7 CFR Part 5001 — Guaranteed Loans

PART 5001—GUARANTEED LOANS Authority: 5 U.S.C. 301; 7 U.S.C. 1926(a); 7 U.S.C. 1932(a); and 7 U.S.C. 8107. Source: 85 FR 42518, July 14, 2020, unless otherwise noted. Subpart A—General Provisions § 5001.1 General. (a) This part contains the regulations for Community Facilities, Water and Waste Disposal, Business and Industry, and Rural Energy for America Program loans guaranteed by the Agency and applies to lenders, holders, borrowers, and other parties involved in making, guaranteeing, holding, servicing, and liquidating such loans. The loan guarantee programs covered by this regulation are more fully described as: (1) Community Programs Guaranteed Loans (5 U.S.C. 301 and 7 U.S.C. 1989) as authorized by Section 306(a)(1) of the Consolidated Farm and Rural Development Act, 7 U.S.C. 1926(a)(1), as administered by the Rural Housing Service (RHS), herein after referred to as CF. (2) Water and Waste Disposal Program Guaranteed Loans (5 U.S.C. 301, 7 U.S.C. 1989, and 16 U.S.C. 1005) as authorized by Section 306(a)(1) of the Consolidated Farm and Rural Development Act, 7 U.S.C. 1926(a)(1), as administered by the Rural Utilities Service (RUS), herein after referred to as WWD. (3) Business and Industry Guaranteed Loans (7 U.S.C. 1932) as authorized by Section 310B, Business and Industry Direct and Guaranteed Loans, of the Consolidated Farm and Rural Development Act, 7 U.S.C. 1932, as administered by the Rural Business-Cooperative Service (RBCS), herein after referred to as B&I. (4) Rural Energy for America Program Guaranteed Loans (5 U.S.C. 301, and 7 U.S.C. 8107) as authorized by Section 9007, Title IX of the Food, Conservation, and Energy Act of 2008, as administered by the Rural Business-Cooperative Service (RBCS), herein after referred to as REAP. (b) The applicability of the provision of this part for processing and approving applications and for servicing guaranteed loans depend on when a complete application is received. The Agency will process and approve applications, and service guaranteed loans according to the provisions of this part for all complete guaranteed loan applications that it receives on or after October 1, 2020, including guaranteed loan applications submitted under any of the programs whose authorization is identified in this section. All complete applications received before October 1, 2020, will be processed, and awarded and guaranteed loans serviced in accordance with the existing regulations in effect at the complete application date for the program under which the application was submitted. [85 FR 42518, July 14, 2020, as amended at 89 FR 79704, Sept. 30, 2024] § 5001.2 Structure. This part is divided into six subparts as described in paragraphs (a) through (f) of this section. The provisions are applicable to each guaranteed loan made under this part, except as may be otherwise indicated. This part also contains several appendices as identified in paragraph (g) of this section. (a) Subpart A. (b) Subpart B. (c) Subpart C. (d) Subpart D. (e) Subpart E. (f) Subpart F. (g) Appendices. [85 FR 42518, July 14, 2020, as amended at 85 FR 62196, Oct. 2, 2020; 89 FR 79704, Sept. 30, 2024] § 5001.3 Definitions. The following definitions are applicable to the capitalized terms used in this part. Administrator Affiliate Agency Agricultural producer Agricultural production Anaerobic digester Applicant lender debt Appraisal surplus Architectural report Arm's length transaction Assignment guarantee agreement Biofuel Biogas Bond Borrower Business plan Byproduct Certificate of incumbency Collateral Commercially available (1) A domestic or foreign system that: (i) Has both a proven and reliable operating history and proven performance data for at least one year specific to the use and operation to the proposed application; (ii) Is based on established design and installation procedures and practices and is replicable; (iii) Has professional service providers, trades, large construction equipment providers, and labor who are familiar with installation procedures and practices; (iv) Has proprietary and balance of system equipment and spare parts that are readily available; (v) Has service that is readily available to properly maintain and operate the system; and (vi) Has an existing established warranty that is valid in the United States for major parts and labor; or (2) A domestic or foreign system that has been certified by a recognized industry organization whose certification standards are acceptable to the Agency. Complete application Conditional commitment Conflict of interest (1) A person acting as a compensated agent of the borrower and the lender on the same guaranteed loan, (2) Distribution or payment of guaranteed loan funds to an individual owner, partner, stockholder, or member of the borrower, or to a beneficiary or immediate family member of the borrower; (3) Refinancing debt that is owned by a loan packager, broker, or referral agent or its affiliates. Cooperative Credit evaluation Debt Collection Improvement Act et seq., Debt service coverage ratio Default Deficiency judgment Delinquency Departmental regulations Eligible project costs Energy assessment Energy assessor Energy audit Energy auditor (1) A certified energy auditor certified by the Association of Energy Engineers; (2) A certified energy manager certified by the Association of Energy Engineers; (3) A licensed professional engineer in the State in which the audit is conducted with at least 1 year of experience and who has completed at least two similar type energy audits; or (4) An individual with a 4-year engineering or architectural degree with at least three years of experience and who has completed at least five similar type energy audits. Energy efficiency improvement (EEI) Energy efficient equipment and systems (EEE) Engineering documentation Essential community facility Existing business Farmer or rancher cooperative Feasibility study Federal debt et seq. Federal fiscal year Final loss claim Financial feasibility Future recovery Geothermal direct generation Geothermal electric generation Guaranteed loan Guarantor its undertaking of responsibility for Holder Hospital (i) Hospital (section 1861(e)). (ii) Psychiatric hospital (section 1861(f)). (iii) Long-term care hospital (section 1861(ccc)); and shall also include the following other provider types defined in the Social Security Act, Section 1861 (42 U.S.C. 1395X): (A) Critical access hospital (section 1861(mm)(1)). (B) Religious nonmedical health care institution (section 1861(ss)(1)). (2) The Agency will use the applicant provider's Centers for Medicare and Medicaid Services (CMS) Certification Number (CCN) to verify the applicant provider is listed as a “Hospital” for the “Provider or Supplier Type” category on the CMS Quality Certification and Oversight Reports (QCOR) website qcor.cms.gov/index_new.jsp. Hybrid Hydroelectric source Hydrogen project Immediate family(ies) Indian tribe In-house expenses Inspector Insurance Intangible assets Interconnection agreement Interest Interest termination date Interim financing Lender Lender's agreement Liquidation expenses e.g., e.g., Loan agreement Loan classification Loan documents Loan note guarantee Loan packager Local government Local owner Locally or regionally produced agricultural food product Market value (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Matching funds Material adverse change Monetary default Multi-note system National Appeals Division Natural resource value-added product Negligent loan origination Negligent loan servicing New business Non-monetary default Non-regulated lending entity Ocean energy e.g., Off-take agreement Otherwise improve (1) The purchase of necessary equipment that will itself provide an essential service to the rural community, such as vehicles, emergency and medical equipment, telecommunication equipment, computers, water meters and pumps; (2) The purchase of equipment necessary to maintain, protect, operate, or use the eligible facility or service; (3) The purchase of existing eligible facilities, when necessary, to either improve or prevent a loss of service provided the price paid for the facility is fair and reasonable and not directly related to the dollar amount of any debt to be retired by the seller; and (4) Payment of tap fees and other utility connection charges as provided in utility purchase contracts. Parity Participation Passive investor Person Power purchase agreement Professional service Project Promissory note Protective advance Public body Qualified consultant(s) Rated power Refurbished Regulated lending entity Renewable biomass (1) Materials, pre-commercial thinning, or invasive species from National Forest System land or public lands (as defined in Section 103 of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) that— (i) Are by-products of preventive treatments that are removed to reduce hazardous fuels; to reduce or contain disease or insect infestation; or to restore ecosystem health; (ii) Would not otherwise be used for higher-value products; and (iii) Are harvested in accordance with applicable law and land management plans and the requirements for old-growth maintenance, restoration, and management direction of paragraphs (2), (3), and (4) of subsection (e) of section 102 of the Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of section 102; or (2) Any organic matter that is available on a renewable or recurring basis from non-Federal land or land belonging to an Indian or Indian tribe that is held in trust by the United States or subject to a restriction against alienation imposed by the United States, including the following items: (i) Renewable plant material (including feed grains, other agricultural commodities, other plants and trees, and algae); and (ii) Waste material (including crop residue, other vegetative waste material (including wood waste and wood residues), animal waste and byproducts (including fats, oils, greases, and manure), and food and yard waste). Renewable energy (1) A wind, solar, renewable biomass, ocean (including tidal, wave, current, and thermal), geothermal or hydroelectric source; or (2) Hydrogen derived from renewable biomass or water using an energy source described in paragraph (1) of this definition. Renewable energy site assessment Renewable energy system (RES) (1) Distribution components necessary to move energy produced by such system to the initial point of sale; and (2) Other components and ancillary infrastructure of such system, such as a storage system; however, such system may not include a mechanism for dispensing energy at retail e.g., Report of loss Retrofitting (1) Installing newly designed blades to an existing wind turbine to enhance energy production. (2) Adding equipment or processes to or altering or enhancing an existing RES to improve production, efficiency, or financial viability, such as a feedstock retreater on an existing biodiesel production plant; (3) Adding a battery system to an existing RES; (4) Installing a steam turbine at an ethanol plant, or; (5) Installing a combined heat and power system for a pellet production facility. Rural rural area https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do. (1) Any area in the urbanized area contiguous and adjacent to a city or town that has a population of more than 50,000 inhabitants that has been determined to be “rural in character” as follows: (i) The determination that an area is “rural in character” will be made by the Under Secretary of Rural Development. Rural in character requests and determinations are project specific; e.g. , if approved, the determination does not apply to any future request made within the same area. (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 1/4 (ii) Units of local government may petition the Under Secretary of Rural Development for a “rural in character” designation by submitting a petition to the appropriate Rural Development State Director for recommendation to the Administrator on behalf of the Under Secretary. The petition shall document how the area meets the requirements of paragraph (1)(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 Secretary 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 Secretary 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 website at rd.usda.gov/onerdguarantee, (iii) Rural Development State Directors may also initiate a request to the Under Secretary to determine if an area is “rural in character.” A written recommendation must document how the area meets the statutory requirements of paragraph (1)(i)(B) of this definition and discusses why the State Director believes the area is “rural in character,” including, but not limited to, the area's population density, demographics, topography, and how the local economy is tied to a rural economic base. Upon receipt of such a request, the Administrator will review the request for compliance with the “rural in character” provisions and make a recommendation to the Under Secretary. Provided a favorable determination is made, the Under Secretary will consult with the applicable Governor and request comments within 10 business days, unless gubernatorial comments were submitted with the request. A public notice will be published by the State Office in accordance with paragraph (1)(ii) of this definition. There is no appeal process for requests made on the initiative of the State Director. (2) 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 two 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. This applies to areas that would not be considered a rural area because they are attached to the urbanized area of a city or town of greater than 50,000 inhabitants by a “string” area that is two census blocks wide or less (which are typically interstates or major highways). As long as the “string” area is two census blocks wide or less, the area outside of the urbanized area, beginning with the “string” area, may be considered rural. Once an area is approved as a string exception, any project within that area is eligible. (3) For the Commonwealth of Puerto Rico, the island is considered Rural and eligible except for the San Juan Census Designated Place (CDP) and any other CDP with greater than 50,000 inhabitants. Areas within CDPs with greater than 50,000 inhabitants, other than the San Juan CDP, may be determined to be Rural if they are “not urban in character.” (4) For the State of Hawaii, all areas within the State are considered rural and eligible except for the Honolulu CDP within the County of Honolulu and any other CDP with greater than 50,000 inhabitants. Areas within CDPs with greater than 50,000 inhabitants, other than the Honolulu CDP, may be determined to be rural if they are “not urban in character.” (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 Agency shall determine what constitutes rural and rural Area based on available population data. Rural small business Service area Significant ties Simple payback (1) Energy efficiency improvement projects simple payback = (Total Project Costs) ÷ (Dollar value of energy saved). (i) Energy saved will be determined by subtracting the projected energy (determined by the method in paragraph (1)(i)(B) of this definition) to be consumed from the historical energy consumed (determined by the method in paragraph (1)(i)(A) of this definition), and converting the result to a monetary value using a constant value or price of energy (determined by the method in paragraph (1)(i)(C) of this definition). (A) Actual energy used in the original building and/or equipment, as applicable, prior to the EEI project, must be based on the actual average annual total energy used in British thermal units (BTU) over the most recent 12, 24, 36, 48, or 60 consecutive months of operation. (B) Projected energy use if the proposed EEI project had been in place for the original building and/or equipment, as applicable, for the same time period used to determine that actual energy use under paragraph (1)(i)(A) of this definition. (C) Value or price of energy must be the actual average price paid over the same time period used to calculate the actual energy used under paragraph (1)(i)(A) of this definition. (ii) Energy efficiency improvement projects simple payback does not allow EEI to monetize benefits other than the dollar amount of the energy savings the agricultural producer or rural small business realizes as a result of the improvement. (iii) Proposed additional energy consumption by a business which would result in greater savings if implemented is not considered in the payback calculation. (2) Renewable energy systems projects simple payback = (total project costs) ÷ (dollar value of energy units replaced, credited, sold, or used and fair market value of byproducts as applicable in a typical year). (i) Value of energy replaced will be calculated based on the borrower entity's historical energy consumption with actual average price paid for the energy replaced, following the methodology outlined in paragraph (1)(i) of this definition RES replacement projects which generate more energy than the applicant's historical records document, may add to the replacement value, the value obtained by taking the excess energy generated times a documented market price in order to derive at total dollar value of energy units replaced, credited, sold, or used. (ii) Value of energy credited or sold will be calculated based on the amount of energy units to be sold at the proposed rate per unit, as documented in utility net metering or crediting policies and/or a purchase agreement. (iii) If proposed energy will be used in a new facility (includes any direct-use project), value of energy used will be calculated based on the amount of energy units to be used at the documented price per unit of conventional fuel alternative. (iv) Value of byproducts produced by and used in the project or related enterprises should be documented at the fair market value to be received for the byproducts in a typical year. (v) Renewable energy systems projects simple payback does not include any one-time benefits such as but not limited to construction and investment-related benefits, nor credits which do not provide annual income to the project, such as tax credits. These benefits may be considered when appropriate for calculating repayment ability of guaranteed loans. (vi) For RES projects that involve a shared meter with a residence where the cost of the system has been prorated, only the eligible prorated amount of energy attributed to the rural business or agricultural producer will be used in the payback calculation. For projects that involve in-eligible expenses other than residential, the full amount of energy production will be used in the payback calculation. (3) Energy efficiency equipment and systems projects simple payback = (total project costs) ÷ (dollar value of efficiency savings). Efficiency savings will be determined by subtracting the annual value of energy to be consumed by the proposed energy efficient equipment from the annual value of energy that a conventional equipment alternative would have consumed. Adequate documentation must be provided for all consumption estimates and values utilized in the calculation. Small business (1) An entity or utility, as applicable, as further defined in paragraphs (1)(i) through (iv) of this definition and meeting the requirements in paragraph (2) of this definition. With the exception of the entities identified in this paragraph, all other non-profit entities are not small businesses for the purposes of REAP program eligibility: (i) A private for-profit entity, including a sole proprietorship, partnership, or corporation. The application must sufficiently describe the operations of the applicant's business entity; (ii) A cooperative (including a cooperative qualified under section 501(c)(12) of the Internal Revenue Code); (iii) An electric utility (including a Tribal or governmental electric utility) that provides service to rural consumers and operates independent of direct government control; or (iv) A Tribal corporation or other Tribal business entities that are chartered under Section 17 of the Indian Reorganization Act (25 U.S.C. 5124) or have similar structures and relationships with their Tribal governments and are acceptable to the Agency. The Agency will determine the small business status of such Tribal entity without regard to the resources of the Tribal government. This means that only the applicant entity must meet the definition of a small business; and (2) An entity that meets the requirements of (i) or (ii) below: (i) The Small Business Administration size standards in accordance with 13 CFR 121.301(a), and any successor regulation. The size of the applicant alone (without affiliates) must not exceed the size standard designated for the industry in which the applicant is primarily engaged. Also, the size of the applicant combined with its affiliates must not exceed the size standard designated for either the primary industry of the applicant alone or the primary industry of the applicant and its affiliates, whichever is higher. Size standards to be utilized are found in 13 CFR 121.201, and any successor regulation. The size standards themselves are expressed either in number of employees or annual receipts in millions of dollars, unless otherwise specified. The number of employees or annual receipts indicates the maximum allowed for an entity and its affiliates and are calculated using the following criteria: (A) The number of employees is calculated using the guidance found in 13 CFR 121.106, and any successor regulation. The average number of employees is used based upon number of employees for each of the pay periods for the preceding 24 months. Part-time and temporary employees are counted as full-time employees. If the entity has not been in business for 24 months, the average number of employees is used for each of the pay periods during which it has been in business; or (B) Annual receipts are calculated using the guidance found in 13 CFR 121.104, and any successor regulation. Federal income tax returns and any amendments filed with the IRS on or before the date of application must be used. If an entity has not filed a Federal income tax return, the Agency will calculate the entities annual receipts using any other available information such as regular books of account, or audited financial statements; or (ii) The size standard outlined in 13 CFR 121.301(b)(2), and any successor regulation. Including its affiliates, the entity must not have a tangible net worth in excess of $20 million, and average net income after Federal income taxes (excluding carry over losses) for the preceding two completed fiscal year not in excess of $6.5 million. State State bond banks State bond pools Steady state operating level Subordination Total eligible project costs Total project costs Transfer and assumption Underserved communities Uniform Standards of Professional Appraisal Practice (USPAP) Used equipment Useful life Veteran Waste disposal Working Capital [85 FR 42518, July 14, 2020, as amended at 85 FR 62196, Oct. 2, 2020; 86 FR 70354, Dec. 10, 2021; 87 FR 38645, June 29, 2022; 89 FR 79704, Sept. 30, 2024; 89 FR 97477, Dec. 9, 2024; 90 FR 57351, Dec. 11, 2025] § 5001.4 Exception authority. The Administrator may, on a case-by-case basis, grant an exception to any requirement or provision of this subpart provided that such an exception is in the best financial interests of the Federal Government. Exercise of this authority cannot be in conflict with applicable law. § 5001.5 Appeal and review rights. Borrowers, lenders, and holders may have appeal or review rights for Agency decisions made under this part. Agency decisions that are adverse to the individual participant are appealable, while matters of general applicability are not subject to appeal; however, such decisions are reviewable for appealability by the National Appeals Division (NAD). All appeals will be conducted by NAD and will be handled in accordance with 7 CFR part 11. (a) The borrower, lender, and holder can appeal any Agency decision that directly and adversely affects them. (1) For an adverse decision that affects the borrower, the lender and borrower must jointly execute a written request for appeal of an adverse decision made by the Agency. (2) An adverse decision that affects only the lender can be appealed by the lender only. (3) An adverse decision that affects only the holder can be appealed by the holder only. (b) In cases where the Agency has denied or reduced the amount of final loss payment to the lender, the adverse decision can be appealed only by the lender. (c) A decision by a lender adverse to the interest of the borrower is not a decision by the Agency, even if it was concurred in by the Agency, and therefore cannot be reviewed for appealability or appealed to NAD. § 5001.6 General lender responsibilities. (a) Lenders are responsible for originating and servicing loans guaranteed by the Agency under this part in accordance with the provisions of this part and, for those guaranteed loans issued under one of the guaranteed loan programs identified in § 5001.1(a)(1) through (4), with the provisions of the applicable guaranteed loan program. Any action or inaction on the part of the Agency does not relieve the lender of its responsibilities. (b) Lenders can contract for services, but such contracting does not relieve a lender from its responsibilities as identified in this part or, where applicable, in the applicable guaranteed loan program identified in § 5001.1. (c) If a lender fails to comply with the requirements of this part, the Agency may reduce any loss payment in accordance with the lender's agreement and loan note guarantee. [85 FR 42518, July 14, 2020, as amended at 89 FR 79708, Sept. 30, 2024] § 5001.7 Agency's special initiatives. Applicants submitting applications that support the implementation of strategic or special initiatives are encouraged to review the Agency's annual notice to determine if their projects are eligible for receiving priority for projects. These projects may also support the implementation of strategic economic development and community development plans on a multi-jurisdictional and multi-sectoral basis in accordance with section 6401 of the Agriculture Improvement Act of 2018 (Pub. L. 115-334). [89 FR 79708, Sept. 30, 2024] § 5001.8 Approvals, regulations, and forms. (a) When Agency approval or concurrence is required, it must be in writing and must be obtained prior to any action taken for which approval or concurrence is required. Written communication from an authorized Agency official, including any written communication approving, concurring, or otherwise communicating an Agency decision on a matter when such decision is required, may be transmitted via an electronic Agency system in accordance with Electronic Signatures in Global and National Commerce Act (ESIGN) of 2000 (114 Stat. 464) (E-Sign Act). (b) All references to statutes and regulations include any and all successor statutes and regulations. (c) All references to forms include any and all predecessor and successor forms as specified by the Agency. (d) Copies of all regulations and forms referenced in this part can be obtained through the Agency and from the Agency's website at https://www.rd.usda.gov/onerdguaranteed. (e) 7 CFR part 5001 does not prohibit or consent to electronic signatures. Rural Development will accept electronic signatures from lenders for origination, loan closing, and servicing documents in accordance with the E-Sign Act unless otherwise prohibited by law or program. Lenders may use electronic signatures for electronic promissory notes (eNotes), deeds of trust and other documents relevant to the loan transaction, providing that the lender perfects and maintains a first lien position, an enforceable promissory note, and meets all other agency requirements including the following: (1) Lenders may submit forms to Rural Development electronically using USDA's Service Center Agencies Online Services website. Registration is limited to individuals and each individual authorized by the lender must register and upon registration may electronically sign and submit certain forms on behalf of the lender. (2) Lenders who choose to accept electronic signatures from borrowers must ensure that such signatures meet the standards and requirements set forth in the E-Sign Act, as well as all other applicable federal and state regulations and guidelines. Lenders are charged with the same responsibility of due diligence with electronically signed documents as they are with paper documents. If any electronically signed document is deemed unenforceable and is connected to any fraud, misrepresentation or negligent servicing, the lender bears the risk that any loss claim submitted in relation to the unenforceable document will be denied or reduced in accordance with applicable regulations. Any loss attributed to a lender's failure to collect on the promissory note or enforce the security instrument because of its electronic signature will be treated as negligent servicing under 7 CFR 5001 servicing regulations. Failure to comply with any Federal statute or regulation could result in the denial of a loan guarantee or claim, withdrawal of lending authority and/or debarment from Federal programs. [85 FR 42518, July 14, 2020, as amended at 86 FR 70355, Dec. 10, 2021; 89 FR 79708, Sept. 30, 2024] § 5001.9 Standards for financial information. (a) All financial information ( e.g., e.g., (b) For sole proprietorships and other situations where business assets are held personally, financial statements must be prepared using only the assets and liabilities directly attributable to the applicant's project. For these situations, assets, plus any improvements, must be valued at the lower of cost or market value. (c) A tax return is not an acceptable financial statement when underwriting a loan guaranteed under this part; however, tax return information may be used to prepare financial statements and to determine REAP eligibility. [89 FR 79708, Sept. 30, 2024] § 5001.10 Federal Register notices and amendments. Rural Development will issue annual Federal Register §§ 5001.11-5001.99 [Reserved] § 5001.100 OMB control number. The report and recordkeeping requirements contained in this part have been approved by the Office of Management and Budget and have been assigned OMB control number 0572-0155. Subpart B—Eligibility Provisions § 5001.101 Introduction. This subpart addresses the eligibility provisions for projects, borrowers, and lenders. This subpart also includes provisions for projects involving the purchase of cooperative stock or cooperative equity, the conversion of businesses to cooperatives or Employee Stock Ownership Plans (ESOP), and New Markets Tax Credits (NMTC). (a) Project eligibility. (b) Borrower eligibility. (c) Lender eligibility. (d) Cooperative stock/cooperative equity/conversions. (e) New Markets Tax Credits. (f) Use of funds. [85 FR 42518, July 14, 2020, as amended at 89 FR 79709, Sept. 30, 2024] § 5001.102 Project eligibility—general. To be eligible for a loan guarantee under this part, a project must meet the requirements specified in this section and those in the applicable section in §§ 5001.103 through 5001.108. (a) Service area. (1) Projects in phases (each phase must be financially sustainable without consideration of future phases) when it is not practical to finance or construct the entire project at one time; and (2) Projects where it is not economically feasible to serve the entire service area, provided the economic feasibility is determined on the basis of the entire system or facility and not by considering the cost of separate extensions to, or parts thereof. (b) Location. (c) Tax-exempt financing. (d) Debt refinancing. (1) Refinancing of debt on one or more loans owed to another creditor. There is no limit on percent of total use of funds if a new lender is refinancing debt owed to another creditor; (2) Refinancing of debt owed to the applicant lender or any part thereof provided that the applicant lender debt being refinanced does not exceed 50 percent of the total use of funds in the new aggregated federally-guaranteed debt, the applicant lender debt being refinanced is in a current status for the past six months and the new guaranteed loan is providing better rates or repayment terms. Better rates or repayment terms can be shown in a variety of ways including the lender providing a fixed rate over a lower variable rate provided the change is advantageous to the borrower's long-term repayment ability. The current status cannot be achieved by the lender forgiving the borrower's debt or by servicing actions that impact the borrower's repayment schedule; or (3) Refinancing of debt owed directly to the Federal Government or that is federally-guaranteed, including any guaranteed debt owed to the applicant lender, when a refinance of this debt is consistent with sections 333, “Special Conditions and Limitations on Loans” and 306(a)(24)(C), “Loan Guarantees for Water, Wastewater, and Essential Community Facilities Loans” of the Consolidated Farm and Rural Development Act (as amended by the Agriculture Improvement Act of 2018, Pub. L. 115-334). Such guaranteed debt shall not be included in the amount of applicant lender debt when calculating the maximum percentage of the total use of funds in the new guaranteed loan as stated in paragraph (d)(2) of this section; and, (4) When the refinancing is in accordance with paragraphs (d)(1) through (3) of this section, the following requirements must be met: (i) The Agency has determined that the project is viable, and debt refinancing is necessary to improve cash flow; (ii) The debt is reflected on the borrower's balance sheet and the original loan funds were used for project-eligible purposes. Refinancing of existing of lines of credit is considered an eligible purpose for debt refinancing in the B&I program; (iii) For loans to existing businesses where debt refinancing is a majority purpose of the guaranteed loan, the borrower must demonstrate historical debt service coverage ratios using proposed debt service requirements of not less than 1.1 times, or the borrower's current financial performance demonstrates it has corrected or recovered from impacts or issues adversely affecting its past financial performance. The debt service coverage ratio computed based on the current income statement must be at least 1:1 to demonstrate correction or recovery. (5) For CF guaranteed loan requests only, refinancing of debt, not including new construction, incurred by a rural hospital to preserve access to a health service when the refinancing will meaningfully improve the financial position of the hospital. The debt can be existing Agency direct loan debt, Agency guaranteed debt, or another lender's debt (including other non-Agency Federal guaranteed debt). Loan requests to refinance rural hospital debt must demonstrate that the new amount of annual debt repayment on the debt being refinanced will be less than the existing amount of annual debt repayment and provide a total debt service coverage ratio of at least 1.1 based on historical cash flow. To calculate the ratio, the new debt service amount will include annual capital expense reserve and annual debt repayment reserve requirements. This information will be provided by the lender on an Agency approved application for loan guarantee and its associated supporting documentation. [85 FR 42518, July 14, 2020, as amended at 85 FR 62196, Oct. 2, 2020; 89 FR 79709, Sept. 30, 2024] § 5001.103 Eligible CF projects and requirements. For a CF projects to be eligible for a loan guarantee under this part, it must meet the criteria specified in § 5001.102 and this section and be for a borrower eligible to submit an application for the project in accordance with § 5001.126. (a) Type of project. (1) Health care facilities and services, including but not limited to hospitals and assisted living facilities providing daily living and health care assistance in compliance with Federal, Tribal and/or State licensure or certification requirements; (2) Fire, rescue, and public safety facilities and services; (3) Community, public, social, educational, or cultural facilities or services, including but not limited to: (i) Business incubators when not an inherently commercial enterprise, and the applicant demonstrates the following: (A) Applicant is a mission-driven organization such as a local or regional economic development organization; (B) The facility will be used to provide technical assistance, training, workforce development, administrative support services and vocational training to address workforce shortages in the community or region; and (C) Capacity building and support services that include at a minimum the following with the borrower demonstrating expertise in one or more of these services or presents a sustainable economically feasible program to outsource such activities: ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 (ii) Thrift