Rule2021-27522
Intermediary Relending Program (IRP) Program
Primary source
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Published
December 21, 2021
Effective
December 21, 2021
Issuing agencies
Agriculture DepartmentRural Business-Cooperative Service
Abstract
The Rural Business-Cooperative Service (RBCS), (Agency), is completing a revision to the Intermediary Relending Program (IRP) regulations to streamline process, provide clarity on the daily administration of the program, and incorporate program updates. The regulatory cleanup incorporates the program statutory requirements established in the Agriculture Improvement Act of 2018 (Farm Bill).
Full Text
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<title>Federal Register, Volume 86 Issue 242 (Tuesday, December 21, 2021)</title>
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[Federal Register Volume 86, Number 242 (Tuesday, December 21, 2021)]
[Rules and Regulations]
[Pages 72151-72171]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27522]
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DEPARTMENT OF AGRICULTURE
Rural Business-Cooperative Service
7 CFR Part 4274
[Docket No. RBS-20-BUSINESS-0032]
RIN 0570-AA99
Intermediary Relending Program (IRP) Program
AGENCY: Rural Business-Cooperative Service, USDA.
ACTION: Final rule.
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SUMMARY: The Rural Business-Cooperative Service (RBCS), (Agency), is
completing a revision to the Intermediary Relending Program (IRP)
regulations to streamline process, provide clarity on the daily
administration of the program, and incorporate program updates. The
regulatory cleanup incorporates the program statutory requirements
established in the Agriculture Improvement Act of 2018 (Farm Bill).
DATES: This final rule is effective December 21, 2021.
FOR FURTHER INFORMATION CONTACT: Sami Zarour, Supervisory Business Loan
and Grant Analyst, Program Management Division, Rural Business-
Cooperative Service, U.S. Department of Agriculture, STOP 3226, 1400
Independence Avenue SW, Washington, DC 20250-3226; email:
<a href="/cdn-cgi/l/email-protection#e7b4868a8ec9bd8695889295a792948386c9808891"><span class="__cf_email__" data-cfemail="590a3834307703382b362c2b192c2a3d38773e362f">[email protected]</span></a>; telephone (202) 720-1400.
SUPPLEMENTARY INFORMATION:
I. Background
The Intermediary Relending Program (IRP), originally enacted under
42 U.S.C. 9812 and currently authorized at 7 U.S.C. 1936b, authorizes
the Secretary to make or guarantee low-interest loans to local
intermediaries to relend funds to businesses to improve economic
conditions and create jobs in rural communities. The purpose of the IRP
is to alleviate poverty and increase economic activity and employment
in rural communities, especially disadvantaged and remote communities,
through financing targeted towards smaller and emerging businesses, in
partnership with other public and private resources, and in accordance
with State and regional strategy, based on identified community needs.
This purpose is achieved through loans made to intermediaries that
provide loans to ultimate recipients to promote community development,
establish new businesses, establish and support microlending programs
and create or retain employment opportunities in predominantly rural
areas. The
[[Page 72152]]
regulations set forth the criteria the Agency uses via a point system
to determine an eligible applicant's priority for available loan funds.
Since the enactment of the authorizing legislation, the passage of
the Agriculture Improvement Act of 2018 (Farm Bill) has necessitated
specific changes to this regulation. The Agency is also, through this
rulemaking, improving processes, streamlining requirements, and
providing clarity to daily administration of the program.
II. Summary of Changes
Farm Bill Specific Updates
The Farm Bill resulted in specific modifications to three topics:
Limitation on loan amounts, evaluation, and return of equity (42 U.S.C.
9812).
The limitation on loan amounts for ultimate recipient projects,
including unpaid balance of any existing loans, is modified to allow a
maximum loan to an ultimate recipient in the lesser of $400,000 or 50
percent of the loan to the intermediary. In assigning priorities to
applications, the Agency now requires an eligible entity to demonstrate
that it has a governing or advisory board made up of business, civic
and community leaders who are representative of the communities of the
service area, without limitation to the size of the service area. Prior
versions of the IRP limited intermediary service areas to no more than
14 counties in order to receive points under this criterion. The Agency
eliminated the reference to the 14-county service area to be consistent
with the Farm Bill provision.
The Agency establishes a schedule that is consistent with the
amortization schedules of the portfolio of loans made or guaranteed
under the general requirements of the IRP, for the return of any equity
contribution made under the program by an eligible entity that is
current on all principal and interest payments and in compliance with
the loan covenants. An intermediary with an IRP loan(s) where the cash
portion of the IRP revolving loan fund includes fees, principal and
interest payments received from the ultimate recipients and is not
composed of any original Agency IRP loan funds may request a partial or
full return of its contributed equity under the conditions outlined in
the subpart: (1) The intermediary is current in all payments to the
Agency and in compliance with all elements of their loan agreement and
Agency reporting requirements; (2) the ratio of intermediary equity to
the Agency loan after the return of equity remains consistent with the
initial equity injection percentage by the intermediary; and (3) any
return of an intermediary's equity from the revolving loan fund must be
approved by the Agency in writing and is also limited to an amount that
the Agency determines will not cause additional credit risk to the
revolving loan fund.
Across the Regulation Updates
The entire regulation was updated to make it easier to understand
and more streamlined. Throughout this document, the Farm Bill changes
are enacted, and minor edits were made that were not intended to change
the meaning of the regulation, just to make it clearer, provide more
clarification to the public, streamline the regulation, and make it
easier for the public to understand. This includes deleting repetitive,
unnecessary phrases; breaking up confusing, long sentences and
paragraphs into small segments to be more easily understood; and re-
organizing the document to make it flow and read more cleanly. This was
done throughout the whole regulation.
Introduction (Sec. 4274.301)
The changes in this regulation revision include an introductory
section for loans made by the Agency to eligible intermediaries. This
applies to borrowers, ultimate recipients, and other involved parties.
Any complete applications that have been received but not funded, or
funded applications where the loan has not yet been closed by the
effective date of this regulation, will be processed under these new
requirements. An intermediary borrower may use the Agency-prescribed
self-election template for the Intermediary Relending Program (IRP), to
have its existing loans (projects already approved and closed) and any
loans approved under the previous regulation but not yet closed
processed under these provisions. Other edits in this section were made
to provide necessary clarification.
Definitions (Sec. 4274.302)
The Definitions section, Sec. 4274.302, has been updated for a
variety of reasons, including to be consistent with the Farm Bill,
other Agency regulations, and provide needed clarity.
Administrator has been added to be consistent with other Agency
regulations. Agency has been edited to be consistent with other Agency
regulations. Affiliate has been updated and expanded to be consistent
with other Agency regulations, specifically the OneRD Guarantee Loan
Initiative, and clarify factors that will be used in determining
whether affiliation exists. Agency IRP loan was added to distinguish
between Agency loans and the existing term Agency IRP loan funds and
also to distinguish the Agency's loan from an Intermediary's loan to an
ultimate recipient. Agricultural production was changed to be
consistent with other Agency regulations, specifically the OneRD
Guarantee Loan Initiative. Aquaculture was added to the regulation to
be consistent with other Agency programs, and to match the Value-Added
Producer Grants definition. Citizenship has been changed to `Citizen'
to simplify the definition. Community development was added to add
context to references relating to program purpose and scoring. The Farm
Bill clearly indicates it is an eligible purpose, so this was added for
clarity. Conflict of interest was updated for consistency with other
Agency programs and to add context to its reference in other parts of
the regulation. Cooperative was added to eliminate confusion and
establish consistency in its application when determining eligibility
of applicable entities. Hydroponics was added to define it as an
eligible use of funds and to distinguish it from agriculture
production. This has been found to be a popular trend in the country
and warranted some clarification. Immediate family was added to provide
readers a list of relationships that constitute immediate family
members to assist in determining if a conflict of interest exists when
employing parties of an organization that may have a financial interest
or tangible personal benefit in a business transaction. This definition
is also consistent across other Business and Industry programs, and the
OneRD Guarantee Loan Initiative program. Indian tribe was added to
eliminate confusion and establish consistency in its application when
determining eligibility of applicable entities. Intermediary was
changed to add the common purpose of recapitalizing a revolving loan
fund. Intermediary equity contribution was added to provide context to
the use of the term under priority scoring of projects. IRP revolving
loan fund was updated to provide clarity regarding the creation of the
fund and the segregation of the account from other funds. Loan
Agreement was added to define it as a debt instrument that acts as an
agreement between an intermediary borrower and the Agency setting forth
terms and conditions of the Agency IRP Loan. Military personnel was
added to provide clarification to the term for eligibility purposes and
to codify information that was previously addressed through
Administrative
[[Page 72153]]
Notices. Public agency was added to eliminate confusion and establish
consistency in its application when determining eligibility of
applicable entities. Revolved funds was updated for clarity. The term
``rural and rural area'' was updated to be consistent with the Farm
Bill. This will eliminate confusion and ensure consistency in
application of the term throughout the Agency field offices and users
of the regulation. Statewide nonmetropolitan median household income
was deleted as it is not used in the regulation. Processing office or
officer was deleted because this term is no longer used in the
regulation. Technical assistance was updated to provide additional
information on what constitutes technical assistance and to whom the
assistance is provided. Underrepresented group was updated to provide
examples of common demographic characteristics. Value-added
agricultural product was added to provide consistency to other Agency
programs, specifically the OneRD Guarantee Loan Initiative. Work plan
was added to define the information components as the document is a
required part of a complete application. Initial Agency IRP loan and
Subsequent IRP loan were removed from the definitions as their use was
causing confusion and a misconception as it relates to revolved funds
and continuing compliance with program regulations. Also, there has
been confusion regarding the continuance of the Federal character of
funds once the funds revolved and projects were no longer funded from
the Initial Agency IRP loan.
The regulations repeated definitions throughout, and duplications
were removed to avoid confusion. For example, Sec. 4274.310(a) and (f)
removed duplicate definitions of public agency, Indian Tribe,
cooperative, and citizens. Section 4271.311(c) was also edited to avoid
duplicating and confusing the definition of citizens.
Review or Appeal Rights (Sec. 4274.303, Formerly Sec. 4274.373)
Discussion on Appeal Rights has been moved from the former Sec.
4274.373 to Sec. 4274.303. Section 4274.303 was previously a reserved
section. A description was added to clarify what appeal and review
rights intermediaries have with respect to adverse Agency decisions, in
accordance with 7 CFR part 11.
Exception Authority (Sec. 4274.304, Formerly Sec. 4274.381)
Discussion on Exception Authority was moved from the former Sec.
4274.381 to Sec. 4274.304. This section was revised to clarify that
the Agency is authorized to exercise Exception Authority when use of
such authority is in the best financial interest of the Federal
Government and is not contrary to any applicable statutory authorities.
Other Regulatory Requirements (Sec. 4274.305, Formerly Reserved)
The current rule is being updated to incorporate specific
requirements of the applicable Rural Development environmental
regulation, 7 CFR part 1970, ``Environmental Policies and Procedures.''
In accordance with 7 CFR part 1970, intermediary lending is considered
a Multi-Tier Action and all intermediaries must execute an Exhibit H to
RD Instruction 1970-A, ``Multi-tier Action Environmental Compliance
Agreement'' as part of their IRP application submitted to the Agency.
In accordance with 7 CFR 1970.55, the intermediary must sign a
certification that they have a National Environmental Policy Act (NEPA)
staff capable of undertaking an environmental review that meets Agency
standards. For intermediaries that do not have capable staff, the
Agency has decided that State RBCS Program staff will deliver training
to borrowers on the environmental process and how to determine whether
a project is a categorical exclusion or requires an environmental
assessment and review. Agency RBCS Program staff can also opt to assist
with completing the NEPA categorical exclusion review with information
provided by the intermediary or ultimate recipient.
In the case of each proposed loan from an intermediary to an
ultimate recipient using Agency IRP loan funds, an environmental review
will be completed in accordance with 7 CFR 1970.53 and 1970.54. This
promulgation will also address whether a project funded from revolved
program dollars is subject to NEPA requirements. Projects that do not
qualify for a categorical exclusion, or which may be subject to an
extraordinary circumstance under 7 CFR 1970.52, will be referred to the
Agency for review under 7 CFR part 1970, subpart C.
Requirements for seismic safety of new building construction were
revised to reference updated provisions of the most current version of
the International Building Code (IBC) or two versions prior; currently
that is 2021 IBC, 2018 IBC or 2015 IBC, or an above-code seismic
standard that meets or exceeds the equivalent level of safety to that
contained in the latest edition of the National Earthquake Hazard
Reduction Programs (NEHRP) Recommended Provisions for the Development
of Seismic Regulations for New Building (NEHRP Provisions).
Eligibility Requirements--Intermediaries (Sec. 4274.310, Formerly
Sec. 4274.307)
Section 4274.310 contains eligibility requirements for
intermediaries. This section was in the former regulation at Sec.
4274.307 and it was revised to provide clarity on process. It was
updated to segregate lengthy paragraphs into smaller sections for
clarity and ease of understanding. The term project completion was
dropped and instead continuation was used as a more accurate and clear
term. As most funds go on in perpetuity, it was the more appropriate
term to use. Clarification was added under Section 4274.310(b) to state
that if the intermediary is an affiliate of another entity, the
intermediary's governing board must be independent of the affiliated
entity. Section 4274.310(d) was expanded to clarify that the essential
activities of a business lending operation and the administration of
the IRP revolving loan fund must be conducted in-house by an employee
of the intermediary; they may not routinely use outside entities for
their lending outreach, loan underwriting, management, or day-to-day
operations. Section 4274.310(j) was added to prohibit intermediaries
that may be established for the purpose of, or that predominantly use
IRP loan funds for, the financial benefit of an affiliate through loan
participations or other funding methods.
Eligibility Requirements--Ultimate Recipients (Sec. 4272.311, Formerly
Sec. 4274.308)
Section 4274.311 contains eligibility criteria for Ultimate
Recipients and was moved from its location in the previous regulation
at Sec. 4274.308. This section was revised to provide clarity, but no
substantive changes were made.
