# Presentation: 685506

## Business and IndustryGuaranteed Loan Program

- USDA
- Rural Business-Cooperative Service
- www.rurdev.usda.gov/rbs

## Purpose of the Program

- Improve, develop, or finance business, industry, and employment, and improve the economic and environmental climate in rural communities.
- Bolster the existing private credit structure through the guarantee of _quality_ loans that will provide _lasting_ community benefits.

**Notes:**

Focus on Quality vs. substandard/marginal credit.
Guarantee is for commercial quality loans the bank would normally make.  But the borrower may need longer terms or fixed interest rates to cash flow.  Couldn’t do terms or rate without the guarantee.  

RD INSTRUCTION 4279.101

## Fiscal Year Obligations and Number of Loans(Dollars in Thousands)

- Fiscal Year Obligations and Number of Loans(Dollars in Thousands)

**659**

**560**

**327**

**179**

**97**

**803**

**792**

**558**

**591**

**905**

**519**

## Business and Industry Guaranteed Loan Program

- Total Loans: 519

- Total Funds:  $906,501,963

-  <$5M

-   >$5M - $10M

- >$10M - $15M

- MA 9

- ME 7

-   RI 3

- CT 4

- MD 2

- VT 9

- NH 1

- PR

- HI 4

- AK 22

- VA 8

- NC 20

- SC 1

- TN 12

- KY 13

- OH 32

- IN

-  11

- MI 19

- NY 28

- PA 13

- GA

- AL 2

- MS

-   6

- FL

-   9

- LA 8

- IL 9

- MO 15

- IA 13

- WI 15

- MN

-   10

- AR 1

- MT 1

- ND 12

- SD 5

- NE 8

- KS 8

- OK 16

- TX 16

- WY 15

- CO 9

- NM  5

- ID 8

- OR 1

- CA

-   74

- NV 1

- UT 2

- AZ  6

- WA 7

- DE 8

- NJ 3

- VI

**Business and Industry Guaranteed Loan Program**

**FY 2003**

- WP 2

- >$15M - $20M

- >$20M

-   $0

- WV

-  6

- As of September 30, 2003

## Business and Industry Guaranteed Loan Caseload

- MA

- 29

- ME

- 47

- RI

- CT

- MD

- VT

- NH 15

- PR 67

- HI

- VA 24

-  WV

-  51

- NC 145

- SC 52

- TN 51

- KY 70

- OH 87

- IN

- 36

- MI 67

- NY

- 91

- PA 56

- GA 55

- AL 14

- MS

- 26

- FL

-  89

- LA 76

- IL 69

- MO 75

- IA 39

- WI 57

-  MN

-   72

- AR 29

- MT 201

- ND 49

- SD 38

- NE 121

- KS 30

- OK 46

- TX 99

- WY 41

- CO 240

- NM 31

- ID 51

- OR 22

- CA

-  CA  217

-  NV 26

- UT 41

- AZ 36

- WA 40

- DE 14

- NJ 21

- VI 4

**Business and Industry Guaranteed Loan Caseload**

**As of September 30, 2003**

- WP 12

- $1M  -  $20M

- >$

- 20M - $40M

- >$40M -$60M

- >$60M - $80M

- >$80M - $100M

- >$100M - $120M

- >$120M - $150M

- >$150M - $400M

- 20

- 13

- 33

- 56

- 24

**Total Borrowers:  3,088**

**Total Funds Closed:  $5,007,939,538**

- AK 73

## Fees/Guarantee

- Guarantee Fee
- Loan Limits
- Percent of Guarantee

**Notes:**
The guarantee fee is typically 2 percent of the guaranteed loan amount.  For special high impact business and deteriorating economic factors of the community, a 1 percent guarantee fee can be requested.  RD INSTRUCTION 4279.107 outlines the criteria for requesting a lower percent of guarantee. 
Loan limits - $10 million.  Administrators exception, concurrence of the Under Secretary, to increase amount up to $25 million.  
Must be a high priority project 4279.155 (points) AND
document that loan will not be made AND the project will not be completed if the guarantee is not approved.
All loans over $10 million must be submitted to the State Office in the form of a preapplication and reviewed by the National Office before a full application is encouraged.  This reduces the application processing timeframe. 
Maximum Percent of Guarantee AVAILABLE (AN 3870, 6.12.03):
80% - < $5 million
70% - $5 <> $10 million
60% - > $10 million
Administrator’s exception authority for guarantee up to 90% on loans < $10 million

## Borrower

- Any legal entity, Federally recognized tribal group, public body or individual.
- Manufacturing, wholesaling, retailing, service oriented.