stores that operate as charitable organizations to enrich the quality of life for residents of the rural community they serve demonstrated by the following activities: (A) Collect and resell used or donated merchandise to community residents and may also provide other services such as job training or food pantries; (B) Receive donations, gifts, or bequests of money to help fund the organization and its purpose with a significant portion obtained from the rural community it serves. (C) Profits are reinvested in the facility or in charitable activities in the rural community served to ensure the goals of the organization are met. (iii) Fairgrounds, agricultural exposition centers, farmers markets, food distribution and food banks; (4) Transportation facilities such as streets, bridges, roads, ports, and airports; (5) Utility projects such as hydroelectric generating facilities and related connecting systems and appurtenances; supplemental and supporting structures for other rural electrification or telephone systems including facilities such as headquarters, office buildings, storage facilities, and maintenance shops when not eligible for RUS financing; natural gas distribution systems; and recycling or transfer centers or stations. (6) Telecommunications end-user equipment as it relates to public safety, medical, or educational telecommunications links when not eligible for RUS financing; (7) Water infrastructure facilities such as levees, dams, reservoirs, inland waterways, canals, and irrigation systems; (8) The purchase and installation of renewable energy systems for use by an essential community facility when: (i) The renewable energy system will help defray the cost of facility operation over the life of the system; (ii) The renewable energy system will improve the borrower's ability to provide the underlying essential community service, such as providing backup facilities or extending fuel supplies of backup facilities; (iii) The borrower does not, and will not, have any contract to sell power generated by the renewable energy system; however, receiving credit for excess production is permitted; (iv) The borrower does not anticipate, and has no plan for, generation of more energy than it will use in a consecutive 12-month period. The borrower may receive credits from a utility for energy production that happens to exceed facility usage during a particular month; (v) The renewable energy system is commercially available with proven operating history specific to the proposed application; and (vi) The borrower provides a technical report as part of the financial feasibility study in accordance with § 5001.307(e) (1) and (2), as applicable of subpart D. (9) Land acquisition and necessary site preparation including access ways and utility extensions to and throughout an industrial park site; and (10) Community parks, community activity centers, and similar types of facilities that are an integral part of the orderly development of a community (meaning a development that is addressing a need in the community). Recreational components including, but not limited to, playground equipment of an otherwise non-recreational eligible community facility such as childcare, educational, or health care facilities are also eligible. (b) Public use. (1) To demonstrate availability for public use, the borrower may not restrict use of or membership to its facility or service based on race, color, religion, sex, national origin, age, disability, sexual orientation, or marital or familial status Veterans of Foreign Wars and American Legion post facilities must be open and available for use by appointment or lease to community residents or groups. (c) Project location. (d) Leased space. (e) Purchase of existing facility. (1) An appraisal which demonstrates the purchase price is fair and reasonable and represents the market value of the facility through an arm's length transaction; and (2) If the transaction is necessary to improve the facility, documentation of the improvements that will be required and the plan, including source of funding, to complete those improvements within a reasonable timeframe; or (3) If the transaction is necessary to prevent a loss of service, documentation in the form of a financial analysis that demonstrates the seller will not have the financial means to continue to operate the facility and provide the needed services. [85 FR 42518, July 14, 2020, as amended at 89 FR 79709, Sept. 30, 2024] § 5001.104 Eligible WWD projects and requirements. For a WWD project to be eligible for a loan guarantee under this part, it must meet the criteria specified in § (a) Type of project. (1) Drinking water facilities, including but not limited to water source, treatment and distribution; (2) Sanitary sewage facilities, including but not limited to collection and treatment; (3) Solid waste facilities; or, (4) Stormwater facilities. (b) Public use. (c) Project location. (d) Service area. (2) The lender must determine that, when feasible and legally possible, inequities within the project's service area for the same type service proposed will be remedied by the borrower on, or before, completion of the project. Inequities are defined as unjustified variations in availability, adequacy, or quality of service. User rate schedules for portions of existing systems or facilities that were developed under different financing, rates, terms, or conditions do not necessarily constitute inequities. [85 FR 42518, July 14, 2020, as amended at 86 FR 70355, Dec. 10, 2021; 89 FR 79710, Sept. 30, 2024] § 5001.105 Eligible B&I projects and requirements. For a B&I project to be eligible for a loan guarantee under this part, it must meet the criteria specified in § 5001.102, be for a borrower eligible to submit an application for the project in accordance with § 5001.126, and the uses of loan funds include, but are not limited to, the following: (a) Purpose. (b) Type of project. (1) Purchase and development of land, buildings, or infrastructure for public or private commercial enterprises or industrial properties, including expansion or modernization. (2) Business acquisitions, start-ups, and expansions if jobs will be created or saved. A business acquisition is considered the acquisition of an entire business, not a partial stock acquisition in a business. However, acquisition or change of ownership between existing owners is an eligible project when the remaining owner(s) held their ownership and actively participated in the business operation for at least the past 24 months and the selling owner will not retain any ownership interest in the business directly or indirectly including through other entities or trusts or property rights. (3) Purchase and installation of machinery and equipment. (4) Startup costs, working capital, inventory, and supplies in the form of a permanent working capital term loan. (5) Pollution control and abatement. (6) Purchase of membership, stocks, bonds, or debentures necessary to obtain a loan from a member owned lending institution provided the purchase is required for all their borrowers and is the minimum amount required. (7) Agricultural production, when not eligible for Farm Service Agency (FSA) farm loan programs assistance and when it is part of an integrated business also involved in the processing of agricultural products. Any agricultural production considered for guaranteed loan financing must be owned, operated, and maintained by the business receiving the guaranteed loan. Examples of potentially eligible agricultural production include but are not limited to an apple orchard in conjunction with a food processing plant; poultry buildings linked to a meat processing operation; or sugar beet production coupled with storage and processing. (i) The agricultural production portion of any loan must not exceed 50 percent of the total loan or $5 million, whichever is less. (ii) The limitations in paragraph (b)(7)(i) do not apply to the following types of businesses: (A) Commercial nurseries engaged in the production of ornamental plants, trees, and other nursery products, such as bulbs, flowers, shrubbery, flower and vegetable seeds, sod, and the growing of plants from seed to the transplant stage; (B) Forestry, which includes businesses primarily engaged in the operation of timber tracts, tree farms, forest nurseries, harvesting of forest products, and related activities, such as reforestation; (C) The growing or harvesting of mushrooms; (D) The growing of hydroponics; (E) The boarding and/or training of animals; (F) Commercial fishing; and (G) Production of algae and aquaculture, including conservation, development, and utilization of water for aquaculture. (8) Tourist and recreation facilities, including hotels, motels, bed and breakfast establishments, and resort trailer parks and campgrounds operated as a public or private commercial enterprise. Owner-occupied housing, such as bed and breakfasts, hotels and motels are only allowed when the pro rata value of a direct owner's living quarters, based on square footage, is deducted from the use of loan proceeds. (9) Educational or training facilities including other CF projects when not eligible for financing through Rural Housing Service or Community Facilities programs. (10) Development and construction of broadband and telecommunication systems, including modification of existing systems, that are not otherwise eligible for funding in the RUS program or if funding is unavailable in the RUS program, subject to the public notice filing requirements of 7 CFR 1738.106(a) and the additional reporting requirements of 7 CFR 1738.107. (11) Industries undergoing adjustment from terminated Federal agricultural price and income support programs or increased competition from foreign trade. (12) Constructing or equipping facilities for lease to private businesses engaged in commercial or industrial operations. (13) Financing for mixed-use properties involving both commercial business and residential space is authorized, provided that not less than 50 percent of the business's projected revenue will be generated from business use. (14) Leasehold improvements when the lease contains no reverter clauses or restrictive clauses that would impair the use or value of the property as security for the loan. The term of the lease must be equal to or greater than the term of the loan. Leasehold improvements are physical enhancements made to property by or on behalf of the property's lessee. When improvements are made to real property and those improvements are permanently affixed to the property, the title to those improvements automatically transfers to the owner of the property upon termination of the lease. (15) Projects that process, distribute, aggregate, store, and/or market locally or regionally produced agricultural food products to support community development and farm and ranch income. (i) Subject to each of the following, projects may be located in non-rural areas as well as in rural areas if the project: (A) Expands or preserves the availability of staple food in underserved areas with moderate and low-income populations by maintaining or increasing the number of retail or institutional outlets that offer an assortment of healthy perishable foods and staple food items; (B) The project will create or retain quality jobs for low-income residents of the community; (C) A significant amount of the food is locally or regionally produced and sold; and (D) Includes an appropriate agreement with retail and institutional clients to inform consumers that they are purchasing or consuming locally or regionally produced agricultural food products. The agreement(s) must be in place prior to issuance of the loan note guarantee and stated as part of the lender's certification at loan closing. (ii) The Agency will give funding priority to projects that provide a benefit to underserved communities in accordance with § 5001.318(d)(5) of this part. (16) The purchase of cooperative stock by individual farmers or ranchers in a farmer or rancher cooperative or the purchase of transferable cooperative stock in accordance with § 5001.140(a) and (b); or the purchase of stock in a business by employees forming an ESOP or worker cooperative in accordance with § 5001.140(d). (17) The purchase of preferred stock or similar equity issued by a cooperative or a loan to a fund that invests primarily in cooperatives in accordance with § 5001.140(c). (18) Loans to cooperatives: (i) Guaranteed loans to eligible cooperatives may be made in principal amounts up to $40 million if the project is located in a rural area, the cooperative facility being financed provides for the value-added processing of agricultural commodities, and the total amount of guaranteed loans exceeding $25 million does not exceed 10 percent of the funds available for the fiscal year. Guaranteed loans in excess of $25 million in accordance with this provision may only be approved by the Secretary, whose authority may not be redelegated. (ii) Guaranteed loans to eligible cooperatives may also be made in non-rural areas provided: (A) The primary purpose of the guaranteed loan is for a facility to provide value-added processing for agricultural producers that are located within 80 miles of the facility; (B) The borrower satisfactorily demonstrates that the primary benefit of the guaranteed loan will be to provide employment for rural residents; (C) The principal amount of the guaranteed loan does not exceed $25 million; and (D) The total amount of guaranteed loans guaranteed under this paragraph does not exceed 10 percent of the funds available for the fiscal year. (iii) An eligible cooperative may refinance an existing B&I guaranteed loan if the existing loan is current and performing, the existing loan is not and has not been in monetary default or the collateral has not been converted, and there is adequate security and collateral for the new guaranteed loan. (19) Taxable corporate bonds when the bonds are fully amortizing and comply with all provisions of this part, bond proceeds were used for an eligible purpose in this part, and the lender as bond holder retains the percent of the bond in accordance with § 5001.408(3)(i) of this part. The bonds must be fully secured with collateral in accordance with § 5001.202(b)(4) of this part. The bonds must only provide for a trustee when the trustee is totally under the control of the lender. The bonds must provide no rights to bond holders other than the right to receive the payments due under the bond. For instance, the bonds must not provide for bond holders replacing the trustee or directing the trustee to take servicing actions, such as accelerating the bonds. In accordance with § 5001.127(f), convertible bonds are not eligible under this paragraph due to the potential conflict of interest of a lender having an ownership interest in the borrower. An explanation of the type of bond and other bond stipulations must be attached to the bond. (i) The bond issuer must obtain the services and opinion of an experienced bond counsel, who must present a legal opinion stating that the bonds are legal, valid, and binding obligations of the issuer and that the issuer has adhered to all applicable laws. (ii) The bond holder (lender) must purchase all the bonds issued pursuant to the guaranteed and comply with all Agency regulations. There must be a bond purchase agreement between the issuer and the bond holder. The bond purchase agreement must contain similar language to that required in a loan agreement and must not conflict with this part. The bond holder is responsible for all servicing of the guaranteed loan evidenced by the bond, although the bond holder may contract for servicing assistance, including contracting with a trustee who remains under the lender's total control. (20) Nursing homes and assisted living facilities where constant medical care is provided and available onsite to the residents. Independent living facilities are not eligible in accordance with § 5001.118(a). Independent living facilities are considered residential property as they have many similarities to a multi-family housing complex, whereas nursing home and assisted living facility tenants rely on those entities to provide needed personal or medical care. Properties consisting of both assisted care facilities and independent senior living may be eligible if the availability of the on-site medical services is an optional service to the independent living residents, or if the predominant residents of the facility require assisted living care. (21) Development and construction of RES, including modification of existing systems that are commercially available and that are not otherwise eligible under REAP, or if funding is not available in the REAP program. (22) Integrated processing equipment and systems, such as biorefineries, renewable energy systems, and chemical manufacturing facilities, must utilize commercially available technology, equipment, and systems and demonstrate technical merit. The Agency will evaluate the following areas in making the technical merit determination: (i) Qualifications of the project team; (ii) Agreements and permits; (iii) Resource assessment; (iv) Design and engineering; (v) Project development; (vi) Equipment procurement and installation; and (vii) Operations and maintenance. The demonstration of technical merit is the completion of two operating cycles at its designed production level. “Operating cycle” is the average time between the acquisition of materials or the providing of services and the final cash realization of that acquisition or provision of services. (c) Facility location. (d) Capital and equity. (1) Existing businesses must meet one of the following requirements: (i) A minimum of 10 percent balance sheet equity (including subordinated debt when subject to a standstill agreement for the life of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 1, at loan closing; (ii) A 10 percent or more of total eligible project costs, borrower investment of equity or other funds into the project including grants or subordinated debt when subject to a standstill agreement for the life of the loan; (iii) Owner contributed capital, as reflected in the equity section of the balance sheet, that is equal to or greater than 10 percent of net total fixed assets plus depreciation. (2) New businesses with sales contract(s) with proceeds in an amount adequate to meet debt service and the term of the sales contract(s) are at least equal to the term of the guaranteed loan, and subject to Agency acceptance of the credit worthiness of the counterparty, the borrower must meet one of the following requirements: (i) A minimum of 10 percent balance sheet equity (including subordinated debt when subject to a standstill agreement for the life of the loan), or a maximum debt-to-balance sheet equity ratio of 9 to 1 at loan closing; or (ii) Borrower investment of equity or other funds (including subordinated debt when subject to a standstill agreement for the life of the loan and grants) into the project in an amount of 10 percent or more of total eligible project cost; (3) New businesses with a project involving construction and when the lender will request the loan note guarantee prior to completion of construction must meet one of the following requirements: (i) A minimum of 25 percent balance sheet equity (including subordinated debt when subject to a standstill agreement for the life of the loan), or a maximum debt-to-equity ratio of 3 to 1, at guaranteed loan closing; or (ii) Borrower investment of equity or other funds (including subordinated debt when subject to a standstill agreement for the life of the loan and grants) into the project in an amount of 25 percent or more of total eligible project cost; (4) All other borrowers that are new businesses must meet one of the following requirements: (i) A minimum of 20 percent balance sheet equity (including subordinated debt when subject to a standstill agreement for the life of the loan), or a maximum debt-to-equity ratio of 4 to 1, at guaranteed loan closing, or; (ii) Borrower investment of equity or other funds (including subordinated debt when subject to a standstill agreement for the life of the loan and grants) into the project in an amount of 25 percent or more of total eligible project cost; (5) Variances in capital and equity requirements: (i) Increases. (ii) Reductions. (6) Certification: The lender must certify that, as of the date the guaranteed Loan was closed, its credit analysis indicated that the borrower had sufficient capital or equity to mitigate the financial and operational risks of the business, and that the borrower met the minimum equity required by the Agency in its conditional commitment, or that the minimum borrower capital contribution toward project costs, as applicable and required by the Agency, was met. A copy of the borrower's loan closing balance sheet must be included with the lender's certification. Table 1 to § 5001.105 (d) Borrower Borrower must meet one of the following at the time of the closing of the guaranteed loan: Percent balance sheet equity: Borrower investment as percent of total Balance sheet equity includes owner Existing Business ≥10 ≥10 ≥10 Borrowers that are new businesses with sales contract(s) adequate to meet debt service and the term of the sales contract(s) are at least equal to the term of the guaranteed loan. ≥10 ≥10 N/A Borrowers that are new businesses for a project involving construction and the lender will request the loan note guarantee prior to completion of construction. ≥25 ≥25 N/A All other borrowers that are new businesses ≥20 ≥25 N/A [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70355, Dec. 10, 2021; 89 FR 79710, Sept. 30, 2024; 90 FR 57351, Dec. 11, 2025] § 5001.106 Eligible REAP—Renewable Energy System (RES) projects and requirements. For a REAP RES project to be eligible for a loan guarantee under this part, it must meet the criteria specified in § 5001.102(a) through (c) and in paragraphs (a) through (e) of this section and be for a borrower eligible to submit an application for the project in accordance with § 5001.126. If taxable bonds are utilized as debt instruments the provisions of § 5001.105(b)(19) must be met. (a) The project must be for— (1) The purchase of a new or existing RES; (2) The purchase of a refurbished RES; or (3) The retrofitting of an existing RES. (4) For the purposes of this section, only those hydroelectric sources with a rated power of 30 megawatts or less are an eligible RES. (b) The RES project must use commercially available technology. (c) The RES project must be located in a rural area unless the borrower is an agricultural producer and the application supports the production, processing, vertical integration, or marketing of agricultural products. If the agricultural producer's operation is in a non-rural area, then the application can only be for RES components that are: (1) Directly related to, and their use and purpose is limited to the agricultural production operation, such as vertically integrated operations; and (2) Part of and co-located with the agricultural production operation. (d) Where a residence is closely associated with an agricultural operation or rural small business to be served by the RES project, 50 percent or more of the energy to be generated by the RES project must be used by the agricultural operation or rural small business. This provision must be documented with the application and can be demonstrated using either of the methods identified in paragraphs (d)(1) and (2) of this section. (1) Provide a renewable energy site assessment or other documentation and calculations that demonstrate based on historical energy use that 50 percent or more of the energy to be produced by the RES project will be used in the agricultural operation or rural small business. This includes documentation on historical residential energy use. The Agency may request additional data to determine residential versus business or agricultural operation usage. The actual percentage of energy determined to benefit the rural small business or agricultural operation will be the basis to determine eligible project costs. (2) The borrower may install or elect to conditionalize funding upon the installation of a device (such as a second meter) that results in 100 percent of the energy generated by the RES project to be used only by the agricultural operation or rural small business. (e) The RES project must have technical merit. The Agency will use the information provided in the technical report submitted with the application (see § 5001.307(e) of this part) to determine if the project has technical merit. In making this determination, the Agency may engage the services of other Government agencies or other recognized industry experts in the applicable technology field, at its discretion, to evaluate the technical report. (1) Technical report areas. (i) RES projects with total project costs of $80,000 or less. (A) Project description; (B) Resource assessment; (C) Project economic assessment; and (D) Qualifications of key service providers. (ii) RES projects with total project costs of less than $200,000, but more than $80,000. (A) Project description; (B) Resource assessment; (C) Project economic assessment; (D) Project construction and equipment; and (E) Qualifications of key service providers. (iii) RES projects with total project costs of $200,000 and greater. (A) Qualifications of the project team; (B) Agreements and permits; (C) Resource assessment; (D) Design and engineering; (E) Project development; (F) Equipment procurement and installation; and (G) Operations and maintenance. (2) Pass/pass with conditions/fail assignments. (3) Determination. (i) A project whose technical report receives a “pass” in each of the applicable areas will be considered to have “technical merit.” (ii) A project whose technical report receives a “pass with conditions” in one or more the applicable areas will be considered to have “conditional technical merit.” (iii) A project whose technical report receives a “fail” in any one area will be considered to be “without technical merit.” (4) Further processing of applications. [85 FR 42518, July 14, 2020, as amended at 89 FR 79711, Sept. 30, 2024; 90 FR 57352, Dec. 11, 2025] § 5001.107 REAP—Energy Efficiency Improvement (EEI) projects and requirements. For a REAP EEI project to be eligible for a loan guarantee under this part, it must meet the criteria specified in § 5001.102(a) through (c) and also specified in paragraphs (a) through (d) of this section and be for a borrower eligible to submit an application for the project in accordance with § 5001.126. If taxable bonds are utilized as debt instruments the provisions of § 5001.105(b)(19) must be met. (a) The EEI project must use less energy on an annual basis than the original building and/or equipment that it will improve or replace as demonstrated in an energy assessment or energy audit as applicable. (1) If the project's total project cost is greater than $80,000, the energy assessment must be conducted by an energy auditor, an energy assessor, or an individual supervised by either an energy assessor or energy auditor. The final energy assessment must be validated and signed by the energy assessor, the energy auditor who conducted the energy assessment, or by the supervising energy assessor or energy auditor of the individual who conducted the assessment, as applicable. (2) If the project's total project cost is $80,000 or less, the energy assessment may be conducted in accordance with paragraph (a)(1) of this section or by a person that has at least 3 years of experience and completed at least five energy assessments or energy audits on similar type projects. Eligible EEI include, but are not limited to: (i) Efficiency improvements to existing RES; and (ii) Construction of a new building only when the new building is used for the same purpose as the existing building and if, based on an energy assessment or energy audit, as applicable, it is more cost effective to construct a new building that will use less energy on annual basis than to improve the energy efficiency of the existing building. (b) The EEI project must be for a commercially available technology. (c) The EEI project must be located in a rural area unless the borrower is an agricultural producer and the Application supports the production, processing, vertical integration, or marketing of agricultural products. If the agricultural producer's operation is in a non-rural area, then the application can be for only EEI components that are: (1) Directly related to and have a use and purpose limited to an agricultural production operation such as vertically integrated operations; and (2) Part of and co-located within the agricultural production operation. (d) The EEI project must have technical merit. The Agency will use the information provided in the technical report submitted with the application (see § 5001.307(e)) to determine whether the project has technical merit. In making this determination, the Agency may, at its discretion, engage the services of other Government agencies or other recognized industry experts in the applicable technology field to evaluate and rate the technical report. (1) Technical report areas. (i) EEI project with total project costs of $80,000 or less. (A) Project description; (B) Qualifications of EEI provider(s); and (C) Energy assessment (or energy audit if applicable). (ii) EEI projects with total project costs of greater than $80,000. (A) Project information; (B) Energy assessment (or energy audit as applicable); and (C) Qualifications of the contractor or installers. (2) Pass/pass with conditions/fail assignments. (3) Determination. (4) Further processing of applications. [85 FR 42518, July 14, 2020, as amended at 89 FR 79711, Sept. 30, 2024] § 5001.108 Eligible REAP—Energy Efficient Equipment and Systems (EEE) projects and requirements. For a REAP EEE project to be eligible for a loan guarantee under this part, it must meet the criteria specified in § 5001.102(a) through (c) and in paragraphs (a) through (d) of this section and be for a borrower that is an agricultural producer eligible to submit an application for the project in accordance with § 5001.126. The EEE project can be located in a rural or non-rural area as long as the energy efficient equipment or systems are used for agricultural production or processing in accordance with paragraph (a) of this section. If the borrower plans to use taxable bonds as debt instruments the provision § 5001.105(b)(19) must be met. (a) The project must be for the purchase and installation of energy efficient equipment or systems for agricultural production or processing that exceed the following standards: (1) Energy efficiency building codes, if available; (2) Federal or State energy efficiency standards, if available; and (3) Other energy efficiency standards determined appropriate by the Secretary. (i) If no codes or standards described in such subparagraph apply to the energy efficient equipment or system to be purchased or installed pursuant to such subparagraph, the Secretary shall require, to the maximum extent practicable, such equipment or systems to meet the same efficiency measurements as the most efficient available equipment or system in the market; and (ii) The Secretary shall not provide such a loan guarantee for the purchase or installation of any energy efficient equipment or system unless more than one type of such equipment or system is available in the market. (b) The EEE project must be for commercially available technology. (c) The EEE project must have technical merit as certified by the vendor/installer. An application that does not include said certification will be deemed incomplete and therefore is not eligible to compete for funding. [85 FR 42518, July 14, 2020, as amended at 89 FR 79712, Sept. 30, 2024] §§ 5001.109-5001.114 [Reserved] § 5001.115 Ineligible projects—general. The Agency will not issue a loan guarantee under this part for any of the projects identified in this section, unless otherwise noted. The following are ineligible projects for the CF, WWD, B&I and REAP programs: (a) Any investment or arbitrage, or any speculative real estate investment other than cooperative stock, transferable stock, cooperative equity in accordance with § 5001.140 and NMTC projects in accordance with § 5001.141. (b) Golf courses and golf course infrastructure, including par-3 and executive golf courses; racetracks or facilities for the conduct of races by animals, professional or amateur drivers or jockeys; for-profit zoos or safaris; and publicly-owned or non-profit amusement parks, water parks, and similar recreational type facilities inherently commercial in nature and primarily used for recreational purposes. (c) Motion pictures and theatrical productions. (d) Funding of political or lobbying activities. (e) Guaranteeing loans made by other Federal agencies, lines of credit, or lease payments. (f) Projects that the Agency determines create, directly or indirectly, a conflict of interest. (g) Properties to be used for primarily commercial rental when the borrower has no control over tenants and services offered, except for industrial-site infrastructure development. (h) Projects that utilize technology, equipment, or systems that are not commercially available. (i) Projects that will violate the requirements of 7 CFR part 1970, or any statutes or Executive Orders regarding environmental requirements. (j) Projects used primarily for the purpose of housing Federal, State, or quasi-Federal agencies, unless it is typical of the area for communities to provide this space. (k) Community antenna television and radio services or facilities. (l) Telephone systems. In certain circumstances, when not eligible for assistance through the Agency's telecommunications program these projects may be eligible for assistance under this part. (m) New combined sanitary and storm water sewer facilities. (n) Except as provided in § 5001.105(b)(8), owner-occupied housing. Owner-occupied housing, such as bed and breakfasts, and hotels and motels, are only eligible when the pro-rata value of the owner's living quarters, based on square footage, is deducted from the loan proceeds. (o) Loans on which the interest is excludable from income under current or a successor statute of the Internal Revenue Code. Funds generated through the issuance of tax-exempt obligations cannot be used to purchase the guaranteed portion of any Agency guaranteed loan and an Agency guaranteed loan cannot serve as collateral for a tax-exempt issue. (p) Residential EEI projects. (q) Except as provided in § 5001.106(d), residential RES projects. (r) Loans supporting inherently religious activities, such as worship, religious instruction, proselytization, or to pay costs associated with acquisition, construction, or rehabilitation of structures for inherently religious activities, including the financing of multi-purpose facilities where religious activities will be among the activities conducted. However, religious organizations may participate in projects eligible for funding under section 306(a)(24) of the Consolidated Farm and Rural Development Act, 7 U.S.C. 1926(a)(24), provided they do not use Agency assistance for inherently religious activities in accordance with 7 CFR part 16, “Equal Opportunity for Religious Organizations.” If an organization conducts religious activities, they must be offered separately, in time, or location from programs or services supported with the guaranteed loan. Participation in the religious activities must be voluntary, and not mandatory, for the beneficiaries of the program or services. Religious organizations may not discriminate against a beneficiary or prospective beneficiary, on the basis of religion or religious beliefs. Sanctuaries, chapels, or other rooms that are used as a principal place of worship are ineligible for guaranteed financing under this part. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70356, Dec. 10, 2021; 89 FR 79712, Sept. 30, 2024] § 5001.116 Ineligible CF projects. The following are ineligible projects for the CF program only: (a) For industrial park sites, the financing of on-site utility systems or business and industrial buildings. (b) Inherently commercial enterprises: This type of project is typically operated by a private enterprise with an essential characteristic to produce profits. This term does not include projects operated by private enterprises on a not-for-profit basis that provide education, childcare, geriatric care, or health care to rural communities. Inherently commercial enterprises include but are not limited to: grocery stores; television and radio services or facilities; that portion of a water and/or waste disposal facility normally provided by a business or industrial user; and telecommunication facilities or services, including broadband or fiber network services that do not meet the requirements of § 5001.103(a)(6). See § 5001.103(d) for the eligibility of a commercial enterprise leasing space in an eligible project; (c) Projects where construction is completed prior to filing an application with the Agency. This restriction applies to construction completed by or for the borrower and does not preclude the purchase or acquisition of a building constructed by an independent third party or refinancing of debt in accordance with § 5001.102(d). (d) Projects where the borrower acts to circumvent the regulations provided in this subpart, causing the borrower or project being eligible when, previously, the borrower or project was ineligible. (e) Projects involving the purchase of existing facilities in which the transaction's purpose is to primarily retire the debt of the seller in order for the seller to continue to use the facility at a lower cost. Characteristics of ineligible purchase transactions may include the following: (1) An entity, which may or may not be an eligible CF borrower, forms a new eligible entity or uses an existing eligible related entity to purchase all or part of its assets; (2) The new entity uses CF guaranteed loan funds to purchase the assets at the agreed upon price and leases the assets back to the seller, generally at a rate which equates to the new debt payments; and (3) The seller uses the proceeds of the sale to retire its high-cost debt and continues to use the facilities at a lower cost. [85 FR 42518, July 14, 2020, as amended at 89 FR 79712, Sept. 30, 2024] § 5001.117 Ineligible WWD projects. The following are ineligible projects for the WWD programs only: (a) That portion of a project normally provided by a business or industrial user, such as wastewater pretreatment. (b) Provided the existing borrower has the capacity to provide adequate service to their service territory, guaranteed loan funds may not be used to take away customers or service areas of existing USDA WWD Program direct or guaranteed loan borrowers. The requirements and limitations of 7 U.S.C. 1926(b) only apply to this section. (c) Projects where the borrower acts to circumvent the regulations provided in this subpart, causing the borrower or project being eligible when, previously, the borrower or project was ineligible. (d) Projects involving the purchase of existing facilities in which the transaction's purpose is to primarily retire the debt of the seller in order for the seller to continue to use the facility at a lower cost. § 5001.118 Ineligible B&I projects. The following are ineligible projects for the B&I program only: (a) The financing of timeshares, residential trailer parks, apartments, duplexes, or other residential housing where the primary purpose is independent housing except as authorized in § 5001.105(b)(8), or housing development sites except as authorized in § 5001.105(b)(1). (b) Projects eligible for funding under B&I that are in excess of $1 million that would either: (1) Likely result in the transfer of jobs from one area to another and increase direct employment by more than 50 employees. However, this limitation is not to be construed to prohibit assistance for the expansion of an existing business entity through the establishment of a new branch, affiliate, or subsidiary of such entity if the establishment of such branch, affiliate, or subsidiary will not result in an increase in unemployment in the area of original location or in any other area where such entity conducts business operations. An exception is when there is reason to believe that such branch, affiliate, or subsidiary is being established with the intention of closing down the operations of the existing business entity in the area or its original location or in any other area where it conducts such operations; or (2) Increase direct employment by more than 50 employees, which is calculated to or likely to result in an increase in the production of goods, materials, commodities, or the availability of services or facilities in the area when there is not sufficient demand for such goods, materials, commodities, services, or facilities to employ the efficient capacity of existing competitive commercial or industrial enterprises, unless such financial or other assistance will not have an adverse effect upon existing competitive enterprises in the area. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020] § 5001.119 Ineligible REAP projects. Owner occupied bed and breakfasts are ineligible projects in the REAP program. § 5001.120 [Reserved] § 5001.121 Eligible uses of loan funds. Guaranteed loan funds can only be used for the items specified in this section and any other items the Agency identifies in the Federal Register. (a) CF projects. (1) When necessary to ensure the successful operation or protection of the project authorized in § 5001.103, subpart B: (i) Costs for the construction or relocation of public buildings, roads, bridges, fences, utilities, or to make other public improvements; and (ii) Costs for the relocation of private buildings, roads, bridges, fences, or utilities, and other private improvements. (2) To pay the cost of conduit, such as pipe, tube, or tile for protecting electric wires or cables, and its installation in conjunction with financing facilities authorized in § 5001.103, when the cost of the conduit is less than 25 percent of the total project cost and the conduit is not essential to the operation of the eligible essential facility or service to be financed. The borrower must be the owner of the conduit. The conduit must be installed at the time of project construction and must be for public use. A project example is construction of a road. While work is being completed in preparation for the eligible road project, the borrower takes advantage of the construction to install underground conduit in anticipation of installing fiber optic cables in the near future. (3) When necessary as part of a guaranteed loan to finance a project: (i) Guarantee fees, as determined under § 5001.454; (ii) Lender fees, as provided in § 5001.403; (iii) Professional service fees and charges provided the Agency agrees that the amounts are reasonable and customary in the area; (iv) Interest on guaranteed loans until the facility is self-supporting, but not for more than three years; interest on guaranteed loans secured by general obligation bonds until tax revenues are available for payment, but not for more than two years; and when the borrower obtains interim financing for the eligible project, the guaranteed loan proceeds may be used to pay off the interim financing as well as the interest on interim financing; (v) Costs of acquiring interests in land, rights ( e.g., (vi) Costs of purchasing or renting equipment necessary to install, maintain, extend, protect, operate, or utilize facilities; (vii) Obligations for construction worked performed prior to filing an Application with the Agency. Construction work must not be started (and obligations for such work or materials must not be incurred) before the conditional commitment is issued. If there are compelling reasons for proceeding with construction before the conditional commitment is issued, lenders may request Agency approval to pay such obligations and not jeopardize receipt of a loan guarantee from the Agency. Such request must comply with the following conditions: (A) Provide conclusive evidence that the contract was entered into without intent to circumvent the Agency regulations, including but not limited to 7 CFR part 1970; (B) Modify the outstanding contract to conform to the provisions of this part. When this is not possible, modifications will be made to the extent practicable and, at a minimum, the contract must comply with all State and local laws and regulations as well as statutory requirements and Executive Orders related to the Agency guarantee. (C) When construction is complete and it is impracticable to modify the contract, the borrower and lender must provide a certification by an engineer or architect that any construction performed complies fully with the plans and specifications; and (D) The borrower and the contractor must have complied with all statutory and Executive Order requirements related to the Agency guarantee for construction already performed even though the requirements may not have been included in the contract documents. (4) Refinancing in accordance with § 5001.102(d). (b) WWD projects. (1) Constructing, extending, or otherwise improving an eligible facility outlined in § 5001.104(a), and may include the cost of materials and labor in addition to the following: (i) Cost of acquiring interests in land, rights ( e.g., (ii) Purchasing or renting equipment necessary to construct, or extend the facility services, for owner construction. (iii) Cost of additional borrower labor and other expenses necessary to install, extend, or protect the facility. (iv) Interest incurred during construction in conjunction with interim financing, and the payoff of the interim loan with the permanent financing. (v) Initial operating expenses, including interest, for a period ordinarily not exceeding one year when the borrower is unable to pay such expenses, for construction of a new facility. The lender must provide justification and the Agency must document the reason for granting the longer time. (vi) Professional service fees and charges provided the Agency approves the amounts as reasonable and customary in the area. (vii) Water reuse, renewable energy, and other construction projects to improve the sustainability or resilience of an eligible facility. (2) Stand-alone projects not involving construction may also be made for the following purposes: (i) Costs of acquiring interests in land, rights ( e.g., (ii) Purchase of equipment to operate, maintain, or protect facilities, such as computers, generators, vehicles, backhoes, meters, pipe, and pumps, etc. The purchase of equipment must include installation and not be for the sole purpose of increasing inventory. Owner construction or installation is an option. (iii) The purchase or acquisition of existing facilities when it is necessary either to improve service or prevent the loss of service. (iv) The purchase and installation of RESs for use by an eligible facility (even if it does not include construction). (v) Planning, studies, and designs for incorporating renewable energy or water reuse, or to improve the sustainability or resilience of an eligible facility. (vi) The Agency may allow a recipient of a loan guarantee under this part to use up to 10 percent of project funds to construct, improve, or acquire broadband infrastructure subject to the requirements of 7 CFR part 1980, subpart M. (vii) Professional service fees for engineering and environmental services that provide services for preplanning evaluation procedures, such as leak detection, or inflow and infiltration analysis, as reasonable and customary in the area to evaluate an existing facility's need for improvements or repairs. Such services will be in accordance with professional service agreements with copies of analysis to be provided in the application package for such reports as preliminary engineering report, final design with plans and specifications, bidding documents, or the completed environmental review analysis. (viii) Refinancing in accordance with § 5001.102(d). (3) Other expenses related to any project under (b)(1) and (2), including: (i) Guarantee fees, as determined under § 5001.454. (ii) Lender fees, as provided in § 5001.403. (iii) Payoff of interim financing including principal and interest. (c) B&I projects. (1) Purchase and development of land, buildings, and associated infrastructure for commercial or industrial properties, including expansion or modernization. (2) Business acquisitions provided that jobs will be created or saved. A business acquisition is considered the acquisition of an entire business, not a partial stock acquisition in a business. However, acquisition or change of ownership between existing owners is an eligible use of loan funds when the remaining owner(s) held their ownership and actively participated in the business operation for at least the past 24 months and the selling owner will not retain any ownership interest in the business directly or indirectly including through other entities or trusts or property rights. (3) Purchase of machinery and equipment. (4) Startup costs, working capital, inventory, and supplies in the form of a permanent working capital term loan. (5) Pollution control and abatement. (6) Takeout of interim financing: Guaranteeing a loan that provides for permanent, long-term financing after project completion to pay off a lender's interim loan will not be treated as debt refinancing provided that the lender submits a complete request for preliminary eligibility review or complete application that proposes such interim financing prior to closing the interim loan. The borrower must take no action until the conclusion of the environmental review process prior to any action that would have an adverse effect on the environment or limit the choices of any reasonable alternatives to be considered by the Agency. Interim financing is typically used to pay costs associated with a planned project, such as construction or installation of equipment, however, the Agency will consider, on a case-by-case basis, other reasons to use interim financing. The term for interim financing loans should be for the construction period plus a reasonable time for the business to begin generation of working capital to amortize the loan. Guaranteed promissory notes that do not convert the interim financing payment schedule to an amortizing permanent schedule in the same note are not allowed. In certain cases, the applicant lender may use interim financing to pay-off a borrower's maturing loan with another lender if it is in the best interests of the borrower. The takeout of interim financing is only eligible when the permanent loan on which the guarantee will be placed takes out the interim financing that financed the planned project and when the lender submits a complete preliminary eligibility review or application to the Agency that proposes the interim financing prior to closing the interim loan. If the interim financing does not meet these requirements, it is considered debt refinancing and must comply with § 5001.102(d). If the guarantee is issued prior to construction, the promissory note must contain and convert the terms of the interim financing to permanent financing. The Agency will not guarantee takeout of interim financing loans that prevent a meaningful environmental assessment prior to Agency loan approval. Even for projects with interim financing, the Agency cannot approve the loan nor issue a conditional commitment until the environmental process is complete. The Agency assumes no responsibility or obligation for interim loans. (7) Guarantee fees, as determined under § 5001.454. (8) Lender fees, as determined under § 5001.403. (9) Professional service fees and charges, provided the Agency approves the amounts as reasonable and customary in the area and fees for construction permits and licenses. (10) Feasibility studies and business plans. (11) Interest (including interest on interim financing) during the period before the first principal payment becomes due or when the facility becomes income producing, whichever is earlier. (12) Refinancing in accordance with § 5001.102(d). (d) REAP projects. (1) Purchase and installation of new or refurbished RES. (2) Purchase and installation of energy efficient equipment and systems by eligible agricultural producers. (3) Construction, retrofitting, replacement, and improvements. (4) Energy efficiency improvements (EEI) identified by vendor/installer certification or in the applicable energy assessment or energy audit. (5) Fees for construction permits and licenses, including fees required by an interconnection agreement. (6) Guarantee fees, as determined under § 5001.454. (7) Professional service fees and charges related to the project, which may include non-deferred developer fees, provided the Agency approves the amounts as reasonable and customary in the area. (8) Lender fees, as provided in § 5001.403. (9) Working capital, which may include interest on interim financing, debt reserves, rent payments, insurance, and packaging and origination fees. (10) Land acquisition. (11) Energy assessments, energy audits, technical reports, business plans, and feasibility studies completed and acceptable to the Agency, provided no portion was financed by any other Federal or State grant or payment assistance, including, but not limited to, a REAP energy audit or renewable energy development assistance grant. (12) For an eligible RES project in which a residence is closely associated with the rural small business or agricultural operation, the installation of a second meter to separate the residence from the portion of the project that benefits the rural small business or agricultural operation, as applicable. (13) Land, building, and equipment for an existing RES. (14) Refinancing outstanding long-term debt. It is not considered refinancing if loans were structured as construction or bridge loans for short-term financing needs (interim financing) in preparation for a long-term loan. Refinancing will be considered when— (i) The original purpose of the debt being refinanced meets the eligible project requirements of § 5001.106, § 5001.107 or § 5001.108, as applicable, of this part; (ii) Debt being refinanced does not exceed 50 percent of the total use of funds in the new REAP guaranteed loan; (iii) Refinancing is necessary to improve cash flow and viability of the project; (iv) At the time of application, the loan being refinanced has been current for at least the past 6 months (unless such status is achieved by the lender forgiving the borrower's debt); and (v) The lender is providing better rates or terms for the loan being refinanced. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70356, Dec. 10, 2021; 89 FR 79712, Sept. 30, 2024] § 5001.122 Ineligible uses of loan funds. Projects that receive a loan guarantee under this part cannot use the guaranteed loan funds for those expenses or purposes identified in paragraphs (a) through (n) of this section and for any other item the Agency identifies in accordance with § 5001.10. (a) Payment in excess of actual costs ( e.g., (b) Notwithstanding § 5001.102(d), payment on any other Federal loan or debt. (c) Payment of a Federal judgment, State or Federal tax lien, or other debt owed to the United States. (d) Loan finder or broker fees. (e) Refinancing debt that is owned by a loan packager or broker or their respective affiliates. (f) For loans as specified under CF and WWD, costs normally provided by a business or industrial user ( e.g., (g) For loans as specified under CF and WWD, any portion of the cost of a project that does not serve a rural area. (h) Rental for the use of equipment or machinery owned by the borrower. (i) For purposes not directly related to operating and maintaining the project. (j) Any EEI not identified in the applicable energy assessment or energy audit. (k) Agricultural tillage equipment, used equipment, and vehicles are ineligible for loans as specified under REAP. Costs include costs for RES and/or EEI projects that are used to improve a vehicle's ability to propel itself are ineligible uses for loan funds. For example, modifying an existing vehicle's engine to run on renewable fuels or replacing an older vehicle with a new more efficient vehicle are ineligible uses of loan funds. Projects similar to purchasing and installing solar panels to power a refrigerator or the replacement of a refrigerator for a more efficient one on a food truck may be considered eligible uses of loan funds if all other borrower and project eligibility requirements are met. (l) Distribution or payment to an individual or entity that will retain an ownership interest in the borrower or distribution or payment to a beneficiary of the borrower. Distribution or payment to a member of the immediate family of an owner, partner, or stockholder will not be permitted, except for change in ownership interest and the Agency determines the price paid to be reasonable based upon an appraisal. This prohibition does not apply to transfers of ownership for ESOPs or worker cooperatives, to cooperatives where the cooperative pays the member for product or services, or where member stock is transferred among members of the cooperative in accordance with § 5001.140 of this part. This paragraph does not preclude the former owner from remaining an employee of the business during a reasonable transition period. The payment of personal debt is considered a distribution or payment to an owner, except for the refinancing of debt for an asset that is used in the business when the owner is a co-borrower on the loan. (m) For loans as specified under CF, initial operating expenses, short-term, working capital or operating loans; or annual recurring costs, including purchases or rentals that are generally considered to be operating and maintenance expenses. (n) Lease payments, including lease to own or capitalized leases. This does not preclude a REAP applicant from leasing out REAP financed and installed equipment to a third party (lessee) such as a non-profit, school district, or municipal government. The third party (lessee) must directly utilize the equipment to fulfill the statutory purposes of REAP, to generate renewable energy or provide energy savings. The borrower must maintain ownership and control of the project for the entire useful life of the project, including site, income and expenses via the lease agreement. Additionally, all other REAP requirements, must be reviewed in this scenario to ensure complete eligibility is obtained with a lease in place. This includes, but is not limited to, project eligibility, including prohibitions on residential use and other prescribed eligible project costs. A REAP applicant may lease out a commercial building, improved with REAP funds, to various tenants. This may include an office complex in which a Federal Government Agency is a tenant. This is allowable as long as conflict of interest requirements are complied with. [85 FR 42518, July 14, 2020, as amended at 89 FR 79713, Sept. 30, 2024] §§ 5001.123-5001.125 [Reserved] § 5001.126 Borrower eligibility. To be eligible for a loan guarantee under this part, a borrower must meet the requirements specified in this section at the time of each guaranteed loan's approval and through issuance of the loan note guarantee. A borrower must meet the eligibility requirements specified in paragraph (a) of this section and in paragraphs (b) through (e), as applicable, of this section. (a) Legal authority and responsibility. (1) Operate and maintain the facility. (2) Co-borrowers. (b) CF loan guarantees. (1) Borrower type. (i) Borrowers organized under the applicable State or Tribal for-profit corporation laws may be eligible if they will be operated on a not-for-profit basis for the duration of the guaranteed loan; (ii) Single member not-for-profit corporations or not-for-profit corporations owned or substantially controlled by other corporations or associations are eligible if the member organization has significant ties with the project service area and provides a payment guarantee. (2) Significant ties. (i) Association with or control by a public body or bodies typically evidenced in the organizational documents of the borrower; or (ii) Broadly based membership and controlled primarily by members residing in the project service area. Membership must be open without regard to race, color, religion, national origin, sex, age, disability, sexual orientation, or marital or familial status. (3) Credit elsewhere. (4) Evidence of significant community support. (c) WWD loan guarantees. (1) Borrower type. (2) Credit elsewhere. (3) Evidence of significant community support. (d) B&I loan guarantees. (1) The borrower must be: (i) A cooperative, corporation, partnership, or other legal entity organized and operated on a profit or nonprofit basis; (ii) An Indian Tribe (iii) A Public Body; or (iv) An individual. (2) The borrower must be engaged in or proposing to engage in a business. A business may include manufacturing, wholesaling, retailing, providing services, or other activities that will provide employment or improve the economic or environmental climate in rural communities. (3) A borrower who is an individual must meet the requirements of (i) through (iii) below. Applications will neither be approved, nor a conditional commitment issued subject to meeting the citizenship requirement. (i) Be a citizen of the United States; (ii) Reside in the United States after being legally admitted for permanent residence and must provide a permanent green card as evidence of eligibility; or (iii) Be a citizen or resident of the Republic of Palau, the Federated States of Micronesia, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, or the Republic of the Marshall Islands. (4) A borrower must demonstrate, to the Agency's satisfaction, that guaranteed loan funds will remain in the United States and the project being financed will primarily create new or save existing jobs for rural U.S. residents. To ensure that loan funds remain in the United States, loans must be collateralized with fixed assets that remain in the United States. (e) REAP loan guarantees. (1) Type of borrower. (2) Ownership. (i) Own the project; and (ii) Own or control the site for the project at the time of application and for the term of the guaranteed loan. (3) End users. (4) Revenues and expenses. (5) Matching funds. [85 FR 42518, July 14, 2020, as amended at 86 FR 70356, Dec. 10, 2021; 87 FR 42297, July 15, 2022; 89 FR 79714, Sept. 30, 2024] § 5001.127 Borrower ineligibility conditions. A potential borrower is ineligible for a guaranteed loan under this part as identified in paragraphs (a) through (g) of this section. The borrower remains ineligible until the condition causing ineligibility is resolved. (a) An entity is ineligible if any of the conditions identified in paragraphs (a)(1) through (4) of this section applies to the borrower, any owner with more than 20 percent ownership interest in the borrower (does not include passive investors), or any owner with control of the borrower. Entities with delinquent debt, as identified in paragraphs (a)(1) through (a)(4), under a repayment plan are not eligible until the debt is paid in full. (1) There is an outstanding judgment obtained by the U.S. in a Federal Court (other than U.S. Tax Court). (2) Delinquency on the payment of Federal income taxes. (3) Delinquency on Federal debt. (4) Debarment or suspension from receiving Federal assistance. The lender is responsible for verification of the borrower's status. Verification can be done at sam.gov. (b) An entity is ineligible if it derives more than 15 percent of its annual gross revenue (including any lease income from space or machines) from gambling activity, excluding State-authorized lottery proceeds or Tribal-authorized gaming proceeds, as approved by the Agency, conducted for the purpose of raising funds for the approved project. (c) An entity is ineligible if it derives income from activities of a prurient sexual nature. (d) An entity is ineligible if it derives income from illegal drugs, drug paraphernalia, or any other illegal product or activity as defined under Federal statute. A borrower that intends to lease space or enter into a power purchase agreement with a marijuana dispensary is not eligible given our borrower would be receiving income from the marijuana operation which is a violation of Federal laws as marijuana is a controlled substance under Federal law and subject to Federal prosecution under the Controlled Substances Act (21 U.S.C. 812). (e) An entity is ineligible under B&I projects if it is a charitable or fraternal organization. For purposes of this section, an organization that derives more than 10 percent of its annual gross revenue from tax deductible charitable donations, based on historical financial statements, is considered a charitable organization. Fees for services rendered or that are otherwise ineligible for deduction under the Internal Revenue Code are not considered tax deductible charitable donations. (f) An entity is ineligible if its lender or any of the lender's officers has an ownership interest in the borrower or is an officer or director of the borrower with management control or where the borrower or any of its officers, directors, stockholders, or other owners have more than a five percent ownership interest in the lender. Any of the lender's directors, stockholders, or other owners that are officers, directors, stockholders, or other owners of the borrower without management control or ownership less than 5 percent must be recused from any decision-making process associated with the guaranteed loan. (g) A borrower is ineligible if it is a lending institution, investment institution, or insurance company with exception of REAP or projects for a fund that invests primarily in cooperatives in accordance with § 5001.140, and NMTC projects in accordance with § 5001.141. [85 FR 42518, July 14, 2020, as amended at 89 FR 79715, Sept. 30, 2024] §§ 5001.128-5001.129 [Reserved] § 5001.130 Lender eligibility requirements. To become a lender under this part, the lending entity must meet the requirements specified in paragraphs (a) through (d) of this section, as applicable, and become an approved participant in the Agency's electronic system. Paragraph (e) of this section contains provisions associated with lenders that have already been approved by the Agency under one of the guaranteed loan programs identified in § 5001.1of this part. If not yet an Agency-approved lender, the lending entity must include with the application a request for lender approval in accordance with this section. (a) General. (1) Be domiciled in a State; (2) Not be debarred or suspended by the Federal Government or be an affiliated person of such entity that was suspended or debarred; (3) Be free from default and delinquency on any debt owed to the Federal Government; (4) Inform the Agency if it is under a consent order, or similar constraint, from a Federal or State agency. The Agency will evaluate the lending entity's eligibility on a case-by-case basis, and assess the risk of loss posed by the consent order or similar constraint, as applicable; (5) Maintain written standards of conduct covering conflicts of interest; and (6) Maintain internal audit and management control systems to evaluate and monitor the overall quality of its loan origination and servicing activities. (7) Be registered in and maintain an account in the System for Award Management (SAM) in accordance with 2 CFR 25.200. (b) Regulated lending entities. (1) Federal and State chartered banks. (2) Farm Credit Bank of the Federal Land Bank and other Farm Credit System institutions with direct lending authority to make loans of the type guaranteed under this part. (3) Bank for Cooperatives. (4) Savings and Loan Associations. (5) Savings banks. (6) Mortgage companies that are part of a bank-holding company. (7) The National Rural Utilities Cooperative Finance Corporation. (8) Credit unions. (9) State Bond Banks or State Bond Pools. (10) Other lending entities not specified in paragraphs (b)(1) through (9) of this section that meet the requirements as specified in this paragraph (b). (c) Non-regulated lending entities. (1) Conditions. (i) Have the legal authority to operate a lending program; (ii) Be a financially sound institution that has a record of successfully originating at least five commercial loans annually totaling at least $1 million for each of the last three years, with the lending entity's commercial loan portfolio in last five years not exceeding: (A) Six percent average delinquency of all commercial loans, and (B) Three percent in commercial loan losses (based on the original principal loan amount); (iii) Have and agree to maintain balance sheet equity in accordance with § 5001.105(d) of this part of at least 10 percent of assets and sufficient funds available to disburse the guaranteed loans it proposes to approve within the first six months of being approved as a lender; (iv) Have and agree to maintain a line of credit issued by a regulated lending entity that is acceptable to the Agency; (v) Agree to establish and maintain an Agency-approved loan loss reserve equal to one percent reserve of the unguaranteed portion of all guaranteed loans plus an amount equal to the identified anticipated losses. (vi) Have written policies and procedures to ensure that internal credit controls provide adequate loan making and servicing guidance that adheres to Federal and State fair lending practices; (vii) Document and assure to the Agency that the lending entity has the capacity to fulfill the lender functions and responsibilities identified in this part, including, but not limited to §§ 5001.201, 5001.202, 5001.207, and 5001.501. (2) Written request. [email protected], (i) The request must clearly define the multiple-entity organizational and control structure with a listing of each entity under its control, including any Community Development Entity (CDE) that may request guaranteed loans under § 5001.141. In addition, the non-regulated lending entity must include each such sub-entity in their audited financial statements, commercial loan portfolio, and commercial loan performance statistics; (ii) Bylaws; (iii) Audited financial statements for the most recent fiscal year that evidences the required balance sheet equity and that the lending entity has available resources to successfully meet its responsibilities; (iv) Auditor's most recent management letter and management's response; (v) An interim financial statement dated within 90 days of the written request, if applicable; (vi) A copy of any license, charter, State statute, or other third-party evidence of authority to engage in the proposed guaranteed loan making and servicing activities. If licensing by the State is not required, an attorney's opinion stating that licensing is not required and that the lending entity has the legal authority to engage in the proposed guaranteed loan making and servicing activities must be submitted; (vii) The lender's loan classification scale including their loan classification criteria; (viii) Information on lending experience, including— (A) Length of time in the lending business; (B) Range and volume of lending and servicing activities for the last five years, including a list of the industries for which it has provided financing; (C) Status of its loan portfolio, including a summary of loans in the portfolio by current loan classification code, a list of any loans restructured or charged off in the previous five years, and the calculated delinquency and loss rates as outlined in paragraph (c)(1)(ii) of this section; (D) Lending experience of management and loan officers, including staff organizational chart, including names and titles for senior staff; (E) Largest sources of funds for the last five years and source of funds for the proposed guaranteed loans; (F) Office location(s) and proposed lending area(s); (G) An estimate of the number, size, and type of applications the lending entity will develop over the next six months; and (H) Proposed interest rate structure and loan fees, including any loan origination, loan preparation, and servicing fees. (ix) Description of programs, financial, and non-financial products and services. (x) Its lending policies including underwriting standards, credit analysis policies and procedures, and its problem credit management policies and procedures. (xi) A third-party external loan origination, lending portfolio, and management review acceptable to the Agency conducted in the previous two years, or a copy of a credit examination less than two years old conducted under an approved credit examination criterion such as CAMELS. (3) Approval or disapproval. (4) Renewals. (i) A written update of any change in the persons designated to process and service Agency guaranteed loans or change in the operating methods used in the processing and servicing of loans since the original or last renewal date of lender status. (ii) A description of how the lender is complying with each of the required criteria described in (c)(1) of this section and § 5001.501. (iii) A new executed lender's agreement. (iv) The Agency may require lenders with limited guaranteed loan activity over the previous five years, or a lender that has originated guaranteed loans with servicing issues or a loss to the Agency, to resubmit all the information required by paragraph (c)(2) of this section. A lender who is not active in the Agency guaranteed loan programs should provide evidence that they remain active in other commercial lending activity with acceptable underwriting and servicing performance. Lenders with loans that cause a loss to the Agency are a concern and those projects will be reviewed to determine the cause of the loss, including whether the lender's analysis or servicing processes were insufficient. (v) The renewal will be for a term of 5 years. (d) Non-regulated lending entities serving tribal trust lands. (1) Conditions. (i) Have the legal authority necessary to operate a lending program to borrowers located on tribal trust lands. (ii) Meet the requirements of paragraph (c)(1) of this section, and prove to be a financially sound institution, as determined by the Agency, on a case by case basis, based on the Agency's risk assessment of the lending entity's capital, adequate liquidity, management capabilities, repayment ability, credit underwriting, balance sheet equity and other financial factors as determined appropriate. On a case-by-case basis, the Agency may reduce the loan origination requirements of paragraph (c)(1)(ii) of this section for lenders serving only projects located on tribal trust lands. (2) Written request. [email protected] (i) Documentation required by paragraph (c)(2) of this section; (ii) Written certification that the lender intends to only originate guaranteed loans under the regulation for projects located in certain (or specified) tribal lands held in trust for tribes and for tribal members not in such tribal lands but are in their service area; (iii) Bylaws; and (iv) Lending experience of management and loan officers, including staff organizational chart, including names and titles for senior staff. (3) Approval or disapproval. (4) Renewals. (i) A written update of any change in the persons designated to process and service Agency guaranteed loans or change in the operating methods used in the processing and servicing of loans since the original or last renewal date of lender status. (ii) A description of how the lender is complying with each of the required criteria described in (c)(1) of this section and § 5001.501. (iii) A new executed lender's agreement. (iv) The Agency may require lender with limited guaranteed loan activity over the previous five years, or a lender that has originated guaranteed loans with servicing issues or a loss to the Agency, to submit updated information required by paragraph (c)(2) of this section. (v) The renewal will be for a term of 5 years. (e) Previously approved lenders. Lenders that have been previously approved by the Agency under one of the guaranteed loan programs identified in § 5001.1(b)(1) through (4) of this part cannot originate new guaranteed loans after the effective date of this rule unless the lender is approved under the applicable conditions of paragraphs (a) through (d), as applicable, of this section. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70356, Dec. 10, 2021; 89 FR 79715, Sept. 30, 2024] § 5001.131 Lender's agreement. When approved to participate as a lender under this part, the lender must execute a lender's agreement before the Agency will issue a loan note guarantee. A new lender's agreement must be executed with any existing lender making new loans on or after October 1, 2020. Approval under one program is approval for all programs. The eligibility expiration date for non-regulated lenders will be five years from the date of the original execution of a lender's agreement as specified in § 5001.130(c) and (d). There will be only one lender's agreement issued for each lending entity based on their tax identification number. Lender's agreements will not be issued for individual branches. Subsequent loans do not require a new lender's agreement. A lender who fails to renew its lender's agreement and loses its approved lender status must continue to service any outstanding guaranteed loans in conformance with the lender's agreement last in effect and the applicable regulation under which the lender became an approved lender. Such lenders cannot submit requests for new loan guarantees. [89 FR 79716, Sept. 30, 2024] § 5001.132 Maintenance of approved lender status. Continuation of approved lender status under this part is not automatic. Lenders may lose their approved lender status as described in paragraph (a) of this section. The Agency may also revoke a lender's status as an approved lender or debar the approved lender, as described in paragraph (b) of this section. (a) Loss of approved lender status. (1) Fails to conform with the provisions of this part or the applicable guaranteed loan program identified in § 5001.1 of this part; (2) Has no outstanding guaranteed loans with the Agency for five consecutive years; (3) Is a regulated lending entity and fails to remain in good standing with its regulator; (4) Is a non-regulated lending entity and fails to renew its approval status within 5 years of the expiration date of the lender's agreement. (b) Revocation of approved status and debarment of lender. (1) Guaranteed loans originated by the lender cause substantial financial loss to the Agency. (2) Failure to maintain status as an approved lender under the applicable regulations in effect when the lender obtained approved lender status. For lenders approved under this part, this means maintaining compliance with the requirements set forth in § 5001.130. (3) Conviction of the lender or any of its officers for criminal acts in connection with any loan transaction, whether or not the loan was guaranteed by the Agency. (4) Violation of usury laws in connection with any loan transaction whether or not the loan was guaranteed by the Agency. (5) Negligent loan origination. (6) Knowingly submitting false information when requesting a loan guarantee or basing a loan guarantee request on information known to be false or which the lender should have known to be false. (7) Failure to correct any Agency-cited deficiency in loan documents in a timely manner. (8) Failure to provide for adequate construction planning and monitoring in connection with any guaranteed loan to ensure that the project will be completed with the available funds. (9) Negligent loan servicing. (10) Failure to obtain and maintain the required collateral for any guaranteed loan. (11) Using guaranteed loan funds for purposes other than those specifically approved by the Agency in the conditional commitment or amendment thereof. (12) Violation of any term of the lender's agreement. (13) Failure to submit reports required by the Agency in a timely manner. (14) Violation of applicable nondiscrimination laws, including, but not limited to, statutes, regulations, USDA Departmental Regulations, the USDA Non-Discrimination Statement, and the Equal Credit Opportunity Act. USDA's Non-Discrimination Statement is located on the Agency's website, see usda.gov/non-discrimination-statement. (c) Servicing of outstanding loans. [85 FR 42518, July 14, 2020, as amended at 89 FR 79716, Sept. 30, 2024] §§ 5001.133-5001.139 [Reserved] § 5001.140 Cooperative stock/cooperative equity. Loan guarantees described in paragraphs (a) through (d) of this section are only available under B&I guaranteed loans. (a) Cooperative stock purchase program. (1) The proceeds from the stock sale may be used to recapitalize, to develop a new processing facility or product line, or to expand an existing production facility. Guaranteed loan funds must remain in the cooperative from which stock was purchased, and the cooperative must not reinvest those funds into another entity. (2) The maximum guaranteed loan amount is $600,000 and all applications will be processed in accordance with §§ 5001.301 through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as applicable. (3) The maximum term of the guaranteed loan is seven years when the proceeds from the stock sale are used by the cooperative to recapitalize or are used for working capital. The maximum term allowable for final guaranteed loan maturity is limited to the justified useful life of the assets the cooperative purchases with the proceeds of the stock sale not to exceed 40 years or applicable State statutory limitations, whichever is less. (4) The lender will, at a minimum, obtain a valid lien on the stock, an assignment of any patronage refund, and the ability to transfer the stock to another party, or any other right or ability necessary to liquidate and dispose of the collateral in the event of a default by the borrower. The lender and borrower understand that the borrower is fully liable for the entire debt, regardless of the success or failure of the cooperative. The lender is expected to maximize recovery on the loan, including collection of personal, partnership and corporate guarantees. In addition, provisions of the DCIA may impose significant restrictions on delinquent Federal debtors, including eligibility for other Federal programs. (5) The lender must complete a written credit evaluation of each stock purchase loan and a complete credit evaluation of the cooperative prior to making its first stock purchase loan. (6) The borrower may provide financial information in the manner that is generally required by commercial agricultural lenders. (7) A feasibility study of the cooperative is required for startup cooperatives and may be required by the Agency for existing cooperatives when the cooperative's operations will be significantly affected by the proceeds that were generated from the stock sale. (8) The Agency will conduct an appropriate environmental review on the processing facility and will not process individual applications for the purchase of stock until the environmental review on the cooperative processing facility is completed. (b) Purchase of transferable stock shares. (1) The maximum loan amount is $600,000 and all applications will be processed in accordance with §§ 5001.301 through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as applicable. (2) The maximum term of the loan is seven years. (3) The lender will, at a minimum, obtain a valid lien on the stock, an assignment of any patronage refund, and the ability to transfer the stock to another party, or any other right or ability necessary to liquidate and dispose of the collateral in the event of a default by the borrower. (4) The lender must complete a written credit evaluation of each stock purchase loan and a complete credit evaluation of the cooperative prior to making its first stock purchase loan. (c) Cooperative equity security guarantees. (1) “Similar equity” is any special class of equity stock that is available for purchase by non-members and/or members and lacks voting and other governance rights. (2) A fund that invests “primarily” in cooperatives is determined by its percentage share of investments in and loans to cooperatives. A fund portfolio must have at least 50 percent of its loans and investments in cooperatives to be considered eligible for loan guarantees for the purchase of preferred stock or similar equity. (3) The principal amount of the guaranteed loan cannot exceed $10 million. (4) The maximum term of the guaranteed loan is seven years when the proceeds are used by the cooperative for working capital and; (i) In all other cases the maximum term of the guaranteed loan is equal to the lesser of the following but not exceeding 40 years: (ii) The justified useful life of the funded project assets, (iii) The maximum term under any applicable State statute; or (iv) The specified holding period for redemption as stated by the stock offering. (5) All borrowers purchasing preferred stock or similar equity must provide documentation of the terms of the offering that includes compliance with State and Federal securities laws and financial information about the issuer of the preferred stock to both the lender and the Agency. (6) Issuer(s) of preferred stock must be a cooperative organization and must be able to issue preferred stock to the public that, if required, complies with State and Federal securities laws. (7) The lender will, at a minimum, obtain a valid lien on the preferred stock, an assignment of any patronage refund, and the ability to transfer the stock to another party, or otherwise liquidate and dispose of the collateral in the event of a default by a borrower. For the purpose of recovering losses from guaranteed loan defaults, lenders may take ownership of all equities purchased with such loans, including additional shares derived from reinvestment of dividends. (8) Shares of preferred stock that are purchased with guaranteed loan funds cannot be converted to common or voting stock. (9) In the absence of adequate provisions for investors' rights to early redemption of preferred stock or similar equity, a borrower must request from a cooperative or fund issuing such equities a contingent waiver of the holding or redemption period in advance of share purchases. This contingent waiver provides that in the event a default by a borrower on a B&I guaranteed loan, the borrower waives any ownership rights in the stock, and the lender and Agency will then have the right to redeem the stock. (10) Guaranteed loans for the purchase of preferred stock must be prepaid in the event a cooperative that issued the stock exercises an early redemption. If the cooperative enters into bankruptcy, to the extent the cooperative can redeem the preferred stock, the Borrower is required to repay the guaranteed loan from the redemption of the stock. (d) Employee ownership succession. (1) The maximum loan amount is $600,000 and all applications will be processed in accordance with §§ 5001.301 through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as applicable. (2) The maximum term is 10 years. (3) The lender must, at a minimum, obtain a valid lien on the stock, an assignment of any patronage refund, and the ability to transfer the stock to another party, or otherwise liquidate and dispose of the collateral in the event of a default by a borrower. The lender and borrower understand that the borrower is fully liable for the entire debt, regardless of the success or failure of the cooperative or ESOP. The lender is expected to maximize recovery on the loan, including collection of personal, partnership and corporate guarantees. In addition, provisions of the DCIA may impose significant restrictions on delinquent Federal debtors, including eligibility for other Federal programs. (4) The lender must complete a written credit evaluation of each stock purchase loan and a complete credit evaluation of the cooperative or ESOP prior to making its first stock purchase loan. (5) If a cooperative is organized, each selling owner becomes a member with special control rights to protect their stake in the business while a succession plan is implemented. At the completion of the stock transfer, selling owners may retain their membership in the cooperative provided that their control rights are the same as all other members. Any special covenants that selling owners may have held must be extinguished upon completion of the transfer. (6) If an ESOP is organized for transferring ownership to employees, selling owner(s) may not retain ownership in the business after five years from the date of the initial transfer of stock. [85 FR 42518, July 14, 2020, as amended at 89 FR 79716, Sept. 30, 2024] § 5001.141 New Markets Tax Credits Program. The New Markets Tax Credits (NMTC) Program is administered by the U.S. Department of the Treasury's (Treasury) Community Development Financial Institutions (CDFI) Fund with NMTC credits allocated to Treasury-certified Community Development Entities (CDE) across the United States to make Qualified Equity Investments (QEI) in low-income communities. NMTC related definitions and terms in this section are governed by section 45(D) of the Internal Revenue Code (26 U.S.C. 45D), and applicable Treasury regulations (26 CFR 1.45D-1). A CDE will generally establish a new subsidiary of a CDE (sub-CDE) for individual NMTC projects. Lenders and their borrowers with guaranteed loan projects that include NMTC investments must comply with the provisions in this section. To be a lender for a guaranteed loan project that involves financing under the NMTC provisions, the lending entity must meet the applicable eligibility criteria in § 5001.130. The Agency will not waive its servicing rights to a guaranteed loan or be a party to any forbearance agreement in conjunction with a NMTC project. Requests for loan guarantees that include NMTC are subject to all applicable program eligibility requirements, credit analysis, and due diligence required by part 5001. In all cases the Agency will undertake efforts to protect the best financial interests of the Federal government and collection of its guaranteed loan. The Agency will not consider any tax benefit or loss of tax benefits to the CDE, sub-CDE or NMTC investor in the servicing actions of a guaranteed loan. (a) Guaranteed Loans Directly to Qualified Active Low-Income Community Businesses (QALICB). (2) The provisions of § 5001.127(f) notwithstanding, a lender that is a CDE or sub-CDE may have an ownership interest in the borrower provided that each condition specified in paragraphs (a)(2)(i) through (iii) of this section is met. (i) The lender does not have an ownership interest in the borrower prior to the application. (ii) The lender does not take a controlling interest in the borrower. (iii) The lender does not provide equity or take an ownership interest in a borrower at a level that would result in the lender owning 20 percent or more interest in the borrower. (3) Notwithstanding § 5001.115(f), a lender that is a CDE or sub-CDE taking an ownership interest in the borrower does not constitute a conflict of interest. The Agency will mitigate the potential for a conflict of interest by requiring appropriate loan covenants establishing, at a minimum, limitations on dividends and distributions of earnings in the loan agreement between the lender and borrower. The Agency will also ensure that the lender limits any waivers of loan covenants and future modifications of loan documents in compliance with this part. (4) Guaranteed loans made by a lender directly to a QALICB must meet all other program and project eligibility requirements as specified in this part. (5) For purposes of calculating borrower equity in compliance with § 5001.105(d)(1), the CDE (or sub-CDE's) amount of the principal balance of the loan from NMTC investor funds that is subordinated to the guaranteed loan may be considered as equity. (b) Guaranteed loans to a NMTC leveraged equity structure. (1) To be an eligible borrower using the leveraged equity structure of a NMTC project each condition identified in paragraphs (b)(1)(i) through (v) of this section must be met. (i) The investor fund entity must be established for a single specific NMTC investment. (ii) The lender is not an affiliate of the borrower. (iii) When the borrower is a leveraged lender entity it must relend one hundred percent of the guaranteed loan funds to an investor fund entity. In all cases one hundred percent of the guaranteed loan funds are or will be invested by the investment fund entity in one or more sub-CDEs that will then be loaned directly to a QALICB, as defined by applicable regulations of the Internal Revenue Service, through a direct tracing method, and such guaranteed loan funds are, or will be used by the QALICB in accordance with the eligibility requirements in subpart B of this part. The QALICB's project must be the ultimate use of one hundred percent of the guaranteed loan funds. (iv) The QALICB must meet the requirements of an eligible borrower as found in § 5001.126. (v) The sub-CDE operating agreement with the QALICB must include a provision that the guaranteed lender has approval rights with respect to any substantial loan servicing actions that may be taken by the sub-CDE regarding the collateral or repayment terms of their QLICI loans to the QALICB. (2) The guaranteed loan amount and percentage of guarantee provisions found in §§ 5001.406 and 5001.407 of this part, respectively, apply to the QALICB and not to the investor fund entity or leveraged lender entity, who would actually be the borrower as defined under this part. (3) For purposes of calculating borrower equity in compliance with § 5001.105(d)(1), the leveraged lender entity's note from the investor fund may be considered a tangible asset and when the lien associated with the sub-CDE's loan is subordinated, the principal balance of the sub-CDE's loan made to the QALICB from NMTC investor funds may be considered as equity. (4) The loan terms found in § 5001.402 of this part apply to both the borrower and the QALICB. The maturity and related payment schedule of the lender's guaranteed loan to the borrower must be no longer than the maturity and related payment schedule of the sub-CDE's loan to the QALICB. An Agency approved unequal or escalating schedule of principal and interest payments can be used for a NMTC loan. The lender may require additional principal repayment by a co-borrower, such as an owner or principal participant of the QALICB. The provisions of § 5001.402(b)(3) notwithstanding, the Agency may consider the payment of interest-only payments by a borrower pursuant to an interest-only term not to exceed seven years on a loan made under an NMTC structure if the lender requires: (i) A debt repayment reserve fund or sinking fund in an amount at least equal to the guaranteed loan's principal amortization that would have otherwise applied to the loan if equally amortized payments were collected during the seven-year term; and (ii) Such reserve funds or sinking funds are applied to the guaranteed loan as an additional payment of principal at the end of such interest-only term. The debt repayment reserve fund or sinking fund may be accumulated during the loan terms, or the full amount may be funded at loan closing. (5) Except for the collateral provisions, § 5001.202(b)(4), § 5001.202(b) of this part applies to both the lender's guaranteed loan to the borrower and the sub-CDE's loan to the QALICB. The collateral provisions found in § 5001.202(b)(4) of this part apply only to the sub-CDE's loan to the QALICB. (6) The personal, partnership and corporate guarantee provisions of § 5001.204 of this part apply when the guaranteed loan borrower is a leveraged lender entity in a NMTC project. Guaranteed loans made directly to an investor fund entity as the borrower do not require a personal, partnership, or corporate guarantee from the investor fund entity's owner, who is the NMTC tax credit investor and considered a passive investor. The Agency shall obtain the personal, partnership or corporate guarantee from the QALICB ownership for a guaranteed loan to an investor fund entity in compliance with § 5001.204, subject to the eligibility requirements of the NMTC program. The Agency may require additional personal, partnership or corporate guarantees if warranted by an Agency evaluation of potential financial risk. The QALICB is the ultimate user of the guaranteed loan funds, and their owners should provide a guarantee of the guaranteed loan as stipulated in § 5001.204. (7) The insurance provisions of § 5001.205(d) of this part apply only to the QALICB and the sub-CDE's secured loan to the QALICB. (8) The financial report provisions of § 5001.504 of this part apply to both the borrower and the QALICB. (9) The application requirements found in subpart D to this part, as applicable, apply to both the borrower and the QALICB, including the application analysis and evaluation components of § 5001.303. The Agency also requires submission of the loan terms and documents between the sub-CDE and QALICB. As part of the application completed by the lender, the documentation must include comparable industry information and a summary of the NMTC project's funding path and an explanation of the relationships between all parties in the NMTC transaction (an accompanying schematic is encouraged for complicated transactions). (10) The environmental responsibilities specified in § 5001.207 of this part apply to the NMTC project. (11) For any application that the Agency assigns a priority score, when assigning the priority score to a NMTC loan application, the Agency will score the project based on the entire NMTC structure and the QALICB's project as the ultimate use of guaranteed loan funds. (12) The lender is responsible for ensuring that the NMTC project complies with the planning, performing, development and project monitoring provisions in § 5001.205 of this part and the lender is also responsible for ensuring the NMTC project complies with all applicable Treasury NMTC requirements. (13) Sections 5001.401 through 5001.408 of this part apply to both the borrower and the QALICB in a NMTC transaction. (14) Agency concurrence of the NMTC structure is required on all projects leveraging the NMTC program. [85 FR 42518, July 14, 2020, as amended at 86 FR 70356, Dec. 10, 2021; 87 FR 7367, Feb. 9, 2022; 89 FR 79716, Sept. 30, 2024] §§ 5001.142-5001.200 [Reserved] Subpart C—Orgination Provisions § 5001.201 General origination requirements. The lender is responsible for originating a guaranteed loan in accordance with the requirements of this part and in accordance with its internal origination policies and procedures to the extent they do not conflict with the requirements of this part. For each application, the lender must prepare a credit evaluation that is consistent with Agency standards found in this part. The Agency reserves the right to review the lender's credit evaluation and request additional information. Lender approval does not constitute Agency approval. § 5001.202 Lender's credit evaluation. For each application, the lender must prepare a credit evaluation that is consistent with Agency standards found in this part. Lenders are required to only submit complete loan applications that have been approved by their institution after completion of their internal credit evaluation. The components of a lender's credit evaluation will include a written review and comment on the “Five Cs” of credit that are outlined in § 5001.202(b)(1) through (5). The Agency should be able to obtain sufficient details on the project, the borrower, and the borrower's ability to repay the loan from the lender's credit evaluation. (a) Lender's evaluation guidelines. (b) Credit factors. (1) Character. (2) Capacity. (i) Ensure that the borrower has adequate working capital, operating capital and reserves for capital expenditures, debt service, and maintenance as applicable; and (ii) Structure or restructure debt so the borrower has adequate debt coverage, documenting as applicable the necessity of any debt refinancing. The evaluation will be supported by a cash flow analysis. (3) Capital. (4) Collateral. (i) The lender must determine the market value of collateral as established by an appraisal in accordance with § 5001.203. (ii) The lender should discount collateral consistent with sound loan-to-discounted value practices which must be adequate to secure the guaranteed loan in accordance with this section. To assess collateral adequacy and appropriate levels of discounting, the lender should give consideration to the type, quality, location, marketability, and alternative uses of the collateral and the basis for the valuation of the collateral, e.g. (5) Conditions. e.g., §§ 5001.304 5001.307: (i) Availability and depth of resource/feedstock market, strength and duration of purchase agreements and availability of substitutes; (ii) Analysis of current and future market potential and off-take agreements, competition, type of project (service, product, or commodity based); (iii) Energy infrastructure, availability and dependability, transportation and other infrastructure, and environmental considerations; (iv) Technical feasibility including demonstrated performance of the technology and integrated processing equipment and systems, developer system performance guarantees, or technology insurance; (v) Complexity of construction and completion, terms of construction contracts, experience and financial strength of the construction contractor or engineering, procurement, and construction (EPC) contractor; (vi) Contracts and intellectual property rights, licenses, permits, and state and local regulations; (vii) Creditworthiness of any counterparties, as applicable; (viii) Industry-related public policy issues; and (ix) Other criteria that the lender or Agency deems relevant to the project. (6) Content. (i) A written evaluation of each credit factor listed in paragraphs (b)(1) through (5) of this section and any additional factors as appropriate; and (ii) A written evaluation of the feasibility study, business plan, technical report, and engineering and architectural reports, as applicable; and (iii) Spreadsheets and analysis of the financial statements provided in accordance with § 5001.303, with appropriate ratios and comparisons with industry standards (such as Dun & Bradstreet or the Risk Management Association). The spreadsheets should enable a reviewer to easily scan the data, spot trends, and make comparisons. Steps taken or proposed to address any financial or industry weakness must be reasonable and adequately addressed. (iv) Financial projections deviating from historical financial performance must be substantiated and documented. The borrower's projections should be consistent with their past performance. Increases to revenues, profit margins or profitability should be reasonable and substantiated in the analysis. (v) Projected operational cash flow analysis on a quarterly basis for borrowers with seasonal cyclical cash flow. (vi) Operational cash flow analysis on a quarterly basis from the current financial statements through start-up or occupancy for projects involving construction when lenders are requesting the loan note guarantee prior to completion of construction The lender and borrower are required to provide a construction schedule with their application for a loan guarantee prior to construction completion. The projected cash flow needs should mirror the quarterly construction costs as the project is being completed. The cash flow analysis must indicate whether this cash flow is being provided by the guaranteed loan, borrower equity, or other sources. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70356, Dec. 10, 2021; 87 FR 7367, Feb. 9, 2022; 89 FR 79717, Sept. 30, 2024] § 5001.203 Appraisals. Appraisals of collateral are required as set forth in this section. The lender is responsible for ensuring that appraisal values adequately reflect the actual value of the collateral based on an arm's length transaction. Completed appraisals should be submitted when the application is filed. If the appraisal has not been completed when the application is filed, the lender must submit an estimated appraised value. Prior to the issuance of the loan note guarantee, the estimated value must be supported with an appraisal acceptable to the approval official. If an appraisal is received containing any value attributed to business valuation or as a going concern, the business valuation or going concern value must be deducted from the reconciled market value prior to discounting. The Agency expects that, for appraisals of existing facilities, the appraiser will physically visit the property unless prior permission from the Agency is obtained. Appraisals are not typically required when security consists of either a revenue or general obligation bond or liens on real estate for WWD projects which rely on revenues of the facilities for loan repayment. (a) Newly-acquired chattel. (b) Existing chattel. (c) Real estate. (d) Appraisal standards. (2) Chattel appraisals must be conducted by an independent qualified appraiser and must be based on industry recognized standards and reflect the age, condition, and remaining useful life of the equipment. (e) Interagency appraisal and evaluations guidelines. (f) Environmental considerations. (g) Appraisal review report. (1) Appraisals must not be more than one year old. However, the Agency may request a more recent appraisal in order to reflect more current market conditions. (2) The lender must provide documentation that, in addition to the other requirements of this section pertaining to appraisers, the appraiser has the necessary experience and competency to appraise collateral. (h) Appraisal fees. [85 FR 42518, July 14, 2020, as amended at 89 FR 79718, Sept. 30, 2024] § 5001.204 Personal, partnership, and corporate guarantees. The provisions of this section do not apply to passive investors. (a) Except as provided in paragraph (c) of this section, Agency-approved, unsecured personal, partnership, and corporate guarantees for the full term of the guaranteed loan and at least equal to the guarantor's percent interest or membership in the borrower times the guaranteed loan amount are required from any person or entity owning a 20-percent or greater interest or membership in the borrower. In the event a portion of the borrower's ownership interest stock is sold or transferred, the Agency reserves the right to require personal or corporate guarantees from the new owners of a 20-percent or more interest in the borrower. (b) When warranted by an Agency assessment of potential financial risk, the Agency may require the following: (1) Guarantees to be secured; (2) Guarantees from any person or entity owning less than a 20-percent interest or membership in the borrower; and (3) Guarantees from persons whose ownership interest in the borrower is held indirectly through intermediate or affiliated entities. (c) Exceptions to the requirement for personal, partnership or corporate guarantees may be requested by the lender. The lender must document, to the Agency's satisfaction, that collateral, equity, cash flow, and profitability indicate an above-average ability of the borrower to repay the loan. The Agency will evaluate these requests on a case-by-case basis. (d) Each guarantor must execute an Agency-approved guarantee form in addition to any guarantee form required by the lender. (e) Any amounts paid by the Agency pursuant to a claim by a guaranteed program lender will constitute a Federal debt owed to the Agency by a guarantor of the loan, to the extent of the amount of the guarantor's guarantee. [85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021; 87 FR 7368, Feb. 9, 2022; 89 FR 79718, Sept. 30, 2024] § 5001.205 General project monitoring requirements. In complying with the requirements of this section, the lender may rely on written materials and other reports provided by an independent engineer and other qualified consultants. (a) Design requirements. (1) Designed using accepted architectural, engineering, and design practices, taking into consideration any Agency comments when the facility is being designed; (2) Designed in conformance to applicable Federal, Tribal, State, and local codes and requirements; (3) Constructed to support operations at the level and quality contemplated by the borrower using accepted architectural and engineering practices; and (4) Compliant with applicable domestic procurement preference requirements including section 70914 of the Build America, Buy America Act (BABAA) within the Infrastructure Investment and Jobs Act (Pub. L. 117-58). (b) Rights-of-ways, easements, and property rights. (1) Obtained valid, continuous, and adequate rights-of-way and easements, in compliance with Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) if applicable, needed for the construction, operation, and maintenance of a project; and (2) Obtained and recorded such releases, consents, or subordinations to such property rights from holders of outstanding liens or other instruments as may be necessary for the construction, operation, and maintenance of the project and to provide the required security. (c) Permits, agreements, and licenses. (d) Insurance. (e) Construction monitoring requirements. (1) Construction inspections. (2) Issuance of loan note guarantee prior to completion of the project's construction. (i) The promissory note specifying the full term of the note and containing the terms and conditions of each draw period; (ii) The borrower and lender have entered into a contract with an independent disbursement and monitoring firm with a construction monitoring plan acceptable to and approved by the Agency or, the lender documents that they have the capacity and experience to disburse funds and provides a monitoring plan acceptable to the Agency; (iii) The borrower and lender have agreed to a detailed timetable for the project with a corresponding budget of costs setting forth the parties responsible for payment. The timetable and budget will be confirmed as adequate for the planned development by a qualified independent consultant ( e.g., (iv) The borrower has entered into a firm, fixed-price construction contract with an independent general contractor with costs outlined in detail and terms specifying change order approvals, the agreed retainage percentage, and the disbursement schedule. In all cases, borrower equity must be injected prior to any guaranteed loan funds; (v) Evidence the lender has properly vetted the financial feasibility and past performance of the contractor to show they are able to complete the project or that the lender has mitigated risk in the event the project is never completed, such as requiring a 100-percent performance/payment bond on the borrower's contractor to be maintained until the contractor is released from its obligation. The bonding agent must be listed on Treasury Circular 570; (vi) Evidence, which the Agency at its sole discretion determines is satisfactory, that the lender has completed the due diligence necessary to confirm that the contractor is able to complete the project based on information including but not limited to the financial statements and past performance of the contractor; (vii) When applicable, the borrower has entered into a contract with an independent technology development firm guaranteeing completion of the project with the necessary technology to successfully run the project and system performance for projects that utilize integrated processing equipment and systems, such as biorefineries, RESs, and chemical manufacturing plants. The credit underwriting of the independent technology development firm must be satisfactory to and approved by the Agency. This is not limited only to renewable energy projects, but may include energy efficiency, renewable chemical, and biobased manufacturing projects. The intent of the provision is to ensure that all technology proposed for the project can be successfully integrated together to ensure successful installation and performance of the system. The respective technology providers usually guarantee their specific technology with quality parameters of input such that the end-product is what is proposed in both quality and yield. An engineering, procurement, construction (EPC) provider is responsible for the construction and assembly of the plant or facility. They adopt the quality limits and guarantee that the integrated facility that is built will perform according to specifications such that the input and operational bounds are met. The provision is likely applicable to the following types of projects: (A) Anaerobic digester. (B) Landfill biogas. (C) Biofuel, biomass, ethanol, biodiesel. (D) Solar thermal. (E) Hydrogen. (F) Geothermal. (G) Renewable chemical. (viii) Evidence, in form and substance satisfactory to the Agency, that there is sufficient contingency funding in place to handle unforeseen cost overruns without seeking additional guaranteed assistance. (f) Reporting during construction. (1) Certifications for each draw request as follows: (i) Certification by the independent engineer or qualified consultant to the lender that the work referred to in the draw has been successfully completed; and; (ii) Certification by the borrower and independent engineer or qualified consultant that the guaranteed loan funds of the prior draw have been applied to eligible project costs in accordance with the draw request and that the contractors have delivered mechanics lien waivers in connection with such draw; (2) List of invoices; (3) Details regarding the borrower's equity, other funds, and guaranteed loan funds disbursed to date; (4) Status of construction; and (5) Inspection reports; and (6) Concerns, potential problems, cost overruns, etc. (g) Use of guaranteed loan funds. (1) All borrower funds are utilized prior to guaranteed loan funds; (2) Guaranteed loan funds are only used for eligible project costs in accordance with the purposes approved by the Agency in the conditional commitment and in accordance with the plans, specifications, and contract documents; and (3) The project will be completed within the approved budget. (h) Project completion. (1) A copy of the notice of completion or similar document issued by the relevant jurisdiction; (2) Certification that all funds were used for authorized purposes; and (3) A written certification that the project will be used for its intended purpose and will meet the borrower's needs and guaranteed loan purposes in accordance with the application approved by the Agency. (4) RES or EEI projects and projects that utilize integrated processing systems and equipment, such as biorefineries, renewable energy systems, and chemical manufacturing facilities, unless utilizing the provisions of paragraph (e)(2) of this section, must be constructed, installed, and operated as described in the technical report or on the vendor certification prior to disbursement of guaranteed loan funds. For RES, the system must be operating at the steady state operating level described in the technical report or on the vendor certification for a period of not less than 30 calendar days, unless this requirement is modified by the Agency, prior to disbursement of funds. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70357, Dec. 10, 2021; 89 FR 79718, Sept. 30, 2024] § 5001.206 Compliance with USDA Departmental Regulations, Policies, and other Federal laws. (a) Departmental regulations. (b) Other Federal laws. (1) Equal Employment Opportunity. (2) Americans with Disabilities Act. (3) Equal Credit Opportunity Act. (4) Fair Housing Act. (5) Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA). (6) Section 70914 of the Build America, Buy America Act (BABAA) within the Infrastructure Investment and Jobs Act (Pub. L. 117-58). (7) 31 U.S.C. 3354 Do Not Pay Initiative. [85 FR 42518, July 14, 2020, as amended at 89 FR 79719, Sept. 30, 2024] § 5001.207 Environmental responsibilities. Actions taken under this part must comply with 7 CFR part 1970. The Agency is responsible for ensuring that the requirements of the National Environmental Policy Act of 1969 (under 40 CFR part 1500) and related compliance actions, such as Section 106 of the National Historic Preservation Act (under 36 CFR part 800) and section 7 of the Endangered Species Act, are met. The Agency will complete the appropriate level of environmental review in accordance with 7 CFR part 1970, “Environmental Policies and Procedures.” (a) Borrower and lender responsibilities. (1) The lender is responsible for becoming familiar and ensuring compliance with Federal environmental requirements. The lender must alert the Agency to any environmental issues related to a project or items that may require extensive environmental review. Proposals that minimize the potential of any project to adversely impact the environment must be developed and provided upon request by the Agency. (2) The lender must ensure that the borrower has— (i) Provided the necessary environmental information to enable the Agency to undertake its environmental review process in accordance with 7 CFR part 1970, including the provision of all required Federal, State, and local permits; (ii) Not taken any actions or incurred any obligations with respect to the project that would either limit the range of alternatives to be considered during the Agency's environmental review process or which would have an adverse impact on the environment, such as the initiation of construction. Taking any such actions or incurring any such obligations could result in project ineligibility; and (iii) Complied with any environmental mitigation measures required by the Agency. (b) Environmental reviews. (1) The Agency may schedule a site visit if the Agency determines one is necessary in order to determine the scope of the environmental review. (2) The lender must assist in the collection of additional data when the Agency needs such data to complete its environmental review of the project and mitigation of environmental issues. [85 FR 42518, July 14, 2020, as amended at 89 FR 79720, Sept. 30, 2024] § 5001.208 Conflicts of interest. The lender must report all conflicts of interests, in writing, to the Agency. §§ 5001.209-5001.300 [Reserved] Subpart D—Guarantee Application Provisions § 5001.301 Beginning the application process. (a) The lender must file applications and related documents through their Agency contact. (b) The lender may complete either a request for preliminary eligibility review in accordance with § 5001.302 or a full application in accordance with §§ 5001.303 through 5001.307, as applicable, to begin the process for obtaining a guaranteed loan. The Agency encourages, but does not require, lenders to file requests for preliminary eligibility reviews in order to obtain Agency comments before submitting a full application. [89 FR 79720, Sept. 30, 2024] § 5001.302 Preliminary eligibility review. (a) Contents. (1) Regardless of format, the lenders must provide the following information: (i) Name of the proposed borrower and co-borrower(s) as applicable, organization type, address, contact person, email address, and telephone number; (ii) Name of the proposed lender, address, telephone number, contact person, email address; (iii) Amount of the guaranteed loan request; and if known, the percentage of guarantee requested; the proposed rates and terms of the guaranteed loan; and the source(s) of other funding; (iv) If known, a description of collateral to be offered with estimated value(s), identity of guarantors, and the amount and source of equity, other capital, and matching funds to be contributed to the project; and (v) A brief description of the project, its location, products or services provided, service area, and, as applicable, availability of raw materials and supplies. (2) Sufficient information and documentation to enable the Agency to assess borrower, lender, and project eligibility, including summaries or spreadsheets of financial statements or audits, relationships and identity of any affiliates; and copies of organizational documents, organizational charts, and existing debt instruments. (3) For REAP projects: (i) Borrower information as outlined in § 5001.307(a) and (b), and project information as outlined in § 5001.307(c). (ii) For REAP RES projects where a residence is located at or is closely associated with and shares an energy metering devise with a rural small business or agricultural operation, demonstration that 50 percent or greater of the energy to be generated by the RES will benefit the rural small business or agricultural operation. (b) Assessment. § 5001.303 Applications for loan guarantee. The Agency will accept applications on a continuous basis. For each loan guarantee request, the lender must submit to the Agency a complete application that is in conformance with this section, and §§ 5001.304 through 5001.307, as applicable. (a) Complete applications. (b) Content. (1) Agency-approved application form or system that includes all items noted in this section; (2) Credit evaluation (conforming to § 5001.202). (3) Environmental information required by the Agency to conduct its environmental reviews (as specified in § 5001.207(a)(2)(i)). (4) Required financial statements including: (i) Current Agency-acceptable balance sheet and year-to-date income statements of the borrower, and any guarantor(s) dated within 90 days of submission of the complete application; (ii) Agency-acceptable historical balance sheet, income statements, and cash flow statements of the borrower for the lesser of the last three fiscal years or all years of operation; and (iii) Projected balance sheets, income statements, and cash flow statements or a financial model starting from the current financial statements through a minimum of two years of the project performing at full operational capacity or stable operations. Based on the type of project or at the discretion of the Agency, financial projections or models may be required from current financial statements up to the end of the term of the guaranteed loan. Financial projections must be supported by a list of assumptions showing the basis for the projections. Projected financial statements must include a pro forma balance sheet projected for guaranteed loan closing. (iv) The Agency may request additional financial statements, financial models, cash flow information, updated financial statements, and other related financial information to determine the financial feasibility of a project and evaluate the credit underwriting of borrower, its affiliates, and any guarantors. (5) Identify whether or not the borrower has a known relationship or association with an Agency employee. If there is a known relationship, identify each Agency employee with whom the borrower has a known relationship. (6) At the time of the loan application, the lender must submit its loan classification and credit risk rating classification scale. (c) Provisional content. (1) For all applications of $600,000 or greater, a draft loan agreement for the guaranteed loan. (2) Appraisals in accordance with § 5001.203. (3) Current credit reports or the equivalent on the borrower, any payment guarantors and any person or entity owning greater than a 20 percent or more interest in the borrower or controls the borrower, except for passive investors and those corporations listed on a major stock exchange. A credit report or its equivalent are not required for elected and appointed officials when the borrower is a public body, or Indian Tribe, or for members of a non-profit organization. Credit reports must be submitted to the Agency for all applications for guaranteed loans in the amount of $200,000 or more. For lenders that are submitting smaller requests, the lender must keep the credit report on file with the lender's application. (4) Feasibility study: If the Agency is unable to determine a basis for successful repayment of a guaranteed loan based on the documentation and analysis of the five feasibility study components provided in the lender's analysis, borrower's business plan, or other project information, or if the proposed project will have significant impacts on existing operations, the Agency may require an independent feasibility study. The elements of an acceptable feasibility study may vary by project scope and should be prepared by a qualified, independent third party using applicable elements of the project, including but not limited to those outlined in appendix A to subpart D of this part. (5) Intergovernmental consultation comments in accordance with 2 CFR part 415, subpart C, or successor regulation, unless exemptions have been granted by the State's single point of contact. (6) Engineering documentation. (7) Architectural reports. (8) Energy audits or energy assessments in accordance with § 5001.107. (9) Energy efficient equipment and systems data in accordance with § 5001.108. (10) Business plan: Unless the information is contained in the feasibility study or in the credit evaluation, a business plan should be submitted to show how the project will operate and remain viable. This requirement may be omitted when guaranteed loan funds are used exclusively for debt refinancing. (11) If the application is for five or more residential units, including nursing homes and assisted-living centers, an Affirmative Fair Housing Marketing Plan that is in conformance with 7 CFR 1901.203(c)(3). (12) If the application is for financing of health care facilities, a certificate of need, if required by Federal or State law. (13) Department of Labor form as noted in § 5001.306(a)(1). (14) Pro-forma balance sheet for closing as noted in § 5001.306(a)(2). (15) Securities and Exchange Commission (SEC) Form 10-K, “Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,” as noted in § 5001.306(a)(4). (16) Technical reports in accordance with § 5001.307(e). (17) Certification regarding credit elsewhere in accordance with § 5001.126(b)(3) and (c)(2). (18) Certification of significant community support in accordance with § 5001.126(b)(4) and (c)(3). (19) Copies of organizational documents if not already provided with a preliminary eligibility review in accordance with § 5001.302. (d) Application modification. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70357, Dec. 10, 2021; 89 FR 79720, Sept. 30, 2024] § 5001.304 Specific application requirements for CF projects. In addition to the requirements specified in § 5001.303 as applicable, a lender seeking a loan guarantee for a CF project must submit a financial feasibility report prepared by a qualified firm or individual acceptable to the Agency. All projects financed under this section must meet the financial feasibility requirements of this section and must be based on projected taxes, assessments, revenues, fees, or other sources of revenues in an amount sufficient to provide for project operation and maintenance, debt payments, and compliance with lender reserve requirements, when applicable. Other sources of revenue or existence of payment guarantors are particularly important in considering the feasibility of eligible recreation projects. The financial feasibility report must take into consideration any interest rate adjustment that may be instituted under the terms of the promissory note. Financial projections for projects that are assisted living facilities, skilled nursing facilities, or similar types of eligible residential facilities must be based on no more than 90 percent occupancy. Utility projects dependent on user fees for debt repayment shall base their income and expense forecast on user estimates supported by either a State statute or local ordinance requiring mandatory hookup or signed and enforceable user agreements. If the primary use of the essential community facility is by a business and the success or failure of the facility is dependent on that business, then the economic viability of that business must also be assessed. For projects that include the purchase and installation of RES that meet the eligibility requirements of § 5001.103(a)(8), a technical report on the RES as outlined in § 5001.307(e)(1) and (2), as applicable, will be included with the applicable financial feasibility report. The type of financial feasibility report required will depend upon the size of the guaranteed loan, the collateral securing the guaranteed loan, and the financial history of the borrower. The two types of financial feasibility report and when they are required are described in paragraphs (a) and (b) of this section. (a) Financial feasibility analysis. (1) Guaranteed loans of $25 million or less to existing community facilities; (2) Guaranteed loans secured by a general obligation bond, or other tax supported income sufficient to pay the debt service for the life of the loan; or (3) Borrowers with audited financial statements, if the last three years indicate the ability to pay all existing and new debt service. (4) The Agency may require a feasibility study when the lender's analysis, borrower's business plan, or project information is not sufficient to determine the technical feasibility, market feasibility, or economic viability of the project. (i) For guaranteed loans greater than $1,000,000.00 to a new entity or an entity conducting a new activity, a feasibility study prepared by an independent qualified consultant acceptable to the Agency is required. The scope of the feasibility study will be determined by the Agency and is dependent on the complexity of the project and the borrower. (ii) For loans of $1,000,000.00 or less to new and existing entities, the Agency may require a feasibility study when the lender's analysis or other borrower information is not sufficient to determine the technical feasibility or economic viability of the project, or if the project will significantly affect the operations of a borrower who is an existing entity and its historic cash flow. (b) Financial feasibility study with examination opinion. [85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021; 89 FR 79720, Sept. 30, 2024] § 5001.305 Specific application requirements for WWD projects. In addition to the requirements specified in § 5001.303, a lender seeking a loan guarantee for a WWD project must submit the documents specified in paragraphs (a) through (c) of this section. (a) Engineering documentation. (2) The lender must ensure that the project is designed utilizing accepted architectural and engineering practices and conforms to applicable Federal requirements ( e.g., (b) Feasibility considerations. (c) Credit analysis requirements. (d) Domestic procurement preference. American Iron and Steel (AIS). (2) Build America, Buy America Act (BABAA). https://www.rd.usda.gov/build-america-buy-america. (3) Compliance. [85 FR 42518, July 14, 2020, as amended at 89 FR 79720, Sept. 30, 2024] § 5001.306 Specific application requirements for B&I projects. In addition to the requirements specified in § 5001.303, as applicable, a lender requesting a B&I loan guarantee must submit the information specified in paragraph (a) of this section if the guaranteed loan amount is more than $600,000, or in (b) of this section if the guaranteed loan amount is $600,000 or less. (a) Applications requesting a guaranteed loan in an amount greater than $600,000. (2) A pro forma balance sheet projected for loan closing. (3) The Agency may require a feasibility study when the lender's analysis, borrower's business plan, or project information is not sufficient to determine the technical feasibility, market feasibility, or economic viability of the project. (i) For guaranteed loans greater than $1,000,000.00 to a new business, a feasibility study prepared by an independent qualified consultant acceptable to the Agency is required. The scope of the feasibility study will be determined by the Agency and is dependent on the complexity of the project and the borrower. (ii) For loans of $1,000,000.00 or less to new and existing businesses, the Agency may require a feasibility study when the lender's analysis or other borrower information is not sufficient to determine the technical feasibility or economic viability of the project, or if the project will significantly affect the operations of a borrower who is an existing business and its historic cash flow. (iii) A technical report is required for RES identified in § 5001.307(e) and for projects utilizing other integrated processing equipment and systems. The contents of the technical report must be consistent with the requirements of § 5001.307(e)(1) and must provide sufficient detail to enable the Agency to determine technical merit. The report can be provided in the technical feasibility section of a feasibility study or in a separate technical report. (4) For companies listed on a major stock exchange or subject to the Securities and Exchange Commission (SEC) regulations, a copy of their most recent SEC Form 10-K, “Annual Report Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.” (5) Current financial statements of affiliates. (b) Applications requesting a guaranteed loan in an amount of $600,000 or less. paragraph (b) (1) Lenders submitting applications under this paragraph (b) must include the following information: (i) Narrative description of the project including the history of the borrower and adequacy of cash flow and borrower equity; (ii) Required financial statements including a current Agency-acceptable balance sheet and year-to-date income statements; (iii) Security available for the guaranteed loan including collateral and payment guarantees; (iv) Strengths and weaknesses of the guaranteed loan and the Lender's need for the loan guarantee to mitigate specific risks. (2) The lender may elect to not submit the following application documentation to the Agency, but must have the information available in its file for review: (i) Narrative description of management capabilities and corporate structure of the borrower; (ii) Environmental information for the project and any environmental reviews; (iii) Agency-acceptable historical balance sheets and income statements of the borrower and its affiliates; (iv) Financial statements of any personal, partnership, or corporate guarantors. [85 FR 42518, July 14, 2020, as amended at 89 FR 79721, Sept. 30, 2024] § 5001.307 Specific application requirements for REAP projects. In addition to the requirements specified in § 5001.303, a lender seeking a loan guarantee for a REAP project must submit the information identified below based on total project costs. (a) Borrower eligibility information. (2) The borrower must provide the primary NAICS code applicable to the borrower's business concern and certify on the Agency approved application form or system that it meets the definition of agricultural producer or rural small business. The Agency reserves the right to request supporting documentation to verify borrower eligibility. (b) Borrower description. (1) Describe how the borrower meets the ownership and control requirements as identified in § 5001.126(e)(2). (2) For each entity(ies) the borrower controls or entity(ies) it is controlled by, provide a list of the individual owners with their contact information. Describe the relationship between the borrower and the other entity(ies), including percentage of ownership and control, management, passive investor ownership, and any products exchanged. Organizational charts to demonstrate the structure of the borrower should be submitted when available. (3) Identify the ethnicity, race, and gender of the borrower. Identify if the borrower is a veteran. This information is optional and is not required for a complete application but may be used by the Agency to award priority points. (c) Project information. (1) Identification as to whether the project is an RES, EEI, or EEE project. Include a description and the location of the project; (2) Description of how the project will have a positive effect on resource conservation, public health, and the environment; (3) Identification of the amount of funds and the source(s) of funds the borrower is proposing to use for the project. Provide written commitments for funds at the time the application is submitted to receive points under this scoring criterion. (i) For project funding provided by the borrower, documentation may include bank statements that demonstrates availability of funds. (ii) For project funding that comes from a third party, a commitment letter signed by an authorized official of the third party. The letter must be specific to the project and must identify the dollar amount of any loan or other funding and any applicable rates and terms. If the third-party commitment is for a loan, the commitment must be firm; a letter-of-intent or pre-qualification letter subject to underwriting requirements or contingencies is not acceptable. (d) Feasibility study. (e) Technical report. (1) Level of detail. (i) Sufficient information to enable the calculation of simple payback as defined in § 5001.3; (ii) For RES projects, sufficient information to enable the calculation of the percentage of historical use of energy compared to the amount of renewable energy that will be generated once the project is operating at its steady state operating level. If the project is closely associated with a residence, satisfactory demonstration must be made that 50 percent or more of the projected renewable energy will benefit the agricultural operation or rural small business; and (iii) Demonstrate that the RES, EEI, or EEE project will operate or perform over the project's useful life in a reliable, safe, and a cost-effective manner, which may include but is not limited to addressing project design, installation, operation, maintenance, and warranties. (iv) In addition, the following technologies, must provide a technical report in accordance with paragraphs (e)(1)(v) through (viii) of this section, as applicable: (A) Hydrogen; (B) Ocean energy; (C) Geothermal electric generation; (D) Anaerobic digesters and biogas; (E) Biomass; (F) Hybrid applications; (G) Renewable energy systems with storage components; and (H) Energy efficiency improvements (v) For total project costs in the amount of $80,000 or less, a technical report, as identified in § 5001.303(c)(16), prepared in accordance with the following paragraphs, as applicable: (A) EEI technical reports. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 (B) RES technical reports. ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 (C) EEE technical reports. ( 1 ( 2) ( 3 ( 4 ( 5 ( 6 (vi) For EEI guaranteed loan projects with total project costs greater than $80,000, the technical report identified in paragraph (e)(1)(v)(A) of this section applies, except that appendix C to subpart D of this part is to be followed to prepare the report. (vii) For RES guaranteed loan projects with total project costs greater than $80,000 and up to but not including $200,000, the technical report identified in paragraph (e)(1)(v)(B) of this section applies, except that appendix D to subpart D of this part is to be followed to prepare the report. (viii) For RES guaranteed loan projects with estimated total project costs of $200,000 or greater, the technical report identified in paragraph (e)(1)(v)(B) of this section applies, except that appendix E to subpart D of this part is to be followed to prepare the report. (2) Modifications. (3) Hybrid projects. [85 FR 42518, July 14, 2020, as amended at 89 FR 79721, Sept. 30, 2024] §§ 5001.308-5001.314 [Reserved] § 5001.315 Application evaluation and award provisions. (a) General. (1) The type and complexity of the financing ( e.g., (2) Loans to borrowers engaged in industries where the lender has little or no origination and/or servicing experience. (b) Evaluation and eligibility determinations. (1) If the Agency's evaluation and determination in accordance with this paragraph (b) is favorable, the Agency will proceed in accordance with paragraph (c) of this section. (2) If the Agency's evaluation and determination in accordance with this paragraph (b) is unfavorable, the Agency will notify the lender, in writing, as applicable, identifying the reason(s) for determining ineligibility and any applicable appeal or review rights. No further processing of the application will occur. (c) Priority score. (1) Lenders must provide necessary information related to determining the priority score, if requested by the Agency. To the extent possible, lenders should consider the established priorities of the Agency when submitting projects for a loan guarantee. Higher scoring applications will receive first consideration for funding. (2) The Agency may establish a minimum priority score for each guarantee program. The Agency will, if established, publish the minimum score in a document in the Federal Register. (d) Funding selected applications. (1) If the remaining funds are insufficient to fund the next highest scoring application completely, the Agency will notify the lender and offer the lender the opportunity to accept the remaining funds. If the lender does not accept the offer, the Agency will process the next highest scoring application. (2) If the remaining funds are insufficient to fund each application that receives the same priority score, the Agency will notify each lender and offer the lenders the opportunity to accept a prorated share of the remaining funds. (3) Any lender offered less than the full amount requested under either paragraph (d)(1) or (2) of this section can either accept the funds available or request to compete in the next funding cycle. There is no assurance that the application(s) will be funded in a subsequent funding cycle. (4) If a lender agrees to the lower loan guarantee amount offered by the Agency under either paragraph (d)(1) or (2) of this section, the lender must certify that the purpose(s) of the project can still be met at the lower funding level and must provide documentation that the borrower has obtained the remaining funds needed to complete the project as originally proposed. (e) Handling of ranked applications not funded. (1) If an unfunded application has a priority score equal to or greater than any applicable minimum score, the Agency will retain the application for consideration in subsequent funding cycles. If the unfunded application is not selected for funding after 12 months, including the first month in which the application was considered, the Agency will withdraw the application from further funding consideration. (2) If an unfunded application has a priority score less than any applicable minimum score and remains unfunded after the competition held on the first business day of September of the fiscal year in which the application is ready for funding, the Agency will notify the applicant in writing and withdraw the application from further funding consideration. (f) Commencement of the project. (g) Application withdrawal. [85 FR 42518, July 14, 2020, as amended at 89 FR 79721, Sept. 30, 2024] § 5001.316 CF project priority point system and reservation of funds. This section applies to CF projects seeking a loan guarantee. Paragraphs (a) through (d) of this section outline the criteria and amount of priority points that may be awarded to an application. The highest possible priority score is 55. Paragraph (e) of this section outlines the reservation of funds for projects located in rural areas of 20,000 population or less. (a) Population priority. (b) Project priority. (c) Leveraging priority. (1) 50 percent or more-15 points (2) 20% up to 49%-10 points (3) 5% up to 19%-5 points (d) Administrator priority. (1) Geographic distribution of funds; (2) Emergency conditions caused by economic problems or natural disasters; or (3) Initiatives that support the Agency's strategic plan. (e) Rural priority. (i) 100 percent of the first $200,000,000 so made available; (ii) 50 percent of the next $200,000,000 so made available; and (iii) 25 percent of all amounts exceeding $400,000,000 so made available. (2) On July 1 of each year, the Agency will evaluate the dollar amount of complete applications on hand for projects in rural areas with a population of not more than 20,000 inhabitants. The dollar amount of the complete applications will be subtracted from the reserved allocation identified in this paragraph (e) and the remaining amount will be made available through the end of the Federal fiscal year for projects in rural areas with a population of not more than 50,000 inhabitants. [85 FR 42518, July 14, 2020, as amended at 89 FR 79722, Sept. 30, 2024] § 5001.317 WWD project priority points system. This section applies to WWD projects seeking a loan guarantee. The highest possible priority point score is 150. (a) Population priority. (b) Health priorities. (1) Needed to alleviate an emergency situation, correct unanticipated diminution or deterioration of a water supply, or to meet Safe Drinking Water Act requirements which pertain to a water system, 25 points will be awarded; (2) Required to correct inadequacies of a wastewater disposal system, or to meet health standards which pertain to a wastewater disposal system, 25 points will be awarded; or (3) Required to meet administrative orders issued to correct local, State, or Federal solid waste violations, 15 points will be awarded. (c) Service area priorities. (1) An eligible area of long-term population decline according to the last three decennial censuses, 5 points will awarded. (2) A rural county that has had 20 percent or more of its population living in poverty, as defined by the United States Census Bureau, for the last 30 years, 5 points will be awarded. (3) For a city or county with a current unemployment rate, as determined by the Department of Labor, that is 125 percent of the State-wide rate or greater, 5 points will be awarded. For projects located in certain territories that may not have unemployment rates by localities, if the applicant's proposed service area has an unemployment rate exceeding 125 percent of the national unemployment rate, 5 points will be awarded. (d) Other priorities. (1) If the proposed project will merge ownership, management, and operation of smaller facilities providing for more efficient management and economical service, 10 points will be awarded. (2) If the proposed project will enlarge, extend, or otherwise modify existing facilities to provide service to additional rural areas, 10 points will be awarded. (3) If the applicant is a public body or Indian tribe, 5 points will be awarded; (4) If the amount funds committed to the project from sources other than Rural Development is: (i) 50 percent or more, 15 points will be awarded; (ii) 20 percent to 49 percent, 10 points will be awarded; (iii) 5 percent to 19 percent, 5 points will be awarded; (5) If the project will serve Agency identified target areas, 5 points will be awarded; (6) If the project primarily recycles solid waste products thereby limiting the need for solid waste disposal, 5 points will be awarded; and (7) If the project will serve an area that has an unreliable quality or supply of drinking water, 10 points will be awarded. (e) In certain cases, the approval official may award up to 15 points to a project. The points may be awarded to projects in order to improve compatibility and coordination between WWD and other agencies' selection systems, to ensure effective RUS fund utilization, and to assist those projects that are the most cost effective. A written justification must be prepared and placed in the project file each time these points are assigned. (f) National office priorities. § 5001.318 B&I project priority point system. This section applies to B&I projects seeking a loan guarantee. When applications on hand have the same priority score, the Agency will give preference to applications involving guaranteed