Loan Purposes (Sec. 4274.320, Formerly Sec. 4274.314)
Eligible Loan Purposes are now outlined in the new Sec. 4274.320
and were located in Sec. 4274.314 in the previous regulation.
Paragraph (a) has been updated to provide a better explanation of
intermediary responsibilities regarding Agency IRP loans. Aquaculture
and hydroponics, commercial fishing, commercial nurseries, forestry,
and value-added production will continue to be eligible loan purposes,
but to minimize confusion, they have now been explicitly listed. In
order to provide the necessary clarity for housing projects in the
program, eligible use of funds for housing projects was better defined
as limited to costs related to community
[[Page 72154]]
development projects, and not for the purchase of residential housing.
Additional IRP revolving loan fund purposes were included as
appropriate. Section 4274.320(c) was expanded to clarify the use of
loan participations as an eligible loan purpose, including provisions
that must be included in a loan participation agreement between lenders
while also prohibiting the use of an open-ended participation agreement
between the intermediary and any lender. A provision was also added
that no more than 50 percent of the total intermediary loans to
ultimate recipients may be sold or participated to an individual lender
or affiliation of lenders.
Ineligible Loan Purposes (Sec. 4274.321, Formerly Sec. 4274.319)
Ineligible loan purposes are outlined in Sec. 4274.321 and were
formerly found in the prior regulation at Sec. 4274.319. In addition
to reorganization, this section now has been updated to include
additional information on conflict of interest prohibitions for
clarification, agricultural production was modified to reference the
now eligible activities in Sec. 4274.320(b)(15) through (19), and the
Agency has increased the threshold for ineligibility due to annual
gross revenue derived from gambling activities from 10 to 15 percent,
as recent industry trends show an increase in revenue from gambling
activities, including lease income from space or machines.
Agency IRP Loan Conditions and Terms (Sec. 4274.330, Formerly Sec.
4274.320)
Information about Loan Terms is now included in Sec. 4274.330,
moved from the former location of Sec. 4274.320 in the previous
regulation. In Sec. 4274.330(b), loan closing between the intermediary
and Agency was revised to require that loan closing must take place
within six months of loan approval or else funds will be deobligated.
The rationale for this change is that the Agency has had numerous cases
where projects are not closed for years. This nonuse of funds has had a
negative effect on subsidy rates for the program and does not meet the
intent of the program.
In Sec. 4274.330(c) loan terms between the intermediary and Agency
are clarified to indicate that in the fourth year after loan closing,
the loan will fully amortize, and that ``full amortization'' means
principal and interest payments are due based on the total outstanding
amount of the loan and not just on the amount drawn down and advanced
to ultimate recipients. There has been past confusion on this issue, so
the Agency is providing the necessary clarification in this update. All
documents representing an interest in a participation loan made under
Sec. 4274.320 were added at Sec. 4274.330(e)(2) to the list of
documents that must be assignable.
IRP Revolving Loan Fund Loan Conditions and Terms (Sec. 4274.331,
Formerly Sec. 4274.320 and Sec. 4274.325)
In Sec. 4274.331(a)(1) the Agency clarifies IRP revolving loan
fund loan conditions and terms between the intermediary and ultimate
recipients. This section provides the needed clarification that
interest rates are negotiated between the two parties and that rates
must be the lowest rates sufficient to cover the loan's proportional
share of the fund debt service reserve and administrative costs.
Post Award Requirements (Sec. 4274.332)
Intermediaries can contract personnel for hire; however, Sec.
4274.332(b)(2) prohibits contracting of essential activities, such as
loan underwriting, or day-to-day operations.
In Sec. 4274.332(b)(3) language was revised to use ``debt service
reserve'' in lieu of ``bad debt reserve.'' The revised term clarifies
that funds may be used to ensure that adequate cash is available for
the annual IRP loan installment(s) in the event that the IRP revolving
loan fund has insufficient cash to make these payments. Some
intermediaries interpreted ``bad debt reserve'' as available only to
payoff bad debts; thus, there was needed clarification on the
definition and term. Additional language was added that prohibits
Agency IRP funds or funds from an encumbered source from being used to
fund this account.
In Sec. 4274.332(b)(5) language was clarified that an intermediary
cannot use funds for any investments in securities, or certificates of
deposit over a 30-day duration. Certificates of deposit often come with
penalties for withdrawals outside of a pre-determined period of time.
IRP is not designed for investment of proceeds and therefore such a
financial tool does not meet the intent of the program.
Loan Agreements (Sec. 4274.333)
In Sec. 4274.333(a)(4)(i) and (ii) the Agency addresses the
provisions for late charges on the intermediary loan by the Agency.
There has been a disconnect in communication with borrowers on late fee
assessments and interest calculations. Language was added here to
notify readers that in the event of late fees being charged, that a
notice will be sent to the intermediary identifying the per diem amount
until the account becomes current. Guidance further explains that
interest will be calculated on a 365-day basis unless otherwise stated
in legal documents.
Audit Opinion (Sec. 4274.333, Formerly in Sec. 4274.338)
In Sec. 4274.333(b)(4)(i)(A) the Agency removed the requirement
for an unqualified audit opinion. Unlike an adverse opinion, the reason
for the issuance of a qualified opinion generally has no impact on the
fair presentation of the financial information provided; therefore, the
Agency has determined that the blanket restriction on qualified
opinions was placing an undue burden on applicants.
The Disbursement Procedure (Sec. 4274.333, Formerly Sec. 4274.338)
Disbursement Procedures have been relocated from Sec. 4274.338 to
Sec. 4274.333(a)(5) and have been updated to include current funds
disbursement procedures. The Agency believes these procedures better
provide the appropriate balance between safeguarding taxpayer funds and
allowing the intermediaries to operate their funds according to their
standards and practices.
Applications (Sec. 4274.340, Formerly Sec. 4274.343)
Application requirements have been moved from Sec. 4274.343 in the
prior regulation to Sec. 4274.340. This section was changed in format
and layout to be consistent with other RBCS programs. In addition,
necessary forms are indicated as well as an indication for where other
online guidance can be found. Additional guidance on contracted
personnel was added at Sec. 4274.340(a)(1)((ii)(A) through (C) to
reinforce that contract personnel are for interim expertise and should
only be used on an ``as needed'' basis.
Processing Applications for Loans (Sec. 4274.341, Formerly Sec.
4274.343)
Section 4274.341 (formerly Sec. 4274.343) was updated to clarify
that applications are received on an ongoing basis but will compete for
funds on a quarterly basis for available funds based on a priority
score ranking. This section also modifies the priority scoring criteria
to address current economic and community development demographics and
program conditions, resulting in maximum utilization of the loan fund
awards by addressing critical community and small business financing
needs. The Agency is revising the scoring requirements found in this
section as follows:
First. The scoring criteria, for base points, is being realigned to
reduce
[[Page 72155]]
redundancy and focus on items that best ensure program dollars are
targeted to communities the IRP was designed to assist. To ensure more
equitable priority scoring, separate scoring criteria for initial
applications and existing intermediaries seeking funds to replenish
their revolving loan funds were created. Expanded scoring thresholds
for equity contributions to the revolving loan fund are included. Due
to the removal of the intermediary service area restriction, the Agency
added a criterion regarding the makeup of the governing board of the
organization. The Agency provided clarification on the median household
income calculation used in scoring and reiterated that the source of
unemployment information was the Department of Labor. To better
prioritize projects, two new criteria were added. The first provides
points if greater than 50 percent of the service area is experiencing
trauma due to a natural disaster, and the second is for loan requests
of $750,000 or less.
Second. Under the prior regulation, the leveraging criteria was
calculated on three levels which caused confusion and inconsistencies
in scoring projects and thereby affected whether the most noteworthy
applicants were funded. The updated rule will only evaluate
intermediary contributions toward ultimate recipient total project
costs from its equity contributions to the IRP revolving loan fund. To
incentivize the change, increased points will be awarded if the
intermediary's equity contribution to an ultimate recipient project is
50 percent or more of the project costs from 15 points to 25 points. An
intermediary's equity contribution must be loaned out prior to, or on a
pro rata basis, with Agency IRP loan funds.
Third. The scoresheet is being automated to remove repetitive
criteria, reduce errors in mathematical calculations and include the
Administrator points criteria. The Administrator points scoring was
modified to two criteria, versus six criteria in the prior regulation.
This change significantly reduces the subjective nature that can arise
in awarding points and allows for a more objective process that is
based purely on hard facts. As such, the number of Administrator points
that can be awarded is reduced from 35 points to a maximum 10 points.
The overall combined scoresheet is more user-friendly, cleanly outlined
and complies with Department requirements to automate forms.
Letter of Conditions (Sec. 4274.345, Formerly Sec. 4274.350)
There is minimum change to this section and the Agency has
clarified that there are separate Agency forms, one for each of the
Letter of Conditions, Letter of Intent to Meet Conditions and Request
for Obligation of Funds, that must be completed by the intermediary.
The Agency has also clarified that any changes to the letter of
conditions proposed by the intermediary must be approved in writing by
the Agency prior to finalization and approval of the letter of
conditions.
Loan Closing (Sec. 4274.346, Formerly Sec. 4274.356)
The format and layout of the loan closing documents, and process
has been adjusted to be consistent with other RBCS programs.
Loan Approval and Obligating Funds (Sec. 4274.351)
The format and layout have been adjusted to be consistent with
other RBCS programs. The Request for Obligation of Funds was previously
mentioned as administrative text and was needed, but the regulation now
clarifies that the form is required.
Loan Documentation for Ultimate Recipients (Sec. 4274.352, Formerly
Sec. 4274.361)
Section 4274.352(b) was added to provide information on loans made
by the intermediary with revolved funds as there has been confusion
among Agency staff and intermediaries on the process and information
required.
Executive Orders and Other Certifications
Executive Order 12866 and 13563
This final rule has been determined to be non-significant for
purposes of Executive Order (E.O.) 12866 and 13563 and therefore has
not been reviewed by the Office of Management and Budget (OMB).
Assistance Listing Assistance Listing (Formerly Known as Catalog of
Federal Domestic Assistance)
The assistance listing number for the program impacted by this
action is 10.767, Intermediary Relending Program. All active assistance
listing programs and the assistance listing catalog can be found at the
following website: <a href="https://sam.gov/">https://sam.gov/</a>. The website also contains a PDF
file version of the catalog that, when printed, has the same layout as
the printed document that the Government Publishing Office (GPO)
provides. GPO prints and sells the assistance listing to interested
buyers. For information about purchasing the Catalog of Federal
Domestic Assistance from GPO, call the Superintendent of Documents at
(202) 512-1800 or toll free at (866) 512-1800, or access GPO's online
bookstore at <a href="https://bookstore.gpo.gov">https://bookstore.gpo.gov</a>.
Executive Order 12372
This Program is not subject to the provisions of E.O. 12372, which
requires intergovernmental consultation with State and local officials.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. RBCS has determined that this rule meets the applicable
standards provided in Sec. 3 of the Executive Order. Additionally, (1)
all State and local laws and regulations that are in conflict with this
rule will be preempted; (2) no retroactive effect to the Executive
Order will be given to the rule; and (3) administrative appeal
procedures, if any, must be exhausted before litigation against the
Department or its agencies may be initiated, in accordance with the
regulations of the National Appeals Division of USDA at 7 CFR part 11.
Executive Order 13132, Federalism
The policies contained in this rule do not have any substantial
direct effect on States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
final rule impose substantial direct compliance costs on State and
local governments. Therefore, consultation with States is not required.
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.) the undersigned has determined and certified by signature of this
document that this rule, while affecting small entities, will not have
an adverse economic impact on small entities. This rule does not impose
any significant new requirements on program recipients, nor does it
adversely impact proposed real estate transactions involving program
recipients as the buyers.
National Environmental Policy Act/Environmental Impact Statement
This final rule has been reviewed in accordance with 7 CFR part
1970 ``Environmental Policies and Procedures.'' Rural Development has
determined that this action was
[[Page 72156]]
analyzed and meets the criteria established in 7 CFR 1970.53(f) and
does not have any extraordinary circumstances and the action does not
have a significant effect on the human environment, and therefore
neither an Environmental Assessment nor an Environmental Impact
Statement is required.
Unfunded Mandates Reform Act
This final rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, and tribal
governments, or the private sector. Thus, this rule is not subject to
the requirements of Sec. Sec. 202 and 205 of the UMRA.
E-Government Act Compliance
Rural Development is committed to complying with the E-Government
Act, to provide increased opportunities for citizens to access
Government information and services electronically to the maximum
extent possible.
Civil Rights Impact Analysis
Rural Development has reviewed this rule in accordance with USDA
Regulation 4300-4, ``Civil Rights Impact Analysis,'' to identify any
major civil rights impacts the rule might have on program participants
on the basis of age, race, color, national origin, sex or disability.
Based on the review and analysis of the rule and available data,
application submission, and eligibility criteria, issuance of this
Final Rule is not likely to adversely nor disproportionately impact low
and moderate-income populations, minority populations, women, Indian
tribes or persons with disability, by virtue of their race, color,
national origin, sex, age, disability, or marital or familial status.
Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this rule
as not a major rule, as defined by 5 U.S.C. 804(2).
Executive Order 13211, Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
This final rule has been designated as non-significant by OMB under
Executive Order 12866. The promulgation of this regulation will not
have a significant effect on energy supply, distribution, or use.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This rule has been reviewed in accordance with the requirements of
Executive Order 13175, Consultation and Coordination with Indian Tribal
Governments. Executive Order 13175 requires Federal agencies to consult
and coordinate with tribes on a government-to-government basis on
policies that have tribal implications, including regulations,
legislative comments or proposed legislation, and other policy
statements or actions that have substantial direct effects on one or
more Indian tribes, on the relationship between the Federal Government
and Indian tribes or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.