**Notes:**
i.e., Cooperative, corporation, partnership.

U.S. Citizens or 51% ownership, legally admitted for permanent residence.

RD INSTRUCTION 4279.108

## Location

- Rural Area - not within the boundaries of a city or town with more than 50,000 inhabitants or the urbanized area of the city and town.
- http://maps.ers.usda.gov/loanlookup/viewer.htm

**Notes:**

For those aware of the definition prior to 2002, urbanizing and naturally occurring boundaries are not used in the definition any longer.  Therefore, areas that were previously ineligible because they were in an urbanizing area MAY be eligible under the current definition.  Additionally, naturally occurring boundaries are no longer used to make an area eligible.

DRAWING ON WHITE BOARD OR FLIP CHART to demonstrate towns with populations less than 50,000 in an urbanized area of a town with a population greater than 50,000 and outside the urbanized area of a town with greater than 50,000 and how the location impacts eligibility?

RD INSTRUCTION 4279.108 (C)

## Loan Purposes

- Most legal purposes -
- Real estate purchase and improvements
- Machinery and equipment
- Working capital
- Integrated ag production/processing facilities
- Debt refinancing and business acquisitions - under certain conditions

**Notes:**
Example of integrated ag production/processing and limits of $1 million or 50% of total loan whichever is less.
Discuss debt refinancing circumstances
improve cash flow and create new or save existing jobs AND (for existing lender debt)
current for last 12 months (w/o forgiveness) AND
better rates and terms
< 50% of total loan.
business acquisitions ONLY if loss of jobs or closure will occur with purchase.
Coop Stock Purchase Program- Farmer/rancher/family sized farm to invest in a NEW cooperative (as recognized by State Law) organized to process commodity produced by members.  Cooperative must be supported by favorable feasibility study. (AN 3872, 6.12.03)
For loans in excess of $1 million and more than 50 NEW employees, Form 4279-2 must be submitted immediately.  Caution to not inflate numbers and don’t underestimate.  Be realistic.   DOL clearance must be obtained to determine eligibility.  (AN 3849, 4.1.03)

RD INSTRUCTION 4279.113  

## Ineligible

- Charitable institutions.
- Churches or church-controlled organizations.
- Fraternal organizations.
- Lending and investment institutions.
- Insurance companies.
- Businesses engaged in illegal activity.
- Golf courses.

**Notes:**
Complete list located in 4279.114.

## Ineligible

- Lines of credit.
- Lease payments.
- Guarantee loans made by other Federal agencies.
- Distribution or payment to an owner, beneficiary, or a close relative of the owner,  when owner will remain an owner.
- Federal tax-exempt obligations.
- Loans with direct or indirect conflicts of interest.

**Notes:**
Payment to owner issue arises when a developer is the borrower or stockholder and plans to construct the project and recoup a developer fee.  Project costs only are eligible, no profit can be realized.

INITIAL BREAK FOR QUESTIONS AND ANSWERS, COFFEE REFILLS, ETC.	

## Rates

- Negotiated by the lender and borrower.
- Fixed/Variable/Combination
- Customary

**Notes:**
Negotiated between lender and borrower, subject to Agency review and approval.

Variable rates must be tied to a published base rate.  Adjusted not more often than quarterly. Payments must be adjusted so there are no balloon payments.

One rate for guaranteed; one for unguaranteed.  Rate for the guaranteed portion cannot exceed the rate on the unguaranteed portion for the life of the loan.
May address this through establishing floors and ceilings.

Rates should be customary and reasonable and the same as nonguaranteed loans for the same size and purpose.

