13770 Federal Register / Vol. 76, No. 49 / Monday, March 14, 2011 / Rules and Regulations 

DEPARTMENT OF AGRICULTURE 

Rural Utilities Service 

7 CFR Part 1738 

RIN 0572–AC06 

Rural Broadband Access Loans and 

Loan Guarantees 

AGENCY: Rural Utilities Service, USDA. 

ACTION: Interim rule. 

SUMMARY: The Rural Utilities Service, an 

agency delivering the United States 

Department of Agriculture’s (USDA’s) 

Rural Development Utilities Programs, 

hereinafter referred to as the Agency, is 

amending its regulation for the Rural 

Broadband Access Loan and Loan 

Guarantee Program (Broadband Loan 

Program). Since the Broadband Loan 

Program’s inception in 2002, the Agency 

has faced and continues to face 

significant challenges in delivering the 

program due to the following factors: 

The competitive nature of the 

broadband market in certain geographic 

areas; the significant number of 

companies proposing to offer broadband 

service that are start-up organizations 

with limited resources; continually 

evolving technology; and economic 

factors such as the higher cost of serving 

rural communities. In addition, the 

Office of Inspector General, in a 2005 

report, made recommendations to 

improve program efficiency. For these 

reasons and in an effort to improve 

program operation, the Agency 

published proposed changes to the 

program’s regulation in the Federal 

Register on May 11, 2007. While the 

Agency was reviewing public comments 

and revising the rule, the Food, 

Conservation, and Energy Act of 2008 

(2008 Farm Bill) was enacted and 

changed the statute under which the 

program operates. In accordance with 

the statute and taking into account the 

public comments received regarding the 

proposed rule to the extent possible, 

this interim rule presents the 

regulations that will govern the program 

until a final rule is published. The 

Agency is seeking comments regarding 

this interim rule to guide its efforts in 

drafting the final rule for the Broadband 

Loan Program. 

DATES: This rule is effective on March 

14, 2011. Comments must be submitted 

on or before May 13, 2011. 

ADDRESSES: Submit comments by either 

of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov and in the 

‘‘Search Documents’’ box, enter RUS– 

06–Agency–0052, and select ‘‘Submit.’’ 

To submit a comment, choose ‘‘Send a 

comment or submission,’’ under the 

Docket Title. In order to submit your 

comment, the information requested on 

the ‘‘Public Comment and Submission 

Form’’ must be completed. Information 

on using Regulations.gov, including 

instructions for accessing documents, 

submitting comments, and viewing the 

docket after the close of the comment 

period, is available through the site’s 

‘‘How to Use this Site’’ link. 

• Postal Mail/Commercial Delivery: 

Please send your comment addressed to 

Michele Brooks, Director, Program 

Development and Regulatory Analysis, 

USDA Rural Development, 1400 

Independence Avenue, STOP 1522, 

Room 5159, Washington, DC 20250– 

1522. Please state that your comment 

refers to Docket No. RUS–06–Agency– 

0052. 

Additional information about the 

Agency and its programs is available on 

the Internet at http:// 

www.rurdev.usda.gov/index.html. 

FOR FURTHER INFORMATION CONTACT: 

David Villano, Assistant Administrator, 

Telecommunications Program, Rural 

Development, U.S. Department of 

Agriculture, 1400 Independence 

Avenue, SW., STOP 1590, Room 5151– 

S, Washington, DC 20250–1590. 

Telephone number: (202) 720–9554, 

Facsimile: (202) 720–0810. 

SUPPLEMENTARY INFORMATION: 

Executive Order 12866 

This rule has been determined to be 

economically significant and was 

reviewed by the Office of Management 

and Budget under Executive Order 

12866. In accordance with Executive 

Order 12866, an Economic Impact 

Analysis was completed, outlining the 

costs and benefits of implementing this 

program in rural America. The complete 

analysis is available from the Agency 

upon request. The following is the 

discussion of the Economic Benefits 

section of the Analysis 

Economic Benefits of Broadband 

Deployment in Rural Areas 

Bringing broadband services to rural 

areas does present some challenges. 

Because rural systems must contend 

with lower household density than 

urban systems, the cost to deploy fiberto-the-home (FTTH) and digital 

subscriber line (DSL) systems in urban 

communities is considerably lower on a 

per household basis, making urban 

systems more economical to construct. 

Other associated rural issues, such as 

environmental challenges or providing 

wireless service through mountainous 

areas, also can add to the cost of 

deployment. A recent analysis by 

USDA’s Economic Research Service 

concluded that broadband investment in 

rural areas yields significant economic 

and socio-economic gains: 

Analysis suggests that rural 

economies benefit generally from 

broadband availability. In comparing 

counties that had broadband access 

relatively early (by 2000) with similarly 

situated counties that had little or no 

broadband access as of 2000, 

employment growth was higher and 

nonfarm private earnings greater in 

counties with a longer history of 

broadband availability. By 2007, most 

households (82 percent) with in-home 

Internet access had a broadband 

connection. A marked difference exists, 

however, between urban and rural 

broadband use—only 70 percent of rural 

households with in-home Internet 

access had a broadband connection in 

2007, compared with 84 percent of 

urban households. The rural-urban 

difference in in-home broadband 

adoption among households with 

similar income levels reflects the more 

limited availability of broadband in 

rural settings. 

Areas with low population size, 

locations that have experienced 

persistent population loss and an aging 

population, or places where population 

is widely dispersed over demanding 

terrain generally have difficulty 

attracting broadband service providers. 

These characteristics can make the fixed 

cost of providing broadband access too 

high, or limit potential demand, thus 

depressing the profitability of providing 

service. Clusters of lower service exist 

in sparsely populated areas, such as the 

Dakotas, eastern Montana, northern 

Minnesota, and eastern Oregon. Other 

low-service areas, such as the MissouriIowa border and Appalachia, have aging 

and declining numbers of residents. 

Nonetheless, rural areas in some States 

(such as Nebraska, Kansas, and 

Vermont) have higher-than expected 

broadband service, given their 

population characteristics, suggesting 

that policy, economic, and social factors 

can overcome common barriers to 

broadband expansion. 

In general, rural America has shared 

in the growth of the Internet economy. 

Online course offerings for students in 

primary, secondary, post-secondary, and 

continuing education programs have 

improved educational opportunities, 

especially in small, isolated rural areas. 

And interaction among students, 

parents, teachers, and school 

administrators has been enhanced via 

online forums, which is especially 

significant given the importance of 


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Federal Register / Vol. 76, No. 49 / Monday, March 14, 2011 / Rules and Regulations 13771 

1Broadband Internet’s Value for Rural America, 

Peter Stenberg, Mitch Morehart, Stephen Vogel, 

John Cromartie, Vince Breneman, and Dennis 

Brown. 

ongoing parental involvement in 

children’s education. 

Telemedicine and telehealth have 

been hailed as vital to health care 

provision in rural communities, 

whether simply improving the 

perception of locally provided health 

care quality or expanding the menu of 

medical services. More accessible health 

information, products, and services 

confer real economic benefits on rural 

communities: reducing transportation 

time and expenses, treating emergencies 

more effectively, reducing time missed 

at work, increasing local lab and 

pharmacy work, and savings to health 

facilities from outsourcing specialized 

medical procedures. One study of 24 

rural hospitals placed the annual cost of 

not having telemedicine at $370,000 per 

hospital. (See http://www.ers.usda.gov/ 

Publications/ERR78/ERR78.pdf, at pages 

iv and 24.) 

Most employment growth in the U.S. 

over the last several decades has been in 

the service sector, a sector especially 

conducive for broadband applications. 

Broadband allows rural areas to 

compete for low- and high-end service 

jobs, from call centers to software 

development, but does not guarantee 

that rural communities will get them. 

Rural businesses have been adopting 

more e-commerce and Internet 

practices, improving efficiency and 

expanding market reach. Some rural 

retailers use the Internet to satisfy 

supplier requirements. The farm sector, 

a pioneer in rural Internet use, is 

increasingly comprised of farm 

businesses that purchase inputs and 

make sales online. Farm household 

characteristics such as age, education, 

presence of children, and household 

income are significant factors in 

adopting broadband Internet use, 

whereas distance from urban centers 

was not a factor. Larger farm businesses 

are more apt to use broadband in 

managing their operation; the more 

multifaceted the farm business, the 

more the farm used the Internet.1

An analysis based on approximately 

$1.8 billion in approved loans in the 

Farm Bill Broadband Program (based on 

multiple technology platforms) yielded 

the following results (numbers have 

been rounded): 

• Number of communities funded: 

2,800. 

• Average cost per community: 

$640,000. 

• Total subscribers: 1.3 million. 

Most recently, the agency has concluded 

funding the American Recovery and 

Reinvestment Act (Recovery Act) 

Broadband Initiatives Program (BIP) that 

financed the same types of facilities and 

entities that are funded under this Farm 

Bill program. 

As noted in the ERS study, rural areas 

with dispersed populations or 

demanding terrain generally have 

difficulty attracting broadband service 

providers because the fixed cost of 

delivering broadband service can be too 

high. Yet broadband is a key to 

economic growth. For rural businesses, 

broadband gives access to national and 

international markets and enables new, 

small, and home-based businesses to 

thrive. Broadband access affords rural 

residents the connectivity they need to 

obtain healthcare, education, financial, 

and many other essential goods and 

services. 

The Recovery Act authorized RUS to 

issue loans and grants to projects that 

extend broadband service to unserved 

and underserved rural areas. The 

funding provided by the Recovery Act is 

increasing the availability of broadband 

and stimulating both short- and longterm economic progress. RUS BIP 

completed two funding rounds, making 

a significant investment in projects that 

will enhance broadband infrastructure 

in scores of rural communities. This 

represents a critical investment, 

designed to rebuild and revitalize rural 

communities. Without this funding, 

many communities could not cover the 

costs of providing broadband service to 

homes, schools, libraries, healthcare 

providers, colleges, and other anchor 

institutions. 

RUS awarded $3.4 billion to 297 

recipients in 45 States and 1 U.S. 

territory for infrastructure projects. 

Eighty-nine percent of the awards and 

92 percent of the total dollars awarded 

are for 285 last-mile projects ($3.25 

billion), which will provide broadband 

service to households and other end 

users. Four percent of the awards and 

five percent of the total dollars awarded 

are for 12 middle-mile projects ($173 

million) that will provide necessary 

backbone services such as interoffice 

transport, backhaul, Internet 

connectivity, or special access to rural 

areas. The projects funded will bring 

broadband service to 2.8 million 

households, reaching nearly 7 million 

people, 364,000 businesses, and 32,000 

anchor institutions across more than 

300,000 square miles. These projects 

also overlap with 31 tribal lands and 

124 persistent poverty counties, 

traditionally the most costly to serve 

areas. 

Catalog of Federal Domestic Assistance 

The Catalog of Federal Domestic 

Assistance (CFDA) number assigned to 

this program is 10.886, Rural Broadband 

Access Loans and Loan Guarantees. The 

Catalog is available on the Internet and 

the General Services Administration’s 

(GSA’s) free CFDA Web site at http:// 

www.cfda.gov. The CFDA Web site also 

contains a PDF file version of the 

Catalog that, when printed, has the same 

layout as the printed document that the 

Government Printing Office (GPO) 

provides. GPO prints and sells the 

CFDA 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 http:// 

bookstore.gpo.gov. 

Executive Order 12372 

This rule is excluded from the scope 

of Executive Order 12372, 

Intergovernmental Consultation, which 

may require a consultation with State 

and local officials. See the final rule 

related notice entitled, ‘‘Department 

Programs and Activities Excluded From 

Executive Order 12372’’ (50 FR 47034). 

Information Collection and 

Recordkeeping Requirements 

In accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

chapter 35, as amended), the Rural 

Utilities Service, an agency delivering 

the U.S. Department of Agriculture 

(USDA) Rural Development Utilities 

Programs, invites comments on this 

information collection for which 

approval from the Office of Management 

and Budget (OMB) will be requested. 