The USDA's Office of Tribal Relations (OTR) has assessed the impact
of this rule on Indian tribes and concluded that this rule does not
have substantial direct effects on one or more Indian tribes, on the
relationship between the Federal Government and Indian tribes or on the
distribution of power and responsibilities between the Federal
Government and Indian tribes. OTR has determined that tribal
consultation under E.O. 13175 is not required at this time. If
consultation is requested, OTR will work with RD to ensure quality
consultation is provided.
USDA Non-Discrimination Policy
In accordance with Federal civil rights laws and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, the USDA, its
Mission Areas, agencies, staff offices, employees, and institutions
participating in or administering USDA programs are prohibited from
discriminating based on race, color, national origin, religion, sex,
gender identity (including gender expression), sexual orientation,
disability, age, marital status, family/parental status, income derived
from a public assistance program, political beliefs, or reprisal or
retaliation for prior civil rights activity, in any program or activity
conducted or funded by USDA (not all bases apply to all programs).
Remedies and complaint filing deadlines vary by program or incident.
Program information may be made available in languages other than
English. Persons with disabilities who require alternative means of
communication to obtain program information (e.g., Braille, large
print, audiotape, American Sign Language) should contact the
responsible Mission Area, agency, or staff office; the USDA TARGET
Center at (202) 720-2600 (voice and TTY); or the Federal Relay Service
at (800) 877-8339.
To file a program discrimination complaint, a complainant should
complete a Form AD-3027, USDA Program Discrimination Complaint Form,
which can be obtained online at <a href="https://www.ocio.usda.gov/document/ad-3027">https://www.ocio.usda.gov/document/ad-3027</a>, from any USDA office, by calling (866) 632-9992, or by writing a
letter addressed to USDA. The letter must contain the complainant's
name, address, telephone number, and a written description of the
alleged discriminatory action in sufficient detail to inform the
Assistant Secretary for Civil Rights (ASCR) about the nature and date
of an alleged civil rights violation. The completed AD-3027 form or
letter must be submitted to USDA by:
(1) Mail: U.S. Department of Agriculture, Office of the Assistant
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC
20250-9410; or
(2) Fax: (833) 256-1665 or (202) 690-7442; or
(3) Email: <a href="/cdn-cgi/l/email-protection#2e5e5c41495c4f430047405a4f454b6e5b5d4a4f00494158"><span class="__cf_email__" data-cfemail="eb9b99848c998a86c582859f8a808eab9e988f8ac58c849d">[email protected]</span></a>.
Information Collection and Recordkeeping Requirements
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.), the information collection activities associated with
this rule are covered under OMB Number: 0570-0063. This final rule
contains no new reporting or recordkeeping requirements that would
require approval under the Paperwork Reduction Act of 1995.
List of Subjects for 7 CFR Part 4274
Community development, Loan programs-business, Reporting and
recordkeeping requirements, Rural areas.
For the reasons set forth in the preamble, 7 CFR part 4274 is
amended as follows:
PART 4274--DIRECT AND INSURED LOANMAKING
0
1. The authority citation for part 4274 continues to read as follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1932 note; 7 U.S.C. 1989.
0
2. Subpart D is revised to read as follows:
Subpart D--Intermediary Relending Program (IRP)
Sec.
4274.301 Introduction.
4274.302 Definitions.
4274.303 Review or appeal rights.
4274.304 Exception authority.
[[Page 72157]]
4274.305 Other regulatory requirements.
4274.306-4274.309 [Reserved]
4274.310 Eligibility requirements--intermediary.
4274.311 Eligibility requirements--ultimate recipients.
4274.312-4274.319 [Reserved]
4274.320 Loan purposes.
4274.321 Ineligible loan purposes.
4274.322-4274.329 [Reserved]
4274.330 Agency IRP loan conditions and terms.
4274.331 IRP revolving loan fund loan conditions and terms.
4274.332 Post award requirements.
4274.333 Loan agreements between the Agency and the intermediary.
4274.334-4274.339 [Reserved]
4274.340 Application content and submittal.
4274.341 Processing applications for loans.
4274.342-4274.344 [Reserved]
4274.345 Letter of conditions.
4274.346 Agency IRP loan closing.
4274.347-4274.350 [Reserved]
4274.351 Loan approval and obligating funds.
4274.352 Loan documentation for ultimate recipients.
4274.353-4274.359 [Reserved]
Subpart D--Intermediary Relending Program (IRP)
Sec. 4274.301 Introduction.
(a) This subpart contains regulations for loans made by the Agency
to eligible intermediaries. This applies to borrowers, ultimate
recipients and other parties involved in making such loans. The
provisions of this subpart supersede conflicting provisions of any
other subpart. All complete applications received before December 21,
2021 will be processed, awarded, and serviced in accordance with the
existing regulatory provisions in effect at the complete application
date for the program under which the application was submitted. An
intermediary borrower may use the Agency-prescribed self-election
template, available at the USDA Rural Development website under
``Details'' in the RBCS IRP program section to have its existing loans,
and any loans approved under the previous regulation but not yet
closed, serviced under these provisions.
(b) The purpose of the program is to alleviate poverty and increase
economic activity and employment in rural communities, especially
disadvantaged and remote communities in partnership with other public
and private resources, and in accordance with State and regional
strategy based on identified community needs. This purpose is achieved
through loans made to intermediaries that establish a revolving loan
fund for the purpose of providing loans to ultimate recipients to
promote community development, establish new businesses, establish and
support microlending programs, and create or retain employment
opportunities in rural areas.
(c) Intermediaries are required to identify any known relationship
or association with an Agency employee. Any processing or servicing
Agency activity conducted pursuant to this subpart involving authorized
assistance to Agency employees, members of their families, close
relatives, or business or close personal associates, is subject to the
provisions of 7 CFR part 1900, subpart D.
(d) Copies of all forms, regulations, and Agency procedures
referenced in this subpart are available at USDA Rural Development's
website under the ``Resources'' section, in the Rural Development
National Office, or any Agency State Office.
Sec. 4274.302 Definitions.
The following definitions are applicable to the terms used in this
subpart.
Administrator. The Administrator of the Rural Business-Cooperative
Service within the Rural Development mission area of the U.S.
Department of Agriculture (USDA).
Affiliate. Affiliate means individuals and entities are affiliates
of each other when:
(1) One controls or has the power to control the other, or a third
party or parties controls or has the power to control both. Factors
such as ownership, management, current and previous relationships with
or ties to another concern, and contractual relationships, shall be
considered in determining whether affiliation exists. It does not
matter whether control is exercised, so long as the power to control
exists. Concerns owned and controlled by Indian Tribes, Alaska Native
Corporations (ANC), Native Hawaiian Organizations (NHO), Community
Development Corporations (CDC), or wholly-owned entities of Indian
Tribes, ANCs, NHOs, or CDCs, are not considered to be affiliated with
other concerns owned by these entities because of their common
ownership or common management.
(2) There is an identity of interest between immediate family with
identical or substantially identical business or economic interests
(such as where the immediate family operate concerns in the same or
similar industry in the same geographic area); however, an individual
or entity may rebut that determination with evidence showing that the
interests deemed to be one are in fact separate.
Agency. The Rural Business-Cooperative Service (RBCS) that has the
responsibility to administer the Intermediary Relending Program (IRP).
Agency IRP loan. An IRP loan from the Agency to an intermediary
with established terms and evidenced by a loan agreement and promissory
note between parties.
Agency IRP loan funds. Cash proceeds of an Agency IRP loan received
by an intermediary are considered Agency IRP loan funds.
Agricultural production or agriculture production. The cultivation,
growing, or harvesting of plants and crops (including farming)
breeding, raising, feeding, or housing of livestock (including
ranching); forestry products, hydroponics, or nursery stock; or
aquaculture.
Aquaculture. The commercial cultivation of aquatic animals and
plants in natural or controlled marine or freshwater environments.
Citizen. An individual who is a citizen of the United States or
resides in any State in the United States after being legally admitted
for permanent residence.
Community development. Advancing livable and vibrant communities
through coordinated approaches to economic, environmental, and human
development by means of comprehensive business-based technical and
financial assistance.
Conflict of interest. A situation in which a person or entity has
competing personal, professional, or financial interests that make it
difficult for the person or business to act impartially, or there is a
real or perceived benefit from engaging in certain projects or
transactions. Regarding use of both grant and matching funds, Federal
procurement standards prohibit transactions that involve a real or
apparent conflict of interest for owners, employees, officers, agents,
their immediate family members, partners, or an organization which is
about to employ any of the parties indicated herein, having a financial
or other interest in or tangible personal benefit from the outcome of
the project; or that restrict open and free competition for
unrestrained trade. Specifically, project funds may not be used for
services or goods going to, or coming from, a person or entity with a
real or apparent conflict of interest, including, but not limited to,
owner(s) and their immediate family members and as stated in Sec.
4274.321(b)(4).
Cooperative. An entity that is legally chartered by a State in
which it operates as a cooperatively-operated business, or an entity
that is not legally chartered as
[[Page 72158]]
a cooperative but is owned and operated for the benefit of its members,
with the return of residual earnings paid to such members on the basis
of patronage.
Hydroponics. The commercial cultivation of plants by placing the
roots in liquid nutrient solutions rather than in soil.
Immediate family. Individuals who live in the same household or who
are closely related by blood, marriage, or adoption, such as a spouse,
domestic partner, parent, child, stepchild, sibling, aunt, uncle,
grandparent, grandchild, niece, nephew, or first cousin.
Indian tribe. The term as defined in 25 U.S.C. 5304(e); any Indian
tribe, band, nation, or other organized group or community, including
any Alaska Native village or regional or village corporation as defined
in or established pursuant to the Alaska Native Claims Settlement Act
(85 Stat. 688) [43 U.S.C. 1601 et seq.], which is recognized as
eligible for the special programs and services provided by the United
States to Indians because of their status as Indians.
Intermediary. The entity requesting or receiving, as applicable,
Agency IRP loan funds for establishing or recapitalizing an IRP
revolving loan fund and relending to ultimate recipients.
Intermediary equity contribution. Represents an intermediary's
investment in the IRP revolving loan fund, in the form of cash and
unencumbered ownership in an amount determined by the applicant. This
must be contributed to the IRP revolving loan fund prior to, or
concurrently to, the disbursement of Agency IRP loan funds from the
Agency. This contribution becomes restricted and must remain as equity
in the IRP revolving loan fund subject to the provisions of Sec. Sec.
4274.332(d) and 4274.341(b)(1) and (2).
IRP revolving loan fund. A group of assets:
(1) Obtained through or related to an Agency IRP loan; and
(2) Accounted for, along with related liabilities, revenues, and
expenses, as an entity or enterprise separate from the intermediary's
other assets and financial activities.
Loan agreement. The agreement, which utilizes the requisite OMB-
approved form, between the Agency and the intermediary setting forth
the terms and conditions of the Agency IRP loan.
Military personnel. Individuals currently on active duty in the
regular service, having enlisted from civilian or Reserve Officers'
Training Corps status, or individuals on active duty in the regular
service with more than six months until their anticipated date of
release from service.
Principals of intermediary. Members, officers, directors, and other
individuals or entities directly involved in the operation and
management, including those setting policy, of an intermediary.
Public agency. Any State, Indian Tribal or local government, or any
branch or agency of such government having authority to act on behalf
of that government, to borrow funds and engage in activities eligible
for funding under this subpart.
Revolved funds. The cash portion of an IRP revolving loan fund that
includes fees, principal, and interest payments received from ultimate
recipients and is not composed of any Agency IRP loan funds.
Rural or rural area. Any area of a State not in a city or town that
has a population of more than 50,000 inhabitants, and which excludes
certain populations pursuant to 7 U.S.C. 1991(a)(13)(H), according to
the latest decennial census of the United States and not in the
urbanized area contiguous and adjacent to a city or town that has a
population of more than 50,000 inhabitants. In making this
determination, the Agency will use the latest decennial census of the
United States. The following exclusions apply:
(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. The process to
request a determination under this provision is outlined in paragraph
(1)(ii) of this definition. The determination that an area is ``rural
in character'' under this definition will apply to areas that are
within:
(A) An urbanized area that has two points on its boundary that are
at least 40 miles apart, which is not contiguous or adjacent to a city
or town that has a population of greater than 150,000 inhabitants or
the urbanized area of such a city or town; or
(B) An urbanized area contiguous and adjacent to a city or town of
greater than 50,000 inhabitants that is within \1/4\ mile of a rural
area.
(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 five 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
Rural Development State Office website and the Under Secretary will
make a determination not less than 15 days, but no more than 60 days,
after the release of the notice. Upon a negative determination, the
Under Secretary will provide to the petitioner an opportunity to appeal
a determination to the Under Secretary, and the petitioner will have 10
business days to appeal the determination and provide further
information for consideration. The Under Secretary will make a
determination of the appeal in not less than 15 days, but no more than
30 days.
(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 should be sent to the
Administrator, on behalf of the Under Secretary, that documents 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
[[Page 72159]]
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.
(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.
State. Any of the 50 States of the United States, the Commonwealth
of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the
Commonwealth of the Northern Mariana Islands, the Republic of Palau,
the Federated States of Micronesia, and the Republic of the Marshall
Islands.
Technical assistance. A function performed for the benefit of an
ultimate recipient, or proposed ultimate recipient, that is a problem-
solving activity that assists the ultimate recipient in selecting,
initiating, or completing a project. The Agency will determine whether
a specific activity qualifies as technical assistance.
Ultimate recipient. An entity or individual that receives a loan
from an intermediary's IRP revolving loan fund.
Underrepresented group. U.S. citizens with identifiable common
characteristics, (including, but not limited to, racial and ethnic
minorities, disabled and/or gender) that have not received IRP
assistance or have received a lower percentage of total IRP dollars
than the percentage they represent of the general population.
Value-added agricultural product. Any agricultural commodity that
meets the requirements specified here. The agricultural commodity must
meet one of the following value-added methodologies:
(1) Has undergone a change in physical state;
(2) Is a source of farm or ranch-based renewable energy; or
(3) Is aggregated and marketed as a locally produced agricultural
food product.