RD INSTRUCTION 4279.125  (Page 12)

## Terms

- Maximum terms
**Real estate - 30 years**
**Machinery and equipment - the lesser of 15 years or useful life**
**Working capital - 7 years**
- No balloon payments**  **

**Notes:**
-Real estate 30 years
-M&E is 15 years or Useful life. Determined by depreciation schedule.
-Working Capital is 7 years.
-Debt refinancing will be structured using the collateral taken to secure the loan.
-Loans for multiple purposes can be structured with multiple notes or by using one note with a blended term based on the use of loan proceeds.  Example of blending term on a $5 million loan for multiple purposes:
% of total Ln
     40	$2,000,000 Machinery--useful life of 12 yrs
     30	$1,500,000 Working Capital (7 year max)
     30	$1,500,000 Debt Restructure (secured by R/E)
40 (%) X 12 (yrs) = 4.8 rnd to 5 years
30 (%) X 7 (yrs) = 2.1 rnd to 2 years
30 (%) X 30 (yrs) = 9 years
This calculation provides a maximum repayment term of 16 years for the loan.
-No balloon payments
RD INSTRUCTION 4279.126 (page 13)

## Applications

- Preapplication Determines:
- Applicant eligibility
- Project eligibility
- Application requirements
- Application

**Notes:**
Agency will use the preapplication to determine Applicant eligibility, Project eligibility, and to determine what is necessary for a complete application. Items such as level of environmental assessment, types of personal/corporate guarantees, and need for feasibility studies should be determined at this point.

The application, if complete, will be processed in 60 days including any National Office review. List of items required is listed in RD Instruction 4279.161.
Review Interim financing and how to request it.

## Lender Analysis

- The lender is primarily responsible for determining credit quality through
- a written credit and financial
- statement analysis.

**Notes:**
Written - addresses cash flow, collateral, industry, equity, lien priority, and management.  Must include spreadsheets of balance sheets and income statements, and proforma balance sheet at startup. They must be common-sized and compared to industry standards.
Spreads - Balance Sheet, Income Statement, AND Cash Flow Statements for past 3 years, proforma, and 2 years projected.  Ratios and comparisons with industry standards. If RMA does not report for the industry, research trade publications for comparison information. Common Sized

Experience indicates packagers don’t usually provide the level of quality needed.  They are salesman with a product.

RD INSTRUCTION 4279.131, Credit Quality Factors (Pages 13-15)
	           4279.161(b)(8) Contents of Written Analysis (Page 24)

AN 3880, 6.30.03

## Collateral

- Sound and sufficient to protect interests of the lender and Agency.
- Appropriately discounted.
- B&I Guarantee is not collateral.
- Cannot secure unguaranteed portion with additional collateral.

**Notes:**
Collateral is secondary source of repayment.
Normally, collateral must be sufficient to secure the loan after discounting. Loan may exceed discounted value if strong cash flow. Loan may never exceed appraised value.
Junior lien is acceptable however prior lien and guaranteed loan may not exceed the discounted value.
.Discount appropriately. Specialized collateral will require greater discounting. The lender’s analysis should use the bank’s standard discounting policy. Obtaining a guarantee should not change the normal discounting policies of the lender. 
Unconditional Personal and Corporate Guarantees for those owning greater than 20 percent of the borrower will be required.  Guarantees of parent, subsidiaries, or affiliated companies and secured guarantees may also be required.  While considered collateral, the value is not considered in determining the loan is adequately secured. AN 3801, 11.14.02 (Page 17)
Collateral is the same for guaranteed portion and unguaranteed portion.

RD INSTRUCTION 4279.131(b) (Page 14)

## Appraisals

- Qualified Appraiser.
- R/E appraisals must meet FIRREA and USPAP standards.
- Loan origination and servicing actions.