Comments on this notice must be 

received by May 13, 2011. 

Comments are invited on (a) whether 

the collection of information is 

necessary for the proper performance of 

the functions of the agency, including 

whether the information will have 

practical utility; (b) the accuracy of the 

agency’s estimate of burden including 

the validity of the methodology and 

assumption used; (c) ways to enhance 

the quality, utility and clarity of the 

information to be collected; and (d) 

ways to minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques on 

other forms of information technology. 

Title: 7 CFR 1738, Rural Broadband 

Loan and Loan Guarantee Program. 

OMB Control Number: 0572–0130. 


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13772 Federal Register / Vol. 76, No. 49 / Monday, March 14, 2011 / Rules and Regulations 

Type of Request: Revision of a 

currently approved information 

collection package. 

Abstract: USDA Rural Development, 

through the Rural Utilities Service, is 

authorized by Title VI, Rural Broadband 

Access, of the Rural Electrification Act 

of 1936, as amended (RE Act), to 

provide loans and loan guarantees to 

fund the cost of construction, 

improvement, or acquisition of facilities 

and equipment for the provision of 

broadband service in eligible rural 

communities in States and Territories of 

the United States. In conjunction with 

this Interim Rulemaking, RUS is 

submitting a revised information 

collection package to OMB as required 

by the Paperwork Reduction Act of 

1995, which will include revisions 

authorized by the 2008 Farm Bill. The 

information collection package for 7 

CFR part 1738 includes estimated 

burden related to the application 

process for the Rural Broadband Loan 

and Loan Guarantee Program. Since the 

inception of the program in 2003, the 

agency has tried to accurately determine 

the burden to respondents applying for 

a Rural Broadband Loan including 

soliciting comments from the public. 

The items covered by this collection 

include forms and related 

documentation to support a loan 

application, including Form 532 and its 

supporting schedules. 

The 2008 Farm Bill provided that the 

agency take steps to reduce, to the 

maximum extent practicable, the cost 

and paperwork associated with applying 

for a Broadband loan. The information 

required to process an application is the 

minimum amount of information 

necessary to fulfill the statutory 

requirements for ensuring that loans 

made under this Act are technically and 

financially feasible and are capable of 

being repaid in full, as required. 

Notwithstanding that requirement, the 

agency has taken significant actions to 

reduce, to the extent practicable, the 

cost and paperwork associated with 

applying for a loan for all applicants, 

including first time applicants and startup applicants. Specifically, the agency 

has: 

(1) Automated its mapping 

requirements for identifying proposed 

service territories; 

(2) Created an online ‘‘public notice’’ 

process; 

(3) Reduced the Market Survey 

requirements for certain proposals; 

(4) Reduced the Equity Contribution 

requirements; and 

(5) Identified most areas that are not 

eligible for financing. 

Each of these is discussed in more 

detail, as follows: 

Automated Mapping: Previously, 

applicants were required to submit 

‘‘hard copies’’ of their proposed funded 

service areas. This was laborious, costly 

in some instances, and prone to 

inaccuracies. Under the new rule, 

applicants will be able to submit their 

proposed funded service territory online 

though an automated mapping tool 

created by the agency, saving time and 

money. In addition, any changes to the 

proposed service areas can be readily 

made without the creation of new 

‘‘paper’’ maps. 

Online Public Notice: Previously, 

applicants were required to publish in 

the local newspaper in each jurisdiction 

their intent to provide service to that 

area. This requirement proved costly 

and burdensome, particularly for new or 

start-up entities. Under the new rule, 

applicants will be able to post their 

notice(s) of intent to provide service 

online, saving time and significant 

expense. 

Market Survey Requirement: In its 

proposed rule published in 2007, the 

agency proposed not to require market 

surveys from applicants that were 

proposing to obtain a market 

penetration of 20 percent or less. The 

2008 Farm Bill adopted this concept 

and provides authority to require a 

market survey if the applicant proposes 

a market penetration rate of over 20 

percent. This requirement will greatly 

reduce the burden and expenditure, 

particularly for small start-ups and new 

market entrants. 

Equity Contribution Requirement: 

Similar to the Market Survey 

requirement noted above, the agency’s 

2007 proposed rule sought to reduce the 

level of up front equity contributions 

from the current 20 percent requirement 

to 15 percent. Again, the 2008 Farm Bill 

adopted this concept and reduced the 

minimum equity contribution to 10 

percent. All applicants must 

demonstrate this minimum requirement 

at the time they submit their 

application. 

Addition Cash Requirement: In 

addition to the 10 percent minimum 

equity requirement, the Agency is also 

implementing a procedure to analyze 

the submitted business plan to 

determine if an equity position greater 

than 10 percent will be required to 

sustain the operation. If the analysis 

demonstrates that additional cash will 

be required to sustain the operation, the 

applicant must agree to provide the 

additional capital and demonstrate their 

ability to do so prior to loan approval. 

Indentifying Ineligible Areas: The 

agency has created several online tools 

for indentifying areas that are not 

eligible for new financing because they 

have already received agency funds. In 

addition, through an online mapping 

tool, potential applicants can determine 

if the area they wish to serve meets the 

eligibility requirements of a ‘‘rural area’’ 

as defined by the statute. This will save 

time in identifying areas that are eligible 

for financing and prevent wasted time 

spent applying for areas that are not 

eligible. 

The agency seeks comments on its 

estimate of burden related to the 

application process for the Rural 

Broadband Program and welcomes 

comments related to further reducing 

application paperwork and costs. 

Specifically comments should address 

the estimation of hour and cost burden 

associated with each component of 

Form 532. Burden on respondents is 

considered the time, effort, and 

financial resources expended to 

generate, maintain, retain, disclose, or 

provide information to or for a Federal 

Agency. The agency is also interested in 

determining the information that 

Broadband applicants would have on 

hand in a format that could be readily 

provided for the loan application and 

which items would be prepared by 

parties outside the applicant’s 

organization. Comments may be sent to 

Michele Brooks, Director, Program 

Development and Regulatory Analysis, 

Rural Development, U.S. Department of 

Agriculture, 1400 Independence Ave., 

SW., Stop 1522, Room 5159 South 

Building, Washington, DC 20250–1522 

or via e-mail to: 

michele.brooks@usda.gov. 

Estimate of Burden: Public reporting 

for this collection of information is 

estimated to average 89 hours per 

response. 

Respondents: Businesses and Not-forprofit institutions. 

Estimated Number of Respondents: 

75. 

Estimated Number of Responses per 

Respondent: 3. 

Estimated Total Annual Burden on 

Respondents: 10,545 hours. 

Copies of this information collection 

can be obtained from Michele Brooks, 

Program Development and Regulatory 

Analysis, at (202) 690–1078. 

All responses to this information 

collection and recordkeeping notice will 

be summarized and included in the 

request for OMB approval. All 

comments will also become a matter of 

public record. 

National Environmental Policy Act 

Certification 

The Administrator has determined 

that this rule will not significantly affect 

the quality of the human environment 

as defined by the National 


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Federal Register / Vol. 76, No. 49 / Monday, March 14, 2011 / Rules and Regulations 13773 

Environmental Policy Act of 1969 (42 

U.S.C. 4321 et seq.). Therefore, this 

action does not require an 

environmental impact statement or 

assessment. 

Regulatory Flexibility Act Certification 

It has been determined that the 

Regulatory Flexibility Act is not 

applicable to this rule because the 

Agency is not required by 5 U.S.C. 551 

et seq. or any other provision of law to 

publish a notice of proposed rulemaking 

with respect to the subject matter of this 

rule. 

Executive Order 12988 

This rule has been reviewed under 

Executive Order 12988, Civil Justice 

Reform. The Agency has determined 

that this rule meets the applicable 

standards provided in section 3 of the 

Executive Order. In addition, all state 

and local laws and regulations that are 

in conflict with this rule will be 

preempted, no retroactive effort will be 

given to this rule, and, in accordance 

with Sec. 212(e) of the Department of 

Agriculture Reorganization Act of 1994 

(7 U.S.C. 6912(e)), administrative appeal 

procedures, if any, must be exhausted 

before an action against the Department 

or its agencies may be initiated. 

Unfunded Mandates 

This rule contains no Federal 

mandates (under the regulatory 

provisions of Title II of the Unfunded 

Mandates Reform Act of 1995) for State, 

local, and tribal governments for the 

private sector. Thus, this rule is not 

subject to the requirements of section 

202 and 205 of the Unfunded Mandates 

Reform Act of 1995. 

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 rule 

impose substantial direct compliance 

costs on state and local governments. 

Therefore, consultation with the states 

is not required. 

Executive Order 13175, Consultation 

and Coordination With Indian Tribal 

Governments 

USDA has undertaken a series of 

regulation Tribal consultation sessions 

to gain input by Tribal officials 

concerning the impact of this rule on 

Tribal governments, communities, and 

individuals. These sessions will 

establish a baseline of consultation for 

future actions, should any become 

necessary, regarding this rule. Reports 

from these sessions for consultation will 

be made part of the USDA annual 

reporting on Tribal Consultation and 

Collaboration. USDA will respond in a 

timely and meaningful manner to all 

Tribal government requests for 

consultation concerning this rule and 

will provide additional venues, such as 

webinars and teleconferences, to 

periodically host collaborative 

conversations with Tribal leaders and 

their representatives concerning ways to 

improve this rule in Indian country. 

E-Government Act Compliance 

The Agency is committed to the EGovernment Act, which requires 

Government agencies in general to 

provide the public the option of 

submitting information or transacting 

business electronically to the maximum 

extent possible. 

Implementation Guidelines 

Applications that were submitted 

after the Farm Bill was enacted (June 18, 

2008) have not been processed pending 

publication of this Interim Rule. These 

applications will be reviewed in 

accordance with subpart E of part 1738, 

and information about any deficiencies 

and the time frame allowed for 

addressing them will be communicated 

to the applicants in writing. 

Background 

A. Introduction 

The Agency improves the quality of 

life in rural America by providing 

investment capital for deployment of 

rural telecommunications infrastructure. 

Financial assistance is provided to rural 

utilities; municipalities; commercial 

corporations; limited liability 

companies; public utility districts; 

Indian tribes; and cooperative, 

nonprofit, limited-dividend, or mutual 

associations. In order to achieve the goal 

of increasing economic opportunity in 

rural America, the Agency finances 

infrastructure that enables access to a 

seamless, nationwide 

telecommunications network. With 

access to the same advanced 

telecommunications networks as its 

urban counterparts, especially 

broadband networks designed to 

accommodate distance learning, 

telework, and telemedicine, rural 

America will eventually see improving 

educational opportunities, health care, 

economies, safety and security, and 

ultimately higher employment. The 

Agency shares the assessment of 

Congress, State and local officials, 

industry representatives, and rural 

residents that broadband service is a 

critical component to the future of rural 

America. The Agency is committed to 

ensuring that rural America will have 

access to affordable, reliable, broadband 

services and to provide a healthy, safe, 

and prosperous place to live and work. 

B. Regulatory History 

On May 13, 2002, the Farm Security 

and Rural Investment Act of 2002, 

Public Law 107–171 (2002 Farm Bill) 

was signed into law. The 2002 Farm Bill 

amended the Rural Electrification Act of 

1936 to include Title VI, the Rural 

Broadband Access Loan and Loan 

Guarantee Program (Broadband Loan 

Program), to be administered by the 

Agency. Title VI authorized the Agency 

to approve loans and loan guarantees for 

the costs of construction, improvement, 

and acquisition of facilities and 

equipment for broadband service in 

eligible rural communities. Under the 

2002 Farm Bill, the Agency was directed 

to promulgate regulations without 

public comment. Implementing the 

program required a different lending 

approach for the Agency than it 

employed in its earlier telephone 

program because of the unregulated, 

highly competitive, and technologically 

diverse nature of the broadband market. 

Those regulations were published on 

January 30, 2003. 

