your receiver under § 348M of the Act. (2) The Agency may invoke the remedies in paragraph (g)(1) of this section only if: (i) You have been given at least 15 days to cure the default(s); and (ii) You fail to cure the default(s) to the Agency's satisfaction within the allotted time. (h) Repeated non-substantive violations. (i) Consent to removal of officers, directors, or general partners and/or appointment of receiver. (1) With respect to a Corporate RBIC, upon written notice, to require you to replace, with individuals approved by the Agency, one or more of your officers and/or such number of directors of your board of directors as is sufficient to constitute a majority of such board; or (2) With respect to a Partnership RBIC or an LLC RBIC, upon written notice, to require you to remove the person(s) responsible for such occurrence and/or to remove the general partner or manager of the RBIC, which general partner or manager shall then be replaced in accordance with the RBIC's Articles by a new general partner or manager approved by the Agency; and/or (3) With respect to a Corporate RBIC, Partnership RBIC, or LLC RBIC, to obtain the appointment of the Agency or its designee as your receiver under section 384M of the Act for the purpose of continuing your operations. The appointment of a receiver to liquidate an RBIC is not within such consent, but is governed instead by the relevant provisions of the Act. [69 FR 32204, June 8, 2004, as amended at 76 FR 80224, Dec. 23, 2011] Computation of RBIC'S Capital Impairment § 4290.1830 RBIC's Capital Impairment definition and general requirements. (a) Significance of Capital Impairment condition. (b) Definition of Capital Impairment condition. (c) Quarterly computation requirement and procedure. (d) The Agency's right to determine RBIC's Capital Impairment condition. § 4290.1840 Computation of RBIC's Capital Impairment Percentage. (a) General. (b) Preliminary impairment test. (1) The sum of Undistributed Net Realized Earnings, as reported on SBA Form 468 or other USDA-approved form(s) and Includible Non-Cash Gains. (2) Unrealized Gain (Loss) on Securities Held. (c) How to compute your Capital Impairment Percentage. (2) Add together your Undistributed Net Realized Earnings, your Includible Non-cash Gains, and either your Unrealized Loss on Securities Held or your Adjusted Unrealized Gain. (3) If the sum in paragraph (c)(2) of this section is zero or greater, your Capital Impairment Percentage is zero. (4) If the sum in paragraph (c)(2) of this section is less than zero, drop the negative sign, divide by your Regulatory Capital (excluding Treasury Stock), and multiply by 100. The result is your Capital Impairment Percentage. (d) How to compute your Adjusted Unrealized Gain. (2) Determine your Unrealized Appreciation on Publicly Traded and Marketable securities. This is your ”Class I Appreciation”. (3) Determine your Unrealized Appreciation on securities that are not Publicly Traded and Marketable and meet the following criteria, which must be substantiated to the Agency's satisfaction (this is your “Class 2 Appreciation”): (i) The Portfolio Concern that issued the security received a significant subsequent equity financing by an investor whose objectives were not primarily strategic and at a price that conclusively supports the Unrealized Appreciation; (ii) Such financing represents a substantial investment in the form of an arm's-length transaction by a sophisticated new investor in the issuer's securities; and (iii) Such financing occurred within 24 months of the date of the Capital Impairment computation, or the Portfolio Concern's pre-tax cash flow from operations for its most recent fiscal year was at least 10 percent of its average contributed capital for such fiscal year. (4) Perform the appropriate computation from the table in 13 CFR 107.1840(d)(4). (5) Reduce the gain computed in paragraph (d)(4) of this section by your estimate of related future income tax expense. Subject to any adjustment required by paragraph (d)(6) of this section, the result is your Adjusted Unrealized Gain for use in paragraph (c)(2) of this section. (6) If any securities that are the source of either Class 1 