Work plan. A narrative provided by the intermediary that
demonstrates the feasibility of the intermediary and its lending
program to meet the objectives of the IRP program, including a set of
goals, strategies, anticipated outcomes, and well-developed targeting
criteria for assisting eligible ultimate recipients.
Sec. 4274.303 Review or appeal rights.
An intermediary may have appeal or review rights for adverse 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.
Sec. 4274.304 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.
Sec. 4274.305 Other regulatory requirements.
(a) Intergovernmental consultation. The approval of an Agency IRP
loan to an intermediary is subject to intergovernmental consultation in
accordance with Executive Order 12372. For ultimate recipients located
in States where the State has elected to review the program under the
intergovernmental review process, in accordance with Executive Order
12372, the intermediary and ultimate recipient must submit a
notification in the form of a project description to the State single
point of contact. The intermediary must include any comments from the
State with the intermediary's request to use the Agency IRP loan funds
for the ultimate recipient. Prior to the Agency's decision on the
request, the ultimate recipient must demonstrate compliance with the
requirements of intergovernmental consultation. These requirements are
set forth in 2 CFR part 415, subpart C, General Program Administrative
Regulations.
(b) Environmental requirements. The requirements of 7 CFR part 1970
apply to this subpart. Intermediaries and ultimate recipients must
consider the potential environmental impacts of their projects at the
earliest planning stages and develop plans in order to minimize the
potential to adversely impact the environment. Both the intermediaries
and the ultimate recipients must cooperate and furnish such information
and assistance as the Agency needs to make any of its environmental
determinations.
(1) All IRP loans between the Agency and the intermediary are
considered categorical exclusions absent the existence of extraordinary
circumstances in accordance with 7 CFR part 1970. All intermediaries
must execute an Exhibit H, ``Multi-tier Action Environmental Compliance
Agreement,'' to RD Instruction 1970-A as part of their IRP application
submitted to the Agency. The intermediary must sign a certification
that they have National Environmental Policy Act (NEPA) staff capable
of undertaking an environmental review that meets Agency standards. For
intermediaries that don't have capable staff, the Agency will deliver
sufficient training to intermediaries on the environmental process and
how to determine whether an ultimate recipient project is a categorical
exclusion or requires an environmental assessment and review.
(2) For each proposed loan from an intermediary to an ultimate
recipient using Agency IRP loan funds, an environmental review will be
completed in accordance with 7 CFR 1970.55. For projects that do not
qualify for a categorical exclusion, or which may be subject to an
extraordinary circumstance under 7 CFR 1970.52, the intermediary will
refer the project to the Agency for review under 7 CFR part 1970,
subpart C. The intermediary retains responsibility for providing
sufficient information for the Agency to make an environmental
determination, though Agency staff may also opt to complete the
environmental review with information provided by either the
intermediary or ultimate recipient.
(3) The Agency will prepare an environmental impact statement for
any application for a loan from Agency IRP loan funds determined to
have a significant adverse effect on the quality of the human
environment.
(c) Equal opportunity and nondiscrimination requirements. In
accordance with Title V of Public Law 93-495, the Equal Credit
Opportunity Act, and section 504 of the Rehabilitation Act for
Federally
[[Page 72160]]
Conducted Programs and Activities, neither the intermediary nor the
Agency will discriminate against any employee, intermediary, or
proposed ultimate recipient on the basis of sex, marital status, race,
color, religion, national origin, age, physical or mental disability
(provided the intermediary or proposed ultimate recipient has the
capacity to contract), because all or part of the intermediary's or
proposed ultimate recipient's income is derived from public assistance
of any kind, or because the intermediary or proposed ultimate recipient
has in good faith exercised any right under the Consumer Credit
Protection Act, with respect to any aspect of a credit transaction
anytime any cash of the IRP revolving loan fund is involved.
(1) The civil rights compliance requirements contained in 7 CFR
part 1901, subpart E, apply to intermediaries and ultimate recipients.
(2) The Agency will ensure that equal opportunity and
nondiscrimination requirements are met in accordance with the Equal
Credit Opportunity Act, Title VI of the Civil Rights Act of 1964,
``Nondiscrimination in Federally Assisted Programs,'' 42 U.S.C. 2000d-
4, Sec. 504 of the Rehabilitation Act for Federally Conducted Programs
and Activities, the Age Discrimination Act of 1975, and the Americans
With Disabilities Act of 1990 (as amended).
(d) Seismic safety of new building construction. The IRP is subject
to the provisions of Executive Order 12699, which require each Federal
agency assisting in the financing, through Federal grants or loans, or
guaranteeing the financing, through loan or mortgage insurance
programs, of newly constructed buildings to assure appropriate
consideration of seismic safety.
(1) All new buildings financed from the IRP revolving loan fund,
whether directly or through participations, must be designed and
constructed in accordance with the seismic provisions of the most
current version of the International Building Code (IBC) or two
versions prior; currently that is 2021 IBC, 2018 IBC or 2015 IBC, or an
above-code seismic standard that meets or exceeds the equivalent level
of safety to that contained in the latest edition of the National
Earthquake Hazard Reduction Programs (NEHRP) Recommended Provisions for
the Development of Seismic Regulations for New Building (NEHRP
Provisions.)
(2) The date, signature, and seal of a registered architect or
engineer and the identification and date of the model building code on
the plans and specifications constitutes evidence of compliance with
the seismic requirements of the appropriate code.
Sec. 4274.306-Sec. 4274.309 [Reserved]
Sec. 4274.310 Eligibility requirements--intermediaries.
To be eligible to receive an Agency IRP loan, an intermediary must
comply with the requirements specified in paragraphs (a) through (i) of
this section.
(a) Type of entity. The intermediary must be one of the following
types of entities:
(1) A private nonprofit corporation;
(2) A public agency;
(3) An Indian Tribe; or
(4) A cooperative.
(b) Legal authority. The intermediary must have the legal authority
necessary for carrying out the proposed loan purposes and for
obtaining, giving security for, and repaying the proposed loan. If the
intermediary is an affiliate of another entity, the intermediary's
governing board must be independent of the affiliated entity.
(c) Proven record. The intermediary must have a proven lending
record of successfully assisting rural business and industry or, for
intermediaries that propose to finance community development, a proven
lending record of successfully assisting rural community development
projects of the type planned. The intermediary must have the capacity
to conduct outreach and marketing, the underwriting of loan
applications, and provide the servicing and monitoring of its proposed
IRP portfolio.
(1) Except as provided in paragraph (c)(2) of this section, such
record must include recent experience in loan making and servicing with
loans that are similar in nature to those proposed by the intermediary
and a delinquency and loss rate acceptable to the Agency. Any request
for an exception must be specifically addressed in the loan application
and be supported with concluding statements that relate to the items
specified in paragraphs (c)(2)(i) and (ii) of this section.
(2) The Agency may approve an exception to the requirement for loan
making and servicing experience provided the intermediary:
(i) Itself has a proven record of successfully assisting (other
than through lending) rural business and industry or rural community
development projects through technical assistance or business
development projects to the type and size of planned ultimate recipient
borrowers; and
(ii) Will, before the loan is closed, employ individuals with loan
making and servicing experience and qualifications and expertise for
the operation and administration of an IRP revolving loan fund as
described in Sec. 4274.340(a)(1)(ii). These shall not include
contracted staff and staff from affiliates of the intermediary.
(d) Staff. The intermediary itself must employ a staff with loan
making and servicing expertise acceptable to the Agency. The
intermediary may contract for general services, such as, clerical,
administrative, and accounting services, and loan packaging. The
intermediary may not routinely contract their lending outreach, loan
underwriting, management, or day-to-day operations. Essential
activities of a business lending operation and the administration of
the IRP revolving loan fund must be conducted in-house.
(e) Capitalization/equity. The intermediary's balance sheet must
have capitalization or equity acceptable to the Agency and deemed
sufficient to sustain its lending and business operations.
(f) Citizens. At least 51 percent of the outstanding interest or
membership in any nonpublic body intermediary must be composed of
citizens.
(g) Delinquent debt. An intermediary is ineligible to receive an
Agency IRP loan if the intermediary or any principal of the
intermediary has any delinquent debt to the Federal government. Agency
IRP loan funds cannot be used to satisfy the delinquent debt.
(h) Conditions. No loans will be extended to an intermediary
unless:
(1) There is adequate assurance of repayment of the loan based on
the fiscal and managerial capabilities of the intermediary itself; and
(2) The amount of the loan, together with other funds available, is
adequate to ensure the continuation or establishment of an effective
IRP revolving loan fund or achieve the purposes for which the loan is
made.
(i) Other financing unavailable. The intermediary must be unable to
finance the continuation or establishment of an effective IRP revolving
loan fund from its own resources, or through commercial credit, or from
other Federal, State, or local programs at reasonable rates and terms.
(j) Restrictions. Intermediaries established for the purpose of, or
that predominantly use IRP loan funds for, the financial benefit of an
affiliate through loan participations or other funding methods will not
be allowed.
Sec. 4274.311 Eligibility requirements--ultimate recipients.
To be eligible for a loan from an intermediary under this subpart,
an ultimate recipient must meet or comply with the requirements
specified in
[[Page 72161]]
paragraphs (a) through (g) of this section.
(a) Type of entity. The ultimate recipient must be a legal entity
that can incur debt, including but not limited to, an individual; a
public organization; a private organization; or other legal entity.
(b) Legal authority. The ultimate recipient must have the legal
authority to incur the debt and carry out the purpose of the loan.
(c) Citizens. An individual ultimate recipient must be a citizen.
In the case of an entity ultimate recipient, at least 51 percent of the
outstanding membership or ownership of the entity must be citizens.
(d) Location. The ultimate recipient project must be located in an
eligible rural area, although funds may also be used for community
projects that predominantly serve rural residents of a State.
Predominantly serves means more than 50 percent of the ultimate
recipient's service is to rural residents of a State.
(e) Other financing unavailable. The ultimate recipient must be
unable to finance the entirety of the proposed project from its own
resources, or through commercial credit or from other Federal, State,
or local programs at reasonable rates and terms.
(f) Legal or financial influence. (1) The intermediary and its
principals (including immediate families) must hold no legal or
financial interest or influence in or with the ultimate recipient as
this is considered a conflict of interest, as defined. However, this
paragraph does not prevent an intermediary that is organized as a
cooperative from making a loan to one of its members per Sec.
4274.321(b)(4) of this subpart.
(2) The ultimate recipient must, along with its principals
(including their immediate families), hold no legal or financial
interest or influence in or with the intermediary as per Sec.
4274.321(b)(4) as this is considered a conflict of interest, as
defined.
(g) Delinquent debt. An ultimate recipient is ineligible to receive
a loan from IRP loan funds if the ultimate recipient or any of its
principals has any federal delinquent debt or is debarred from engaging
in business with the Federal government. IRP loan funds may not be used
to satisfy any Federal delinquent debt or used to make an otherwise
ineligible ultimate recipient eligible for IRP loan funds.
(h) Fund usage. Ultimate recipients must demonstrate, to the
Agency's satisfaction, that loan funds will remain in the United States
and the facility being financed will primarily create new or save
existing jobs for rural U.S. residents.
Sec. 4274.312-Sec. 4274.319 [Reserved]
Sec. 4274.320 Loan purposes.
(a) Agency IRP loans. The intermediary must deposit the Agency IRP
loans into the intermediary's IRP revolving loan fund to provide loans
directly to eligible ultimate recipients or in cooperation with banks
and other lending organizations through loan participation agreements.
(b) IRP revolving loan fund loans. Ultimate recipients receiving
loans from an IRP revolving loan fund must use those loans for business
or community development projects and for projects that predominately
serve communities and residents in rural areas.
(1) The Secretary may relend funds to eligible intermediaries for
projects that:
(i) Promote community development;
(ii) Establish new businesses;
(iii) Establish and support microlending programs; and
(iv) Create or retain employment opportunities.
(2) Such loan purposes may include, but are not limited to, those
purposes identified in paragraphs (b)(2)(i) through (xx) of this
section.
(i) Business and industrial acquisitions when the loan will keep
the business from closing, prevent the loss of employment
opportunities, or provide expanded job opportunities.
(ii) Business construction, conversion, enlargement, repair,
modernization, or development.
(iii) Purchase and development of land, easements, rights-of-way,
buildings, facilities, leases, or materials.
(iv) Purchase of equipment, leasehold improvements, machinery, or
supplies.
(v) Pollution control and abatement.
(vi) Transportation services.
(vii) Start-up operating costs and working capital.
(viii) Interest (including interest on interim financing) during
the period before the facility becomes income producing, but not to
exceed three years.
(ix) Feasibility studies.
(x) Debt refinancing.
(A) The intermediary is responsible for making prudent lending
decisions based on sound underwriting principles when considering the
restructuring of an ultimate recipient's debt.
(B) Refinancing debts may be allowed only when it is determined by
the intermediary that the project is viable, and refinancing is
necessary to create new or save existing jobs or create or continue a
needed service.
(xi) Reasonable fees and charges to the ultimate recipient are
allowed only as specifically listed in this paragraph. Authorized fees
include loan documentation and fees for recording a collateral lien,
environmental data collection fees, management consultant fees, and
other fees for services rendered by professionals in relation to the
loan project. Professionals are generally persons licensed by States or
accreditation associations, such as engineers, architects, lawyers,
accountants, and appraisers. Additional charges to the ultimate
recipient, whether by a fee or interest rate increase, for an
intermediary's costs related to loan participations are not allowed. In
addition, the intermediary shall not be charged fees related to the
purchase or sale of a loan participation. The maximum amount of any fee
will be what is reasonable and customary in the community or region
where the project is located; provided, however, that all costs must be
actual costs and shall not be marked-up beyond actual cost. Any such
fees or charges are to be fully documented and justified.
(xii) Hotels, motels, tourist homes, bed and breakfast
establishments, nonowner-occupied real estate, convention centers, and
other tourist and recreational facilities except as prohibited by Sec.