In an attempt to enhance the 

Broadband Loan Program and to 

acknowledge growing criticism of 

funding competitive areas, the Agency 

proposed to amend the program’s 

regulations on May 11, 2007 at 72 FR 

26742 to make eligibility of certain 

service areas more restrictive than set 

out in the 2002 Farm Bill. In addition 

to eligibility changes, the proposed rule 

included, among others, changes to 

persistent problems the Agency had 

encountered while implementing the 

program over the years, especially 

regarding equity requirements, the 

market survey, and the legal notice 

requirements. As the Agency began 

analysis of the public comments it 

received on the proposed regulations, 

the Food, Conservation, and Energy Act 

of 2008, more commonly known as the 

2008 Farm Bill, was working its way 

through Congress. The proposed rule 

and key aspects of the public comments 

were shared with Congress during its 

deliberations, and the majority of the 

proposed changes in the proposed rule 

were incorporated into the legislation, 

with and without modification. For 

instance, the proposed rule lowered the 

equity requirement from 20 percent of 

the loan value to 10 percent. Congress 

enacted that change. 

Other changes the Congress 

incorporated were several new 


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restrictions not found in the 2002 Farm 

Bill. These were in response to growing 

public criticism of federally funded 

competition. First, funding is restricted 

in areas that contained 3 or more 

incumbent service providers, which is 

defined as serving not less than 5 

percent of the proposed service area. 

Second, a requirement was added that at 

least 25 percent of the proposed service 

area not have access to more than one 

incumbent service provider. And third, 

for incumbent service providers that 

were merely upgrading the quality of 

broadband service in their existing 

service territory, the prior restrictions 

on competition would be waived. 

In response to the growing national 

debate on what was rural, the 2008 

Farm Bill relaxed the restriction to 

permit urbanized areas that were not 

adjacent and contiguous to areas with a 

population of more than 50,000 

inhabitants. And lastly, the 2008 Farm 

Bill incorporated the concept of not 

requiring market studies for applicants 

that relied on a penetration rate of less 

than 20 percent for the loan to be 

feasible. 

In the public interest of having a 

Broadband Program in place to quickly 

address the needs of the hundreds of 

applications that were not funded under 

the Recovery Act, and in light of the fact 

that the great majority of changes herein 

are mandated by the 2008 Farm Bill, or 

have been proposed in the Agency’s 

prior rule, put out for comment, and 

subsequently adopted by Congress in 

the 2008 Farm Bill itself, the Agency is 

moving forward with certain changes to 

the Broadband Loan Program by 

publishing an interim rule. The Agency 

also believes that this approach is 

consistent with Congressional intent, 

given that in section 6110(b) of the 2008 

Farm Bill, Congress authorized the 

Agency to publish these regulations in 

an interim rule. Notwithstanding the 

public interest and specific authority 

previously discussed, the Agency is 

seeking comment from the public, 

which will ultimately be incorporated 

into a final rule. Specifically, the 

Agency seeks comment on priority of 

applications, application requirements, 

the method of determining which 

applicants could be eligible for 4 

percent interest rates, the notice 

requirement, and processing. In 

addition, the Agency is seeking 

comment for future changes to its 

Broadband Program based on ‘‘lessons 

learned’’ from the recently concluded 

Broadband Initiatives Program under 

the Recovery Act. The Agency believes 

that public comment on these issues 

will help the Agency make future 

adjustments to the Broadband Program 

to make it more responsive to the needs 

of rural America. One lesson that the 

Agency has already learned to date is 

that the broadband industry is dynamic 

and that the Broadband Program will 

need to continue to evolve to be 

responsive to the needs of the industry. 

The Agency urges all interested 

parties to provide comments via the 

Internet or postal mail. Please see 

instructions on how to do so in the 

ADDRESSES section of this document. 

Existing location in 2003 

final regulation 

New location in 2009 

interim rule Action taken Content change 

Subpart A—General: 

§ 1738.1 General 

Statement.

1738.1 ................................ Modified ............................. Revised paragraph (a) to include purpose of loan. Deleted existing paragraphs (b) and (c). Added new 

paragraph (b) with reference to Agency’s Web site. 

§ 1738.2 Definitions .... 1738.2 ................................ Modified ............................. Because they are not used in the interim rule, the 

Agency removed the following definitions: 

Broadband pilot. 

Eligible rural community. 

Initial loan. 

Interim construction. 

Loan funds. 

Mortgage. 

Private loan guarantee. 

Release of funds. 

RUS. 

RUS telecommunications borrower. 

The Agency added the following definitions to clarify 

existing regulations and support rule modifications: 

Advance. 

Agency. 

Arm’s length transaction. 

Broadband borrower. 

Broadband lending speed. 

Broadband loan. 

Build-out. 

Competitive analysis. 

Cost share. 

Customer premise equipment (CPE). 

Derivative. 

Equity. 

Financial feasibility. 

Guaranteed amount debt derivative. 

Guaranteed amount equity derivative. 

Guaranteed amount equivalent. 

Guaranteed loan amount. 

Guaranteed loan note. 

Guaranteed loan portion. 

Guaranteed loan portion amount. 

Guaranteed loan portion note. 

Incumbent service provider. 

Indefeasible right to use agreement. 

Loan guarantee. 


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Existing location in 2003 

final regulation 

New location in 2009 

interim rule Action taken Content change 

Loan guarantee documents. 

Loan funds. 

Market survey. 

Pre-loan expense. 

Funded service area. 

Reject. 

Reseller. 

Rural area. 

Security documents. 

Service level objectives (SLOs). 

Service provider. 

Service territory. 

Start-up. 

System of accounts. 

Telecommunications loan. 

Underserved household or Underserved area. 

Unguaranteed amount equivalent. 

Unguaranteed loan amount. 

Unguaranteed loan portion amount. 

Subpart B—Loan Purposes 

and Basic Policies: 

§ 1738.10 General ...... 1738.1(a) ........................... Modified/relocated ............. Language regarding purpose, paragraph (a), was 

merged with language in 1738.1(a). 

1738.51(f) .......................... Modified/relocated ............. Refinancing language in (b) was modified and moved. 

1738.153 ............................ Relocated .......................... Language in (c) has been moved to § 1738.153(d). 

1738.206 ............................ Relocated .......................... Language in (d) has been moved to § 1738.206— 

Evaluation for feasibility. 

§ 1738.11 Availability 

of broadband service.

1738.204 ............................ Modified/relocated ............. Public notice language moved to § 1738.204. 

1738.203 ............................ Modified/relocated ............. Paragraphs (a) and (b) incorporated into prioritization 

scheme presented in § 1738.203. 

§ 1738.12 Location of 

facilities.

1738.51 .............................. Modified/relocated ............. Location of facilities now addressed in § 1738.51(a). 

§ 1738.13 Allocation of 

funds.

1738.203 ............................ Modified/relocated ............. Moved to § 1738.203(c)—Priority for processing loan 

applications and streamlined to reference the statute. 

§ 1738.14 One-time priority 

for unfunded applications 

from the broadband pilot 

program.

Deleted .............................. Deleted .............................. No longer relevant. 

§ 1738.15 Priorities .... 1738.203 ............................ Modified/relocated ............. Incorporated into prioritization scheme presented in 

§ 1738.203. 

§ 1738.16 Eligible entities.1738.101 ............................ Modified/relocated ............. Moved language regarding types of eligible entities to 

1738.101(a). 

§ 1738.17 Civil rights .. 1738.156 ............................ Relocated .......................... Moved language to new section that lists all applicable 

Federal requirements. 

§ 1738.18 Minimum 

and maximum loan 

amounts.

1738.151 ............................ Relocated .......................... Moved to 1738.151(b) and (c). 

§ 1738.19 Facilities financed.1738.51 .............................. Modified/relocated ............. 1738.51 Eligible loan purposes replaces paragraphs 

(a) through (d) in previous rule. 

1738.51(b)—new language regarding start-up and 

overhead costs is a further clarification that these 

costs are eligible for financing. 

1738.51(c)—new language (replacing old 1738.19(b)) 

limiting the cost of the capital lease for the first 5 

years of the loan amortization period. 

1738.22(d)—new language clarifies Agency practices 

regarding 1738.19(c) in the previous rule. 

1738.51(e)—new language regarding pre-loan expenses. 


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Existing location in 2003 

final regulation 

New location in 2009 

interim rule Action taken Content change 

1738.52 .............................. Modified/relocated ............. 1738.52 Ineligible loan purposes replaces paragraphs 

(e)—(f) in previous rule. This includes modified language regarding financing of CPE equipment; applicants often sell the CPE rather than lease it to the 

end-user. The original intent was that this equipment would be used as collateral; however, because CPE is often physically out of the control of 

the applicant and because the value of end-user 

equipment depreciates quickly, we have determined 

that other arrangements offer the Agency a similar 

level of security, while offering the applicant more 

flexibility under our rules. Paragraph (g) from previous rule deleted as it referenced actions taken 

prior to October 2004. The issues addressed in 

paragraph (h) from the previous rule is addressed in 

1783.102 (Eligible Service Area). 

Paragraph (i) from the previous rule deleted, as the 

loan review process is expected to address this type 

of concern. 

§ 1738.20 Credit support requirement.1738.207 & 208 ................. Modified/relocated ............. Now called Equity requirement and Additional cash requirement. Applicants must have equity equal to 

10% of the loan amount. 

Added clarification on the use of letters of credit and 

bonds to meet equity requirements. 

Modified cash requirement language so that cash requirements are considered at time of feasibility determination rather than for eligibility. 

§ 1738.21 Interim financing.1738.252 ............................ Modified/relocated ............. Revised for clarification. No substantive change. 

§ 1738.22 Loan security 1738.154 ............................ Modified/relocated ............. Requirement unchanged, but reworded to provide further clarity. 

1738.208(b) ....................... Relocated .......................... Language regarding TIER requirement moved. 

Subpart C—Types of Loans: 

§ 1738.30 Rural 

broadband access 

loans and loan guarantees.

1738.151 & 152 ................. Modified/relocated ............. Language regarding cost-of-money loans in paragraph 

(a) of previous rule moved and revised for clarification. No substantive changes were made. 

Language regarding 4% loans in paragraph (b) of previous rule revised. When they are available, the 

Agency will use 4% loans to assist applicants in 

meeting financial feasibility requirements. Unless 

announced via a notice in the FEDERAL REGISTER, 

no other criteria apply with regard to eligibility for receipt of a 4% loan. 

1738.301–307 .................... Relocated .......................... Language regarding loan guarantees in paragraph (c) 

of the previous rule now appears in Subpart G— 

Loan Guarantee. No substantive changes have 

been made. 

§ 1738.31 Full faith 

and credit.

1738.308 ............................ Relocated .......................... Language has been relocated. 

Subpart D—Terms of Loans: 

§ 1738.40 General ...... 1738.153 ............................ Modified/relocated ............. Revised for clarification. No substantive change. 

1738.155 ............................ Modified/relocated ............. Language regarding establishing terms and conditions 

on a case-by-case basis moved to § 1738.155— 

Special terms and conditions. Language modified to 

provide additional clarity. 

§ 1738.41 Payments 

on loans.

1738.153 ............................ Modified/relocated ............. Revised for clarification. No substantive change. 

New sections Subject matter Content 

Subpart C—Eligibility Requirements: 

1738.102 .......................................... Eligible service area ............................ The rules specified in this section codify requirements included in the 2008 Farm Bill. 

1738.103 .......................................... Eligible service area exceptions for 

broadband facility upgrades. 

The rules specified in this section codify requirements included in the 2008 Farm Bill. 

1738.104 .......................................... Preliminary assessment of service 

area eligibility.

The rules specified in this section codify requirements included in the 2008 Farm Bill. 

Subpart D—Direct Loan Terms: 

1738.156 .......................................... Other Federal requirements ................ Codifies standard requirements existing in all broadband loan 

documents. 