or Class 2 Appreciation are pledged or encumbered in any way, you must reduce the Adjusted Unrealized Gain computed in paragraph (d)(5) of this section by the amount of the related borrowing or other obligation, up to the amount of the Unrealized Appreciation on the securities. [69 FR 32204, June 8, 2004, as amended at 76 FR 80225, Dec. 23, 2011] Subpart L—Ending Operations as a RBIC § 4290.1900 Termination of participation as a RBIC. You may not terminate your participation as a RBIC without the Agency's prior written approval. Your request for approval must be accompanied by an offer of immediate repayment of all of your outstanding Leverage (including any prepayment penalties thereon), or by a plan satisfactory to the Agency for the orderly liquidation of the RBIC. Subpart M—Miscellaneous § 4290.1910 Non-waiver of rights or terms of Leverage security. The Agency's failure to exercise or delay in exercising any right or remedy under the Act or the regulations in this part does not constitute a waiver of such right or remedy. The Agency's failure to require you to perform any term or provision of your Leverage does not affect the Agency's right to enforce such term or provision. Similarly, the Agency's waiver of, or failure to enforce, any term or provision of your Leverage or of any event or condition set forth in § 4290.1810 does not constitute a waiver of any succeeding breach of such term or provision or condition. § 4290.1920 RBIC's application for exemption from a regulation in this part 4290. (a) General. (b) Contents of application. (1) The proposed action is fair and equitable; and (2) The exemption requested is reasonably calculated to advance the best interests of the RBIC program in a manner consistent with the policy objectives of the Act and the regulations in this part. § 4290.1930 Effect of changes in this part 4290 on transactions previously consummated. The legality of a transaction covered by the regulations in this part is governed by the regulations in this part in effect at the time the transaction was consummated, regardless of later changes. Nothing in this part bars enforcement action with respect to any transaction consummated in violation of provisions applicable at the time, but no longer in effect. § 4290.1940 Integration of this part with other regulations applicable to USDA's programs. (a) Intergovernmental review. (b) National flood insurance. (c) Clean Air Act and Water Pollution Control Act requirements. (d) Historic preservation requirements. (e) Lead-based paint requirements. (f) Conflict of interest. (g) Civil rights impact analysis. (h) Environmental requirements. (i) Appeals to the National Appeals Division for review of adverse decisions. [69 FR 32204, June 8, 2004, as amended at 79 FR 76019, Dec. 19, 2014; 81 FR 11053, Mar. 2, 2016] Subpart N—Requirements for Operational Assistance Grants to RBICs § 4290.2000 Operational Assistance Grants to RBICs. (a) Regulations governing. (b) Restrictions on use. (c) Amount of grant. (d) Term. (e) Reporting and recordkeeping requirements. Subpart O—Additional Requirements for Non-Leveraged Licensees and Exceptions to Regulations Source: 76 FR 80225, Dec. 23, 2011, unless otherwise noted. § 4290.3000 Non-leveraged RBICs—General. This subpart identifies provisions specific to RBICs seeking a non-leveraged license, including exceptions and additions to provisions associated with subparts A through N of this part. §§ 4290.3001-4290.3002 [Reserved] § 4290.3003 Responsibilities for implementing Non-leveraged RBICs. Section 4290.45 does not apply to Non-leveraged RBICs. Instead, for the purposes of this part as it applies to Non-leveraged RBICs, all authorities and responsibilities assigned to the Agency under this part shall be carried out by the Agency. Thus, when applying subparts A through N of this part to Non-leveraged RBICs, all references to the Small Business Administration (SBA) or Administrator on behalf of USDA shall be read as the Agency. All forms shall be submitted to USDA or its designee. [77 FR 4885, Feb. 1, 2012] § 4290.3004 [Reserved] § 4290.3005 Qualifications for the Non-leveraged RBIC Program. (a) Business form. (1) For RBICs applying for