**Notes:**
Certified General Appraisers only.
Real Estate Appraisals must contain all three approaches to value (Cost Approach, Income Approach, and Sales Comparison).
Lenders should detail the requirements of the appraisal in the engagement letter.  And the letter should have a place for the appraiser to sign acknowledging the requirements. UL 09.25.03 
Appraisals will be completed by persons with demonstrated experience in completing appraisals for the industry or like industry. Closely review the qualifications of the appraiser.  For loans >$100,000 we strongly encourage the use of a State Certified General Appraiser. UL 09.25.03
Real Estate appraisals will be conducted in accordance with USPAP Standards I and II and consider the potential effects from a release or presence of hazardous substances or petroleum products or other environmental hazards on the market value of the collateral.
Chattel Appraisals - simpler and easier: 8 elements 1)existence; 2)ownership; 3)location; 4)number or amount; 5)condition; 6)value; 7)attachment; and 8)perfection.  UL 09.25.03  Appraiser must still exhibit experience with valuing similar M&E. AN 3798, 10.22.02
Business Enterprise Valuations are NOT appraisals.  They will not be accepted. Use appraisers market valuation.
Appraisals will have at a minimum an administrative review completed by the State Office. UL 09.25.03  (Page 17)

## Feasibility Study

- Economic
- Market
- Technical
- Financial
- Management

**Notes:**
A business plan versus  a feasibility study. 
Generally required for any new business, existing business w/o profitable history, existing business pursuing an independent operation, existing business entering new market or projecting a significant expansion of existing operations.  For any business, the agency can also require that only one certain aspect of a feasibility study be completed for any business (i.e., marketing)
The study should reach a conclusion as to the overall potential success of the business.  Industry experts will be used to review feasibility studies for completeness and fairness.
Prepared by an independent qualified professional with a resume to support experience.
Economy – Project site
Market - market and area, plans, competition, contracts
Technical – design and analysis of facilities or processes
Financial – qualified opinion
Management - evaluation

RD INSTRUCTION 4279.150 AND APPENDIX A.
AN 3825, 02.25.03 (Page 18 and Appendix A)

## Insurance

- Hazard
- Life
- Worker Compensation
- Flood
- Other

**Notes:**
Insurance is required.  Hazard insurance must be sufficient to avoid the borrower becoming a co-insurer in the event of a loss.  The Loan Agreement should contain the appropriate language.
Key person Life Insurance – required if key person is identified.

RD INSTRUCTION 4279.143 (Page 16)

## Equity

- Tangible Balance Sheet Equity -
- Financial statements.
- Minimum of 10 percent for existing businesses.
- Minimum of 20 percent for new businesses.
- Intangibles - goodwill, R&D, amortized loan costs, customer lists, etc.
- Appraisal surplus not allowed
- Subordinated debt is debt not equity.

**Notes:**
Minimum of 10 percent tangible balance sheet equity will be required for existing businesses at the time the Loan Note guarantee is issued.
20 percent on new businesses.
Current policy requires and to accurately calculate tangible balance sheet equity, financial statements should be prepared by a CPA in accordance with GAAP.
No appraisal surplus or subordinated debt.
Agency may require more based on industry or risk. Startups, hotels, motels tourist, recreational facilities and energy related businesses are identified as higher risk and will require higher equity.
Example of requiring more.    We will talk specifically about biobased manufacturing proposals later.

AN 3792, 10.17.02 (Page 14)

## Agency Analysis

- Moody’s Financial Analyst software
- State Loan Committee and National Office Executive Loan Committee
- Administrator Exceptions

**Notes:**

The Agency should provide the lender the response to the application review (committee decision) within 60 days from the time the Agency receives the COMPLETE application material.

The availability of Moody’s to the Agency does not lessen the lender’s requirement to provide a complete written analysis.

RD INSTRUCTION 4279.15, Administrator’s exception authority.  Some things cannot be waived or exceptions made.  Any rules involving statute (i.e, urban area designations, ineligible use of loan proceeds, etc.) 

Page 28

## Conditional Commitment

- Agency requirements.
- All conditions must be met.
- Don’t let it expire.

**Notes:**
Form 4279-3, Conditional Commitment (Business and Industry) with attachments is the Agency’s legal commitment to issue a guarantee when the stipulated conditions are met.

CCG outlines the credit structure to be guaranteed including, amount, use of proceeds, other funds, term/rate, loan agreement requirements, equity, collateral, guarantees, environmental mitigation, loan closing, and financial reporting.  Attachments to the CCG are not uniform in appearance by state but should include the same major items.  There should be no surprises.  State Offices should be working with you through the underwriting process and make you aware of any issues.  Requests for any changes or corrections MUST BE IN WRITING.  Agency concurrence or modification MUST BE IN WRITING.  