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New sections Subject matter Content 

Subpart E—Application Review and Underwriting: 

1738.201 .......................................... Application submission ........................ New section that clarifies that applicants are encouraged to 

submit applications through the General Field Representative in their state for review prior to final submission. Applications will still be accepted at the National Office. 

1738.202 .......................................... Elements of a complete application .... This new section clearly specifies what must be included in 

an application before it will be reviewed by the Agency. 

The Agency believes this demonstrates its commitment to 

a standardized and more transparent process. 

1738.205 .......................................... Notification of completeness ............... This new section codifies currently existing internal processes and is designed to help applicants understand the 

post-application process. The Agency believes this demonstrates its commitment to a standardized and more 

transparent process. 

1738.206 .......................................... Evaluation for feasibility ...................... This new section codifies currently existing internal processes and is designed to help applicants understand the 

post-application process. The Agency believes this demonstrates its commitment to a standardized and more 

transparent process. 

1738.209 .......................................... Market survey ...................................... The rules specified in this section codify requirements included in the 2008 Farm Bill. 

1738.210 .......................................... Competitive analysis ........................... The rules specified in this section codify existing requirements published in RUS Bulletin 1738–1. Applicants are 

aware of the requirements and currently comply with them. 

1738.211 .......................................... Financial information ........................... The rules specified in this section codify existing requirements published in RUS Bulletin 1738–1. Applicants are 

aware of the requirements and currently comply with them. 

1738.212 .......................................... Network design ................................... The rules specified in this section codify existing requirements published in RUS Bulletin 1738–1. Applicants are 

aware of the requirements and currently comply with them. 

New language reserving the Administrator’s right to modify 

the requirements on a case-by-case basis. 

1738.213 .......................................... Loan determination ............................. This new section codifies currently existing internal processes and is designed to help applicants understand the 

post-application process. The Agency believes this demonstrates its commitment to a standardized and more 

transparent process. 

Subpart F—Closing, Servicing, and Reporting: 

1738.251 .......................................... Loan offer and loan closing ................ Codifies standard requirements currently existing in 

broadband loan closing documents. 

1738.252 .......................................... Construction ........................................ Codifies standard requirements currently existing in 

broadband loan closing documents. 

1738.253 .......................................... Servicing .............................................. Codifies standard requirements currently existing in 

broadband loan closing documents. 

1738.254 .......................................... Accounting, reporting, and monitoring 

requirements. 

Codifies standard requirements currently existing in 

broadband loan closing documents. 

C. Rule Changes 

The following summarizes the 

changes introduced in this rule. The 

changes are presented in the order in 

which they appear within the interim 

rule. 

Subpart A—General 

Section 1738.1 Overview 

Section 1738.1 (b) of the proposed 

rule contained detailed procedural 

information including specific contact 

information that may change over time. 

This information has been removed in 

favor of a general reference to the 

Agency’s Web site to avoid the need for 

future revisions to the regulation based 

on changes in personnel or procedural 

guidance. Section 1738.1(c) of the 

proposed rule stated that no fees or 

charges will be assessed for broadband 

loans. This policy statement has been 

removed from the rule. The Agency 

does not presently assess fees on 

broadband loans. Should the Agency’s 

fee policy change, it would be reflected 

in a separate Federal Register notice. 

Section 1738.2 Definitions 

To provide additional clarity 

throughout the regulation, the Agency 

has added several new definitions and 

removed definitions for terms not used 

in the interim rule. Each addition to and 

removal from the 2003 rule is listed in 

the preceding crosswalk. A number of 

definitions were refined in the process 

of responding to public comments on 

the proposed rule and adapting the rule 

in response to the 2008 Farm Bill. Key 

substantive changes in existing 

definitions are described below, as are 

new terms relating to policies set forth 

in this rule that may require 

explanation. 

Broadband Lending Speed 

The ‘‘broadband lending speed’’ is the 

minimum bandwidth requirement, as 

published by the Agency in a notice in 

the Federal Register, that an applicant 

must deliver to the customer in order for 

the Agency to fund a broadband loan. In 

order to treat all emerging technologies 

equally, the Agency may designate a 

different broadband lending speed for 

fixed and mobile broadband service. 

Broadband lending speeds may be 

different from the minimum rate of data 

transmission required to determine the 

availability of broadband service when 

qualifying a service area. The Agency 


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feels strongly that in order to be a 

prudent lender and steward of taxpayer 

dollars, it must lend to entities capable 

of repaying loans received from the 

Agency. As such, the Agency has added 

this term to make clear that it will only 

loan funds to entities that plan to offer 

service at a level that keeps pace with 

technological innovations while 

meeting the demands of customers in 

rural America. The Agency also believes 

that the constant changes and rapid 

technological improvements in the 

broadband industry necessitate that the 

Agency be flexible in reviewing and, if 

necessary, adjusting this speed on as 

frequent as an annual basis. 

Equity 

The Broadband Loan Program has 

historically used the term ‘‘credit 

support’’ in lieu of ‘‘equity.’’ The Farm 

Bill uses the terms ‘‘cost share,’’ ‘‘credit 

support,’’ and ‘‘equity.’’ In an effort to 

make this regulation and associated 

program documents more readable, the 

Agency has used the commonlyunderstood term ‘‘equity’’ in lieu of ‘‘cost 

share.’’ Equity and other financial 

requirements which enhance the 

security of the loan are all elements of 

‘‘credit support.’’ For the purpose of Sec. 

306F of the Rural Electrification Act of 

1936, (SUTA), equity requirements in 

this program shall have the same 

meaning as ‘‘matching fund 

requirements.’’ SUTA provides statutory 

authority for the Agency to make certain 

adjustments in the requirements of 

programs with respect to projects on 

trust territories like Native American 

reservations. This authority is discussed 

in more detail below. 

Projected Revenues 

In addition to the minimum 10 

percent equity requirement, the Agency 

will now allow the use of projected 

revenues to be considered in 

determining if more than a 10% equity 

position is required to maintain a viable 

operation. For start-up operations and 

operations that have not demonstrated a 

positive cash flow, the Agency will only 

allow fifty percent of the projected 

revenues to be used to demonstrate a 

sustainable operation. A financial 

analysis of the business plan will be 

performed with a 50 percent reduction 

in projected revenues to determine if an 

equity position greater than 10 percent 

is required. If this analysis demonstrates 

that a 10 percent equity position is not 

sufficient to ensure a sustainable 

operation, the equity requirement will 

be increased to the appropriate level. 

We are inviting comment on the use of 

fifty percent of the projected revenues 

versus a higher or lower percentage. 

Fiscal Year 

The term ‘‘fiscal year’’ had previously 

been defined with reference to the US 

government’s fiscal year. However, the 

majority of the references to fiscal years 

in the interim regulation refer to the 

applicant’s fiscal year. Therefore, the 

term has been redefined. In the two 

places where the Federal fiscal year is 

referenced, this is specifically noted. 

Incumbent Service Provider 

Questions have been raised about the 

meaning of the statute’s use of the term 

‘‘providing broadband service.’’ Some 

have argued that it could mean either 

service providers with a ‘‘take-up rate’’ 

that meets the specified threshold, or 

service providers that offer services that 

‘‘pass by’’ area households without 

regard to whether the services are 

actually purchased by the households. 

The Agency has concluded that the 

word ‘‘providing’’ clearly indicates the 

Congressional intent that the incumbent 

service provider determination should 

be based on the services actually 

purchased by households, not just on 

the number of households to which 

services are offered. This interpretation 

is reflected in the definition, which 

defines incumbent service provider as 

one that provides broadband service to 

at least five percent of the households 

in an applicant’s proposed service area 

rather than one that ‘‘offers’’ such 

service. 

Rural Area 

There were 19 comments received 

relating to the definition of an ‘‘Eligible 

Rural Community.’’ This issue is 

significant in that it directly determines 

which constituencies can receive the 

benefits of the Broadband Loan 

Program. The 2008 Farm Bill defines a 

rural area as any area outside of a city, 

town, or incorporated area that has a 

population of no more than 20,000 

inhabitants provided that it is not in an 

Urbanized Area (as defined by the 

Census Bureau) that is contiguous and 

adjacent to a city or town with a 

population of 50,000 inhabitants. This 

definition replaces the definition of 

‘‘eligible rural community’’ provided in 

the proposed rule. 

Service Territory 

While the concept of a ‘‘service area’’ 

has been traditionally used within the 

program, the 2008 Farm Bill refers to a 

‘‘service territory.’’ The Agency 

considers the two terms to be 

synonymous. The interim rule 

continues to use the commonlyaccepted term ‘‘service area.’’ The term 

‘‘service territory’’ has been defined in 

order to clarify how the language used 

in the regulation links to the language 

in the 2008 Farm Bill but is not used in 

the interim rule. 

Underserved Household or Underserved 

Area 

This definition was added to define 

an underserved household or area as 

one that is not offered broadband 

service at all, or is offered broadband 

service by only one incumbent service 

provider, a requirement added by the 

2008 Farm Bill. 

Section 1738.2 Substantially 

Underserved Trust Areas 

The Agency has developed this 

interim rule in accordance with USDA’s 

Action Plan for Tribal Consultation and 

Collaboration submitted in response to 

President Obama’s Memorandum on 

Tribal Consultation and Collaboration 

executed November 5, 2009 during the 

White House Tribal Leaders Conference 

(USDA Action Plan), President Clinton’s 

Executive Order 13175, titled 

‘‘Consultation and Coordination with 

Indian Tribal Governments’’ (November 

6, 2000), and various USDA 

Departmental Regulations on Tribal 

Consultation, including DR 1350–001 

(September 11, 2008). DR 1350–001 

directs the Agency ‘‘to the extent 

practicable and permitted by law, 

consider any application by an Indian 

tribe for a waiver of statutory or 

regulatory requirements in connection 

with any program administered by it 

with a general rule toward increasing 

opportunities for utilizing flexible 

policy approaches at the Indian tribal 

level in cases in which the proposed 

waiver is consistent with the applicable 

Federal policy objectives and is 

otherwise appropriate’’ (DR 1350–001 ¶ 

11). Section 6105 of the Farm Bill 

amended the RE Act by adding section 

306F providing the Secretary additional 

statutory authorities which have been 

delegated to the Administrator that may 

be initiated in order to improve the 

availability of RUS programs in 

communities located in trust lands (as 

defined in section 3765 of title 38, 

United States Code) that the 

Administrator has determined are in 

high need of the benefits of those 

programs. 

In order to provide effective 

consultation and collaboration in the 

carrying out of its roles and 

responsibilities, the Agency has been 

actively participating in a series of 

consultations across the country with 

the implementation of its broad 

authorities in section 306F as a focal 

point. Because these consultations are 

ongoing and the USDA Action Plan 

announced the development of a new 


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comprehensive Departmental 

Regulation that will replace all existing 

Departmental Regulations on Tribal 

Consultation (including DR 1350–001), 

the implementation of section 306F is 

still under development. Nevertheless, 

enough is known at this point to make 

it appropriate to specifically recognize 

in this interim rule the additional 

authorities that the 2008 Farm Bill 

created for the Secretary by explicitly 

increasing the Secretary’s legal authority 

for waivers in designated communities 

in trust lands, which include Tribal 

communities and others as more 

specifically provided in section 306F. 

This authority has been delegated to the 

Administrator (See 7 CFR 2.17(a)(20) 

and 2.47(a)(1)). 

This interim rule acknowledges these 

changes in law and reflects the results 

of consultations on section 306F 

concluded so far. The Agency has done 

so by adding a new § 1738.3 entitled 

‘‘Substantially underserved trust areas’’ 

as an initial step in applying the broad 

authority contained in section 306F 

specifically to the Broadband Loan 

Program. The addition of § 1738.3 

necessitated a related change in § 1738.2 

to expand the definition of ‘‘equity’’ in 

order to clarify that ‘‘equity’’ as used in 

this interim rule includes the term ‘‘cost 

share’’ and is included in the term 

‘‘credit support’’ as used in Title VI of 

the RE Act and for the purposes of 

section 306F in this program is the same 

as ‘‘matching fund requirements.’’ The 

Agency will proceed case-by-case in 

applying § 1738.3 to particular 

applications considered under this 

interim rule. Accordingly, it is essential 

that applicants that believe § 1738.3 

should be applied to their requests 

consult with the Agency early in the 

development of their applications to 

determine how § 1738.3 might affect the 

application of other sections of this 

interim rule in their particular cases. 