loans from veterans. To receive veteran points, a veteran or veterans must own 20 percent or more interest in the borrower and the borrower must sign a certification in its application to indicate that the borrower has veteran status. A maximum of 100 points can be awarded. (a) Population priority. (b) Location priority. (1) A distressed community in accordance with the Economic Innovation Group distressed community index. The list can be found on the Agency's website at: https://www.rd.usda.gov/onerdguarantee, (2) A rural county that has had 20 percent or more of its population living in poverty, as defined by the United States Census Bureau, for the last 30 years, 5 points will be awarded. (3) For a city or county with a current unemployment rate, as determined by the Department of Labor, 125 percent of the State-wide rate or greater, 5 points will be awarded. For projects located in certain territories that may not have unemployment rates by localities, if the applicant's proposed service area has an unemployment rate exceeding 125 percent of the national unemployment rate, 5 points will be awarded. (4) The boundaries of a federally recognized Indian Tribe's reservation, within Tribal trust lands, or within land owned by an Alaska Native Regional or Village Corporation as defined by the Alaska Native Claims Settlement Act, 5 points will be awarded. (c) Guaranteed loan features. (1) If the lender will price the guaranteed loan at an interest rate equal to or less than the equivalent of the Wall Street Journal (2) If the guaranteed loan is less than 60 percent of the total project cost, 5 points will be awarded. (3) If the business is owned by a qualified veteran, 5 points will be awarded. (d) High impact business development investment priorities. (1) If the industry is not already present in the local community, 5 points will be awarded. (2) If the business has 20 percent or more of its sales in international markets, 5 points will be awarded. (3) If the business is locally owned and managed, 5 points will be awarded. (4) If the business will produce a natural resource value-added product, 5 points will be awarded. (5) If the business processes, distributes, aggregates, stores, and/or markets locally or regionally produced agricultural food products to underserved communities in accordance with § 5001.105(b)(15)(ii), 5 points will be awarded. (6) If the business creates or saves a minimum of five jobs with an average wage exceeding 150 percent of the Federal minimum wage, 5 points will be awarded. (7) If the business offers a healthcare benefits package to all employees and pays at least 50 percent of the healthcare premium, 5 points will be awarded. (e) Administrative points. (1) For projects awarded under State allocations the State Director may assign up to 10 additional points to an application to account for state-wide distribution of funds for natural disasters, local economic emergency conditions, community economic development strategies, State strategic plans, fundamental structural changes in a community's economic base, or projects that will fulfill an Agency special initiative. (2) For projects requesting funds from the national reserve account, the State Director may request up to 10 administrative points from the Administrator. (3) If an application is for a loan in excess of 10 million dollars, the Administrator may assign up to an additional 10 points to account for the nationwide geographic distribution of funds, or projects that will fulfill an Agency special initiative. [85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021; 89 FR 79722, Sept. 30, 2024] § 5001.319 REAP project priority point system. This section applies to REAP projects seeking a loan guarantee. On a periodic basis, and subject to the availability of funds, the Agency will compete each complete and eligible RES, EEI, and EEE application that is ready to be funded and whose priority score, as determined in this section, meets, or exceeds the minimum priority score. Applications that do not meet the applicable minimum score will be considered as provided in § 5001.315(c)(2). A maximum score of 90 points is possible. (a) Environmental benefits. (1) All three impact areas, 5 points will be awarded; (2) Any two of the three impact areas, 3 points will be awarded; or (3) Any one of the three impact areas, 1 point will be awarded. (b) Energy generated, replaced, saved, or percent efficiency. (1) Quantity of energy generated or saved per RES/EEI loan amount requested, or percent efficiency of EEE project. (i) Renewable energy systems. paragraph (b)(1)(i)(A) (B) paragraph (b)(1)(ii) (A) 50,000 BTUs or higher average annual energy generated or replaced per dollar of guaranteed loan amount requested or higher, 10 points will be awarded; or (B) Less than 50,000 BTUs annual energy generated or replaced per dollar of guaranteed loan amount requested, points will be awarded according to the result of taking the energy generated or replaced per guaranteed loan dollar requested ÷ 50,000 × 10 points. The points awarded are rounded to the nearest hundredth of a point. (ii) Energy efficiency improvements. (A) 50,000 BTUs or higher average annual energy saved per dollar of guaranteed loan amount requested, 10 points will be awarded; or (B) Less than 50,000 BTUs average annual energy saved per dollar of guaranteed loan amount requested, points will be awarded according to the result of taking the energy generated per loan dollar requested ÷ 50,000 × 10 points. The points awarded are rounded to the nearest hundredth of a point. (iii) Energy efficient equipment and systems. (A) 75 percent or greater, award 10 points; (B) Less than 75 percent but equal to or greater than 50 percent, award 5 points; (C) Less than 50 percent but equal to or greater than 25 percent, award 2.5 points; or (D) Less than 25 percent, award 0 points. (2) Quantity of energy replaced, generated, or saved, or percentage of energy efficiency. (i) Energy replacement. paragraph (b)(2)(ii) (A) Documentation for energy replacement. (B) Calculation. (C) Awarding of points. ( 1 ( 2 ( 3 (ii) Energy generation. (iii) Energy saved. (A) 50 percent or greater, 15 points will be awarded; (B) 35 percent up to, but not including 50 percent, 10 points will be awarded; (C) 20 percent up to, but not including 35 percent, 5 points will be awarded; or (D) Less than 20 percent, no points will be awarded. (iv) Energy efficiency. (A) Greater than 50 percent, 15 points will be awarded; (B) Greater than 25 percent, but equal to or less than 50 percent, 10 points will be awarded; or (C) Equal to or less than 25 percent, 5 points will be awarded. (c) Commitment of funds. (1) Calculation. (2) Awarding of points. (i) If the percentage of written commitments is 100 percent of the matching funds, 15 points will be awarded. (ii) If the percentage of written commitments is less than 100 percent, but more than 50 percent, points will be awarded as follows: ((Percentage of written commitments − 50 percent) ÷ (50 percent)) × 15 points, where points awarded are rounded to the nearest hundredth of a point. (iii) If the percentage of written commitments is 50 percent or less, no points will be awarded. (d) Previous grantees or borrowers. (1) If the borrower has never received and accepted a grant award under 7 CFR part 4280 or a guaranteed loan commitment under either this part or 7 CFR part 4280, 15 points will be awarded. (2) If the borrower has not received and accepted a grant award under 7 CFR part 4280 or a guaranteed loan commitment under either this part or 7 CFR part 4280 within the previous two Federal fiscal years, 10 points will be awarded. (3) If the borrower has received and accepted a grant award under 7 CFR part 4280 or a guaranteed loan commitment under either this part or 7 CFR part 4280 within the previous two Federal fiscal years, no points will be awarded. (e) Existing businesses. (f) Simple payback. (1) Renewable energy systems. (i) Less than 10 years, 15 points will be awarded; (ii) 10 years up to but not including 15 years, 10 points will be awarded; (iii) 15 years up to and including 25 years, 5 points will be awarded; or (iv) Longer than 25 years, no points will be awarded. (2) Energy efficiency improvements. (i) Less than 4 years, 15 points will be awarded; (ii) 4 years up to but not including 8 years, 10 points will be awarded; (iii) 8 years up to and including 12 years, 5 points will be awarded; or (iv) Longer than 12 years, no points will be awarded. (3) Energy efficient equipment and systems. (i) Less than 4 years, 15 points will be awarded; (ii) 4 years up to but not including 8 years, 10 points will be awarded; (iii) 8 years up to and including 12 years, 5 points will be awarded; or (iv) Longer than 12 years, no points will be awarded. (g) Administrator priority points. (1) The application is for an under-represented technology. (2) Selecting the application helps achieve geographic diversity. (3) The borrower is a veteran or veterans own 20 percent or more in interest in the borrower. In order to receive points, the borrower must sign a certification in its application to indicate that the borrower has veteran status. (4) Selecting the application helps further a Presidential initiative or a Secretary of Agriculture priority. (5) The proposed project is located in a federally declared disaster area. Declarations must be within the last 3 calendar years. (6) The project is located in an area where 20 percent or more of its population is living in poverty, as defined by the United States Census Bureau, for the last 30 years; an underserved community; or an area which has experienced long-term population decline, or loss of employment. (h) Unused funding. [85 FR 42518, July 14, 2020, as amended at 89 FR 79722, Sept. 30, 2024; 90 FR 30561, July 10, 2025] §§ 5001.320-5001.400 [Reserved] Appendix A to Subpart D of Part 5001—Feasibility Study Components Appendix B to Subpart D of Part 5001— Financial Feasibility Reports Appendix C to Subpart D of Part 5001—Technical Reports for Energy Efficiency Improvement (EEI) Projects With Total Project Costs of More Than $80,000 Technical Reports for Energy Efficiency Improvement (EEI) Projects With Total Project Costs of More Than $80,000 For all EEI projects with total project costs of more than $80,000, provide the information specified in Sections A and D and in Section B or Section C, as applicable. If the application is for an EEI project with total project costs of $80,000 or less, please see § 5001.307(e) for the technical report information to be submitted with your application. If the application is for an EEI project with total project costs of $200,000 and greater, you must conduct an energy audit (EA). However, if the application is for an EEI project with total project costs of less than $200,000, you may conduct either an energy assessment or an energy audit. Energy audits that meet the American Society of Heating, Refrigeration and Air-Conditioning Engineers (ASHREA) Level II Energy Survey; Analysis and American National Standards Institute (ANSI); or American Society of Agricultural and Biological Engineers (ASABE) S162 Standard for performing on farm energy audits will be considered by the Agency to be acceptable audits. Section A. Project Information Describe how all the improvements to or replacement of an existing building and/or equipment meet the requirements of being commercially available. Describe how the design, engineering, testing, and monitoring are sufficient to demonstrate that the proposed project will meet its intended purpose, ensure public safety, and comply with applicable laws, regulations, agreements, permits, codes, and standards. Describe how all equipment required for the EEI(s) is available and able to be procured and delivered within the proposed project development schedule. In addition, present information regarding component warranties and the availability of spare parts. Section B. Energy Audit If conducting an EA, provide the following information. (1) Situation Report. (2) Potential Improvement Description. (i) Provide preliminary specifications for critical components. (ii) Provide preliminary drawings of project layout, including any related structural changes. (iii) Identify significant changes in future related operations and maintenance costs. (iv) Describe explicitly how outcomes will be measured. (3) Technical Analysis. (i) For the most recent 12 months, or an average of 2, 3, 4, or 5 years, prior to the date the application is submitted, provide both the total amount and the total cost of energy used for the original building and/or equipment, as applicable, for each improvement identified in the potential project. In addition, provide for each improvement identified in the potential project an estimate of the total amount of energy that would have been used and the total cost that would have been incurred if the proposed project were in operation for this same time period. (ii) Calculate all direct and attendant indirect costs of each improvement; (iii) Rank potential improvements measures by cost-effectiveness; and (iv) Provide an estimate of simple payback, including all calculations, documentation, and any assumptions. (4) Qualifications of the auditor. Section C. Energy Assessment If conducting an energy assessment, provide the following information. (1) Situation Report. (2) Potential Improvement Description. (3) Technical Analysis. (i) For the most recent 12 months, or an average of 2, 3, 4, or 5 years, prior to the date the application is submitted, provide both the total amount and the total cost of energy used for the original building and/or equipment, as applicable, for each improvement identified in the potential project. In addition, provide for each improvement identified in the potential project an estimate of the total amount of energy that would have been used and the total cost that would have been incurred if the proposed project were in operation for this same time period. (ii) Document baseline data compared to projected consumption, together with any explanatory notes on source of the projected consumption data. When appropriate, show before-and-after data in terms of consumption per unit of production, time, or area. (iii) Provide an estimate of simple payback, including all calculations, documentation, and any assumptions. (4) Qualifications of the Assessor. Section D. Qualifications Provide a resume or other evidence of the contractor or installer's qualifications and experience with the proposed EEI technology. Any contractor or installer with less than 2 years of experience may be required to provide additional information in order for the Agency to determine if they are qualified installer/contractor. [89 FR 79723, Sept. 30, 2024] Appendix D to Subpart D of Part 5001—Technical Reports for Renewable Energy System (RES) Projects With Total Project Costs of Less Than $200,000 but More Than $80,000 Technical Reports for Renewable Energy System (RES) Projects With Total Project Costs of Less Than $200,000 but More Than $80,000 Provide the information specified in Sections A through D for each technical report prepared under this appendix. A renewable energy site assessment may be used in lieu of Sections A through C if the renewable energy site assessment contains the information requested in Sections A through C. In such instances, the technical report would consist of Section D and the renewable energy site assessment. Note: Section A. Project Description Provide a description of the project, including its intended purpose and a summary of how the project will be constructed and installed. Describe how the system meets the definition of commercially available. Identify the project's location and describe the project site. Section B. Resource Assessment Describe the quality and availability of the renewable resource to the project. Identify the amount of renewable energy generated that will be generated once the proposed project is operating at its steady state operating level. If applicable, also identify the percentage of energy being replaced by the system. If the application is for a bioenergy project, provide documentation that demonstrates that any and all woody biomass feedstock from National Forest System land or public lands cannot be used as a higher value wood-based product. Section C. Project Economic Assessment Describe the projected financial performance of the proposed project. The description must address total project costs, energy savings, and revenues, including applicable investment and other production incentives accruing from government entities. Revenues to be considered shall accrue from the sale of energy, offset or savings in energy costs, byproducts, and green tags. Provide an estimate of simple payback, including all calculations, documentation, and any assumptions. Section D. Project Construction and Equipment Information Describe how the design, engineering, testing, and monitoring are sufficient to demonstrate that the proposed project will meet its intended purpose, ensure public safety, and comply with applicable laws, regulations, agreements, permits, codes, and standards. Describe how all equipment required for the RES is available and able to be procured and delivered within the proposed project development schedule. In addition, present information regarding component warranties and the availability of spare parts. Section E. Qualifications of Key Service Providers Describe the key service providers, including the number of similar systems installed and/or manufactured, professional credentials, licenses, and relevant experience. When specific numbers are not available for similar systems, estimations will be acceptable. [89 FR 79724, Sept. 30, 2024] Appendix E to Subpart D of Part 5001—Technical Reports for Renewable Energy System (RES) Projects With Total Project Costs of $200,000 and Greater Technical Reports for Renewable Energy System (RES) Projects With Total Project Costs of $200,000 and Greater Provide the information specified in Sections A through G for each technical report prepared under this appendix. Provide the resource assessment under Section C that is applicable to the project. For hybrid projects, technical reports must be prepared for each technology that comprises the hybrid project. Section A. Qualifications of the Project Team Describe the project team, their professional credentials, and relevant experience. The description shall support that the project team key service providers have the necessary professional credentials, licenses, certifications, and relevant experience to develop the proposed project. Section B. Agreements and Permits Describe the necessary agreements and permits (including any for local zoning requirements) required for the project and the anticipated schedule for securing those agreements and permits. For example, interconnection agreements and power purchase agreements are necessary for all renewable energy projects electrically interconnected to the utility grid. Section C. Resource Assessment Describe the quality and availability of the renewable resource and the amount of renewable energy generated through the deployment of the proposed system. For all bioenergy projects, except anaerobic digesters projects, complete Section C.3 of this appendix. For anaerobic digester projects, complete Section C.6 of this appendix. (1) Wind. (2) Solar. (3) Bioenergy/Biomass Project. (4) Geothermal Electric Generation. (5) Geothermal Direct Generation. (6) Anaerobic Digester Project/Biogas. e.g., e.g., e.g., (7) Hydrogen Project. (8) Hydroelectric/Ocean Energy Projects. (9) Renewable Energy Systems with Storage Components. Section D. Design and Engineering Describe the intended purpose of the project and the design, engineering, testing, and monitoring needed for the proposed project. The description shall support that the system will be designed, engineered, tested, and monitored to meet its intended purpose, ensure public safety, and comply with applicable laws, regulations, agreements, permits, codes, and standards. In addition, identify that all major equipment is commercially available, including proprietary equipment, and justify how this unique equipment is needed to meet the requirements of the proposed design. In addition, information regarding component warranties and the availability of spare parts must be presented. Section E. Project Development Describe the overall project development method, including the key project development activities and the proposed schedule, including proposed dates for each activity. The description shall identify each significant historical and projected activity, its beginning and end, and its relationship to the time needed to initiate and carry the activity through to successful project completion. The description shall address applicant project development cash flow requirements. Details for equipment procurement and installation shall be addressed in Section F of this Appendix. Applications should include a concise development schedule with timelines for activities. Section F. Equipment Procurement and Installation Describe the availability of the equipment required by the system. The description shall support that the required equipment is available and can be procured and delivered within the proposed project development schedule. Describe the plan for site development and system installation, including any special equipment requirements. In all cases, the system or improvement shall be installed in conformance with manufacturer's specifications and design requirements, and comply with applicable laws, regulations, agreements, permits, codes, and standards. Section G. Operations and Maintenance Describe the operations and maintenance requirements of the system, including major rebuilds and component replacements necessary for the system to operate as designed over its useful life. The warranty must cover and provide protection against both breakdown and a degradation of performance. The performance of the RES or EEI shall be monitored and recorded as appropriate to the specific technology. [89 FR 79724, Sept. 30, 2024] Subpart E—Loan and Guarantee Provisions Loan Provisions § 5001.401 Interest rate provisions. Interest rates, interest rate caps, and incremental interest rate adjustment limitations on a guaranteed loan are negotiated between the lender and the borrower. The interest rate for a guaranteed loan can be either fixed or variable, or a combination thereof, as long as it is a legal rate. Interest rates cannot be more than those rates the lender customarily charges its borrowers for non-guaranteed loans in similar circumstances in the ordinary course of business. The Agency encourages each lender to use the secondary market and pass interest-rate savings on to the borrower. If an interest rate swap is utilized, the guarantee will only cover principal and interest. The lender must provide the Agency with the overall effective interest rate charged to the borrower in the swap transaction. The Agency guarantee does not cover any fees related to the swap. (a) Different rates on guaranteed and unguaranteed portion of the loan. (b) Variable interest rates. (1) The variable interest base rate must be specified in the promissory note along with any interest factors ( e.g., (2) The lender may adjust the variable interest rate at different intervals during the term of the loan, but not more often than quarterly. (3) The lender must incorporate, within the variable rate promissory note, a provision for adjustment of payment installments to fully amortize the loan by its maturity date. (c) Multi-rates. (d) Interest rate changes. [85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021; 89 FR 79725, Sept. 30, 2024] § 5001.402 Term length, loan schedule, and repayment. (a) Term length. (b) Guaranteed loan schedule and repayment. (1) Both the guaranteed and unguaranteed portions of the loan must be amortized over the same term. (2) Guaranteed loans must require a periodic payment schedule that will retire the debt over the term of the loan without a balloon payment. Balloon maturities are not allowed, unless required as a loan servicing action. Payments must be amortized to maximize successful loan repayment and may vary by type of business or cash flow. (3) If the promissory note provides for an interest-only period, interest must be paid at least annually starting on a date that is no more than one year from the date of the promissory note. Scheduling of the first payment of principal and interest will be subject to consideration of whether the facility is operational and generates adequate income. However, the scheduling of the first full principal and interest payment must commence not more than 3 years from the date of the promissory note and be paid at least annually thereafter. (4) There must be no “due-on-demand” clauses without cause. Regardless of any “due-on-demand” with cause provision in a lender's promissory note, the Agency must concur in any acceleration of the guaranteed loan unless the basis for acceleration is monetary default. [86 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021; 89 FR 79725, Sept. 30, 2024] § 5001.403 Lender fees. (a) The lender may charge the borrower reasonable, routine, and customary charges and fees for the guaranteed loan provided they are similar to those charges the lender assesses other borrowers for the same type of loan not subject to a loan guarantee. The lender must document such fees in the application. The lender may also charge routine and customary prepayment penalties and late payment fees for the guaranteed loan, which must be stated in the guaranteed loan documents. (b) Default charges, penalty interest, late payment fees, and additional interest expenses are not covered by the loan note guarantee and cannot be added to the principal or interest due under any loan note guarantee in the event of a loss claim as prescribed in § 5001.521 or a repurchase as prescribed in § 5001.511. [85 FR 42518, July 14, 2020, as amended at 89 FR 79725, Sept. 30, 2024] §§ 5001.404-5001.405 [Reserved] § 5001.406 Guaranteed loan amounts. Applicable guaranteed loan amounts depend on the type of project and the source of its funding. (a) CF projects. (b) WWD projects. (c) B&I projects. (d) REAP projects. (1) The maximum total amount of REAP guaranteed loans made to a borrower, including the guaranteed and unguaranteed portions of all REAP guaranteed loans, the outstanding principal and interest balance of any existing REAP guaranteed loans and the new REAP guaranteed loan that is the subject of an application, must not exceed $25 million. (2) The total amount of funds available to agricultural producers for energy efficient equipment and systems will not exceed 15 percent of annual funds available to the program. [85 FR 42518, July 14, 2020, as amended at 89 FR 79726, Sept. 30, 2024] § 5001.407 Percentage of loan guarantee. The percent of loan guaranteed may vary from program to program. The maximum guarantee is 90 percent of eligible guaranteed loan loss The Agency will set annually a guarantee percentage by program that will apply to loans guaranteed within each program. The annual guarantee percentage will take current Federal credit policy into consideration and may be set at or below the maximum allowed authorized by statute. The Agency will announce annual guarantee percentages each fiscal year by publishing a document in the Federal Register § 5001.408 Participation or assignment of guaranteed loan. (a) General. (1) Participation. (2) Assignment. (3) Minimum retention by the lender. (i) The lender must hold a minimum of 7.5 percent of the total loan amount. (ii) The lender must retain its security interest in the collateral and retain the servicing responsibilities for the guaranteed loan. (iii) The Agency can approve a reduction of the minimum retention requirement below the applicable percentage on a case-by-case basis when the lender establishes to the Agency's satisfaction that reduction of the minimum retention percentage is necessary to meet compliance with the lender's regulatory authority. (4) Prohibition. (5) Secondary market. (b) Lender's servicing fee to holder. (c) Distribution of proceeds. (d) Promissory note(s). (1) The lender may assign all or part of the guaranteed portion of the loan, including interest strips, to one or more holders by using an assignment guarantee agreement for each holder. The lender must complete and execute the assignment guarantee agreement and return it to the Agency for execution prior to holder execution. (2) The lender or holder may request a certificate of incumbency and signature from the Agency. (3) A holder, upon written notice to the lender and the Agency, may reassign the unpaid guaranteed portion of the loan, in full, assigned under the assignment guarantee agreement. Holders can only reassign the complete block they have received and cannot subdivide or further split their interest in the guaranteed portion of a loan or retain an interest strip. (4) Upon notification and completion of the assignment through the use of the assignment guarantee agreement, the assignee succeeds to all rights and obligations of the holder thereunder. Subsequent assignments require notice to the lender and Agency using any format, including that used by the Securities Industry and Financial Markets Association (formerly known as the Bond Market Association), together with the transfer of the original assignment guarantee agreement. (5) The Agency will not execute a new assignment guarantee agreement to affect a subsequent reassignment. (6) The Agency will not reissue a duplicate assignment guarantee agreement unless: (i) The original was lost, stolen, destroyed, mutilated, or defaced; and (ii) The reissue is made in accordance with § 5001.459. (e) Rights and liabilities. (1) A guarantee and right to require purchase in accordance with § 5001.511 will be directly enforceable by a holder notwithstanding any fraud or misrepresentation by the lender or any unenforceability of the loan guarantee by the lender, except for fraud or misrepresentation of which the holder had actual knowledge at the time it became the holder or in which the holder participates or condones. (2) The lender must not represent a conditional commitment of guarantee as a loan guarantee. (3) The lender must reimburse the Agency for any payments the Agency makes to a holder on the lender's behalf under the loan note guarantee, given the lender would not be entitled to the payments had they retained the entire interest in the loan. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70358, Dec. 10, 2021; 89 FR 79726, Sept. 30, 2024] §§ 5001.409-5001.449 [Reserved] Guarantee Provisions § 5001.450 General. (a) Full faith and credit. (b) Conditions of guarantee. (1) The entire loan must be secured by the same collateral with equal lien priority for the guaranteed and unguaranteed portions of the loan. The unguaranteed portion of the guaranteed loan will neither be paid first nor given any preference or priority over the guaranteed portion. A parity or junior lien position in the guaranteed loan collateral may be considered on a case-by-case basis and must be approved by the Agency during the loan approval process. Requirements for guaranteed loans to purchase cooperative stock are found in § 5001.140. (2) The lender must remain mortgagee and secured party of record notwithstanding the fact that another party may hold a portion of the guaranteed loan. (3) The lender will receive all payments of principal and interest on account of the entire guaranteed loan and must promptly remit to each holder and participant, if any, its pro rata share of any payment within 30 days of the lender's receipt thereof from the borrower. Holder or participant payments are determined according to their respective interest in the guaranteed loan, less only the lender's servicing fee. (4) Any claim against a loan note guarantee or assignment guarantee agreement that is attached to, or relating to, a promissory note that provides for payment of interest-on-interest, default charges, penalty interest, or late payment fees will be reduced to remove such interest, fees and charges. (5) The loan note guarantee is unenforceable by the lender to the extent that any loss is occasioned by: (i) The violation of usury laws; (ii) Use of guaranteed loan funds for unauthorized loan purposes in accordance with § 5001.122 or to the extent that those funds are used for purposes other than those specifically approved by the Agency in its conditional commitment or amendment thereof; (iii) Failure to obtain, perfect, document, and or maintain the required collateral or security position regardless of the time at which the Agency acquires knowledge thereof; and (iv) Negligent loan origination or negligent loan servicing as determined and documented by the Agency. (6) The Agency will guarantee payment as follows: (i) To any holder, 100 percent of any loss sustained by the holder on the guaranteed portion of the guaranteed loan it owns and on interest due (as determined under paragraph (g) of this section) on such portion less any outstanding servicing fee. (ii) To the lender: Any loss sustained by the lender on the guaranteed portion of the guaranteed loan, including principal and interest (as determined under paragraph (c) of this section) evidenced by the promissory note(s) or assumption agreements entered into in connection with an Agency approved transfer and assumption, and secured advances for protection and preservation of collateral made with the Agency's authorization if applicable. (c) Accrued interest payments. (1) If the lender owns all or a portion of the guaranteed portion of the guaranteed loan or makes a protective advance, the Agency, in its sole discretion, may cover interest on the guaranteed portion for the 90 days from the most recent delinquency effective date. Per paragraph (c)(2) of this section, if applicable, the lender should issue an interest termination letter to any holder(s) and provide the Agency with a copy. The Agency will entertain the payment of interest up to 180 days past the most recent delinquency effective date only if: (i) The lender, and not the Agency, has repurchased all holder interests in the guaranteed loan in accordance with § 5001.511; (ii) The lender is actively engaged in a credit resolution with the borrower to bring the account current or fully liquidate the collateral under the terms of a liquidation plan approved by the Agency; and (iii) Concurrence for inclusion of the extended period of interest to the lender is received from the Agency. The lender must request an extension of accrued interest in writing and document their collection efforts and timeframe for full resolution, which must be within 180 days from the most recent delinquency. Approved collection efforts that will extend longer than 180 days from the most recent delinquency date will be limited to 90 days of accrued interest payment from the Agency. (2) If the guaranteed loan has one or more holders, the lender will issue an interest termination letter to each holder establishing the termination date for interest accrual and provide the Agency with a copy. The loan note guarantee will not cover interest to any holder accruing after 90 days from the date of the interest termination letter. The Agency at its sole discretion may notify each holder of the interest termination provisions if it is determined that lender correspondence to holders is inadequate. [85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 89 FR 79726, Sept. 30, 2024] § 5001.451 Conditional commitment. (a) Issuance. (1) Upon acceptance of the conditional commitment, the lender agrees not to modify the scope of the project, overall facility concept, project purpose, use of guaranteed loan funds, or other terms and conditions without Agency written concurrence in accordance with paragraph (c) of this section. (2) If the lender decides at any time after receiving a conditional commitment that it no longer wants a loan guarantee, the lender must immediately advise the Agency of the cancellation in writing. Upon written notification from the lender, the Agency will de-obligate the funds associated with the conditional commitment. (b) Content. (1) Approved use of guaranteed loan funds (source and use of funds); (2) Rates and terms of the loan; (3) Loan agreement requirements to include: (i) Repayment terms and amortization provisions of the guaranteed loan; (ii) Description of real property collateral, list of other collateral and identification of the lender's lien priority in the collateral; (iii) A list of persons and entities guaranteeing payment of the guaranteed loan and their percentage of guarantee; (iv) Requirement as to the type and frequency of the financial statements to be required for the duration of the guaranteed loan (guarantor statements must be updated at least annually); (v) Prohibition against borrower assuming liabilities or obligations of