Accept Conditions and return the original form with original signatures within 60 days from the date of issuance. 

CCG are issued for a certain period of time; varies with type of project (i.e., construction, refinance, m&e.)   Mark your calendar and notify the servicing office 14 days prior to the expiration date for consideration of an extension.

## Planning and Performing Development

- Lender responsibilities include:
- Design policy
- Project control

**Notes:**
Lender is responsible for monitoring all Design issues and Project Control issues compliance with ADA and Civil Rights. We will not monitor but losses affiliated with lack of due diligence by the lender will not be covered by the LNG.
-Review plans and specs.
-Use accepted architecture and engineering.
-Conform with Federal, state, local codes.
-Monitor construction - cost overruns.
-Project completed with available funds.
-Loan Funds used for intended purposes in quantity and quality proposed.

The use of an independent professional may be necessary if it appears that is the only method to ensure the requirements are achieved.

(AN 3887, 07.30.03) (Page 21)
BREAK FOR QUESTIONS AND ANSWERS ON PROCESSING

## The Guarantee

- Comprehensive lender certification -
- No material adverse changes in borrower’s financial condition.
- All conditions of Conditional Commitment have been met - equity, insurance, personal guarantees, liens perfected, etc.
- Loan has been properly closed.
- Settlement Statement.
- Closing Balance Sheet.

**Notes:**
To request the guarantee, use the CCG as a checklist.  Ensure each item has been covered and appropriate documentation provided to the Agency.  Include the guarantee fee.
A Lender’s Agreement (Form 4279-4) must be signed by the lender prior to the LNG issuance.  1 Agreement for all guaranteed loans by the bank. YOU HAVE A COPY OF THE FORM IN THE FOLDER WE HANDED OUT THIS MORNING.  YOU MAY WANT TO GET IT OUT AS WE WILL REFER TO IT LATER IN THE PRESENTATION.
Lender Certification
The Closing Balance Sheet should be prepared by a CPA in accordance with GAAP so that the requirement of sufficient TBE can be met.
Loan Closing documents (note, security instruments, settlement statement, personal guarantees)
At loan closing, you should emphasize to the borrower the financial reporting requirements in order to remain in compliance with the loan agreement.
Typically, the LNG will be issued after the project (including the construction) has been completed, the facility is operational and producing at the projected capacity for 1 full operating cycle.  (Operating cycles differ by industry.  This will be determined on a case by case basis, as necessary.)
Pages 32-34

## Servicing

- Due Diligence
- Financial Statements
- Reporting

**Notes:**
RD INSTRUCTION 4287-B
The lender is responsible for servicing the entire loan and for taking all servicing actions that a prudent lender would perform in servicing its own portfolio of  loans that are not guaranteed.  Responsibilities include collecting payments, obtaining compliance with the loan covenants, obtaining and analyzing financial statements, monitoring payment of taxes and insurance and maintaining collateral position.
Lenders are responsible for classifying each loan and notifying the Agency of any change in classification.  Initial classification takes place within 90 days after the issuance of the LNG and every time it changes thereafter..
Lender must provide a written credit and financial analysis, including trends, strengths, weaknesses, and other indications of the condition of the borrower each year.  Copies of the analysis and financial statements should be provided to the Agency within 120 days of the borrower’s fiscal year end. 
Semi-annual loan status reporting is required.  Form 1980-41.

AN 3853, 4.19.03 (Page 2)

## Servicing

- Collateral inspections
- Agency visit
- Borrower visit

**Notes:**
4279-1, Part B, Application for Guarantee/Completed by Lender, item 11, Lender’s Servicing Plan.  This should be detailed.  The Agency will review lender’s actions in accordance with stated plan to determine prudent and diligent servicing.  Should at a minimum include:  
frequency of borrower inspections and identify items to be reviewed, 
frequency of financial statements, 
internal policy on frequency of credit reviews, etc.  
Inspecting collateral should be specifically addressed.  
The agency will visit the lender once a year, more often if the loan is non performing.  The agency will visit the borrower once every 3 years, more often if the loan is non performing. 
The lender’s loan file should include a record of all contact with the borrower including telephone conversations, site visits, covenant reviews, etc.  IT IS EXTREMELY IMPORTANT that the file reflect an ongoing and interactive relationship between the lender and borrower.  (This does not include “I eat lunch there everyday, or shop there once a week, etc.”)
Lender may consider pro-active actions such as working capital loans, etc.  However, Agency written concurrence is needed for subordinations, collateral releases and additional unguaranteed loans.