4274.321. These types of facilities are allowed when the pro rata
value, supported by an analysis of the supporting real estate
appraisal, of the owner's living quarters is deleted from the appraised
value.
(xiii) Educational institutions.
(xiv) Revolving lines of credit provided the portion of the
intermediary's total IRP revolving loan fund that is committed to, or
in use for revolving lines of credit, will not exceed 25 percent at any
time.
(A) All ultimate recipients receiving revolving lines of credit
must reduce the outstanding balance of the revolving line of credit to
zero at least once each year.
(B) The intermediary must approve all revolving lines of credit for
a specific maximum amount and for a specific maximum time period, not
to exceed two years.
(C) The intermediary must provide a detailed description, which
will be incorporated into the intermediary's work plan and be subject
to Agency approval, of how the revolving lines of credit will be
operated and managed. The description must include evidence that the
intermediary has an adequate system for:
(1) Interest calculations on varying balances; and
(2) Monitoring and control of the ultimate recipients' cash,
inventory, and accounts receivable.
[[Page 72162]]
(D) If, at any time, the Agency determines that an intermediary's
operation of revolving lines of credit is causing excessive risk of
loss for the intermediary or the government, the Agency may terminate
the intermediary's authority to use the IRP revolving loan fund for
revolving lines of credit. Such termination will be by written notice
and will prevent the intermediary from approving any new lines of
credit or extending any existing revolving lines of credit beyond the
effective date of termination contained in the notice.
(xv) Aquaculture and hydroponics, as defined in this subpart.
(xvi) Commercial fishing.
(xvii) Commercial nurseries engaged in the production of ornamental
plants and 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.
(xviii) Forestry, which includes businesses primarily engaged in
the commercial operation of timber tracts, tree farms, and forest
nurseries and related activities such as reforestation.
(xix) Value-added production.
(xx) Housing, only when related to community development projects
and, limited to working capital, equipment, pre-business development
costs, and other such business purposes. Agency IRP loan funds may be
used to assist a housing project planner, a housing project builder, a
construction sub-contractor (indirect soft costs such as architectural,
engineering and legal fees), or for any other business-related aspect
of a housing project that is separate from the sale and/or purchase
transaction involved in transferring ownership of a single or multi-
family dwelling. While the proceeds from a sale might be used by an
ultimate recipient to repay an Agency IRP loan, an Agency IRP loan
cannot be used to finance a residential housing purchase. Agency IRP
loans may not be used to assist in the purchase of residential housing
(single, multiple dwelling, etc.) as financial assistance moves outside
of community development when the financial assistance (a mortgage
loan) is requested for a purchase.
(c) Participations. (1) Loans made to eligible ultimate recipients
by eligible intermediaries in cooperation with banks and other
organizations through loan participation agreements shall be considered
an eligible loan to an ultimate recipient for the purposes of this
program. Loan participations are allowed in the IRP program, subject to
the provisions of this regulation, with the intent to assist
intermediaries in the management of their revolving loan fund, to meet
the needs of larger ultimate recipient projects, and to promote
cooperation in community projects where multiple lenders may be
involved. In a participation, the lead (originating) bank retains a
partial interest in the loan, holds all loan documentation in its own
name, services the loan, and deals directly with the customer for the
benefit of all participants. All loan participants share in the credit
risk of the associated loan up to the amount of their participation.
(2) Loan participant buyers are able to compensate for low loan
demand or invest in large loans without servicing burdens and
origination costs. Lenders selling loan participations can accommodate
a larger credit while mitigating some of the risk by reducing their
credit exposure.
(3)(i) Participation agreements between the lead lender and buying
participants are executed with each transaction and must address, among
other items:
(A) The obligation of the lead lender to furnish timely credit
information and to provide notification of material changes in the
borrower's status;
(B) Requirements that the lead lender consult with participants and
obtain their consent prior to modifying any loan, guaranty, or security
agreements and before taking any action on defaulted loans; and
(C) The specific rights and remedies available to the lead and
participating lenders upon default of the borrower.
(ii) A Master (open ended) participation agreement between the
intermediary and any lender is not allowed. All loans made through use
of participation agreements must be to eligible ultimate recipients and
for eligible purposes. The ultimate recipients, lead lender and all
participating lenders must agree to be bound by the applicable
requirements of this regulation.
(4) Participation in loans where 50 percent or more of the loan
funds are used to refinance a lead lender's existing loans to the
borrower are ineligible. The Agency does not consider take out or
terming out a construction loan as refinancing.
(5) No more than 50 percent of an intermediary's loan funds may be
used to purchase loans from any individual lender or affiliation of
lenders, to prevent an exclusive relationship with a lender or lender
holding company. Likewise, no more than 50 percent of the total
intermediary loans to ultimate recipients may be sold or participated
to an individual lender or affiliation of lenders. An exception to
these limits may be requested by the intermediary and is subject to
review by the Agency of the intermediary's lending portfolio, credit
quality and overall use of loan participations.
Sec. 4274.321 Ineligible loan purposes.
(a) Agency IRP loans. The intermediary cannot use Agency IRP loan
funds to pay for its administrative costs and expenses.
(b) IRP revolving loan fund loans. IRP revolving loan fund loans
cannot be used for any of the purposes identified in paragraphs (b)(1)
through (13) of this section.
(1) Assistance in excess of what is needed to accomplish the
purpose of the ultimate recipient's project.
(2) Distribution, payment, or loans to the owner, partners,
shareholders, or beneficiaries of the ultimate recipient or members of
their families when such persons will retain any portion of their
equity, or control, in the ultimate recipient. This is not intended to
prevent the sale of a business among immediate family members as long
as the selling immediate family member does not retain an ownership
interest and the price paid is deemed to be reasonable. This type of
transaction is not an arm's length transaction and reasonableness of
the price paid will be based upon an appraisal acceptable to the
Agency.
(3) Charitable institutions and fraternal organizations that would
not have revenue from sales, fees, or stable revenue source to support
their operation and repay the loan.
(4) Assistance to Federal government employees, active-duty
military personnel, employees of the intermediary, or any organization
for which such persons are directors or officers or have 20 percent or
more ownership.
(5) A loan to an ultimate recipient that has an application pending
with or a loan outstanding from another intermediary involving an IRP
revolving loan fund if the total Agency IRP loans would exceed the
limits established in Sec. 4274.331(c).
(6) Agricultural production. For the purposes of this program,
Agricultural production does not include those activities specifically
listed as eligible uses of IRP revolving loan fund loans in Sec.
4274.320(b)(15) through (19).
(7) The transfer of ownership unless the loan will keep the
business from closing, prevent the loss of employment opportunities in
the area, or provide expanded job opportunities.
(8) Community antenna television services or facilities.
(9) Any illegal activity.
[[Page 72163]]
(10) Any project that is in violation of either a Federal, State,
or local environmental protection law or regulation or an enforceable
land use restriction unless the assistance given will result in curing
or removing the violation.
(11) Loans to lending and investment institutions and insurance
companies.
(12) Golf courses, racetracks, or gambling facilities.
(13) 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 gambling proceeds, as approved by the
Agency, conducted for the purpose of raising funds for the approved
project.
Sec. 4274.322-Sec. 4274.329 [Reserved]
Sec. 4274.330 Agency IRP loan conditions and terms.
(a) Revolving fund. The intermediary must place Agency IRP loan
funds in the intermediary's IRP revolving loan fund, and these funds
must only be used to provide loans to eligible ultimate recipients per
Sec. 4274.320(a).
(b) Loan closing. Loan closing between the intermediary and the
Agency must take place within six months of loan approval and
obligation of funds, or funds will be forfeited, and the Agency will
deobligate the loan.
(c) Term. The Agency IRP maximum loan term will be 30 years.
Principal and interest payments will be scheduled at least annually.
All Agency IRP loans will have interest-only payments scheduled for a
maximum of the first three years following the loan closing. An
intermediary may request a shorter interest-only period during the
application process. All Agency IRP loans will automatically, fully
amortize with principal and interest payments due in the fourth year on
the anniversary of the closing date. The Agency IRP loan will fully
amortize based on the total amount of the loan.
(d) Interest rate. The interest rate for an Agency IRP loan will be
a fixed rate of one percent per annum over the term of the loan.
(e) Security. Security for all Agency IRP loans to intermediaries
must ensure that the repayment of the loan is reasonably assured, when
considered along with the intermediary's financial condition, work
plan, and management ability. The intermediary is responsible for
making loans to ultimate recipients in a manner that fully protects the
interests of the intermediary and the Federal Government.
(1) Security for such loans may include, but is not limited to:
(i) Any realty, personalty, or intangible asset capable of being
mortgaged, pledged, or otherwise encumbered by the intermediary in
favor of the Agency; and
(ii) Any realty, personalty, or intangible asset capable of being
mortgaged, pledged, or otherwise encumbered by an ultimate recipient in
favor of the Agency.
(2) Initial security will consist of a pledge by the intermediary
of all assets now in or hereafter placed in the IRP revolving loan
fund, including cash and investments, notes receivable from ultimate
recipients, and the intermediary's security interest in collateral
pledged by ultimate recipients. Except for good cause shown, the Agency
will not obtain assignments of specific assets at the time a loan is
made to an intermediary or ultimate recipient. The intermediary must
covenant that, in the event the intermediary's financial condition
deteriorates or the intermediary takes action detrimental to prudent
fund operation or fails to take action required of a prudent lender,
the intermediary will provide additional security, execute any
additional documents, and undertake any reasonable acts the Agency may
request to protect the Federal Government interest or to perfect a
security interest in any asset, including physical delivery of assets
and specific assignments to the Agency. All debt instruments and
collateral documents used by an intermediary in connection with loans
to ultimate recipients, including all documents representing an
interest in a participation loan made pursuant to Sec. 4273.320 of
this chapter, must be assignable.
(3) In addition to normal security documents, a first lien interest
in the intermediary's IRP revolving loan fund account(s) will be
accomplished by a control agreement satisfactory to the Agency. Agency
signatures for withdrawals are not required. The depository bank must
waive its offset and recoupment rights against the depository account
to the Agency and subordinate any liens it may have against the IRP
depository bank account. The use of Form RD 402-1, ``Deposit
Agreement,'' or a similar form developed by the Agency's Office of the
General Counsel is acceptable.
(f) Loan limits. (1) No loan to an intermediary will exceed the
maximum amount the intermediary can reasonably be expected to lend to
eligible ultimate recipients, in an effective and sound manner, within
three years after loan closing. Only one Agency IRP loan will be
approved by the Agency for an intermediary in any single fiscal year
unless the additional request is from an IRP earmark that serves a
different geographical area than the initial non-earmarked loan.
(2) The Agency IRP loan to an intermediary will not exceed the
maximum award amount established by the Agency in an annual Notice.
(3) Intermediaries that have received one or more Agency IRP loans
may apply for and be considered for additional Agency IRP loans
provided that the outstanding loans of the intermediary's IRP revolving
loan fund are generally sound, the intermediary is in compliance with
all applicable regulations and its loan agreements with the Agency, and
either:
(i) The intermediary has insufficient IRP revolving loan funds
available for lending to meet current and expected ultimate recipient
loan demand. Funds available for lending consist of Agency IRP loan
funds not yet disbursed by the Agency, revolved funds, and cash on-hand
in the IRP revolving loan fund. Necessary cash reserves including, but
not limited to, debt service reserves, may be deducted from the IRP
revolving loan fund cash on-hand in determining funds available for
lending. The intermediary must provide documentation acceptable to the
Agency of the current and expected ultimate recipient loan demand; or
(ii) The Agency IRP loan will serve a geographic area not included
in an area currently served by an existing IRP intermediary and it is
not possible or feasible to expand the existing IRP loan's service area
to include the new geographic area; and
(4) Total outstanding IRP indebtedness of an intermediary to the
Agency will not exceed $15 million at any time.
Sec. 4274.331 IRP revolving loan fund loan conditions and terms.
(a) Conditions and terms. Loan conditions and terms made by an
intermediary to an ultimate recipient from the IRP revolving loan fund
will be negotiated by the intermediary and ultimate recipient.
(1) Interest rate. The interest rate must be within limits
established by the intermediary's work plan approved by the Agency. The
rate must be the lowest rate sufficient to cover the loan's
proportional share of the IRP revolving loan fund's debt service
reserve and administrative costs.
(2) Repayment. The loan term must be reasonable and prudent
considering the purpose of the loan, expected repayment ability of the
ultimate recipient, and the useful life of
[[Page 72164]]
collateral, and must be within any limits established by the
intermediary's work plan approved by the Agency.
(b) Security. The intermediary is responsible for adherence to
prudent lending practices when obtaining adequate security on each of
its ultimate recipient loans.
(c) Loan limits. Loans from intermediaries to ultimate recipients
using the IRP revolving loan fund must not exceed the limits in
paragraphs (c)(1) and (2) of this section. In accordance with Sec.
4274.321(b)(5), these loan limits apply to ultimate recipients
cumulatively based on all existing and pending loans from one or
multiple IRP intermediaries. The loan limits of ultimate recipient
loans made from Agency IRP funds may be based on the total amount of
the Agency IRP loans awarded. However, should any portion of an
intermediary's Agency IRP loan funds be de-obligated by the Agency, the
ultimate recipient loan limit will thereafter be based on the actual
amount of Agency IRP loan funds advanced to the intermediary and loaned
out to ultimate recipients. Intermediaries with multiple IRP loans that
have combined those IRP funds in accordance with Sec. 4274.332(b)(6)
may base their ultimate recipient loan limits on the combined amount of
Agency IRP loans. The maximum amount of an IRP Agency loan made by an
intermediary to an ultimate recipient, whether directly or held through
loan participation and including the balance of any existing ultimate
recipient loans, shall be the lesser of:
(1) $400,000; and
(2) Fifty percent of the originally-approved Agency IRP loan amount
to an intermediary (including the unpaid balance of any existing
ultimate recipient loans).
Sec. 4274.332 Post award requirements.