The Agency invites comments which, 

together with the results of future 

consultations and developments in the 

implementation of USDA’s Action Plan, 

will be considered in developing the 

final version of this interim rule. From 

time to time, the Agency may also 

publish further guidance for use of 

§ 1738.3 either in the form of notices or 

guidance documents specifically 

regarding the Broadband Loan Program 

or in notices, guidance documents or 

rules relating to the general subjects of 

Section 306F or Tribal consultation and 

collaboration. 

Subpart B—Eligible and Ineligible Loan 

Purposes 

The Farm Bill imposed no restrictions 

regarding eligible and ineligible loan 

purposes, nor did public comments on 

the proposed rule suggest the need for 

any change. Therefore, the substantive 

requirements in this subpart remain 

largely unchanged from the 

requirements which were presented in 

subpart C of the proposed rule. The 

material has been edited for clarity. 

Section 1738.51 Eligible Loan 

Purposes 

This section requires that broadband 

loan funds be used to fund the 

construction, improvement, or 

acquisition of facilities required to 

provide broadband service. It specifies 

certain conditions concerning start-up 

and overhead costs, leasing facilities, 

acquisitions, pre-loan expenses, and 

refinancing telecommunications loans 

made under the RE Act. The discussion 

of acquisitions has been expanded to 

include all of the provisions associated 

with acquisition in one place. This 

involved moving the item concerning 

acquiring majority stock and those items 

concerning acquisitions from affiliates 

out of the list of ineligible expenses and 

reframing them as conditions of 

acquisition under eligible expenses. 

This was done in order to place all 

restrictions associated with acquisition 

together. No substantive change is 

intended. 

A discussion of pre-loan expenses is 

provided in § 1738.51(e). This paragraph 

has been edited for clarity and 

expanded to specify that these expenses 

may be incurred prior to the date on 

which notification of a complete 

application is issued. This is consistent 

with current Agency practice. No 

substantive change is intended. 

Section 1738.52 Ineligible Loan 

Purposes 

This section excludes certain 

expenses associated with acquisition of 

stock, facilities, or equipment of an 

affiliate, customer premise equipment, 

vehicles, and systems or facilities that 

are not designed and constructed in 

accordance with applicable 

requirements. The discussion of 

expenses related to an acquisition has 

been moved to § 1738.51. For the sake 

of clarity, the interim rule specifies that 

costs incurred prior to the date on 

which notification of a complete 

application is issued are not considered 

eligible loan purposes with the 

exception of eligible pre-loan expenses 

which are clarified in the regulation. In 

addition, three ineligible purposes that 

had been present in the program’s 

application guide, but not listed in the 

proposed rule, have been added. These 

ineligible purposes include: broadband 

facilities leased under the terms of an 

operating lease; merger or consolidation 

of entities; and operating expenses of 

the project. The addition of these 

ineligible purposes is intended to 

ensure clarity and completeness in the 

regulation and does not represent a 

change in the Agency’s policy. 

Subpart C—Eligibility Requirements 

Section 1738.101 Eligible Applicants 

This section specifies criteria that 

entities must meet in order to be eligible 

for a broadband loan. Generally, any 

entity that is not an individual or a 

partnership is eligible for a broadband 

loan provided that the applicant meets 

certain program requirements. 

Requirements include that applicants: 

(1) Agree to complete their build-out 

within three years; (2) demonstrate their 

ability to provide the service at the 

Agency’s broadband lending speed; (3) 

demonstrate an equity position equal to 

at least 10 percent of requested loan 

amount; and (4) understand that the 

Administrator may require additional 

security in order to ensure financial 

feasibility. Each of these requirements 

was included in some form in the 

proposed rule and the Agency received 

several comments with regard to three 

of them. 

The proposed rule would have 

required that borrowers complete the 

build-out of their broadband facilities 

within three years. The Agency received 

10 comments about this requirement, 

half in favor and half against. The 2008 

Farm Bill imposed a statutory 

requirement that the service described 

in the loan application be completed 

within three years. Therefore, 

§ 1738.101(b)(2) of the interim rule 

requires that all applicants agree to 

complete the build-out of the broadband 

service described in their application 

within three years from the date the 

borrower is notified that loan funds are 

available. 

The requirement to provide service at 

the broadband lending speed is stated at 

§ 1738.101(b)(3). While the requirement 

is succinct, it represents a shift in the 

Agency’s policy and affects definitions 

and requirements in other parts of the 

interim rule, including § 1738.102(b) 

concerning protection of current 

borrowers’ service areas. 

After publication of the proposed 

rule, the Agency received eight 

comments concerning the speed at 

which broadband service is provided, 

nearly all of which suggested that the 

Agency should change the definition of 

broadband service to be based on a 

higher transmission speed. The Agency 

believes the availability of affordable, 

high-quality broadband service is a key 


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factor in promoting and protecting the 

economic growth and well-being of 

rural communities. The Agency also 

believes that as a steward of taxpayer 

dollars, it should lend money to projects 

that will provide service at a level for 

which there is customer demand. As 

such, the Agency agrees with the 

commenters that urged the Agency to 

define broadband at a faster speed. 

The concept of broadband speed 

matters in two different contexts in this 

regulation. First, it determines what 

types of projects will be eligible for a 

broadband loan. Second, it determines 

which existing providers will be 

classified as incumbent service 

providers for the purpose of 

determining what geographic areas are 

eligible for a broadband loan. The 

implications of setting higher or lower 

speed requirements differ for the two 

contexts. Specifically, setting a 

significantly higher speed could open 

up vast areas of the country as eligible 

areas, limiting the program’s impact on 

those areas that are most seriously 

limited in their ability to access 

broadband service. A higher speed also 

would result in providing government 

funding in markets where competition 

(i.e., three or more service providers) 

already exists at more modest speeds. 

On the other hand, requiring higher 

speeds would help ensure that those 

areas that receive assistance through a 

broadband loan receive cutting-edge 

service that will remain competitive, 

and therefore financially viable, farther 

into the future. 

The Agency has resolved this 

dilemma by introducing two different 

concepts related to the speed of 

transmission in the interim rule. The 

term ‘‘broadband service’’ is used in the 

context of determining whether the 

services offered by existing service 

providers can be considered broadband 

service. To account for the value of 

mobility, the Agency will distinguish 

between fixed and mobile broadband 

service. The Agency’s intent is to set 

these levels low enough to ensure that 

loans are not made in areas with 

sufficient competition to offer 

acceptable services to rural households. 

The term ‘‘broadband lending speed’’ is 

used in the context of determining what 

standards an applicant’s proposed 

services must attain in order to qualify 

for a broadband loan. The 2008 Farm 

Bill does not allow for requirements that 

preclude the use of evolving 

technologies and therefore the Agency 

has established the means for setting 

different requirements for fixed and 

mobile broadband service. The Agency 

also believes that these services are 

sufficiently different to justify a 

consideration of having different 

requirements. In the case of mobile 

service, consumers appear to be willing 

to accept slower speeds in exchange for 

mobility. The Agency’s intent is to set 

these lending speeds at an aggressive 

level to ensure that public funds are 

used to provide the highest-quality 

service and that the investments will 

remain competitive in the long term to 

allow repayment of the loan. The 

Agency has carefully adhered to the 

statutory requirement to remain 

technologically neutral in its definition 

of the minimum rate of data 

transmission that will qualify as 

broadband service and the minimum 

bandwidth requirement that will 

establish the broadband lending speed. 

The Agency has not established either 

the minimum rate of data transmission 

that will qualify as broadband service or 

the minimum bandwidth requirement 

that will establish the broadband 

lending speed in the regulation. The 

appropriate level for these standards 

will change over time as technology 

evolves. To account for this reality, the 

Agency will publish these speeds in the 

Federal Register. The Agency’s intent is 

to leave the standards in place over a 

multi-year period to allow potential 

applicants to plan and develop their 

proposals. However, the standards will 

be altered from time to time, as changes 

in technology warrant. For the purposes 

of this interim rule, the broadband 

service minimum rate of data 

transmission will be three megabits per 

second (download plus upload speeds) 

for both fixed and mobile broadband 

service and the broadband lending 

speed will be a minimum bandwidth of 

5 megabits per second for fixed and 3 

megabits per second for mobile 

broadband service to the household 

(download plus upload speeds). 

The requirement that applicants 

demonstrate a 10 percent equity 

position is stated in § 1738.101(b)(4). 

The Agency received numerous 

comments with regard to the equity 

requirement after publication of the 

proposed rule. This requirement is 

expanded upon in § 1738.207 and an 

explanation of the Agency’s policy 

choices is provided within that portion 

of the preamble. 

Finally, paragraph § 1738.101(b)(5) 

concerning additional security was not 

previously included in the applicant 

eligibility section. Its inclusion here is 

not meant to change the eligibility 

requirements laid out in the proposed 

rule. Instead, it is listed here with a 

reference to its fuller discussion later in 

the regulation to ensure that potential 

applicants are made aware, as they are 

considering whether they will qualify 

for a broadband loan, that additional 

security requirements may be imposed. 

Section 1738.102 Eligible Service Area 

Section 1738.102(a)(1) clarifies that to 

be eligible for a broadband loan, a 

funded service area must be completely 

contained within a rural area. The 

specifics of what constitutes a rural area 

are provided in the definitions section. 

The 2008 Farm Bill requires that at 

least 25 percent of the households in the 

proposed service area be underserved in 

order for the area to qualify as an 

eligible service area. As presented in the 

definitions, an underserved household 

is one that is not offered broadband 

service, or that is offered broadband 

service by only one incumbent service 

provider. This requirement is addressed 

in § 1738.102(a)(2). 

Under the proposed rule, applicants 

would have been precluded from 

obtaining funding for projects in service 

areas with four or more existing 

broadband service providers. The 2008 

Farm Bill, however, specified that a 

service area may be eligible for funding 

only if no part of the area is served by 

three or more incumbent service 

providers. This requirement is 

addressed in § 1738.102(a)(3). 

The proposed rule would have 

prevented the Agency from making 

broadband loans in any rural 

community in which a current borrower 

was already providing broadband 

service. In the present rule, the Agency 

has kept this prohibition, but added 

further protection to grantees to address 

the Broadband Initiatives Program 

awards recently made. Nonetheless, the 

Agency encourages comments on this 

issue. 

In some cases, applicants may 

propose areas within their application 

that are ineligible. Such areas must be 

included in the review of the financial 

feasibility of the project, and shown 

how they are funded by outside sources. 

For example, an applicant may have 

requested a loan to provide broadband 

service in three communities located in 

eligible areas, but based the feasibility 

analysis on a five-community strategy 

with two communities overlapping a 

current borrower’s service territory. In 

such a situation, the Agency would not 

make a loan in the two communities 

that support the current borrower’s 

operations but could make a loan in the 

three communities that constitute the 

eligible service area. This is reflected in 

§ 1738.102(a)(4). 

Finally, § 1738.102(b) specifies that, 

while multiple service areas may be 

included in a single loan application, 

non-contiguous areas are considered 

separate service areas and must be 


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treated separately for the purpose of 

determining area eligibility. This means 

that non-contiguous service areas must 

also be treated separately for the 

purposes of the market survey and 

competitive analysis requirements. 