## Servicing

- Default
- estimated loss
- final report of loss
- Agency notification
- Plan to Cure
- Repurchase

**Notes:**
During this slide will be the general discussion and outline of the process including timeframes, if a borrower becomes delinquent or defaults on the loan in other ways.  Participants will have a 4279-4.
Default - The Lender will notify the Agency, in writing, when a borrower is 30 days past due on a payment or IF THE BORROWER IS OTHERWISE IN DEFAULT. 
 Read Lender’s Agreement. Lender will propose actions to cure default which may include: defer principal; short term loan; reamortization; T/A; reorg; liquidation 
If liquidating DO LIQUIDATION PLAN (PAGE 16). Agency must approve plan.
The lender will complete Form 1980-44, Default Status Report.
Termination of interest accrual, in accordance with bank’s policy, but usually within 90 days.
Identify process of holder demand, lender repurchase, agency repurchase, etc.
The Agency must concur in proposed servicing action prior to the lender taking action.
Estimated loss/repurchase.
Final Report of Loss

## Final Loss Claims

- Collateral
- lien position
- type/condition
- Use of Proceeds
- Review and compare actual disbursements to approved use of funds
- Planning and Performing Development
- construction monitoring
- performance bond insurance.

**Notes:**
ISSUES THAT HAVE AFFECTED LOSS CLAIMS
Collateral Issues
physical site inspections, NOT documented in loan docket
inventory control measures NOT followed, NO periodic inventory audit
value drastically reduced from the appraised value @ loan origination.  This has occurred within 1 year from loan origination.  
Use of Proceeds Inconsistencies
lender’s certification required to obtain LNG includes use of funds certification.  ACTUAL USE DIFFERENT than settlement statement.
View and document collateral purchased is the same as proposed.

Planning, Performing and Development Weaknesses
insufficient/weak construction monitoring file
no/weak evidence of contractor performance bond insurance.
The bank will want strong, sufficient documentation as support in bankruptcy cases. 

## Final Loss Claims

- Appraisals
- Qualifications
- Financial Statement Analysis
- Acting in a non-prudent manner may
- affect the final loss paid.

**Notes:**
ISSUES THAT AFFECT LOSS CLAIMS
The appraiser may not have experience in appraising similar real estate or equipment; therefore, the value assigned may be unsupported.  Remember earlier in the presentation the discussion regarding the appraisal requirements.  They apply to servicing as well as processing.  In a liquidation scenario, the lender will obtain an independent appraisal on all outstanding principal loan balances in excess of $200,000.  The lender is responsible for obtaining the maximum amount from liquidation.  An evaluation of the environmental condition of the collateral will be made in conjunction with the appraisal.  The evaluation includes completing the Transaction Screen Questionnaire (TSQ) to determine potential environmental contamination.
Lender not completing periodic financial analysis including narrative on trends and extraordinary circumstances, etc.
The final report of loss may be adjusted for the amount of negligent servicing that can be documented.
Lender will ned to compare collateral at time of loan to collateral avaialble at liquidation and explain the difference.

- RI 7.14

- CT

- MD

- VT

- NH

- PR 33.75

- VA 14.29

- WV
- 8.34

- NC 6.14

- SC 25

- TN 11.32

- OH 20

- IN
- 29.17

- MI 7.90

- PA 18.87

- GA
-  30.36

- AL
- 16.67

- MS
-  11.53

- FL
-  13.64

- LA

- IL
- 14.06

- MO 5.80

- IA

- WI 10.42

-  MN
-   5.80

- AR
-  25.71

- MT 3.30

- ND 6.98

- SD 7.70

- NE 4.55

- KS

- OK 7.69

- TX 22.32

- WY

- CO 1.96

- NM  10.34

- ID

- OR 9.52

-  CA  1.49

- NV 3.45

- UT 11.37

- AZ 9.38

- WA 3.45

- DE

- NJ 11.76

- VI

- B&I Portfolio Delinquency Status Excluding Bankruptcy As of September 30, 2002

- WP  25

- > 9  - 12 percent

- 1 - 3 percent

- > 3  –  6 percent

- > 6  –  9 percent

- AK 4.41

- HI  5.18

- KY 8.07

- 17.11

**States appearing in white have zero B&I Guaranteed Loan Program Delinquencies.**
**National Delinquency Average 10.29.**