others; (vi) Limitations on borrower dividend payments and compensation of officers, owners and members of borrower; (vii) Limitations on the purchase and sale of equipment other fixed assets and real estate; (viii) Restrictions on mergers, consolidations, or sales of the business, project, or guarantee loan collateral without the concurrence of the lender; (ix) Limitations on significant management changes without the concurrence of the lender; (x) Maximum debt-to-net worth ratio, when required by the lender or by this part; (xi) Minimum debt service coverage ratio, when required by the lender or by this part; (xii) Requirements imposed by the Agency in its conditional commitment; (xiii) Agency environmental requirements; and (xiv) Requirement for the lender and the Agency to have reasonable access to the project and financial records including access for periodic inspections of the project and financial records by a representative of the lender or the Agency; and (xv) Requirement for the borrower to provide the lender and the Agency performance information during the term of the guaranteed loan. (4) Loan closing requirements; (5) Lender and borrower certifications; (6) Collateral and lien position requirements; and (7) Other requirements necessary to protect the Agency. (c) Change requests. (d) Acceptance or withdrawal of conditional commitment. (e) Modification, and expiration of conditional commitment. The conditional commitment issued by the Agency will be effective for a period of one year or sufficient time to complete the guaranteed loan project prior to loan closing. The lender must submit a written request to the Agency to extend the conditional commitment at least 30 days prior to its expiration date and obtain Agency approval for the extension. The Agency will consider this request only if no material adverse changes in the borrower or the borrower's financial condition have occurred since issuance of the conditional commitment. If a conditional commitment expires, the Agency will notify the lender in writing and may de-obligate the funds. Any additions or modifications to conditions stated in the original conditional commitment must be agreed upon between the lender, the borrower, and the Agency. [85 FR 42518, July 14,2020, as amended at 86 FR 70358, Dec. 10, 2021; 87 FR 7368, Feb. 9, 2022] § 5001.452 Loan closing and conditions precedent to issuance of loan note guarantee. (a) The lender must not close the guaranteed loan until all conditions of the conditional commitment are met. If, at a later date, it is discovered that all conditions were not met, the lender will be advised in writing that full enforceability of the guarantee by the lender may be compromised if the deficiencies are not corrected. (b) Simultaneously with or immediately after the guaranteed loan closing, the lender must provide to the Agency the guarantee fee, and the following forms and documents: (1) An Agency-approved, “Guaranteed Loan Closing Report”; (2) A copy of each executed promissory note and collateral security documents; (3) A copy of the executed final loan agreement, which must include any additional requirements imposed by the Agency in the conditional commitment; (4) The original, executed Agency-approved guarantee form(s) for any required personal, partnership or corporate guarantees; (5) The borrower's loan closing balance sheet, if required; (6) For loans to public bodies, an opinion from recognized bond counsel regarding the adequacy of the preparation, issuance, and enforceability of the debt instruments; (7) Any other documents required to comply with applicable law or required by this part, the conditional commitment or the Agency; and (8) When requesting issuance of a loan note guarantee, the lender must certify to each condition identified in paragraphs (b)(8)(iii)(A) through (V) of this section, as applicable. (i) In making its certification, the lender can rely on certain written materials ( e.g., e.g., (ii) If the lender is unable to provide any of the certifications required under this section, the lender must provide an explanation satisfactory to the Agency. (iii) The lender may request the loan note guarantee prior to construction in accordance with this part; however, the lender must still certify to all applicable conditions of this paragraph (b)(8)(iii). (A) All requirements of the conditional commitment have been met. (B) The financial criteria specified in § 5001.303(b)(4) of this part and any financial criteria contained in the conditional commitment were: ( 1 ( 2 (C) No major changes have been made in the applicant, project or lender's loan conditions and requirements since the issuance of the conditional commitment, unless such changes have been approved by the Agency. (D) There has been neither any material adverse change in the borrower's financial condition nor any other material adverse change in the borrower during the period of time from the Agency's issuance of the conditional commitment to issuance of the loan note guarantee regardless of the cause or causes of the change and whether or not the change or causes of the change were within the lender's or borrower's control. ( 1 ( 2 (E) There is a reasonable prospect that the guaranteed loan and other project debt will be repaid on time and in full (including interest) from project cash flow according to the terms proposed in the application. (F) The guaranteed loan has been properly closed, and the required security instruments have been properly executed and all security interests obtained by the lender have been or will be properly perfected in accordance with applicable law. (G) All planned property acquisition has been or will be completed; all development has been or will be substantially completed in accordance with plans and specifications and conforms to applicable Federal, State, and local codes; all equipment required for the project is available, can be procured and delivered within the project development schedule, and will be installed in conformance with manufacturer's specifications and design requirements; and costs have not exceeded the amount approved by the lender and the Agency. (H) The proposed project complies with all current Federal, State, and local laws and regulatory rules that affect the project, the borrower, and lender activities, including, but not limited to, equal opportunity and Fair Housing Act requirements and design and construction requirements. (I) Lender-required insurances are in effect. (J) All truth-in-lending and equal credit opportunity requirements have been met. (K) The borrower has marketable title to the collateral then owned by the borrower, subject to the rights of the guaranteed loan and to any other exceptions approved in writing by the Agency. (L) Where required, necessary or prudent, the borrower has obtained— ( 1 ( 2 (M) All project funds have been or will be disbursed for purposes and in amounts consistent with the conditional commitment (or Agency-approved amendment thereof) and the application submitted to the Agency. Appropriate lender controls were used to ensure that all funds were properly disbursed, including funds for working capital. A copy of a settlement statement by the lender detailing the use of loan and matching/equity funds must be attached to support this certification. (N) When applicable, the entire amount of the loan for working capital or initial operating expenses have been disbursed to the borrower, except in cases where the Agency has approved disbursement over an extended period of time and funds are escrowed so that the settlement statement reflects the full amount to be disbursed. (O) When required, personal and/or corporate guarantees have been obtained in accordance with § 5001.204 of this part. (P) Lien priorities are consistent with the requirements of the conditional commitment. No claims or liens of laborers, subcontractors, suppliers of machinery and equipment, materialmen, or other parties have been filed against the collateral and no suits are pending or threatened that would adversely affect the collateral. (Q) Neither the lender nor any of the lender's officers has an ownership interest in the borrower or is an officer or director of the borrower, and neither the borrower nor its officers, directors, stockholders, or other owners have more than a 5 percent ownership interest in the lender. (R) The loan agreement includes all borrower compliance measures identified in the Agency's environmental review for avoiding or reducing adverse environmental impacts of the project's construction or operation. (S) The lender will comply with the requirements of the Debt Collection Improvement Act. (T) The lender has executed and delivered the lender's agreement, completed registration in the Agency's electronic reporting system, and electronically submitted the closing report for the guaranteed loan along with the appropriate guarantee fee. (U) For all RES and EEI projects, the lender must provide certification that the project has been performing or will perform at a steady state operating level in accordance with the technical requirements, plans, and specifications. Any modification to the 30-day steady state operating level requirement will be based on the Agency's review of the technical report or vendor certification and will be incorporated into the conditional commitment. (V) For CF and WWD projects, the lender must also certify that the lender would not make the loan without an Agency loan guarantee. (W) For WWD projects, if applicable, the lender must certify that the project complied with American Iron and Steel requirements. (X) For B&I, the capital/equity requirement set forth in the Conditional Commitment was met, as evidenced by a balance sheet as of the date the guaranteed loan was closed, giving effect to the entirety of the loan in the calculation whether or not the loan itself is fully advanced. A copy of the borrower's loan closing balance sheet must be included with the lender's certification. (c) For RES projects where applicable, the lender must provide to the Agency a copy of the executed power purchase agreement and/or a permission to operate letter from the energy off-taker. (d)(1) For all CF projects before the Agency will issue a loan note guarantee on a guaranteed loan to a borrower other than a public body, the articles of incorporation or other organizing documents of the borrower or the loan agreement must include a condition similar to the following: (2) If the corporation dissolves or ceases to perform the community facility objectives and functions, the board of directors shall distribute all business property and assets to one or more nonprofit corporations or public bodies. This distribution must be approved by 75 percent of the users or members and must serve the public welfare of the community. The assets may not be distributed to any members, directors, stockholders, or others having a financial or managerial interest in the corporation. Nothing herein shall prohibit the corporation from paying its debts. (e) For all B&I projects a borrower whose project involves locally or regionally produced agricultural food products and is not located in a rural area must include in an appropriate agreement with retail and institutional facilities to which the borrower sells locally or regionally produced agricultural food products a requirement to inform consumers of the retail or institutional facilities that the consumers are purchasing or consuming locally or regionally produced agricultural food products. [85 FR 42518, July 14, 2020, as amended at 85 FR 62198, Oct. 2, 2020; 86 FR 70358, Dec. 10, 2021; 89 FR 79726, Sept. 30, 2024] § 5001.453 Issuance of the loan note guarantee. The Agency, at its sole discretion, will determine if the conditions specified in the conditional commitment have been met and whether to issue the loan note guarantee. (a) Issuance. (1) Loan note guarantee. (2) Assignment guarantee agreement. (3) Certificate of incumbency and signature. (b) Agency review of closing. (c) Cancellation of obligation. [85 FR 42518, July 14, 2020, as amended at 85 FR 62198, Oct. 2, 2020] § 5001.454 Guarantee fee. The guarantee fee is a one-time, non-refundable fee paid by the lender to the Agency at or before loan closing and is required to be paid before the Agency will issue the loan note guarantee. The guarantee fee rate applied will be the rate as established in the Federal Register (a) Guarantee fee calculation. (b) Guarantee fee rates. Federal Register. Table 1 to § 5001.454( b Maximum guarantee fee Community Facilities 4 Water and Waste Disposal 3 Business and Industry 5 Rural Energy for America Program 3 (c) Loan note guarantee prior to completion. (d) Reduced fee. Federal Register (1) Is located in a rural community that— (i) Is a distressed community in accordance with the Economic Innovation Group distressed community index. The list can be found on the Agency's website at: https://www.rd.usda.gov/onerdguarantee; (ii) Is experiencing long-term population decline according to the last three decennial censuses; (iii) Is in a persistent poverty county. A persistent poverty county is any county that has had 20 percent or more of its population living in poverty over the past 30 years, as measured by the 1990 and 2000 decennial census and 2007-2011 American Community Survey 5-year average, or any territory or possession of the United States; (iv) Is in a presidentially declared disaster area, declared within the 24 months preceding the date of the application, and is experiencing trauma as a result of natural disaster; (v) Is located in a city, county, or state with an unemployment rate, as determined by the Department of Labor, 125 percent or greater of the current national rate; or (vi) Is located within the boundaries of a federally recognized Indian tribe's reservation or within Tribal trust lands or within land owned by an Alaska Native Regional or Village Corporation as defined by the Alaska Native Claims Settlement Act. (2) Processes, distributes, aggregates, stores, and/or markets locally or regionally produced agricultural food products and promotes access to healthy foods; (3) Is locally owned and managed, and either (i) Supports value-added agriculture and provides a market for locally or regionally produced agricultural food product; or (ii) Produces a natural resource value-added product/manufactures a product from a natural resource. (4) Is part of a strategic economic development and community development plan on a multi-jurisdictional and multi-sectoral basis in accordance with Section 6401 of the Agriculture Improvement Act of 2018 (Pub. L. 115-334); or (5) Provides an additional market for existing local businesses by purchasing substantial amounts of products or services from, selling product to, or providing services to existing local and regional businesses. The additional market for existing local businesses means that the borrower uses industry clusters in the same community as a substantial part of their product manufacturing or service delivery, or the borrower is part of a product chain where they are a substantial part of another local business' product manufacturing or service delivery. The use of local janitorial or maintenance firms, for example, does not meet this criteria. [85 FR 42518, July 14, 2020, as amended at 86 FR 70358, Dec. 10, 2021; 89 FR 79726, Sept. 30, 2024] § 5001.455 Periodic guarantee retention fee. The Agency will collect a periodic guarantee retention fee from the lender for as long as the loan note guarantee is outstanding in accordance with the annual notice published in the Federal Register Federal Register Federal Register (a) Calculation. Federal Register (b) Effective fee rate. Federal Register (c) Payments. Federal Register (1) Guarantee retention fee payments not received within 60 days after their due date are considered delinquent and, at the Agency's discretion, may result in cancellation of the loan note guarantee to the lender. The Agency will provide the lender 30 calendar days' written notice that the fee is delinquent before canceling the loan note guarantee. Holders' rights will continue in effect as specified in the loan note guarantee and assignment guarantee agreement, unless the holder took possession of an interest in the loan note guarantee knowing guarantee retention fees had not been paid. (2) Until the loan note guarantee is canceled by the Agency, any delinquent periodic guarantee retention fee will bear interest at the promissory note rate. (3) When the Agency repurchases 100 percent of the guaranteed portion of the guaranteed loan as prescribed in § 5001.511(c), the Agency will discontinue collection of the periodic guarantee retention fee. (d) Secondary market prohibition. § 5001.456 Other fees. The Agency has the authority and may at its discretion charge additional fees in order to maintain adequate levels of program funding. Prior to the Agency charging any additional fees, the Agency will publish a notice of those fees in the Federal Register (a) Until the loan note guarantee is canceled by the Agency, any delinquent fees will bear interest at the promissory note rate. (b) Lenders are prohibited from selling any portion of the guaranteed loan on the secondary market if there are unpaid fees. § 5001.457 Changes prior to loan closing. (a) Change in borrower prior to closing. (b) Transfer to new lender prior to issuance of the loan note guarantee. (1) The Agency may approve the transfer from the current lender to the proposed new lender provided the new proposed lender is an eligible lender (see paragraph (b)(2) of this section) and no material adverse changes have occurred in the: (i) Ownership, control or legal structure of the borrower; and (ii) Borrower's written plan, scope of work, or the purpose or intent of the project. (2) The Agency will determine if the proposed new lender is eligible in accordance with § 5001.130 of this part prior to approving the transfer of lender. The new lender must execute a new application form and a lender's agreement (unless the new lender already has a valid lender's agreement with the Agency) and must complete a new credit evaluation in accordance with § 5001.202 of this part. The Agency may require the new lender to provide other updated application items as specified by the Agency. (3) If the Agency approves the transfer to the new lender, the Agency will issue a letter of amendment to the original conditional commitment reflecting the new lender who must acknowledge acceptance of the amended conditional commitment in writing. [85 FR 42518, July 14, 2020, as amended at 89 FR 79727, Sept. 30, 2024] § 5001.458 Other Federal, State, and local requirements. Beginning on the date of issuance of the loan note guarantee, lenders and borrowers must— (a) Coordinate with all appropriate Federal, State, local and Tribal agencies that may have jurisdiction or involvement in each project; and (b) Comply with all current Federal, State, local, and Tribal laws and rules, as well as applicable regulatory commission rules, that affect the project, the borrower, or lender. Compliance activities include, but are not limited to— (1) Organization and borrower's authority to design, construct, develop, operate, and maintain the proposed facilities; (2) Borrowing money, giving security, and raising revenues for repayment; (3) Land use zoning; (4) Health, safety, and sanitation standards as well as design and installation standards; and (5) Protection of the environment and consumer affairs. § 5001.459 Replacement of loan note guarantee and assignment guarantee agreement. If a loan note guarantee or assignment guarantee agreement has been lost, stolen, destroyed, mutilated, or defaced while in the custody of the lender or holder, the Agency may issue a replacement to the lender or holder, as applicable under the conditions described in paragraphs (a) through (b) of this section. The lender is prohibited from altering or modifying or approving any alterations to or modifications of any loan documents without the prior written approval of the Agency. (a) Replacement requirements. (1) A written statement of loss which includes: (i) Legal name and present address of either the lender or the holder who is requesting the replacement forms; (ii) Legal name and address of the lender of record; (iii) Capacity of person certifying; (iv) Full identification of the loan note guarantee or assignment guarantee agreement including the name of the borrower, the Agency's case number, date of the loan note guarantee or assignment guarantee agreement, face amount of the promissory note in which an interest was purchased, date of the promissory note, present balance of the guaranteed loan, percentage of guarantee, and, if an assignment guarantee agreement, the original named holder and the percentage of the guaranteed portion of the guaranteed loan assigned to that holder. Any existing parts of the document to be replaced must be attached to the certificate; (v) A full statement of circumstances of the loss, theft, destruction, defacement, or mutilation of the loan note guarantee or assignment guarantee agreement; and (vi) For the holder, evidence demonstrating current ownership of the assignment guarantee agreement. If the present holder is not the same as the original holder, the lender must include a copy of the endorsement of each successive holder in the chain of transfer from the initial holder to present holder. If copies of the endorsement cannot be obtained, the lender must submit the best available records of transfer ( e.g., (b) Indemnity bond. (1) Be issued by a qualified surety company holding a certificate of authority from the Secretary of the Treasury and listed in Treasury Department Circular 570, except when the outstanding principal balance and accrued interest due the present holder, in accordance with § 5001.450(c), is less than $1 million as verified by the lender via a written letter of certification of balance due; (2) Be issued and payable to the United States of America acting through the Agency; (3) Be in an amount not less than the unpaid principal and interest; and (4) Hold the Agency harmless against any claim or demand that might arise or against any damage, loss, costs, or expenses that might be sustained or incurred by reason of the loss or replacement of the instruments. [85 FR 42518, July 14, 2020, as amended at 85 FR 62198, Oct. 2, 2020; 89 FR 79727, Sept. 30, 2024] §§ 5001.460-5001.500 [Reserved] Subpart F—Servicing Provisions § 5001.501 General. The lender is responsible for servicing the entire loan and taking all servicing actions that a reasonably prudent lender would perform in servicing its own portfolio of loans that are not guaranteed. The lender must certify that it will service the guaranteed loan in accordance with this part, its loan servicing policies and procedures, and the lender's agreement. Where a lender's loan servicing policies and procedures address a corresponding requirement in this part or in the lender's agreement, the lender must comply the corresponding requirement in this part, unless otherwise approved by the Agency. (a) A lender's servicing responsibilities include, but are not limited to, (1) Periodic borrower visits; (2) Distribution of guaranteed loan funds; (3) Collecting payments on guaranteed loans; (4) Ensuring compliance with the covenants and provisions in the loan agreement, security instruments, and other supplemental agreements relating to the guaranteed loan; (5) Obtaining and analyzing financial statements; (6) Ensuring payment of taxes and insurance premiums; (7) Maintaining liens and lien priority on collateral; (8) Keeping an inventory of all collateral items, and reconciling the inventory of all collateral sold during guaranteed loan servicing, including liquidation; (9) Obtaining Agency approvals or concurrence as required; and (10) Cooperating fully with all oversight and monitoring efforts of the Agency or its representatives as specified in § 5001.502. (b) The lender must remain mortgagee and secured party of record, notwithstanding the fact that another party may hold a portion of the loan. (c) The lender must ensure that the borrower has obtained and will maintain all necessary insurance coverage appropriate to the proposed project. (d) If the Agency determines that the lender is not in compliance with its servicing responsibilities, the Agency reserves the right to take any action the Agency determines necessary to protect the Agency's interests with respect to the guaranteed loan. If the Agency exercises this right, the lender must cooperate with the Agency to rectify the situation. § 5001.502 Oversight and monitoring. The Agency will employ various oversight and monitoring activities in order to ensure compliance with this part. All lenders involved in any manner with any loan note guarantee issued under this part or under a loan note guaranteed previously issued under a guaranteed loan program identified in § 5001.1 of this part must cooperate fully with the Agency in its oversight and monitoring efforts, including, but not necessarily limited to, those identified in paragraphs (a) through (c) of this section. (a) Reports and notifications. (1) Status reports. (2) Default reports. (3) Notifications. (i) Loan agreement violation by any borrower, including when the borrower is 30 days past due or is otherwise in default of the covenants in the loan agreement; (ii) Permanent or temporary reduction in the interest rate; (iii) Downgrade in the lender's loan classification of any guaranteed loan; and (iv) Protective advances in accordance with § 5001.516. (4) Collection activities report. (b) Records Lenders. (2) Borrowers. (c) Agency and lender conference. (d) Access to the project. [85 FR 42518, July 14, 2020, as amended at 89 FR 79727, Sept. 30, 2024] § 5001.503 REAP RES or EEI project completion requirements. Once a REAP RES or EEI project has been completed, the lender or borrower is required to submit the applicable project performance report as identified in paragraphs (a) and (b) of this section by January 31 each year. (a) Renewable energy systems. (b) Energy efficiency improvements. § 5001.504 Financial reports. (a) The lender must obtain the borrower's and any guarantor's financial statements required by this part and the loan agreement. The Agency may require an annual audited financial statement based on a project's circumstances. States, local government, Indian tribes, institution of higher education, and nonprofit organization borrowers who meet the Federal awards expended threshold established in 2 CFR part 200, subpart F, “Audit Requirements,” during their fiscal year must submit an audit conducted in accordance with 2 CFR part 200, subpart F. (b) The lender must submit financial statements obtained under this section to the Agency within 120 days of the end of the borrower's fiscal year. When the borrower's audit is conducted in accordance with 2 CFR part 200, subpart F, audits must be submitted no later than nine months after the end of the borrower's fiscal year or 30 days after the borrower's receipt of the auditor's report, whichever is earlier. If a lender makes reasonable documented attempts to obtain financial statements but is unable to obtain the borrower's (or guarantor's) cooperation, the failure to obtain financial statements does not impair the validity of the loan note guarantee. (c) Annual financial statements must be in accordance with accounting practices acceptable to the Agency as prescribed in § 5001.9 for all borrowers with a guaranteed loan balance in excess of $600,000. The lender may determine the type and frequency of financial statements for borrowers with a total guaranteed loan balance below $600,000 upon notification and justification to the Agency. This section does not supersede the borrower financial statement requirements of 2 CFR part 200, subpart F. (d) The lender must analyze the financial statements obtained under paragraph (a) of this section and provide the Agency with a financial analysis including a credit evaluation of trends, strength and weaknesses, ratio analysis, and conclusions, plus any extraordinary transactions; borrower violations of loan covenants and covenant waivers proposed by the lender, any routine servicing actions performed; and other indications of the financial condition of the borrower. (e) Following the Agency's review of the lender's financial analysis, the Agency will notify the lender in writing of any concerns. The lender must address each concern identified in the Agency's findings by the due date stated in the correspondence. (f) The lender should routinely confirm the outstanding principal balance of a guarantee held by a holder to avoid any discrepancy and delay in reconciliation in the event of a lender or Agency repurchase of the guaranteed loan from a holder in accordance with § 5001.511. [85 FR 42518, July 14, 2020, as amended at 89 FR 96860, Dec. 6, 2024] § 5001.505 Collateral inspection and release. (a) Inspection of collateral. (b) Release of collateral. (1) Exceptions to prior approval. (2) Appraisals. (3) Sale or release transaction. (i) Application of the net proceeds from the sale of collateral to the borrower's debts in order of their lien priority against the sold collateral; (ii) Use of the net proceeds from the sale of collateral to purchase other collateral of equal or greater value which the lender will obtain as security for the benefit of the guaranteed loan with a lien position equal or superior to the position previously held; (iii) Application of the net proceeds from the sale of collateral to the borrower's guaranteed loan or to its business operation in such a manner that a significant improvement to the borrower's debt service ability will be clearly demonstrated. The lender's written request must detail how the borrower's debt service ability will be improved; and (4) No adverse impact. [85 FR 42518, July 14, 2020, as amended at 89 FR 79727, Sept. 30, 2024] § 5001.506 Loan transfers and assumptions. (a) General. (1) All transfers and assumptions will have a fee as provided by § 5001.509(b). (2) For each transfer and assumption, the lender must concur in plans for the disposition of funds, if any, in the transferor's debt service, operations and maintenance, or other reserve accounts. (3) The lender must confirm that the transfer and assumption can be completed in accordance with applicable laws. (4) The lender must confirm that the conveyance instruments will be filed, registered, and recorded as appropriate and legally permissible. The transfer and assumption must be made on the Lender's form of assumption agreement and contain the Agency case number of the transferor and transferee. The lender must provide the Agency with a copy of the assumption agreement. (5) The lender may request a transfer and assumption when the total indebtedness, or less than the total indebtedness, of the guaranteed loan is assumed by another borrower. If the assumption is for less than the total indebtedness, the transfer and assumption must be an arm's length transaction and the transfer must be of all loan collateral. (6) In the event of default of the guaranteed loan, a transfer and assumption of the borrower's operation and guaranteed loan can be accomplished before or after the loan goes into liquidation. However, if the collateral has been purchased through foreclosure or the borrower has conveyed title to the lender, no transfer and assumption is permitted. (7) No transfer and assumption is permitted when the Agency has repurchased any guaranteed portion of the guaranteed portion of the loan. (8) If the transfer is for less than the total indebtedness, the pro rata share of an eligible loss will be paid to the lender after execution of the transfer and assumption documents. (b) Documentation. (1) The new borrower must sign an Agency-approved application form. (2) The Agency will require personal and/or corporate guarantee(s) in accordance with § 5001.204 of this part, as applicable. Any required new personal, partnership or corporate guarantors of the transferred guaranteed loan must sign an Agency approved guarantee form. (c) Agency approval. (1) Whenever the transferor and transferee are affiliates or related parties, the transfer and assumption must: (i) Be to an eligible borrower to continue the project for eligible purposes; (ii) Transfer all the loan collateral; and (iii) Be for the full amount of the guaranteed loan indebtedness. (2) A transfer and assumption may be approved when the present borrower is unable or unwilling to accomplish the objectives of the guaranteed loan, and the transfer will be in the best financial interest of the borrower and the Agency. (3) The Agency prefers to transfer to an eligible borrower subject to the policies and procedures governing the type of guaranteed loan being made, however the Agency will consider approving a transfer of a guaranteed loan to an ineligible borrower only if: (i) The sale price is greater than it would be if the transfer was to an eligible borrower; (ii) The transfer to an ineligible borrower is needed as a method for servicing a problem case; or (iii) When an eligible borrower is not available. All transfers to an ineligible borrower must meet the following requirements: (A) Transfer fees will be collected, and payments applied, in accordance with § 5001.509(b); (B) The ineligible borrower agrees to pay the loan balance within the remaining term of the original guaranteed loan in periodic installments that will not result in a balloon payment at the loan's maturity; (C) Interest rates are at the rate specified in the promissory note of the transferor or at rates customarily charged borrowers in similar circumstances in the ordinary course of business. The rates can be either fixed or variable, and are subject to Agency review and approval; (D) The ineligible borrower must have the legal authority to enter into the contract and have the ability to repay the loan, as determined by the lender and the Agency. The ineligible borrower must submit a current balance sheet to the lender. The lender must obtain and analyze the credit history of the ineligible borrower. (d) Release of liability. (e) Loan agreement. (f) Changes in loan terms. (1) An explanation of the reasons for the proposed change in the loan terms, and (2) Certification that the lien position securing the guaranteed loan will be maintained or improved, and proper insurances will continue to be in effect. (g) Loan note guarantee. (h) Proceeds. (i) Additional loans. (j) Credit quality. (k) Appraisals. (l) Legal opinion. (m) Promissory notes. (n) Loss/repurchase resulting from transfer and assumption. (2) If a holder owns any of the guaranteed portion of the loan, such portion must be repurchased by the lender or the Agency in accordance with § 5001.511. (o) Cash down payment. (1) The transfer and assumption are made for the total indebtedness to an eligible borrower to continue the project for eligible purposes; (2) The lender recommends that the cash be released, and the Agency concurs prior to the assumption being completed. The lender can require that an amount be retained for a defined period of time as a reserve against future defaults. Interest on such account may be paid periodically to the transferor or transferee as agreed; and (3) The lender determines that the transferee has the repayment ability to meet the obligations of the assumed guaranteed loan as well as any other indebtedness. (p) Change in control of borrower. [85 FR 42518, July 14, 2020, as amended at 89 FR 79727, Sept. 30, 2024] § 5001.507 Lender transfer. (a) After the issuance of a loan note guarantee, a lender may sell or transfer the entire loan to a new lender with prior written approval of the Agency. The Agency may approve the sale or transfer to a new lender if the following conditions are met. The new lender: (1) Is an eligible lender in accordance with § 5001.130 of this part and is approved as such; (2) Is able to service the loan in accordance with the original loan documents; (3) Agrees in writing to acquire title to the unguaranteed portion of the loan held by the original lender and assumes all original loan requirements, including liabilities and servicing responsibilities; and (4) The transfer to the new lender is requested in writing by the borrower, the proposed new lender, and the original lender of record, if still in existence. (b) Upon Agency approval, the original lender must transfer to the new lender the: (1) Original promissory note and loan security documents; (2) Original loan note guarantee; (3) Original personal and corporate guarantee(s); (4) Loan payment history; and (v) The new lender must agree to accept the current loan terms, including the interest rate, secondary market holder (if any), collateral, loan agreement terms, and guarantors. The new lender can modify the loan terms after acquisition only by submitting a written request to the Agency and receiving Agency approval. (vi) The new lender must certify to the