non-leveraged status, the types of investors eligible to invest in a RBIC must have been approved by the Agency. Investors seeking approval must submit a request to the Agency with sufficient documentation to support their request. The USDA will announce such approved categories and types of investors in a public notice published in the Federal Register (2) In lieu of complying with § 4290.100(d)(1)(i), you must have a minimum duration of 10 years. After 10 years, the Partnership RBIC may be terminated by a vote of your partners. (3) In lieu of complying with § 4290.100(d)(2), if you are a LLC RBIC, you must have a minimum duration of 10 years. After 10 years, the LLC RBIC may be terminated by a vote of your members. (4) In lieu of complying with § 4290.100(d)(3), if you are a Corporate RBIC, you must have a duration of not less than 30 years unless earlier dissolved by the shareholders. (b) Approval of initial Management Expenses. Federal Register (c) Management and ownership diversity requirements. (d) Special rules for Partnership RBICs and LLC RBICs. §§ 4290.3006-4290.3009 [Reserved] § 4290.3010 Application and Approval Process for RBIC licensing without Leverage. (a) The provisions of § 4290.300 notwithstanding, the Agency will accept, at any time, applications for consideration as a Non-leveraged RBIC. The number of applications that the Agency will receive each year, and any fees and conditions, will be announced annually in a Federal Register (b) The provision for evaluating applicants on a competitive basis, as specified in § 4290.340(a), does not apply to this subpart. (c) The provisions specified in § 4290.370(m) do not apply to this subpart. [76 FR 80225, Dec. 23, 2011, as amended at 77 FR 4885, Feb. 1, 2012] §§ 4290.3011-4290.3014 [Reserved] § 4290.3015 Evaluation and selection of Non-leveraged RBICs. (a) General. (b) Eligibility and completeness. Federal Register. (c) Effect of a RBIC license. §§ 4290.3016-4290.3019 [Reserved] § 4290.3020 Changes in Ownership, Structure, or Control. Paragraph (b) in § 4290.440 does not apply to Non-leveraged RBICs. §§ 4290.3021-4290.3024 [Reserved] § 4290.3025 Managing the Operations of a RBIC. (a) Nonperformance. (b) Employment of USDA or SBA officials. (c) Approval of RBIC's Investment Adviser/Manager. (d) Management Expenses of a RBIC. (e) Restrictions on investments of idle funds by RBICs. (f) Prior approval of secured third-party debt of RBICs. (g) Voluntary decrease in Regulatory Capital. §§ 4290.3026-4290.3029 [Reserved] § 4290.3030 Financing of Enterprises by RBICs. (a) Non-compliance with this section. (b) Enterprises that may be ineligible for Financing. (c) Farmland purchases. (d) Purchasing securities from an underwriter or other third party. (e) Assets acquired in liquidation of Portfolio securities. §§ 4290.3031-4290.3034 [Reserved] § 4290.3035 Recordkeeping, Reporting, and Examination Requirements for RBICs. Except for § 4290.600(d), Subpart H, Recordkeeping, Reporting, and Examination Requirements for RBICs, of this part applies to Non-leveraged RBICs. §§ 4290.3036-4290.3039 [Reserved] § 4290.3040 Financial Assistance for RBICs. Subpart J, Financial Assistance for RBICs (Leveraged), of this part does not apply to Non-leveraged RBICs. § 4290.3041 Events of default and the Agency's remedies for RBIC's noncompliance with terms of licensure. In addition to complying with the provisions of § 4290.1810, a RBIC's failure to comply with the terms of this part may result in the Agency revoking the Non-leveraged RBIC's license issued under this part. [76 FR 80225, Dec. 23, 2011, as amended at 77 FR 4885, Feb. 1, 2012] §§ 4290.3042-4290.3044 [Reserved] § 4290.3045 Computation of RBIC's Capital Impairment. The provisions specified in §§ 4290.1830 and 4290.1840 do not apply to Non-leveraged RBICs. §§ 4290.3046-4290.3049 [Reserved] § 4290.3050 Operational Assistance Grants for RBICs. Subpart N, Requirements for Operational Assistance Grant to RBICs, of this part does not apply to Non-leveraged RBICs. All other references to Operational Assistance in this part do not apply to Non-leveraged RBICs. §§ 4290.3051-4290.3099 [Reserved]

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