- ME
- 8.33

- MA

- 6.06

- 7.69

- NY 8.14

- 3.70

- 5.0

- 9.09

- > 12 percent

**Notes:**
Preliminary numbers for fiscal year end 2003 indicate the National Delinquency rate has dropped to 8.4%.  This exceeded the goal established by the Department.

## Secondary Market

- Lenders are encouraged to utilize the secondary market and pass the interest-rate savings to the borrower.

**Notes:**
Sell all or part of guaranteed portion.
Retain 5% of loan - non-guaranteed portion.
Lender of record, responsible for all servicing actions.
Single note/multi-note options.
Premium/retain servicing fee.
Interest strip
Original Assignment Guarantee Agreement stays with guaranteed portion.
Regulations do not require the use of any particular transfer documents to reassign a guarantee loan from one holder to the next.  There are a couple of existing methods to ensure the reassignment is perfected.  The Bond Market Association has established procedures to reassign the guarantee documents (4279-6) from one holder to another holder.  Colson Services Corp. has entered into a MOA to act as a registrar and paying agent for guaranteed portions sold on the secondary market.

AN 3843, 04.24.03

## Program Audit

- Farm Credit Administration
- Office of Inspector General

**Notes:**
Discussion of common deficiencies found in FCA Reports of Examination of certain “non traditional lenders”/states.  Will not discuss specific bank or state.

OIG - Nationwide Audit results.

Topics addressed will include:
insufficient documentation to support selection of appraiser or appraised value.
Insufficient documentation that transactions are “arms-length”
financial statements that do not meet Agency requirements
collateral purchased is not same as proposed.  Values not substantiated at loan origination. Collateral isn’t there at liquidation.
incorrect/not up-to-date classification of assets/loan.
Insufficient “checks and balances” with the bank institution.  Loan officers untrained or unfamiliar with B&I program requirements. New officers should review 4279-4, Lender’s Agreement.  Outlines all major responsibilities of the lender in performing due diligence to protect the integrity of the LNG.
Insufficient PPD documentation. No construction monitoring file; pay requests not reviewed before funds are released.  

## Initiatives

- Recent
- Future

**Notes:**

AN establishing specific underwriting guidelines for Biobased Manufacturing proposals.  (AN 3882, 7.11.03).  Review some of the specific criteria if time remaining.
Recent issue:  Real estate (project location) must have dedicated street access and/or a recorded right-of-way to the site.    The lender is responsible for ensuring the legal access to the project site prior to loan approval.  UL 09.29.03
MOA with Colson Services as a transfer agent for selling guaranteed portion of the loan. Proposed rule of establishing a  fiscal transfer agent was published and the comment period has expired.  There were lots of comments and each one has to be addressed before the final rule can be published.
B&I Loanpack  not XP environment compatible.  Working on it.

## 

Debi Raygor
USDA, Rural Business-Cooperative Service
1400 Independence Ave., SW, STOP 3224
Washington, DC  20250-3224
debi.raygor@usda.gov	(202) 205-0894
John Guthmiller, Program Director
USDA, Rural Business-Cooperative Service
PO Box 850
Bozeman, MT  59771
john.guthmiller@mt.usda.gov  (406) 585-2540

- Debi Raygor
- USDA, Rural Business-Cooperative Service
- 1400 Independence Ave., SW, STOP 3224
- Washington, DC  20250-3224
- debi.raygor@usda.gov	(202) 205-0894
- John Guthmiller, Program Director
- USDA, Rural Business-Cooperative Service
- PO Box 850
- Bozeman, MT  59771
- john.guthmiller@mt.usda.gov  (406) 585-2540

**Notes:**
Encourage completion of evaluation.