(a) Applicability. Intermediaries receiving loans under this
program shall be governed by these regulations, the loan agreement, the
approved work plan, security interests, and any other conditions which
the Agency may impose in making a loan. Whenever this subpart imposes a
requirement on loans made from the ``IRP revolving loan fund,'' such
requirement shall apply to all loans made by an intermediary to an
ultimate recipient from the intermediary's IRP revolving fund for as
long as any portion of the intermediary's IRP loan from the Agency
remains unpaid. This includes revolved funds. Whenever this subpart
imposes a requirement on loans made by intermediaries from ``Agency IRP
loan funds,'' without specific reference to the IRP revolving loan
fund, such requirement shall apply only to loans made by an
intermediary using Agency IRP loan funds and will not apply to loans
made from revolved funds.
(b) Maintenance of IRP revolving loan fund. For as long as any part
of an Agency IRP loan to an intermediary remains unpaid, the
intermediary must maintain the IRP revolving loan fund. All Agency IRP
loan funds received by an intermediary must be deposited in an IRP
revolving loan fund. The IRP revolving loan fund can only be used for
receiving advances from the Agency, making payments to the Agency,
disbursing ultimate recipient loans, and collecting ultimate recipient
loan repayments. This includes transferred IRP revolving loan funds
from another intermediary as a result of a transfer and assumption.
Interest earned, cash obtained from fees assessed from activities of
the IRP revolving loan fund, etc. must remain part of the IRP revolving
loan fund though these monies may be used to pay administrative
expenses as provided below. All Agency IRP loan activity must be
managed through the IRP revolving loan fund. The intermediary may
transfer additional assets into the IRP revolving loan fund to cover
any shortage at any time. The intermediary must deposit all cash of the
IRP revolving loan fund in a separate bank account or accounts. The
intermediary is prohibited from commingling other funds of the
intermediary with the funds in the IRP revolving loan fund.
Intermediaries may use an operating account, general fund, or Automated
Clearing House (ACH) account to initially collect payments from
ultimate recipients, as long as those payments are transferred to the
IRP revolving loan fund within 10 working days of receipt or by the end
of the Federal fiscal quarter, whichever occurs first. All moneys
deposited to the IRP revolving loan fund bank account or accounts must
be money of the IRP revolving loan fund, and such accounts must be
properly secured in accordance with Sec. 4274.330(e). The receivables
created by making loans to ultimate recipients, the intermediary's
security interest in collateral pledged by ultimate recipients,
collections on the receivables, interest, fees, and any other income or
assets derived from the operation of the IRP revolving loan fund are a
part of the IRP revolving loan fund.
(1) The intermediary can use the portion of the IRP revolving loan
fund that consists of Agency IRP loan funds only for making loans in
accordance with Sec. 4274.320. The intermediary may use the portion of
the IRP revolving loan fund that consists of revolved funds for debt
service reserve and reasonable administrative costs, in accordance with
this section, or for making additional ultimate recipient loans.
(2) The intermediary must submit for Agency approval an annual
budget of proposed IRP revolving loan fund income and expenses
including expected administrative costs. The annual budget must itemize
income, including interest received from ultimate recipients, interest
earnings on deposits, fees, and other income excluding principal
recaptured from ultimate recipients, and expenses including interest
repaid to the Agency, administrative expenses, liquidation expenses,
loan write-offs, and other fees and costs excluding principal repaid to
the Agency. The intermediary cannot use proceeds received from the
collection of principal repayment by an ultimate recipient for
administrative expenses. The amount removed by the intermediary from
the IRP revolving loan fund for administrative costs in any year must
be reasonable, must not exceed the actual cost of operating the IRP
revolving loan fund, including loan servicing, and providing technical
assistance, and must not exceed the amount approved by the Agency in
the intermediary's annual budget. The administrative expenses that the
intermediary charges to the IRP fund may never exceed the actual income
earned on an annual basis. An intermediary can contract personnel for
hire per Sec. 4274.340(a)(1)(ii); but the intermediary may not
routinely contract loan underwriting, management, or day-to-day
operations. Essential activities of the IRP revolving loan funds must
be conducted in-house.
(3) The intermediary must establish a debt service reserve fund.
The purpose of the debt service reserve fund is to ensure that adequate
cash is available for the annual IRP loan installment(s) in the event
that the IRP revolving loan fund has insufficient cash to make these
payments. The minimum amount of cash in the debt service reserve fund
must be at least equal to the intermediary's cumulative, annual debt
service requirements for all Agency IRP loans outstanding. This account
should be established by the date of loan closing, but the minimum
required cash balance does not have to be reached until the third
anniversary of an Agency IRP loan closing. The minimum required balance
must be maintained for the life of the Agency IRP loan thereafter. The
debt service reserve funds can only be withdrawn when there is
insufficient cash in the IRP revolving loan fund's other account(s) to
[[Page 72165]]
make the annual Agency IRP loan installments, and such withdrawals
require the prior written concurrence of the Agency. Any withdrawal
that causes the cash balance to drop below the minimum amount required
must be repaid to the debt service reserve fund as soon as possible,
but in no event can such repayment be longer than six months from the
date of withdrawal. The funding of this debt service reserve fund may
not come from Agency IRP loan funds and must come from an unencumbered
source.
(4) The intermediary must make any cash in the IRP revolving loan
fund that is not needed for debt service or approved administrative
costs available for additional loans to ultimate recipients. If the
Agency determines that the intermediary has substantial amounts of
Agency IRP loan funds available for lending that is not being regularly
loaned out to ultimate recipients, the Agency may require, at its
discretion, that those funds be returned to the Agency in accordance
with paragraph (b)(8) of this section.
(5) The intermediary must deposit all reserves and other cash of
the IRP revolving loan fund not immediately needed for loans to
ultimate recipients or other authorized uses in accounts in banks or
other financial institutions. Such accounts must be fully covered by
Federal deposit insurance or fully collateralized with other securities
in accordance with normal banking practices and all applicable State
laws. The account must be interest-bearing if feasible and any interest
earned thereon remains a part of the IRP revolving loan fund. The
intermediary cannot use funds for any certificates of deposit over a
30-day duration or for investments in securities. All instruments
associated with the revolving loan fund must be liquid and not impose
fees associated with the withdrawal or movement of cash.
(6) If an intermediary receives more than one IRP loan, the
intermediary does not need to establish and maintain a separate IRP
revolving loan fund for each loan. Instead, the intermediary may
combine them and maintain only one IRP revolving loan fund, unless the
Agency requires separate IRP revolving loan funds because there are
significant differences in the loan purposes, work plans, loan
agreements, or requirements for the loans. The Agency may allow loans
with different requirements to be combined into one IRP revolving loan
fund if the intermediary agrees in writing to operate the combined
revolving funds in accordance with the most stringent requirements of
the Agency. The combining of multiple loans in one IRP revolving loan
fund does not preclude the intermediary from being able to individually
track the activity of each Agency IRP loan. The Agency must be able to
readily determine the ultimate recipient loans made from each Agency
IRP loan.
(7) The intermediary may deposit their full equity contribution for
the entire Agency IRP loan before the initial advance of Agency IRP
loan funds or it may deposit its matching percent at each interval that
loan advances are made by the Agency.
(8) IRP revolving loan fund funds are intended to be active
mechanisms to enhance business development in rural communities. If
Agency IRP loan funds have been unused for a period of six months or
more, those funds in excess of $250,000 will be returned to the Agency
unless the Agency concurs with an intermediary's request for an
exception. Any exception would be based on evidence satisfactory to the
Agency that every effort is being made by the intermediary to utilize
the IRP revolving loan fund funding for loans to ultimate recipients in
conformance with program objectives.
(9) The full measure of collateral must be made up of cash
available in the IRP revolving loan fund, the debt service reserve, and
the total outstanding balance of ultimate recipient loans. At all
times, the sum of the IRP revolving loan fund, debt service reserve,
and principal amount outstanding on performing ultimate recipient loans
must equal 100 percent of what is owed to the Agency by the
intermediary plus any equity contribution amount. Therefore, if any
part of the collateral fluctuates to the extent that the minimum
retention requirement falls below the 100 percent plus the equity
contribution threshold, the intermediary must inject cash into the IRP
revolving loan fund and or debt service reserve fund to ensure that the
total collateral is maintained at the minimum required level.
(10) The intermediary must also file a Uniform Commercial Code
(UCC) financing statement at closing in order to perfect the Agency's
security interest in the ultimate recipient's promissory notes. The
intermediary is responsible for covering the costs of filing as well as
ensuring the necessary filings are renewed and recorded with the
Secretary of State, or the equivalent tribal official as appropriate.
(c) Agency oversight. The Agency will monitor each intermediary
based on progress reports submitted by the intermediary, audit
findings, disbursement transactions, visitations, and other contact
with the intermediary as necessary. The Agency will send written
notices on payments coming due to the intermediary approximately 15
days in advance of the payment due date.
(d) Return of equity. An intermediary with an IRP loan(s) where the
cash portion of the IRP revolving loan fund includes fees, principal
and interest payments received from ultimate recipients and is not
composed of any original Agency IRP loan funds, may annually request a
partial or full return of their contributed equity under the following
conditions:
(1) The intermediary is current in all payments to the Agency and
in compliance with all elements of their loan agreement and Agency
reporting requirements;
(2) The ratio of intermediary equity to the Agency loan after the
return of equity remains consistent with the initial equity injection
percentage by the intermediary; and
(3) Any return of an intermediary's equity from the revolving loan
fund must be approved by the Agency in writing and is limited to an
amount that the Agency determines will not cause additional credit risk
to the revolving loan fund or the Agency and is in compliance with
paragraph (b)(9) of this section.
Sec. 4274.333 Loan agreements between the Agency and the
intermediary.
The intermediary and the Agency must execute a loan agreement or a
supplement to a previous loan agreement at loan closing for each Agency
IRP loan. The Agency will prepare the loan agreement and the
intermediary must review it prior to loan closing. The intermediary is
responsible for compliance with the terms and conditions of the loan
agreement.
(a) The loan agreement will, at a minimum, set out:
(1) The amount of the loan;
(2) The interest rate;
(3) The term and repayment schedule;
(4) The provisions for late charges. The intermediary must pay a
late charge of four percent of the payment due if payment is not
received within 15 calendar days following the due date. The Agency
will consider the late charge as unpaid if it is not received within 30
calendar days of the missed due date for which it was imposed. The
Agency will add any unpaid late charge to the loan's principal balance,
and it will be due as an extra payment at the end of the term.
Acceptance of a late charge by the Agency does not constitute a waiver
of default.
[[Page 72166]]
(i) A per diem amount will be shown on the late notice sent to the
intermediary. The Agency will continue sending notices to the
intermediary on the late payments or any further payments until the
account is in a current status.
(ii) Interest will be computed on a 365-day basis unless legal
documents state otherwise.
(5) The disbursement procedure. The Agency will disburse the Agency
IRP loan funds to the intermediary on an as-needed basis after the loan
agreement and promissory note are executed, and after any other
conditions precedent to disbursement of funds are fully satisfied. Fund
disbursement requests must be submitted with an intermediary's request
for Agency concurrence in accordance with the provisions of Sec.
4274.352(a). Only the amount of Agency IRP loan funds necessary to fund
the given ultimate recipient loan request(s) can be requested by the
intermediary and disbursed by the Agency. The intermediary's equity
contribution may not be used for administrative costs. When lending,
the intermediary's equity contribution must be loaned out prior to or
on a pro rata basis with Agency IRP loan funds. For purposes of
computing interest, the date of each draw down of an Agency IRP loan
constitutes the date the funds are advanced under the loan agreement.
(6) The provisions regarding default. On the occurrence of any
event of default (monetary or nonmonetary), the Agency may declare all
or any portion of the debt and interest to be immediately due and
payable and may proceed to enforce its rights under the loan agreement
or any other instruments securing or relating to the loan and in
accordance with the applicable laws and regulations. Any of the
following may be regarded as an ``event of default'' at the sole
discretion of the Agency:
(i) Failure of the intermediary to carry out the specific
activities in its loan application as approved by the Agency or failure
to comply with the loan terms and conditions of the loan agreement, any
applicable Federal or State laws, or with such USDA or Agency
regulations as may be applicable; or
(ii) Failure of the intermediary to pay within 15 calendar days of
its due date any installment of principal or interest on its promissory
note to the Agency; or
(iii) The occurrence of:
(A) The intermediary becoming insolvent, or ceasing, being unable,
or admitting in writing its inability to pay its debts as they mature,
or making a general assignment for the benefit of, or entering into any
composition or arrangement with creditors; or
(B) Proceedings for the appointment of a receiver, trustee, or
liquidator of the intermediary, in whole or of a substantial part of
its assets, being authorized or instituted by or against it; or
(iv) Submission or making of any report, statement, warranty, or
representation by the intermediary or agent on its behalf to the Agency
in connection with the financial assistance awarded hereunder which is
false, incomplete, or incorrect in any material respect; or
(v) Failure of the intermediary to remedy any material adverse
change in its financial or other condition (such as the
representational character of its board of directors, loan making or
policymaking body) arising since the date of the Agency's award of
assistance hereunder, which condition was an inducement to the Agency's
original award.
(7) Insurance requirements.
(i) Hazard insurance with a standard mortgage clause naming the
intermediary as beneficiary will be required by the intermediary on
every ultimate recipient's project funded from the IRP revolving loan
fund in an amount that is at least the lesser of the depreciated
replacement value of the property being insured or the amount of the
loan. Hazard insurance includes fire, windstorm, lightning, hail,
business interruption, explosion, riot, civil commotion, aircraft,
vehicle, marine, smoke, builder's risk, public liability, property
damage, flood or mudslide, or any other hazard insurance that may be
required to protect the security. The intermediary's interest in the
insurance will be assigned to the Agency, upon the Agency's request, in
the event of default by the intermediary.
(ii) Workmen's compensation insurance on ultimate recipients is
required in accordance with State law.