Section 1738.103 Eligible Service Area 

Exceptions for Broadband Facility 

Upgrades 

The Agency firmly believes rural 

communities should have affordable 

access to broadband services of the 

highest quality. The 2008 Farm Bill 

supports this position by providing for 

an exemption from certain area 

eligibility requirements if an applicant 

proposes to upgrade its existing 

broadband service facilities. This is 

reflected in the interim rule at 

§ 1738.103(a), which exempts current 

borrowers wishing to upgrade their 

facilities from the requirements 

concerning number of underserved 

households as set forth in § 1738.102 

and if the current borrower is also an 

incumbent service provider, from the 

number of incumbent service providers 

stipulated in § 1738.102(a)(2) and (3). 

This exception will permit the Agency 

to consider funding borrower efforts to 

keep their facilities upgraded to current 

standards, even if competition increases 

and the percentage of households served 

increases. The Agency will offer similar 

consideration to incumbent service 

providers wishing to upgrade their 

facilities, even if they are not current 

borrowers, by exempting them from the 

requirement concerning the number of 

incumbent service providers stipulated 

in § 1738.102(a)(3). 

For loans that do not require an 

exception from § 1738.102(a)(2) and (3) 

for upgrading, an applicant can treat 

service areas to be upgraded and new 

service areas as a single service area, as 

long as the areas are contiguous. In the 

case of an upgrade that requires an 

exception to qualify for funding, 

however, the interim rule at 

§ 1738.103(c) requires that the 

geographic area already served by the 

applicant be treated as a separate service 

area from any expanded service areas to 

be added. In this situation, the interim 

rule specifies that the expansion area 

will be treated as a new service area 

even if it is contiguous to the area to 

receive the exception for upgrading. In 

such a situation, an applicant may 

provide the Agency with only one 

application, but the expansion area 

must meet all service area eligibility 

requirements and be treated separately 

for the purposes of the market survey, 

competitive analysis, and financial 

projection requirements. This 

requirement is necessary to prevent 

potential applicants from manipulating 

their expanded service areas to trigger 

the upgrade exceptions in ways that 

would circumvent the intent of the 

statute. 

Section 1738.104 Preliminary 

Assessment of Service Area Eligibility 

The 2008 Farm Bill includes a new 

provision for determining, prior to 

developing an application, whether a 

particular geographic area is potentially 

eligible for a loan. This process is 

expected to help prevent potential 

applicants from investing time and 

other resources in developing 

applications for ineligible areas, thereby 

reducing the paperwork burden 

associated with the program. To address 

this requirement, the interim rule 

specifies at § 1738.104(a) that the 

Agency will make available information 

about whether the proposed service area 

is located in a rural area, whether it 

overlaps with a current borrower’s 

service area, and whether any part of the 

area overlaps with a service area 

specified in a pending application. 

This preliminary assessment of area 

eligibility does not account for all 

factors associated with area eligibility. 

For example, it is not possible to make 

a preliminary assessment of whether the 

area is already served by three or more 

incumbent service providers. This 

information will not be known until 

after the application is submitted and 

the public notice period has expired. 

Moreover, the situation in a given 

service area may change between the 

preliminary assessment and submission 

of the application. Section 1738.104(b) 

highlights the fact that the preliminary 

assessment indicating that a proposed 

area may be eligible is not an assurance 

that the proposed service area will be 

eligible for a broadband loan at the time 

of application. The preliminary 

assessment will, however, provide a 

basic screening tool to help potential 

applicants make informed decisions 

about their choice to develop an 

application. 

Initially, the Agency will provide this 

preliminary assessment information on 

a case-by-case basis, as requested by 

prospective applicants. However, the 

Agency also is developing an interactive 

mapping tool that is expected to allow 

applicants both greater independence 

and greater flexibility to make informed 

choices about service area selection and 

application development when it 

becomes available. 

Subpart D—Direct Loan Terms 

Section 1738.151 General 

Section 1738.151(a) identifies the two 

types of direct loans that are available 

under the program: loans bearing a costof-money interest rate or bearing a fixed 

4 percent rate. A combination of these 

two types of loans also may be offered. 

The details about these types of loans, 

such as interest rates, terms and 

conditions, and security, are discussed 

later in this subpart. Section 1738.151(b) 

specifies that the program’s minimum 

and maximum loan amounts will be 

published in the Federal Register, along 

with the amount of funds available for 

each type of loan. New language has 

been added to the proposed rule, in 

light of an explicit limitation noted in 

the 2008 Farm Bill, on maximum loan 

amount. Specifically, § 1738.151(c) 

states that applicants providing 

telecommunications or broadband 

service to at least 20 percent of the 

households in the United States are 

limited to a loan amount that is no more 

than 15 percent of the funds available 

through the program for the fiscal year. 

Section 1738.152 Interest Rates 

Aside from minor edits for clarity, 

policies regarding cost-of-money 

interest rates set forth in § 1738.152(a) 

remain unchanged from polices stated 

in the proposed rule. With regard to 

direct 4 percent loans, the proposed rule 

would have made such loans available 

to rural communities with no more than 

5,000 residents and served by no more 

than one service provider. Only two 

comments were filed relating to this 

issue, one of which suggested a standard 

that favored projects with the highest 

percentage of underserved communities, 

where feasibility was insufficient under 

cost of money rates. In light of this 

comment, the Agency reconsidered the 

potential usefulness of the 4- percent 

loans as a tool to help an applicant meet 

financial feasibility requirements. More 

specifically, the Agency envisions using 

4 percent loans to assist applicants that 

project a times interest earned ratio 

(TIER) of greater than 1.00 but less than 

the required ratio of 1.25. Section 

1738.152(b) specifies that the 4- percent 

loan can be used by the Agency to help 

meet such feasibility requirements. 

Before implementation of using 4 

percent loans, the Agency requests 

public comments on the requirements of 

their use. 

Section 1738.153 Loan Terms and 

Conditions 

The material included in this section 

appeared in the proposed rule in a 

section entitled ‘‘payments on loans.’’ 


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Paragraph 1738.153(a) of the interim 

rule includes information on repayment 

periods and Paragraph 1738.153(b) 

discusses loan payments. These sections 

have been edited for clarity, but no 

substantive changes have been made. 

Discussion of an extended maturity 

mentioned in the proposed rule has 

been moved to § 1738.155 (Special 

terms and conditions). Paragraph 

1738.153(c) has been added to clarify 

the Agency’s existing policy, specified 

in current loan documents, requiring 

applicants to obtain a fidelity bond as a 

condition of receiving the loan. 

Section 1738.154 Loan Security 

Paragraph 1738.154(a) and (b) states 

that all loans made by the Agency must 

be adequately secured and that the 

Agency must generally be given an 

exclusive first lien on all of the 

applicant’s assets. Paragraph 

1738.154(c) and (d) go on to require that 

property purchased with loan funds be 

owned by the applicant and to impose 

special requirements on facilities that 

are not self-contained operating 

systems. Finally, Paragraph 1738.154(e) 

articulates the Agency’s existing policy 

that financial, investment, operational, 

reporting, and managerial controls may 

be specified in the loan documents. The 

2008 Farm Bill imposed no new security 

requirements. The section has been 

edited for clarity, but no substantive 

changes have been made. 

The 2008 Farm Bill did add a concept 

related to loan security, requiring the 

Agency to ensure that the type, amount, 

and method of security are 

commensurate with the risk involved. 

This requirement is addressed in 

§ 1738.155(b). 

Section 1738.155 Special Terms and 

Conditions 

Section 1738.155(a) was added to the 

interim rule to give the Agency 

additional flexibility, as provided by the 

2008 Farm Bill, to bring broadband 

access to underserved areas (that is, to 

areas with no service provider or with 

only one incumbent service provider). 

The section specifies that if it aids in 

achieving financial feasibility, the 

Agency may adjust terms and 

conditions such as extending the 

repayment period or lessening security 

requirements for underserved service 

areas. Section 1738.155(b) addresses the 

statutory requirement that the type, 

amount, and method of security be 

commensurate with the risk involved. 

Section 1738.156 Other Federal 

Requirements 

Applicants must agree in writing to 

comply with a range of Federal 

regulations. This section was added to 

the interim rule to make clear the 

various regulations and requirements 

contained in the loan documents with 

which applicants will be required to 

comply. It also clarifies that additional 

requirements may be imposed through 

the loan documents. It further specifies 

that applicants must comply with all 

relevant Federal, State, and local 

requirements. 

Subpart E—Application Review and 

Underwriting 

Section 1738.201 Application 

Submission 

Section 1738.201(a) codifies current 

Agency policy that applications may be 

submitted to either the Agency’s 

General Field Representative (GFR) or 

directly to the National Office. It further 

specifies that the date received, which 

determines processing order, will be 

established based on the date the 

application is received by the National 

Office. 

Section 1738.201(b) states that the 

Agency may publish additional 

application submission requirements in 

the Federal Register, as well as 

indicating in that document the amount 

of funds that will be made available for 

each loan type. 

Section 1738.202 Elements of a 

Complete Application 

This section codifies current Agency 

policy concerning the key elements that 

must be included in an application. The 

section does not specify every 

application requirement. The details of 

the application process are provided in 

the Rural Broadband Access Loan and 

Loan Guarantee Program Application 

Guide (the Application Guide). This 

section is sufficiently detailed, however, 

to allow the reader to understand what 

information must be provided in the 

application so that the Agency can 

evaluate the financial and technical 

feasibility of the loan application. 

Section 1738.203 Priority for 

Processing Loan Applications 

The 2008 Farm Bill directs that the 

Agency establish priority processing for 

applicants proposing ‘‘to provide 

broadband service to the greatest 

proportion of households that * * * had 

no incumbent service provider.’’ 

Although the 2008 Farm Bill uses the 

term ‘‘incumbent service provider,’’ 

Congressional deliberations suggest that 

the intent of this provision was to 

provide priority processing to 

applicants proposing to serve the 

highest number of households without 

access to broadband service. The 

provision has been interpreted as such 

for the purposes of this regulation. 

The Agency processes applications on 

a rolling basis. For applications not 

requesting section 306F consideration, 

§ 1738.203(a) establishes three priority 

categories to implement the statute’s 

priority requirements: (1) Applications 

in which no broadband service is 

available in any proposed service area; 

(2) applications that propose service 

areas in which at least 75 percent of the 

households have no access to broadband 

service (for applications with multiple 

service areas, the 75 percent calculation 

is based on all service areas combined); 

and (3) all other applications. Once 

applications have been prioritized 

according to these criteria, § 1738.203(b) 

provides that they will be processed on 

a first-in, first-out basis within each 

priority category. 

Section 1738.203(c) specifies that the 

Agency will establish National and State 

reserves, as required by the 2008 Farm 

Bill. Because the method for 

establishing the reserves is detailed in 

the 2008 Farm Bill, the section 

references the statute rather than 

repeating the information. 

Section 1738.204 Public Notice 

In the proposed rule, the Agency 

proposed new legal notice requirements 

to help identify areas with no existing 

broadband service for priority 

consideration and to notify 

communities of the potential entrance of 

a new service provider. Doing so was 

expected to provide existing service 

providers with an opportunity to be 

classified as incumbent service 

providers and to establish their current 

service territory, service offerings, 

market share, and so on. The purpose of 

these changes was to increase 

transparency, reach a broader range of 

interested parties, and obtain more 

detailed information about incumbent 

service providers to determine if an 

applicant’s proposed service area was 

eligible for a broadband loan. 

The 2008 Farm Bill affirms the need 

for transparent public notice, requiring 

the Administrator to publish a notice of 

each application received. The interim 

rule addresses the statutory notice 

requirement through a public notice 

process. The interim rule, at 

§ 1738.204(a), requires that the 

applicant provide all required 

information but places responsibility on 

the Agency to publish the notice. It is 

the Agency’s intent to post the public 

notice on an Agency webpage, which 

will serve as a central, universal, and 

easily-accessible point of information. 

The Agency further intends to explore 

the possibility of developing tools that 


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will proactively notify existing service 

providers about applications that may 

potentially overlap with the geographic 

areas in which the existing provider 

offers service (for example, via a listserv 

or similar communication tool). The 

Agency would welcome public 

comment on approaches to information 

dissemination that would be most 

useful to the broadband community. 