Agency that the loan transfer has been completed in accordance with applicable laws and all provisions of the original loan remain in full force and effect. (c) The Agency will not pay any loss or share in any costs ( e.g., (d) In cases when there is a transfer to a new lender or when a lender has been merged with or acquired by another lender, the Agency and the new lender must execute a new lender's agreement, unless the new lender already has a valid lender's agreement with the Agency. (e) After Agency approval of a transfer of lender, all terms of the original loan note guarantee shall transfer to the benefit of the new lender. [85 FR 42518, July 14, 2020, as amended at 89 FR 79727, Sept. 30, 2024] § 5001.508 Mergers. Agency approval. (a) The resulting organization will be eligible for a guaranteed loan and assumes all the liabilities and acquires all the assets of the merged borrower; (b) The merger is in the best interest of the government and the merging organization; (c) The resulting organization can meet all required conditions as contained in specific loan agreements; and (d) All property can be legally transferred to the resulting organization. § 5001.509 Servicing fees. The lender may pass the servicing fees on to the borrower but may not delay payment of the fee to the Agency while collecting the payment from the borrower. (a) Guarantee retention fees. (b) Borrower transfer fee. (1) A one-time, $1,500 nonrefundable transfer fee at the time of transfer to an eligible borrower. (2) Payment of a one-time nonrefundable transfer fee of 1 percent of the guaranteed loan balance to ineligible borrowers. § 5001.510 Subordination of lien position. (a) Request for subordination. (b) Agency approval. (1) The subordination of the lender's lien position enhances the borrower's business and is in the best financial interest of the Agency; (2) The lien to which the guaranteed loan is subordinated is for a fixed dollar amount or fixed credit limit and for a fixed term, after which the guaranteed loan lien priority will be restored; (3) Remaining collateral is sufficient to provide for adequate collateral coverage of the guaranteed loan after taking into account the lender's discount of collateral consistent with the lender's sound loan-to-discounted value practices and satisfactory justification of the discount used. The Agency may require a current independent appraisal in accordance with § 5001.203. However, if the original appraisal is more than one year old, but less than two years old, the lender may provide an appraisal with a new effective date of evaluation in lieu of a completely new appraisal; (4) Lien priorities remain for the portion of the loan collateral that was not subordinated; (5) The subordination of collateral to a line of credit does not extend beyond the term of the line of credit and in no event exceeds more than three years. (6) Subordination to a tax-exempt obligation is strictly prohibited in compliance with OMB Circular A-129, “Policies for Federal Credit Programs and Non-Tax Receivables.” [85 FR 42518, July 14, 2020, as amended at 89 FR 79727, Sept. 30, 2024] § 5001.511 Repurchases from holders. (a) General. (1) The lender is encouraged to repurchase the guarantee, upon written demand of a holder, to facilitate the accounting of funds, resolve any loan problem, and resolve the monetary default, where and when reasonable. The benefit to the lender is that it may re-assign the guaranteed portion of the loan and then continue collection of its servicing fee, if any, when the monetary default is cured. (2) When a lender receives a written demand for repurchase from a holder, the lender must notify any other holder and the Agency within 30 calendar days of receipt of the written demand. The lender must inform all parties if the lender will repurchase the unpaid guaranteed portion of the loan from the requesting holder. (3) Upon repurchase the holder will re-assign the assignment guarantee agreement to the lender without recourse. (b) Repurchase by lender for loan servicing purposes. (1) Upon repurchase the holder will re-assign the assignment guarantee agreement to the lender without recourse. (2) The lender must not repurchase from the holder for arbitrage or other purposes to further its own financial gain. (3) Any repurchase from a holder may only be made after the lender obtains the Agency's written approval. (c) Agency repurchase. (1) Lender does not repurchase. (2) Written demand content. (i) A copy of the written demand made upon the lender; (ii) A copy of the lender's denial to repurchase the unpaid guaranteed portion of the guaranteed loan; (iii) Evidence of the right to require payment from the Agency as provided by the holder or duly authorized agent. Such evidence must consist of the original assignment guarantee agreement properly assigned to the Agency without recourse including all rights, title, and interest in the loan; (iv) The amount due including unpaid principal, unpaid interest to date of demand, and interest subsequently accruing from date of demand to proposed payment date; and (v) When the initial holder has assigned its interest, the original assignment guarantee agreement and an original of each Agency-approved reassignment document in the chain of ownership, with the latest reassignment being assigned to the Agency without recourse, including all rights, title, and interest in the guarantee. (3) Payment. (i) Upon request by the Agency, the lender must promptly furnish (within 30 calendar days of such request) a current statement, certified by an appropriate authorized officer of the lender, of the unpaid principal and interest then owed by the borrower on the loan and the amount then owed to any holder, along with the information necessary for the Agency to determine the appropriate amount due the holder. (ii) Any discrepancy between the amount claimed by the holder and the information submitted by the lender must be resolved between the lender and the holder before payment will be approved. The Agency will notify both parties and such conflict will suspend the running of the 30-calendar-day payment requirement. (iii) If a repurchase of a guaranteed loan includes the capitalization of interest, interest accrued on the capitalized interest will not be paid to the holder. (4) Subrogation. (5) Servicing fee. (6) Accrued interest. (7) Establishing interest termination date. (8) Obligations and rights. (9) Accelerated loan. (10) Interest termination during bankruptcy. [85 FR 62198, Oct. 2, 2020, as amended at 89 FR 79728, Sept. 30, 2024] § 5001.512 Additional expenditures and loans. The lender shall not make additional expenditures on behalf of, or provide new loans to, the borrower without notification to the Agency even though such expenditures or loans will not be guaranteed. The lender shall not approve additional expenditures or new loans where the expenditure or loan will violate, or cause a violation of, any of the loan covenants in the borrower's loan agreement. § 5001.513 Interest rate changes. (a) Interest rate freezes. (b) Reductions. (1) When the Agency is a holder, the lender must obtain Agency approval before implementing the reduction. The lender must provide a copy of the modification agreement to the Agency for approval. The Agency will approve the reduction only when it is demonstrated that the change is more viable than liquidation and that the government's financial interests are not adversely affected. (2) Factors that the Agency will consider in determining whether to approve the change are the Government's cost of borrowing money; the monetary recovery is greater than the liquidation recovery; and the project's continued viability as demonstrated by a financial feasibility analysis. (c) Increases. (d) Fixed rate to variable rate change. (e) Variable rate to fixed rate change. (f) After adjustments. (g) Documentation. (3) In a final loss settlement when qualifying interest rate changes are made in compliance with this part, the lender must calculate interest based on the periods the given rates were in effect. The lender must maintain records that adequately document the accrued interest claimed, which must be determined in accordance with § 5001.450(c). [85 FR 42518, July 14, 2020, as amended at 86 FR 70358, Dec. 10, 2021] § 5001.514 Lender failure. (a) General. (1) Any successor lender must take such action that a reasonable lender would take if it did not have a loan note guarantee to protect the lender and Agency's mutual interest. (2) A successor entity approved by the Agency as a lender will be afforded the benefits of the loan note guarantee in the sharing of any loss and eligible expenses subject to the limits that are set forth in the regulations governing the loan guarantee. (b) Non-regulated lender. (c) Regulated lender. (d) No successor entity. § 5001.515 Default by borrower. When there is a default by a borrower, the lender must act prudently and expeditiously in working with the borrower to bring the account current or cure the default through restructuring if a realistic plan can be developed, or to accelerate the account and conduct a liquidation in accordance with § 5001.517 and in a manner that will minimize any potential loss. (a) Default notification and meetings. (1) The lender will provide this notification by submitting the guaranteed loan borrower default status report in the Agency's electronic reporting system. The lender must update the loan's status each month until such time as the loan is no longer in default. (2) If a monetary default exceeds 30 calendar days, the lender must meet with the borrower and, if necessary, the Agency within 45 calendar days of the date of the default to discuss the situation. The lender must provide the Agency with a written summary of the meeting, including any decisions and actions agreed upon within 10 calendar days of the meeting. (b) Curative options. e.g., (1) Curative actions (subject to the rights of any holder and Agency concurrence) include, but are not limited to, the following options: (i) Deferment of principal and/or interest payments; (ii) An additional unguaranteed temporary loan by the lender to bring the account current; (iii) Re-amortization of or rescheduling the payments on the loan excluding capitalization of accrued interest; (iv) Transfer and assumption of the loan in accordance with § 5001.506; (v) Reorganization; (vi) Liquidation; (vii) Changes in interest rates in accordance with § 5001.513. Any interest payments must be adjusted proportionately between the guaranteed and unguaranteed portion of the loan; and (viii) Troubled debt restructure. (2) The term of any deferment, rescheduling, re-amortization, or moratorium cannot exceed the lesser of the remaining useful life of the collateral or remaining term of the loan as set forth in § 5001.402(b) of this part. (i) During a period of deferment or moratorium on the guaranteed loan, the lender's non-guaranteed loan(s) and any stockholder or affiliate loans must also be under deferment or moratorium. (ii) Balloon payments are permitted as a loan servicing option as long as there is a reasonable prospect for successful repayment of the guaranteed loan and the remaining life of the collateral supports the action. [85 FR 42518, July 14, 2020, as amended at 85 FR 62199, Oct. 2, 2020] § 5001.516 Protective advances. Protective advances are allowed only when they are necessary to preserve the value of the collateral. Therefore, a lender must exercise sound judgment in determining that the protective advance preserves collateral and recovery is actually enhanced by making the advance. (a) Protective advances must be reasonable with respect to the outstanding loan amount and the value of the collateral being preserved. (b) A lender cannot make protective advances in lieu of additional loans. (c) A lender must obtain written Agency approval for any protective advance that will cumulatively amount to more than $200,000, or 10 percent of the aggregate outstanding balance of principal and interest, whichever is less, to the same borrower. Payment of real estate taxes by the lender is considered a protective advance, subject to the requirements of this section, and does not require Agency advance approval. (d) Protective advances constitute an indebtedness of the borrower to the lender and must be secured by collateral to the same extent as the original guaranteed loan. It is the lender's responsibility to ensure that any protective advances are secured by the collateral of the guaranteed loan. (e) Notwithstanding § 5001.22(c) of this part, upon Agency approval, protective advances can be used to pay Federal tax liens or other Federal debt. (f) A Protective advance claim will be paid only at the time of the final payment as indicated in the report of loss. In the event of a final loss, protective advances may accrue interest at the promissory note rate from the date of such advance and will be guaranteed at the same percentage of loss as provided for in the loan note guarantee. The loan note guarantee will not cover interest on the protective advance accruing after the interest termination date. (g) The maximum loss to be paid by the Agency will never exceed the original loan amount plus accrued interest times the percentage of guarantee regardless of any protective advances made. (h) Holders do not have an interest in protective advances. [85 FR 42518, July 14, 2020, as amended at 89 FR 79728, Sept. 30, 2024; 89 FR 97477, Dec. 9, 2024] § 5001.517 Liquidation. In the event of one or more incidents of default or third-party actions that the borrower cannot or will not cure or eliminate within a reasonable period of time, the lender, with Agency consent, must provide for liquidation in accordance with paragraphs (a) through (n) of this section. The lender is responsible for initiating actions immediately and as necessary to assure a prompt, orderly liquidation that will provide maximum recovery. The Agency reserves the right to unilaterally conclude that liquidation is necessary and require the lender to assign the collateral to the Agency and the Agency will then liquidate the loan per paragraph (o) of this section. (a) Decision to liquidate. (1) The loan is 90 calendar days behind on any scheduled payment and the lender and the borrower have not been able to cure the delinquency; (2) Delaying liquidation will jeopardize full or maximum recovery on the loan; or (3) The borrower or lender is uncooperative in resolving the problem or the Agency or lender has reason to believe the borrower is not acting in good faith, and immediate liquidation would minimize loss to the Agency. (b) Repurchase of loan. (c) Lender's liquidation plan. (1) Such proof as the Agency requires to establish the lender's ownership of the guaranteed loan promissory note and related security instruments. Such proof may include copies of executed notes; and copies of mortgages or deeds of trust recorded in the appropriate jurisdiction; (2) A copy of the payment ledger, if available, or other documentation that reflects the current outstanding loan balance, accrued interest to date, and the method of computing the accrued interest. If the interest rate was a variable rate, the lender must include documentation of changes in the agreed upon base rate and when the changes in the loan rate became effective. (3) A full and complete list of all collateral and a listing of all liens held and status of such liens, plus any personal and corporate guarantees; (4) The recommended liquidation methods for making the maximum collection possible on the indebtedness and the justification for such methods, including recommended action for acquiring and disposing of all collateral and collecting from guarantors; (5) Necessary steps for preservation of the collateral including any anticipated protective advances; (6) The market value and the potential liquidation value, or estimates thereof, of all the collateral securing the loan. (i) These values or estimates of the collateral must be obtained by the lender through an independent appraisal. If the outstanding balance of principal and interest is less than $250,000, the lender may, instead of an appraisal, obtain these values or estimates by using their primary regulator's policies relating to appraisals and evaluations or, if the lender is not regulated, normal banking practices and generally accepted methods of determining value. A copy of the appraisal or valuation will be provided to the Agency with the liquidation plan or as soon as it is available. (ii) The procedure used to obtain these values or estimates of the collateral must include an evaluation of the impact of any release of hazardous substances, petroleum products, or other environmental hazards. (iii) Any independent appraiser's fee, including the cost of the environmental site assessment if necessary, will be shared equally by the Agency and the lender; (7) Proposed protective bid amounts on collateral to be sold at auction and a description to show how the amounts were determined. (i) A protective bid can be made by the lender, with prior Agency written approval, at a foreclosure sale to protect the lender's and the Agency's interest. (ii) The protective bid must not exceed the amount of the loan balance plus applicable foreclosure expenses and must be based on the liquidation value and estimated net recovery considering prior liens and outstanding taxes, expenses of foreclosure, and estimated expenses for holding and reselling the property. Foreclosure expenses include, but are not limited to, expenses for resale, interest accrual, length of time necessary for resale, maintenance, guard service, weatherization, and prior liens; (8) Copies of the borrower's latest available financial statements; (9) Copies of each guarantor's latest available financial statements; (10) An itemized list of estimated liquidation expenses expected to be incurred along with justification for each expense. These may include attorney, auctioneer, and other professional fees for services the lender will need to contract to maximize recovery on the loan. Cost could also include legal representation to protect Agency/lender joint interest in bankruptcy or receivership; (11) Estimated protective advance amounts with justification. Protective advances include, but are not limited to, advances made for taxes, annual assessments, ground rent, hazard and flood insurance premiums affecting the collateral, and other expenses necessary to protect the collateral. Protective advances may include advances necessary to maintain services or address unique situations with proper justification. If the lender has advanced funds without agency approval during the life of the loan, such expenditures or loans will not be guaranteed; (12) If a voluntary conveyance is considered, the proposed amount to be credited to the guaranteed debt; (13) Legal opinions, if needed by the lender's legal counsel; and (14) A schedule to periodically report to the Agency on the progress of liquidation, not to exceed every 60 days. (d) Partial liquidation plan. paragraph (c) (e) Approval of liquidation plan. (1) If the Agency approves the lender's liquidation plan, the lender must: (i) Proceed expeditiously with liquidation. The lender must actively market the collateral for a reasonable period of time. If after this period of time the lender is unable to sell the collateral, then consideration should be given to submission of a final loss claim based on the fair market value of the collateral prior to its ultimate disposition; (ii) Take all legal action necessary to liquidate the loan in accordance with the approved liquidation plan; and (iii) Update or modify the liquidation plan when conditions warrant, including a change in value based on a liquidation appraisal. (iv) If changed circumstances after submission of the liquidation plan require a revision of liquidation costs, the lender must obtain the Agency's written approval prior to proceeding with the proposed changes if the revised liquidation costs exceed 10 percent of the amount proposed in the liquidation plan approved by the Agency. (2) If the Agency does not approve the lender's liquidation plan, the Agency will meet with the lender to resolve the concern(s). Until the concerns are resolved, the lender must take such actions that a reasonable lender would take without a guarantee and keep the Agency informed, in writing, of those actions. Once the revised liquidation plan is approved by the Agency, the lender must proceed in accordance with paragraphs (e)(1)(i) through (iii) of this section. (f) Acceleration. (1) If the sole basis for acceleration is a non-monetary default, the lender must obtain concurrence from the Agency prior to accelerating the loan. In the case of monetary default, the lender may accelerate the loan without prior approval by the Agency, although Agency concurrence must still be given no later than the time the Agency approves the liquidation plan. (2) The lender must provide the Agency a copy of the acceleration notice, or other acceleration document sent to the borrower. (g) Estimated loss claim and payment. (h) Liquidation expenses. (2) When a liquidation is performed by the lender, the Agency must approve, in advance and in writing, the lender's estimated liquidation expenses of collateral. (3) Liquidation expenses must be reasonable and customary and must provide a demonstrated economic benefit to the lender and the Agency. The lender and Agency will share liquidation expenses equally. To accomplish this, the lender must deduct 50 percent of the liquidation expenses from the collateral sale proceeds. (i) Accounting and reports. (j) Transmitting payments and proceeds to the Agency. (k) Disposition of collateral. (i) The lender's cost to acquire the collateral of a borrower exceeds the potential recovery value of the security and the lender proposes abandoning the collateral in lieu of liquidation; or (ii) The acquired collateral is to be sold to the borrower, affiliates or members of the borrower or to borrower's stockholders or officers, or the lender or lender's stockholders or officers. (2) A recommendation by the lender for abandonment of collateral is considered a servicing action under 7 CFR 1970.8(e) and a separate NEPA review is not required. (l) Disposition of personal or corporate guarantees. (m) Compromise settlement. (n) Liquidation provisions selection. (2) The lender must notify the Agency in writing within 10 calendar days after its decision to liquidate as to which regulatory provisions it chooses to use. If the lender does not notify the Agency in writing within these 10 calendar days, it must use the liquidation provisions in this part. (o) Agency liquidation. [85 FR 42518, July 14, 2020, as amended at 89 FR 79728, Sept. 30, 2024] § 5001.518 [Reserved] § 5001.519 Bankruptcy. (a) Lender's responsibilities. (1) Taking actions that result in greater recoveries and avoiding actions that are likely not to be cost-effective; (2) Monitoring confirmed bankruptcy plans to determine borrower compliance, and, if the borrower fails to comply, pursuing appropriate relief, including seeking a dismissal of the bankruptcy plan; (3) Requesting modifications of any proposed bankruptcy plan whenever it appears that the lender could obtain additional recoveries via plan modification; (4) Filing a proof of claim, when necessary, and all the necessary papers and pleadings concerning the case; (5) Attending and, when necessary, participating in meetings of the creditors and all court proceedings; (6) Immediately seeking adequate protection of the collateral if it is subject to being used by the trustee in bankruptcy or the debtor in possession; (7) When appropriate, seeking involuntary conversion of a pending chapter 11 case to a liquidation proceeding or seeking dismissal of the proceedings; (8) Submitting a default status report within 15 calendar days after the date when the borrower defaults and every 30 calendar days thereafter until the default is resolved or a final loss claim is paid by the Agency; and (9) Informing the Agency within 10 working days upon notification of the filing of a bankruptcy case and keeping the Agency adequately and regularly informed, in writing, of all aspects of the proceedings, at a minimum, on a bi-monthly basis. (b) Appraisals. (c) Repurchase from the holder. (d) Reports of loss during bankruptcy. (1) Estimated loss payments. (ii) The lender must use the report of loss to request an estimated loss payment and to revise any estimated loss payments during the bankruptcy plan. The estimated loss claim, as well as any revisions to this claim, must be accompanied by documentation to support the claim. (iii) Upon completion of a bankruptcy plan, the lender must— (A) Enter the data directly into the Agency's electronic system; and (B) Provide the Agency with the documentation necessary to determine whether the estimated loss paid equals the actual loss sustained. Where the actual loss sustained is different than the estimated loss paid, the difference will be handled in accordance with § 5001.521(h). (2) Bankruptcy loss payments. (ii) The lender must use the report of loss to request a bankruptcy loss payment and to revise any bankruptcy loss payments during the course of the bankruptcy. The lender must include with the bankruptcy loss claim documentation to support the claim, as well as any revisions to this claim. (iii) Upon completion of a bankruptcy plan, restructure, or liquidation, the lender must enter the data directly into the Agency's electronic reporting system. (iv) If an estimated loss claim is paid during a bankruptcy and the borrower repays in full the remaining balance without an additional loss sustained by the lender, a final report of loss will be filed to terminate the loan. (3) Interest losses as a result of bankruptcy reorganization. (i) For guaranteed loans closed for which the Agency has not issued an interest termination letter— (A) The loss of interest income sustained during the period of the bankruptcy plan will be processed in accordance with paragraph (d)(1) of this section; (B) The loss of interest income sustained after the bankruptcy plan is confirmed will be processed annually when the lender sustains a loss as a result of a permanent interest rate reduction that extends beyond the period of the bankruptcy plan; and (C) If an estimated loss claim is paid during the operation of the bankruptcy plan and the borrower repays in full the remaining balance without an additional loss sustained by the lender, a final report of loss will be filed to terminate the loan. (ii) For guaranteed loans closed for which the Agency has issued an interest termination letter, the Agency will not compensate the lender for any difference in the interest rate specified in the loan note guarantee and the rate of interest specified in the bankruptcy plan. (4) Final bankruptcy loss payments. (5) Application of loss claim payments. (6) Protective advances. (e) Liquidation expenses during bankruptcy proceedings. (2) Reasonable and customary liquidation expenses in bankruptcy may be deducted from liquidation proceeds of collateral. In the case of Chapter 11 reorganizations or Chapters 11 or 7 liquidation, only expenses authorized by the court can be deducted from the collateral proceeds, unless the liquidation is by the lender. (3) When a bankruptcy proceeding results in a liquidation of the borrower by a bankruptcy trustee appointed under 11 U.S.C. 701, 702, 703, or 1104, expenses will be handled as directed by the court, and the lender cannot claim liquidation expenses for the sale of the assets. (4) If the property is abandoned by the bankruptcy trustee and any relief from the stay has been obtained, the lender will conduct the liquidation in accordance with § 5001.517. (5) Proceeds received from partial sale of collateral during bankruptcy can be used by the lender to pay reasonable costs ( e.g., (6) Legal fees as a result of a bankruptcy are limited by the Agency to an amount not to exceed 3 percent of the current principal balance and are only recoverable from liquidation proceeds. Legal fees in excess of 3 percent of the current principal balance shall be borne by the lender and are not recoverable from liquidation proceeds or any loss claim by the lender. [85 FR 42518, July 14, 2020, as amended at 89 FR 79728, Sept. 30, 2024] § 5001.520 Litigation. (a) In all litigation proceedings involving the borrower, the lender is responsible for protecting the rights of the lender and the Agency with respect to the loan and keeping the Agency adequately and regularly informed, in writing, of all aspects of the proceedings. If the Agency determines that the lender is not adequately protecting the rights of the lender or the Agency with respect to the loan, the Agency reserves the right to take any legal action the Agency determines necessary to protect the rights of the lender and Agency, on behalf of the lender or the Agency. If the Agency exercises this right, the lender must cooperate with the Agency. The Agency will assess against the lender any cost the Agency incurs with such action. (b) Notwithstanding any other provision of this part, the Agency reserves the right to be represented by the U.S. Department of Justice in any litigation where the Agency is named as a party. § 5001.521 Loss calculations and payment. Unless the Agency anticipates a future recovery, the Agency will make a final settlement with the lender after the collateral is liquidated or after settlement and compromise of all parties has been completed. The Agency has the right to recover losses paid under the guarantee from any party that may be liable. (a) Report of loss form. (b) Estimated loss claim. (c) Estimated loss payment. (1) The amount of an estimated loss payment must be credited first as a deduction from the principal balance of the loan with any remaining balance to accrued interest. (2) The estimated loss payment cannot be applied as a payment on the loan for purposes of reducing the unpaid balance owed by the borrower for status reporting or any debt collection actions against the borrower or any guarantors. (d) Reduction of loss claims payable. (2) Non-compliance with the requirements of § 5001.205(a) § 5001.305(a) (3) Any delinquent fees, including any interest due thereon, will be deducted from any loss payment due the lender. (e) Final loss claim. (1) Loss. (i) Interest to the lender accruing after the interest termination date; (ii) Any interest accrued as the result of the borrower's default on the guaranteed loan over and above that which would have accrued at the Agency-approved promissory note rate on the guaranteed loan ( e.g., (iii) Any late fees, penalties, bond fees, interest rate swap charges, liquidation expenses, and other costs unless authorized under paragraph (e)(7) of this section. (2) Accounting of funds. (3) Audit. (4) Guarantees. (5) Federal debt. (i) Any amounts paid by the Agency pursuant to a claim by a lender constitute a Federal debt owed to the Agency by a third-party guarantor of the guaranteed loan, to the extent of the amount of the third-party guarantee. In such case, the Agency can use all remedies available to it to collect the debt from the third-party guarantor including offset in accordance with part 3 of this title. (ii) The Agency may consider a compromise settlement of a debt owed to the Agency after it has processed a final report of loss and issued a 60-day due process letter. Any funds collected by the Agency will not be shared with the lender. (6) Protective advances. (7) Liquidation expenses. (i) Liquidation expenses are recoverable only from liquidation proceeds. The Agency will deduct liquidation expenses from the liquidation proceeds of the collateral unless the costs have been previously determined by the lender (with Agency concurrence) to be protective advances. The lender must provide receipts and a breakdown of liquidation expenses as to the payee, purpose of the expenditure, date paid, evidence that the amount expended was proper, and that the amount was actually paid. (ii) The Agency may approve legal fees as liquidation expenses provided that the fees are reasonable, require the assistance of attorneys, and cover legal issues pertaining to the liquidation that could not be properly handled by the lender, its employees or in-house counsel. Approved legal expenses are limited by the Agency to an amount not to exceed 3 percent of the current principal balance and will be shared by the lender and Agency equally. This includes those instances where the lender has incurred such expenses from a trustee conducting the liquidation of assets. Legal fees in excess of 3 percent of the current principal balance shall be borne by the lender and are not recoverable from liquidation proceeds or any loss claim by the lender. (iii) The lender cannot claim the guarantee fee or the other Agency fees as authorized liquidation expenses, and In-house expenses of the lender are not allowed. (8) Accrued interest. (i) Accrued interest eligible for payment under the guarantee on a defaulted loan will be discontinued when the estimated loss is paid. Interest will not be paid beyond the interest termination date. (ii) The lender must support accrued interest by documenting how the amount was accrued, including attaching a copy of both the promissory note and ledger. If the interest rate was a variable rate, the lender must include documentation of changes in both the selected base rate and the loan rate. (iii) If a restructuring of a guaranteed loan includes the capitalization of interest, the guarantee will not cover the interest accrued on the capitalized interest. (9) Acquiring property titles. (i) The lender has submitted to the Agency a written request to use this option within 15 calendar days of acquiring title; and (ii) The Agency approves the request prior to the lender submitting any request for estimated loss payment. (f) Loss limit. (g) Rent. (h) Final loss payment. (1) Any estimated loss payments made to the lender will be credited against the final loss payment on the guaranteed loan. (2) Once the Agency approves the report of loss and supporting documents submitted by the lender— (i) If the actual loss is greater than any estimated loss payment, the Agency will pay the additional amount owed by the Agency to the lender. (ii) If the actual loss is less than the estimated loss payment, the lender must reimburse the Agency for the overpayment plus interest at the promissory note rate from the date of payment of the estimated loss. (iii) If the Agency conducted the liquidation, it will provide an accounting to the lender and will pay the lender in accordance with the loan note guarantee. [85 FR 42518, July 14, 2020, as amended at 89 FR 79728, Sept. 30, 2024] § 5001.522 Future recovery. After a final loss claim has been paid, the lender must use reasonable efforts to collect from any party still liable for future recovery unless the Agency notifies the lender otherwise. Any net proceeds from future recovery will be split pro rata between the lender and the Agency based on the percent of the loan guarantee even if the loan note guarantee has been terminated. Once the Agency determines a debt is Federal debt and provides notice to the lender, that Federal debt is excluded from future recovery. The lender must cease all collection efforts against the borrower and any individual or corporate guarantors upon referral of the debts by the Agency for collection in accordance with part 3 of this title. The Agency will not share with the lender any collection of Federal debt made by the Federal Government from any liable party to the guaranteed loan. § 5001.523 Property acquired by the lender. (a) Collateral preservation. (b) Collateral sale. (2) Whenever the conversion of collateral to cash can reasonably be expected to result in a negative net recovery amount, the lender should consider abandonment of the collateral. If the lender seeks to abandon the collateral, the lender must obtain written Agency approval before abandoning the collateral. (c) Re-title collateral. § 5001.524 Termination of loan note guarantee. Each loan note guarantee issued under this part or under one of the guaranteed loan programs identified in § 5001.1 of this part will terminate automatically when one of the events described in paragraphs (a) through (c) of this section occur. The lender will maintain its guaranteed loan files for at least three years after termination of the loan note guarantee. (a) The guaranteed loan is paid in full; (b) Full payment by the Agency of any loss claim or compromised settlement except for future recovery provisions; or (c) Written request from the lender to the Agency to terminate the guarantee, which will be effective the date the Agency receives the request provided that the lender holds all the guaranteed portion of the loan. [85 FR 42518, July 14, 2020, as amended at 85 FR 62199, Oct. 2, 2020] §§ 5001.525-5001.600 [Reserved]

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