(iii) The intermediary is responsible for determining if an
ultimate recipient funded from the IRP revolving loan fund is located
in a special flood or mudslide hazard area. If the ultimate recipient
is in a flood or mudslide area, then flood or mudslide insurance must
be provided in accordance with 7 CFR part 1806, subpart B.
(iv) Intermediaries must provide fidelity bond coverage, or
employee dishonesty insurance, for all persons who have access to
intermediary funds. Coverage may be provided either for all individual
positions or persons, or through ``blanket'' coverage providing
protection for all appropriate employees and officials.
(A) The minimum amount of fidelity bond/employee dishonesty
coverage required by the Agency will equal the total, cumulative annual
debt service requirements for all Agency IRP loans. Intermediaries with
fidelity bond/employee dishonesty coverage requirements through other
Agency programs (e.g., the Rural Microentrepreneur Assistance Program)
must add the coverage requirements of those programs to the coverage
requirements of this section in calculating the minimum coverage
amount.
(B) Evidence of this coverage must be provided at, or prior to,
loan closing and must be maintained for the life of the IRP loan.
During the term of the loan, the intermediary must provide evidence to
the Agency, upon request, that adequate fidelity bond/employee
dishonesty coverage is in place.
(v) The Agency may also require the intermediary to carry other
appropriate insurance, such as coverage for public liability,
leasehold, and property damage.
(b) The intermediary must agree in the loan documents to:
(1) Not make any changes in the intermediary's articles of
incorporation, charter, or by-laws that would impact the intermediary's
eligibility for the IRP program or would adversely affect their ability
to operate the IRP program in accordance with the provisions of this
instruction and any other applicable laws, regulations, and executive
orders without the prior written concurrence of the Agency. This
pertains to the Agency's original IRP loan funds and revolved funds.
(2) Not make a loan commitment to an ultimate recipient to be
funded from Agency IRP loan funds without first receiving the Agency's
written concurrence;
(3) Maintain a separate ledger and segregated accounting for the
IRP revolving loan fund;
(4) Provide to the Agency:
(i) An annual audit as described in 2 CFR part 200, subpart F, or
any successor regulation;
(A) The financial audit report period may be different than the IRP
reporting periods. Intermediaries must promptly provide the auditor
with the records and documentation necessary for the completion of the
audit following the end of the audit period. The audit report must be
submitted to the Agency within the earlier of 30 calendar days after
receipt of the auditor's report, or nine months after the end of the
audit period as described in 2 CFR 200.512. Audits must cover all the
intermediary's activities. Audits will be performed by
[[Page 72167]]
an independent certified public accountant. An acceptable audit will be
performed in accordance with Generally Accepted Government Auditing
Standards (GAAP) and include such tests of the accounting records as
the auditor considers necessary in order to express an opinion on the
financial condition of the intermediary. Compilations or reviews do not
satisfy the audit requirement.
(B) It is not intended that audits required by this subpart be
separate and apart from audits performed in accordance with State and
local laws or for other purposes. To the extent feasible, the audit
work should be done in connection with these audits. Intermediaries
covered by 2 CFR part 200, subpart F, as codified in 2 CFR 400.1,
should submit audits conducted in accordance with that regulation.
(ii) Quarterly or semiannual reports (due 30 days after the end of
the period);
(A) Reports will be required quarterly during the first year after
loan closing and, if all loan funds are not utilized during the first
year, quarterly reports will be continued until at least 90 percent of
the Agency IRP loan funds have been loaned out to ultimate recipients.
Thereafter, reports will be required semiannually. Also, the Agency may
require quarterly reports if the intermediary becomes delinquent in
repayment of its loan or otherwise fails to fully comply with the
provisions of its work plan or loan agreement, or the Agency determines
that the intermediary's IRP revolving loan fund is not adequately
protected by the current sound worth and paying capacity of the
ultimate recipients.
(B) These reports must contain information only on the IRP
revolving loan fund. Information required to be included in these
reports as well as detailed reporting instructions will be provided by
the Agency through a revolving loan fund user manual (available on the
USDA Rural Development Intermediary Relending Program website) or
similar documentation, which may be amended from time to time;
(iii) Annual proposed budget for the following year that meets the
requirements of Sec. 4274.360(b)(2); and
(iv) Other reports as the Agency may require from time to time;
(5) Before the initial lending of Agency IRP loan funds to an
ultimate recipient, to obtain written Agency approval of all forms to
be used for relending purposes, including application forms, loan
agreements, promissory notes, and security instruments. If the
intermediary plans to sell participations in its loans made to ultimate
recipients, the loan participation agreement and any planned interest
rate spread or associated fees must be submitted to the Agency for
review and concurrence;
(6) To obtain written approval of the Agency before making any
significant changes in forms, security policy, or the work plan. The
servicing officer may approve changes in forms, security policy, IRP
revolving loan fund plan, or work plans at any time upon a written
request from the intermediary and determination by the Agency that the
change will not jeopardize repayment of the loan or violate any
requirement of this subpart or other Agency regulations. The
intermediary must comply with the work plan approved by the Agency so
long as any portion of the intermediary's IRP loan is outstanding.
(7) To secure the indebtedness by pledging the IRP revolving loan
fund, including all of its loans derived from the proceeds of the
Agency loan award, and pledging its real and personal property and
other rights and interests as the Agency may require;
(8) In the event the intermediary's financial condition
deteriorates or the intermediary takes action detrimental to prudent
fund operation or fails to take action required of a prudent lender, to
provide additional security, execute any additional documents, and
undertake any reasonable acts the Agency may request, to protect the
agency's interest or to perfect a security interest in any assets,
including physical delivery of assets and specific assignments; and
(9) Funds not disbursed to the intermediary by the end of the 36th
month of the IRP loan from the Agency will be deobligated and not
available for disbursement to the intermediary.
(10) For revolved funds, the intermediary is responsible for
continuing compliance with the terms and conditions of the loan
agreement until the Agency loan is fully satisfied and repaid.
Sec. 4274.334--Sec. 4274.339 [Reserved]
Sec. 4274.340 Application content and submittal.
Intermediaries seeking to participate in the IRP program must
submit an application in accordance with paragraph (a) of this section.
Intermediaries applying for a subsequent Agency IRP loan may instead
submit a streamlined application in accordance with paragraph (b) of
this section. All intermediaries must submit their applications as
provided in paragraph (c) of this section.
(a) Intermediary application content. A complete application will
include forms as requested in the intermediary application checklist
guide available on the USDA Rural Development Intermediary Relending
Program website plus information identified in paragraphs (a)(1)
through (12) of this section.
(1) A work plan/narrative that demonstrates the feasibility of the
intermediary's program to meet the objectives of this program. The work
plan must include, at a minimum:
(i) A copy of the intermediary's policy and/or procedural manuals
to assure the Agency that its mission and goals align with that of the
Agency (i.e., economic development, promoting rural America, regional
and community development.)
(ii) Document the intermediary staff's ability in administering an
IRP revolving loan fund. This includes but is not limited to providing
a complete listing of all personnel responsible for administering this
program along with a statement of their qualifications and experience.
Their qualifications should detail their experience in loan making,
loan monitoring, and loan servicing including liquidations. The
personnel may be either members or employees of the intermediary's
organization or on an as-needed basis and as allowed by this
regulation, contracted personnel.
(A) Contract personnel may be used to train, develop, or supervise
the intermediary's members or employees or to provide interim expertise
while the intermediary develops relevant in-house experience. The
intermediary may contract for general services, such as clerical,
administrative, and accounting services, and loan packaging.
(B) The intermediary cannot use contract personnel for the primary
functions of its lending program, such as credit analysis and loan
underwriting. The intermediary is expected to make an independent
lending decision for each ultimate recipient loan request.
(1) The contract between the intermediary and the person or entity
providing such service must be submitted for Agency review.
(2) The terms of the contract and its duration must be sufficient
to develop in-house expertise and to ensure the Agency loan is
adequately serviced throughout its term. The contract must provide for
termination at the request of the Agency whether or not for cause.
(C) If the Agency determines the intermediary's personnel lack the
necessary expertise to administer the program, the loan request will
not be approved;
(iii) Demonstrate a need for loan funds. At a minimum, the
intermediary must either positively identify a
[[Page 72168]]
sufficient number of proposed and known ultimate recipients it has on
hand to justify the level of Agency funding of its loan request, or
include well developed targeting criteria for ultimate recipients
consistent with the intermediary's mission and strategy for the IRP,
along with supporting statistical or narrative evidence that such
prospective recipients exist in sufficient numbers to justify Agency
funding of the loan request;
(iv) Provide a set of goals, strategies, and anticipated outcomes
for the intermediary's program. Outcomes should be expressed in
quantitative or observable terms (e.g., jobs created for low-income
area residents or self-empowerment opportunities funded) and should
relate to the purpose of IRP (see Sec. 4274.301(b)); and
(v) Provide specific information as to whether and how the
intermediary will ensure that technical assistance is made available to
ultimate recipients and potential ultimate recipients. Describe the
qualifications of the technical assistance providers, the nature of
technical assistance that will be available, and expected and committed
sources of funding for technical assistance. If other than the
intermediary itself, describe the organizations providing such
assistance and the arrangements between such organizations and the
intermediary.
(2) Demonstrate the sustainability of the IRP revolving loan fund
by providing a pro forma balance sheet at start-up and projected
balance sheets for at least three additional years including the
accumulated debt service reserve; financial statements for the last
three years, or from inception of the operations of the intermediary if
less than three years; and projected cash flow and earnings statements
for at least three years supported by a list of assumptions showing the
basis for the projections. The projected earnings statement and balance
sheet must include one set of projections that shows the IRP revolving
loan fund only and a separate set of projections that shows the
intermediary organization's total operations. Also, if principal
repayment on the IRP loan will not be scheduled during the first three
years, the projections for the IRP revolving loan fund must extend to
include at least one year with a full annual installment on the IRP
loan.
(3) Provide documentation of any funds pledged and intermediary
equity contribution that will be contributed into the IRP revolving
loan fund to serve as security for the IRP loan and to pay for part of
the cost of the ultimate recipient projects. Pledged funds and
intermediary equity contribution must be in the form of cash and cannot
be in-kind contributions; they also cannot be used as intermediary
operating funds.
(4) A written agreement of the intermediary to abide with the
Agency audit requirements.
(5) Complete organizational documents including: Articles of
Incorporation (initial loan only), Bylaws, Certificate of Good
Standing, a list of board members with contact and lending experience
information, and evidence of authority to conduct the proposed lending
activities (this could be satisfied with a statement from the
intermediary's counsel).
(6) Document the intermediary's ability to commit financial
resources under the control of the intermediary to the establishment of
an IRP program. This should include a statement of the sources of non-
Agency funds for administration of the intermediary's operations and
financial assistance for projects.
(7) Demonstrate to Agency satisfaction that the intermediary has
secured commitments of significant financial support from public
agencies and private organizations.
(8) Provide evidence to Agency satisfaction that the intermediary
has a proven record of obtaining private or philanthropic funds for the
operation of similar programs to the IRP.
(9) Latest audit report, if available.
(10) The IRP revolving loan fund plan is a separate stand-alone
document from the application and may be revised in the future. The IRP
revolving loan fund plan governs the use of the RLF and must be
developed by the intermediary and approved by the Agency. The plan must
include a detailed explanation of the intermediary's fund
administration policies and procedures in addition to planned fund use
after the original IRP loan funds in the RLF have revolved. Fund
administration policies and procedures must also include information
regarding the review and approval of loans from the fund, including
participation loans. The revolving loan fund plan must be of sufficient
and detailed information to provide the Agency with a complete
understanding of what the intermediary will accomplish by lending the
funds to the ultimate recipient and the complete mechanics of how the
funds will get from the intermediary to the ultimate recipient,
including participation loans. The IRP revolving loan fund plan must
contain:
(i) The specific service area of the IRP fund including names of
counties and or cities within the service area;
(ii) Borrower eligibility criteria, loan purposes, loan priorities,
fees, rates, terms, loan limits and collateral requirements;
(iii) Details on the intermediary's application review and approval
process;
(iv) Details on the method of disposition of funds to the ultimate
recipient, monitoring of the ultimate recipient's accomplishments, the
reporting requirements by the ultimate recipient's management; and
(v) A copy of the intermediary's ultimate recipient loan
application package and sample loan documents (i.e., application forms,
debt instruments, collateral and security documents, etc.).
(11) Credit Elsewhere Certification (see Agency template available
at the USDA Rural Development Intermediary Relending Program website).
(12) Prior to applying for program funding, a resolution by the
intermediary's board of directors is required. At a minimum, the
executive director of the intermediary must make the organization's
board of directors aware of the possibility that the organization may
be entering into a significant debt.
(b) Streamlined applications. Intermediaries that have an active
Agency IRP loan may submit a streamlined application that includes the
following:
(1) Submission of the information required under the Intermediary
Guide (available at the USDA Rural Development Intermediary Relending
Program website) and paragraphs (a)(1) through (4) of this section
except that the information required by paragraph (a)(2) of this
section may be limited to projections for the proposed new IRP
revolving loan fund.
(2) A statement that the new loan would be operated in accordance
with the work plan on file for the previous IRP loan(s) may be
submitted in lieu of a new work plan. Any substantial change to an
existing work plan would require the submission of a new work plan.
(3) Intermediaries that have received one or more Agency IRP loans
may apply for and be considered for additional Agency IRP loans
provided that the outstanding loans of the intermediary's IRP revolving
loan fund are generally sound, the intermediary is in compliance with
all applicable regulations and its loan agreements with the Agency, and
the revolving loan fund's liabilities do not significantly exceed their
assets. The intermediary must have a reasonable plan to disburse any
unused IRP loan funds within six
[[Page 72169]]
months of loan closing in addition to showing the need for additional
IRP funds in accordance with paragraph (a)(1)(iii) of this section.
(c) Application submittal. Intermediaries must submit the complete
application in one package. The intermediary must file its application
with the Agency State Office in the State in which the intermediary's
headquarters is located. An intermediary headquartered in the District
of Columbia may file its application with the Delaware/Maryland Rural
Development State Office, Attention: Business Programs, 1221 College
Park Drive, Suite 200, Dover, DE 19904.