The 2008 Farm Bill requires that the 

public notice identify the applicant, the 

proposed service area, and the estimated 

number of households without 

terrestrial-based broadband service in 

the service area. The interim rule 

requires applicants to supply this 

information and to supply a map of the 

proposed service area identifying rural 

area boundaries and underserved areas. 

In addition, applicants are required to 

provide information about the number 

of underserved households in each 

service area and a description of the 

types of services that the applicant 

proposes to offer in each service area. 

These pieces of information are 

essential to allow incumbent service 

providers to respond appropriately to 

the published notice and to allow the 

Agency to determine whether the 

proposed service areas are eligible for 

funding. 

The interim rule establishes a 

standard 30-calendar day notice period 

that begins after an application is filed 

and the public notice is posted on an 

Agency Web site. It requires interested 

parties to provide the Agency with 

specified information within the 30 day 

window in order for the Agency to 

determine whether they meet the 

criteria for being an incumbent service 

provider. Section 1738.204(c) specifies 

that service providers that do not 

respond to the public notice within the 

30 day period will not be considered 

incumbent service providers for the 

purpose of determining the service 

area’s eligibility. However, regardless of 

whether a service provider responds to 

the notice or not, all known service 

providers in the proposed service area 

will be considered in the competitive 

analysis performed by the Agency. 

Section 1738.204(d) clarifies that if a 

portion of the applicant’s service area 

which is proposed to be funded is 

ineligible, the Agency will provide the 

information necessary to allow the 

applicant to adjust the service areas 

presented in the application. 

Twenty-three commenters responded 

to the notice requirements in the 

proposed rule. Overall, the comments 

were supportive of the Agency’s efforts 

to be more transparent about proposed 

applications. However, respondents 

were divided as to how much 

information should be divulged, with 

some worrying that too much 

proprietary information would be made 

accessible to the public. The Agency has 

considered comments on the proposed 

rule in developing those portions of the 

interim rule where the 2008 Farm Bill 

offers flexibility. The public notice 

requirements in the interim rule seek to 

balance and address many concerns 

about the notice process. Section 

1738.204(e) clarifies that information 

will be treated as proprietary and 

confidential to the extent permitted 

under applicable law. 

The Agency is aware that any new 

system will create uncertainties as the 

users learn where to find information 

and what information is required. The 

Agency is committed to developing 

tools and making appropriate 

adjustments to ensure that existing 

service providers have a fair 

opportunity to respond to the public 

notice and to enhancing transparency 

while protecting proprietary 

information. 

Section 1738.205 Notification of 

Completeness 

This section codifies current Agency 

policy concerning how it reviews 

applications for completeness. Section 

1738.205(a) specifies that applications 

must include all required documents 

and information and that the 

information must be of adequate quality 

to allow further analysis. Section 

1738.205(b) clarifies that the Agency 

may take one of three courses of action 

after reviewing an application for 

completeness: (1) Notify the applicant 

that the application is complete and 

proceed with processing; (2) notify the 

applicant that the application is of 

adequate quality but incomplete and 

specify a time frame within which to 

make required improvements; or (3) 

notify the applicant that the application 

is not of adequate quality and reject the 

application. By specifying these three 

courses of action, the Agency is seeking 

to be transparent and consistent in how 

it reviews and responds to applications. 

The distinction between a notification 

of incompleteness and a notification of 

rejection has important implications. 

When an applicant is notified that an 

application is incomplete, the 

application holds its place in the 

processing queue and the service areas 

that the applicant intends to serve are 

not available to other potential 

applicants. If an application is rejected, 

the applicant loses its place in the 

processing queue and those service 

areas that had been proposed in the 

rejected application are once again 

available as service areas for other 

potential applicants. By establishing a 

mechanism for rejecting applications, 

the Agency is seeking to ensure that 

applications that do not meet a 

minimum standard, or which are not 

making adequate progress toward 

completion, are removed from the 

processing queue. This will help avoid 

blocking more feasible applications in 

the same service area from being 

considered. 

Section 1738.206 Evaluation for 

Feasibility 

This section codifies current Agency 

policy concerning how it evaluates 

applications. It explains how the 

Agency evaluates applications in an 

effort to help potential borrowers 

provide higher-quality applications. By 

clearly establishing the concepts of 

financial and technical feasibility in 

§ 1738.206(a) and (b), the Agency is 

seeking to be transparent about the 

criteria it will use to evaluate 

applications. The section also clarifies 

the inter-related nature of the 

application components, indicating that 

weakness in one component of the 

application can impact an overall 

determination of feasibility. The Agency 

believes applicants that understand 

these interconnections will supply 

higher-quality applications, enhancing 

the likelihood of approval. 

Section 1738.207 Equity Requirement 

The equity requirement for the 

program had stood at 20 percent of the 

value of the requested loan since the 

program’s inception in 2002. Based on 

the statutory language of the 2008 Farm 

Bill, the Agency is proposing a 

minimum equity requirement of 10 

percent. To offset this reduction in 

equity and to ensure that only 

sustainable operations are funded, the 

Agency has added review procedures 

that can increase the amount of equity 

required based on the proposed 

business plan. Commenters were 

generally supportive of this change, 

with 11 out of 16 supporting the 

reduction to 10 percent and many of the 

remainder supporting even deeper 

reductions (under certain 

circumstances). 

In the changes made in the 2008 Farm 

Bill, the Congress also supported the 

concept of a reduction in the equity 

requirement by specifying that the 

amount of equity required must not 

exceed 10 percent of the amount of the 

loan requested. While the statute would 

permit the Agency to require less than 

10 percent equity, the Agency is 

cognizant of the importance of 

balancing applicant preference for low 

equity requirements with the Agency’s 


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responsibility, as a steward of taxpayer 

dollars, to require sufficient equity to 

ensure the viability of the project. 

Therefore, § 1738.207(a) requires a 

minimum equity position of 10 percent 

of the requested loan amount. 

The Agency understands that 

achieving this equity position when it is 

not yet known whether the loan will be 

approved may be difficult. Therefore, as 

in the proposed rule, § 1738.207(b) and 

(c) account for situations in which an 

applicant may not have the equity 

available at the time the application is 

submitted. The interim rule specifies 

that an investor’s proposal to cover the 

equity shortfall or, for State and local 

governments, the authority to issue a 

general obligation bond, can be 

sufficient to meet the equity 

requirement for the purposes of loan 

approval. The interim rule requires that 

the 10 percent equity position must be 

attained prior to execution of the loan 

documents. 

Section 1738.208 Additional Cash 

Requirements 

The 2008 Farm Bill permits the 

Agency to make additional security 

requirements beyond the 10 percent 

minimum equity requirement when 

necessary to ensure financial feasibility. 

This section lays out Agency policy for 

when it will require an applicant to 

contribute additional cash to the project. 

Section 1738.208(a) requires that the 

feasibility analysis show a positive cash 

balance at the end of each year during 

the five-year forecast period. Applicants 

unable to meet this standard will be 

required to obtain additional infusions 

of cash necessary to maintain an 

appropriate cash balance throughout the 

five-year forecast period. 

As the Agency considered how to 

count projected revenues, a key issue 

was the difficulty of substantiating 

projected revenues for an entity without 

a credible, recent history of generating 

positive cash flow. To address this 

concern, the interim rule specifies at 

§ 1738.208(a)(2) that in addition to the 

initial projections, start-up and existing 

companies that do not have a positive 

cash flow for the two years prior to 

submitting an application must submit 

adjusted financial projections based on 

50 percent of projected revenues. These 

adjusted projections will be used to 

determine the amount of additional cash 

that will be required. Although the 

Agency has stated that 50 percent of 

projected revenues will be considered 

for start-up operations, comments 

addressing this requirement are 

encouraged. For those existing 

operations that have demonstrated a 

positive cash flow, 100 percent of 

projected revenues can be used in the 

determination of additional cash 

required. 

The interim rule at § 1738.208(b) also 

permits applicants to use an 

unconditional, irrevocable letter of 

credit (LOC) to satisfy any additional 

cash requirement. Issues of how long 

the LOC must remain in place and what 

specific standards it must meet are 

specified in this section. The section 

concludes in § 1738.208(c) with a 

discussion of the timing for providing 

needed cash infusions. 

Section 1738.209 Market Survey 

The proposed rule set out to reduce 

the burden on applicants by eliminating 

the requirement for a market survey in 

areas where the applicant projects a 

minimal penetration rate. This proposal 

generated considerable support from 

commenters: Out of the 13 comments 

filed, eight were generally supportive of 

the overall initiative, while another 

three pushed for more leniency. The 

2008 Farm Bill settled the question of 

how lenient to be by setting the 

penetration rate under which applicants 

were exempted from conducting a 

market survey at 20 percent. 

In an effort to improve the quality of 

the market surveys received, the interim 

rule articulates the Agency’s polices 

concerning what is required from a 

market survey. Specifically, 

§ 1738.209(a) requires a market survey 

for each service area that meets the 

proposed penetration threshold of 20 

percent, while § 1738.209(b) exempts 

those that will not achieve this 

penetration rate. In order for the project 

to be considered feasible, the market 

survey must demonstrate the need for 

the broadband service and support the 

financial projections. Section 

1738.209(c) specifies that the market 

study must not be more than six months 

old when the application is submitted 

and emphasizes that the market survey 

must support the financial projections. 

It goes on to specify that the Agency 

may require an updated market survey 

if the demographic characteristics in the 

proposed service area have changed 

significantly. 

The section further specifies at 

§ 1738.209(d) that the Administrator 

may modify the market survey 

requirements for loans in underserved 

service areas. 

Section 1738.210 Competitive Analysis 

This section codifies current Agency 

policy concerning its requirements for a 

competitive analysis. The competitive 

analysis is a critical component of the 

Agency’s financial feasibility analysis. 

The competitive analysis helps 

substantiate whether the applicant’s 

projected penetration rates are realistic 

given existing competition in the area. 

The interim rule provides greater detail 

about this requirement than the 

proposed rule provided in an effort to 

help applicants submit higher-quality 

applications. 

Section 1738.211 Financial 

Information 

This section codifies current Agency 

policy concerning the financial 

information it requires from applicants 

prior to making a determination of 

financial feasibility. The interim rule at 

§ 1738.211(a) provides detail about 

acceptable documentation to 

demonstrate the organization’s financial 

capacity, while § 1738.211(b) indicates 

the information required to demonstrate 

the proposed project’s financial 

viability. The rule specifies the types of 

historical financial information required 

and the form in which this information 

must be provided. It also provides 

guidance for applicants that cannot 

provide audited financial statements or 

are start-up organizations. The interim 

rule includes requirements specifying 

when financial information from parent 

or affiliated operations is required so the 

Agency can fully evaluate the financial 

wherewithal of these operations when 

they are important to the success of the 

project. 

In addition to the requirements 

presented in the interim rule, the 

Application Guide provides detailed 

procedural guidance to ensure that 

financial information submitted by the 

applicant matches closely with the 

Agency’s internal financial evaluation 

tools. This is expected to provide 

applicants with a clearer understanding 

of how the Agency evaluates financial 

feasibility. 

The interim rule maintains the 

minimum TIER of 1.25 but removes the 

maximum TIER of 2.0 as a regulatory 

ceiling. Section 1738.211(c) indicates 

that specific TIER requirements will be 

specified in the loan documents. 

Section 1738.212 Network Design 

This section codifies current Agency 

policy concerning the network design 

components that must be clearly 

described in an application to allow the 

Agency to make a determination of 

technical feasibility. In § 1738.212(a), 

the interim rule specifies essential 

categories of information that must be 

provided. These include information 

about service level objectives and 

monitoring ongoing service to ensure 

that applicants are considering how 

they will provide high quality service to 

customers after the system is built. 


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Section 1738.212(b) goes on to describe 

the required qualifications for the staff 

responsible for the network design. 