Sec. 4274.341 Processing applications for loans.
(a) Processing applications. Applications are accepted in the Rural
Development State Office on an ongoing basis. The Agency will review
all applications received for eligibility and will score each
application according to the criteria in paragraph (b) of this section.
Eligible applications received by the Rural Development State Office by
close of business on September 30, December 31, March 31, and June 30
of each year will compete based on score ranking for available funds
with other applications in that Federal fiscal quarter. If the
quarterly application deadline falls on a weekend or holiday, the
application deadline will be the next business day. The Agency will
rank all eligible, scored applications each Federal fiscal quarter and
will fund applications in the order of priority ranking using available
funds for that quarter. The Agency will retain unsuccessful
applications due to limited funding for consideration in subsequent
reviews, through a total of four quarterly reviews.
(b) Scoring. The Agency will use a point system to determine an
eligible applicant's priority ranking for available loan funds. Points
will be awarded only for factors indicated by well documented,
reasonable plans which, in the opinion of the Agency, provide assurance
that the work plan items have a high probability of being accomplished.
Application content must contain sufficient information to assess the
applicant's ability to manage an IRP revolving loan fund and allow the
Agency to assign priority points in accordance with the criteria
discussed in this section. The Agency will award points using the
criteria identified in paragraphs (b)(1) through (9) of this section.
Any application that does not meet the minimum value for receiving
points associated with a criterion will receive no points for that
criterion.
(1) Intermediary equity contribution for initial Agency IRP loan
applications only (maximum 35 points). The Agency will award points
under this criterion if the applicant is applying for its first ever
Agency IRP loan and will contribute cash matching funds to the IRP
revolving loan fund. These funds must be deposited into the IRP account
at closing and are subject to the same use restrictions as Agency IRP
loan funds. These funds must be loaned out to ultimate recipients in
conjunction with Agency IRP loan funds. The amount of cash matching
funds contributed will be:
(i) At least 5 percent, but less than 10 percent of the requested
loan amount--10 points.
(ii) At least 10 percent, but less than 20 percent of the requested
loan amount--15 points.
(iii) At least 20 percent, but less than 30 percent of the
requested loan amount--20 points.
(iv) At least 30 percent, but less than 40 percent of the requested
loan amount--25 points.
(v) At least 40 percent, but less than 50 percent of the requested
loan amount--30 points.
(vi) More than 50 percent of the requested loan amount--35 points.
(2) Intermediary equity contribution for subsequent Agency IRP loan
applications only (maximum 35 points). The Agency will award points
under this criterion if the applicant is applying for a subsequent IRP
loan and will contribute cash matching funds to the IRP revolving loan
fund. The Agency must determine that the applicant's performance under
their current IRP loan(s) is satisfactory in accordance with Sec.
4274.330(f)(3) in order to be eligible and receive points under this
criterion. These funds must be deposited into the IRP account at
closing and are subject to the same use restrictions as Agency IRP
Funds and loaned out to ultimate recipients in conjunction with Agency
IRP loan funds. Cash matching funds are not required of subsequent
applicants, but points will be awarded if the amount of cash matching
funds contributed will be:
(i) At least 5 percent, but less than 10 percent of the requested
loan amount--10 points.
(ii) At least 10 percent, but less than 20 percent of the requested
loan amount--15 points.
(iii) At least 20 percent, but less than 30 percent of the
requested loan amount--20 points.
(iv) At least 30 percent, but less than 40 percent of the requested
loan amount--25 points.
(v) At least 40 percent, but less than 50 percent of the requested
loan amount--30 points.
(vi) More than 50 percent of the requested loan amount--35 points.
(3) Community Representation (10 points). Governing board of
directors where 50 percent or more of its members consist of business,
banking, civic and community leaders that are representative of the
rural communities within the service area(s) that intermediary serves.
These board members are diversely spread across the service areas and
represent at least 50 percent of the intermediary total service area.
These board members are not employees of the intermediary. Statewide
and national IRP lenders must have a board of directors with members
that are also familiar with current economic conditions and the
inherent credit risks of making and servicing loans outside of the
intermediary's primary location to receive these points. Documentation
in the workplan must address these qualifications.
(4) Leveraging (maximum 25 points). The Agency will award points if
the intermediary will limit the funding of ultimate recipient project
loans with Agency IRP funds. IRP revolving loan fund funds that consist
of revolved funds may also be used as leveraging. However, any projects
funded must continue to comply with the loan agreement and requirements
of this subpart so long as any part of the Agency IRP loan remains
unpaid. The intermediary's equity contribution will be the following
percentages of an ultimate recipient's total project costs:
(i) At least 10 percent, but less than 25 percent of the total
project costs--5 points will be awarded;
(ii) At least 25 percent, but less than 50 percent of the total
project costs--10 points will be awarded; or
(iii) Fifty percent or more of the total project costs--25 points
will be awarded.
(5) Median household income (maximum 15 points). The Agency will
award points under this criterion based on the degree to which the
median household income in the service area of the intermediary exceeds
the poverty line for a family of four. For applicant intermediaries
whose service area includes multiple locations or geographic areas,
weighted averages based on the populations will be used in calculating
the area's median household income. For median household income
computations,
[[Page 72170]]
applicant intermediaries will use income data from the latest decennial
census of the United States, updated according to changes in the
consumer price index as published annually by the Agency. The poverty
line used will be as defined in section 673(2) of the Community
Services Block Grant Act (42 U.S.C. 9902(2)), which will be published
annually by the Agency. If the median household income in the
intermediary's service area exceeds the poverty line for a family of
four by:
(i) At least 50 percent, but not more than 75 percent, 5 points
will be awarded;
(ii) At least 25 percent, but less than 50 percent, 10 points will
be awarded; or
(iii) Below 25 percent, 15 points will be awarded.
(6) Unemployment (maximum 15 points). The Agency will award points
under this criterion based on the extent to which the unemployment rate
in the intermediary's service area exceeds the national unemployment
rate. For unemployment computations, applicant intermediaries must use
the unemployment data published by the Bureau of Labor Statistics, U.S.
Department of Labor, for the most current month available at the time
of application in comparison to the national unemployment rate for the
same month. If the service area is a single city, town, or Indian
Reservation and current, monthly unemployment data is not available for
that city or town, the current, monthly unemployment rate for the
county (or Indian Reservation) in which the service area is located
should be used. For applicant intermediaries whose service area
includes multiple locations or geographic areas, a weighted average
based on the populations should be used in calculating the area's
unemployment rate. If the unemployment rate in the intermediary's
service area is:
(i) Equal to, or less than 25 percent above the national
unemployment rate, 5 points will be awarded;
(ii) At least 25 percent above, but less than 50 percent above the
national unemployment rate, 10 points will be awarded; or
(iii) Fifty percent or more above the national unemployment rate,
15 points will be awarded.
(7) Trauma (maximum 15 points). Under this criterion, the Agency
will award 15 points if 50 percent or more of the intermediary's
service area is experiencing trauma due to a major natural disaster, as
declared by the Federal Emergency Management Agency (FEMA), that
occurred not more than three years prior to the filing of the
application for assistance. Intermediaries with proposed statewide and
nationwide service areas do not qualify for these points.
(8) Experience (maximum 30 points). The Agency will award points
under this criterion based on the number of years the intermediary
entity has in successfully making and servicing commercial loans. If
the intermediary entity itself has actual experience in making and
servicing commercial loans, with a successful record, for:
(i) At least 1 but less than 3 years, 5 points will be awarded;
(ii) At least 3 but less than 5 years, 10 points will be awarded;
(iii) At least 5 but less than 10 years, 20 points will be awarded;
or
(iv) Ten or more years, 30 points will be awarded.
(9) Size of loan request (maximum 20 points). The Agency will award
points under this criterion based on the size of the intermediary's
loan request. If the size of the loan request is:
(i) $500,000 or less, 20 points will be awarded; or
(ii) Over $500,000, and up to $750,000, 10 points will be awarded
(10) Administrator (maximum 10 points). The Administrator may award
up to 10 additional points to an application to account for either or
both of the items identified in below:
(i) The project meets the President/Secretary Initiative(s) (e.g.,
local foods, regional development, persistent poverty, energy-related,
etc.); or
(ii) The applicant's service area will include areas not currently
served by existing IRP Intermediaries. Statewide and nationwide
Intermediaries will not be considered for Administrator points with
regard to whether an area is currently covered by an existing IRP fund.
Sec. 4274.342-Sec. 4274.344 [Reserved]
Sec. 4274.345 Letter of conditions.
The Agency will provide the successful intermediary with a letter
of conditions listing all requirements for the loan. Immediately after
reviewing the conditions and requirements in the letter of conditions,
the intermediary must complete, sign, and return the requisite forms
provided by the Agency indicating the intermediary's intent to meet the
conditions and the request of obligation of funds. If the intermediary
identifies certain conditions that cannot be met, the intermediary may
propose alternate conditions to the Agency. The Agency must approve in
writing of any proposed changes made to the initially issued or
proposed letter of conditions prior to acceptance and finalization
Sec. 4274.346 Agency IRP loan closing.
(a) At the time the Agency IRP loan is closed, the intermediary
must certify to each condition identified in paragraphs (a)(1) through
(5) of this section.
(1) No major changes have been made in the work plan except those
approved in the interim by the Agency.
(2) All requirements of the letter of conditions have been met.
(3) There has been no material adverse change in the intermediary's
financial condition, nor any other material adverse change in the
intermediary, for any reason, during the period of time from the
Agency's loan approval to loan closing regardless of the cause or
causes of the change and whether or not the change or causes of the
change were within the intermediary's control. Any material adverse
change must be explained by the intermediary. The Agency, at its sole
discretion, will consider any such change and determine if it is
significant enough to prevent the loan closing or disbursement of IRP
loan funds to the intermediary.
(4) There are no claims or liens of laborers, materialmen,
contractors, subcontractors, suppliers of machinery and equipment, or
other parties pending against the security of the intermediary, and
that no suits are pending or threatened that would adversely affect the
security of the intermediary when the security instruments are filed.
(5) Certification that the intermediary has received Agency staff
training on how to distinguish a required environmental review from a
categorical exclusion in accordance with Sec. 4274.305(b).
(b) The Agency will consider all requested changes submitted in
writing to the Agency but will only approve changes that do not
materially affect the IRP project, its capacity, employment, original
projections, or credit factors.
Sec. 4274.347-Sec. 4274.350 [Reserved]
Sec. 4274.351 Loan approval and obligating funds.
(a) The loan will be considered approved on the date that the
obligation of funds document (Form RD 1940-1, Request for Obligation of
Funds), is signed by the Agency. Agency IRP loans not closed within six
months of approval by the Agency will be deobligated and the loan funds
will no longer be available to the intermediary.
(b) An obligation of funds established for an intermediary may be
transferred by the Agency to a different (substituted) intermediary
provided:
[[Page 72171]]
(1) The substituted intermediary is eligible to receive the
assistance approved for the original intermediary;
(2) The substituted intermediary bears a close and genuine
relationship to the original intermediary; and
(3) The need for and scope of the project and the purposes for
which Agency IRP loan funds will be used remain substantially
unchanged.
Sec. 4274.352 Loan documentation for ultimate recipients.
(a) Agency IRP loans. Prior Agency concurrence is required when an
intermediary makes loans to an ultimate recipient from its Agency IRP
loan funds (this applies to each Agency IRP loan received). A request
for Agency concurrence in approval of a proposed loan to an ultimate
recipient, whether made directly or through a loan participation
purchase, must contain or comply with, as appropriate, the items
identified in paragraph (b)(1) through (5) of this section and must
include information listed in the IRP Revolving Loan Fund File
Checklist, on the Agency website at the USDA Rural Development
Intermediary Relending Program website:
(1) Certification by the intermediary that:
(i) The ultimate recipient is eligible for the loan;
(ii) The loan is for an eligible purpose;
(iii) Agency IRP loan funds are not more than 75 percent of the
total project costs;
(iv) The loan complies with all applicable statutes and
regulations;
(v) The ultimate recipient is unable to finance the proposed
project through commercial credit or other Federal, State, or local
programs at reasonable rates and terms; and
(vi) The intermediary and its principal officers (including
immediate family) hold no legal or financial interest or influence in
the ultimate recipient, and the ultimate recipient and its principal
officers (including immediate family) hold no legal or financial
interest or influence in the intermediary. The interest and influence
of a cooperative member when the intermediary is a cooperative is an
allowable exception to this paragraph.
(2) A completed and executed request for environmental information
on a form provided by the Agency for projects that meet the criteria
for a NEPA review categorical exclusion, NEPA environmental assessment
or NEPA environmental impact statement in accordance with Sec.
4274.305(b)(2).
(3) All comments obtained in accordance with Sec. 4274.305(a)
regarding intergovernmental consultation (if required).
(4) Copies of sufficient material from the ultimate recipient's
application and the intermediary's related files to allow the Agency to
determine the:
(i) Name, address, DUNS number, Federal ID number, and North
American Classification System (NAICS) Code of the ultimate recipient;
(ii) Loan purpose;
(iii) Interest rate and term;
(iv) Location, nature, and scope of the project being financed;
(v) Uses and sources of funds; and
(vi) Nature and lien priority of the collateral.
(5) Such other information as the Agency may request.
(b) Revolved IRP loan funds. An intermediary may use revolved funds
to make loans to ultimate recipients in accordance with Sec.
4274.320(b) without obtaining prior Agency concurrence as required in
Sec. 4274.352(a) and are also exempted from completion of items
required by paragraphs (a)(2) and (3) of this section.
Sec. 4274.353-Sec. 4274.359 [Reserved]
Karama Neal,
Administrator, Rural Business-Cooperative Service.
[FR Doc. 2021-27522 Filed 12-20-21; 8:45 am]
BILLING CODE 3410-XY-P
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</html>Indexed from Federal Register on December 21, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.