Finally, § 1738.212(c) notes that these 

requirements may be modified in 

underserved service areas. Procedural 

details are specified in the Application 

Guide. The Agency anticipates that by 

providing greater detail about these 

requirements, the interim rule will help 

ensure higher-quality applications. 

As described in § 1738.101 of this 

preamble, in its deliberations 

concerning network design, the Agency 

wrestled with the implications of 

establishing a single, aggressive, 

broadband lending speed. One of the 

implications not discussed above is that 

for some areas, it will be economically 

infeasible to provide service that meets 

the required broadband lending speed. 

In such hard-to-serve areas, even 

relatively slow broadband access, far 

below the broadband lending speed, 

would be an improvement over the 

current lack of service. Currently, no 

special provision is made for these hardto-serve areas. The Agency is 

particularly interested in receiving 

public comments concerning how a 

policy could be formulated in a way that 

would be feasible to implement fairly, 

that would maintain an aggressive 

broadband lending speed standard in 

most areas, but would permit some 

degree of service to be extended to hardto-serve areas. 

Section 1738.213 Loan Determination 

This section codifies current Agency 

policies concerning loan determination. 

These include ensuring that all statutory 

and regulatory requirements are met and 

demonstrating that the TIER 

requirement can be met. The section 

goes on to explain that applications that 

meet these requirements undergo a 

consistent loan review process and that 

all applicants receive a written response 

to their loan requests. By clarifying 

these steps, the interim rule provides for 

greater transparency concerning the 

Agency’s loan determination process 

and will help ensure consistency in how 

the Agency handles loan decisions. 

Subpart F—Closing, Servicing, and 

Reporting 

This subpart was added to the interim 

rule to provide borrowers with 

additional clarity and guidance about 

Agency policies on closing and postclosing activities. 

Section 1738.251 Loan Offer and Loan 

Closing 

This section provides general 

information about the steps and typical 

timing involved in the process of 

moving from the loan offer to loan 

closing. The section also articulates the 

importance for the applicant of meeting 

all conditions set down by the Agency 

by the required date in order to avoid 

termination of the loan offer. Finally, it 

specifies the conditions under which 

the Agency may approve a request for 

an extension if the applicant has 

difficulty meeting the conditions 

required for loan closing. These policies 

codify the Agency’s current approach to 

loan offer and loan closing and do not 

represent a change in Agency policy. 

Section 1738.252 Construction 

Agency loan documents specify that 

construction must comply with various 

regulations and bulletins. Section 

1738.252(a) lists key documents with 

which construction must comply, in 

order to ensure that potential applicants 

are aware of the requirements prior to 

submitting an application. 

Section 1738.252(b) discusses the 

circumstances under which applicants 

may enter into interim financing 

agreements and receive reimbursement 

from the loan funds if a loan is made. 

Section 1738.252(c) requires 

borrowers to begin construction within 

six months from the day they are 

notified that loan funds are available. 

The Agency occasionally approves a 

loan for a borrower that fails to follow 

through on the approved project within 

a reasonable time. Although the loan 

documents address this situation, the 

addition of this section to the interim 

rule makes explicit the Agency’s policy 

that the loan may be canceled if the 

borrower fails to perform. 

Section 1738.252(d) reminds the 

borrower in the context of the 

construction process that the build-out 

must be complete within three years 

from the day they are notified that loan 

funds are available. This requirement 

also is listed in § 1738.101(b)(2) in the 

discussion of eligible applicants. 

Section 1738.253 Servicing 

The borrower’s responsibilities after 

loan closing are spelled out in the loan 

documents. Sections 1738.253(a) and (b) 

have been added to the interim rule to 

codify the Agency’s essential policies 

that the borrower must make payments 

as required in the note and must comply 

with all terms, conditions, and 

covenants as stated therein. Section 

1738.253(c) specifies that in the event of 

default on any required payment or 

other term or condition, the Agency may 

exercise the default remedies provided 

in the loan documents. It further 

stipulates that if the Agency chooses not 

to exercise its default remedies, it does 

not waive its right to do so in the future. 

Section 1738.254 Accounting, 

Reporting, and Monitoring 

Requirements 

This section summarizes the 

borrower’s obligations with regard to 

accounting, reporting, and monitoring. 

Section 1738.254(a) articulates the 

Agency’s current policy that borrowers 

must adopt a system of accounts for 

maintaining financial records that is 

acceptable to the Agency. 

Section 1738.254(b) lays out the audit 

requirements for borrowers. 

Requirements for the first year of the 

loan may be different than subsequent 

years, and the differences are specified 

here. 

Finally, § 1738.254(e) requires 

borrowers to comply with all reasonable 

Agency requests to support ongoing 

monitoring efforts. An Agency initiative 

over the coming years will involve 

strengthening its ongoing monitoring 

and servicing efforts. Borrower 

compliance and cooperation will be 

essential to the success of this effort. 

This does not represent a change in the 

Agency’s policy but articulates it in the 

regulation rather than relying upon loan 

documents for this authority. 

Subpart G—Loan Guarantee 

The Agency received few comments 

on the loan guarantee sections of the 

proposed rule. Section 1738.301 of the 

interim rule clarifies that, with a few 

exceptions, the eligibility requirements, 

loan terms, and application review and 

underwriting policies are essentially the 

same for loan guarantees as for direct 

loans. The balance of subpart G remains 

substantively the same as in the 

proposed rule. Although loan 

guarantees have not been widely used in 

the past, the Agency encourages 

interested parties to provide feedback 

on the loan guarantee portion of the 

regulation. 

List of Subjects in 7 CFR Part 1738 

Broadband, Loan programscommunications, Rural areas, 

Telephone, Telecommunications. 

Accordingly, chapter XVII, title 7, 

Code of Federal Regulations is amended 

by revising part 1738 to read as follows: 

PART 1738–RURAL BROADBAND 

ACCESS LOANS AND LOAN 

GUARANTEES 

Subpart A—General 

Sec. 

1738.1 Overview. 

1738.2 Definitions. 

1738.3 Substantially underserved trust 

areas. 

1738.4–1738.50 [Reserved] 


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Subpart B—Eligible and Ineligible Loan 

Purposes 

1738.51 Eligible loan purposes. 

1738.52 Ineligible loan purposes. 

1738.53–1738.100 [Reserved] 

Subpart C—Eligibility Requirements 

1738.101 Eligible applicants. 

1738.102 Eligible service area. 

1738.103 Eligible service area exceptions 

for broadband facility upgrades. 

1738.104 Preliminary assessment of service 

area eligibility. 

1738.105–1738.150 [Reserved] 

Subpart D—Direct Loan Terms 

1738.151 General. 

1738.152 Interest rates. 

1738.153 Loan terms and conditions. 

1738.154 Loan security. 

1738.155 Special terms and conditions. 

1738.156 Other Federal requirements. 

1738.157–1738.200 [Reserved] 

Subpart E—Application Review and 

Underwriting 

1738.201 Application submission. 

1738.202 Elements of a complete 

application. 

1738.203 Priority for processing loan 

applications. 

1738.204 Public notice. 

1738.205 Notification of completeness. 

1738.206 Evaluation for feasibility. 

1738.207 Equity requirement. 

1738.208 Additional cash requirements. 

1738.209 Market survey. 

1738.210 Competitive analysis. 

1738.211 Financial information. 

1738.212 Network design. 

1738.213 Loan determination. 

1738.214–1738.250 [Reserved] 

Subpart F—Closing, Servicing, and 

Reporting 

1738.251 Loan offer and loan closing. 

1738.252 Construction. 

1738.253 Servicing. 

1738.254 Accounting, reporting, and 

monitoring requirements. 

1738.255–1738.300 [Reserved] 

Subpart G—Loan Guarantee 

1738.301 General. 

1738.302 Eligible guaranteed lenders. 

1738.303 Requirements for the loan 

guarantee. 

1738.304 Terms for guarantee. 

1738.305 Obligations of guaranteed lender. 

1738.306 Agency rights and remedies. 

1738.307 Additional policies. 

1738.308 Full faith and credit of the United 

States. 

1738.309–1738.349 [Reserved] 

1738.350 OMB control number. 

Authority: Pub. L. 107–171, 7 U.S.C. 901 

et seq. 

Subpart A—General 

§ 1738.1 Overview. 

(a) The Rural Broadband Access Loan 

and Loan Guarantee Program furnishes 

loans and loan guarantees to provide 

funds for the costs of construction, 

improvement, or acquisition of facilities 

and equipment needed to provide 

service at the broadband lending speed 

in eligible rural areas. This part sets 

forth the general policies, eligibility 

requirements, types and terms of loans 

and loan guarantees, and program 

requirements under Public Law 107–171 

and 7 U.S.C. 901 et seq. 

(b) Additional information and 

application materials regarding the 

Rural Broadband Access Loan and Loan 

Guarantee Program can be found on the 

Rural Development Web site. 

§ 1738.2 Definitions. 

(a) The following definitions apply to 

part 1738: 

Acquisition means the purchase of 

assets by acquiring facilities, equipment, 

operations, licenses, or majority stock 

interest of one or more organizations. 

Stock acquisitions must be arms-length 

transactions. 

Administrator means the 

Administrator of the Rural Utilities 

Service (RUS), or the Administrator’s 

designee. 

Advance means the transfer of loan 

funds from the Agency to the borrower. 

Affiliate or affiliated company of any 

specified person or entity means any 

other person or entity directly or 

indirectly controlling of, controlled by, 

under direct or indirect common control 

with, or related to, such specified entity, 

or which exists for the sole purpose of 

providing any service to one company 

or exclusively to companies which 

otherwise meet the definition of 

affiliate. This definition includes 

Variable Interest Entities as described in 

Financial Accounting Standards Board 

Interpretation (FIN) No. 46(R), 

Consolidation of Variable Interest 

Entities. For the purpose of this 

definition, ‘‘control’’ means the 

possession directly or indirectly, of the 

power to direct or cause the direction of 

the management and policies of a 

company, whether such power is 

exercised through one or more 

intermediary companies, or alone, or in 

conjunction with or pursuant to an 

agreement with, one or more other 

companies, and whether such power is 

established through a majority or 

minority ownership voting of securities, 

common directors, officers, or 

stockholders, voting trust, or holding 

trusts (other than money exchanged) for 

property or services. 

Agency means the Rural Utilities 

Service, which administers the United 

States Department of Agriculture’s 

(USDA’s) Rural Development Utilities 

Programs, including the Rural 

Broadband Access Loan and Loan 

Guarantee Program. 

Applicant means an entity requesting 

approval of a loan or loan guarantee 

under this part. 

Arm’s-length transaction means a 

transaction between two related or 

affiliated parties that is conducted as if 

they were unrelated, so that there is no 

question of conflict of interest, or a 

transaction between two otherwise 

unrelated or unaffiliated parties. 

Borrower means any organization that 

has an outstanding broadband or 

telecommunications loan made or 

guaranteed by the Agency. 

Broadband borrower means any 

organization that has an outstanding 

broadband loan made or guaranteed by 

the Agency. 

Broadband grant means a Community 

Connect or Broadband Initiatives 

Program grant approved by the Agency. 

Broadband lending speed means the 

minimum bandwidth requirement, as 

published by the Agency in its latest 

notice in the Federal Register that an 

applicant must propose to deliver to 

every customer in the proposed funded 

service area in order for the Agency to 

approve a broadband loan and may be 

different for fixed and mobile 

broadband service. Broadband lending 

speed may be different from the 

minimum rate of data transmission 

required to determine the availability of 

broadband service when qualifying a 

service area. If a new broadband lending 

speed is published in the Federal 

Register while an application is 

pending, the pending application may 

be returned unless the proposed 

broadband system can provide service at 

the new broadband lending speed. 

Returned applications will lose their 

place in the processing queue. 

Broadband loan means any loan 

approved under Title VI of the Rural 

Electrification Act of 1936 (RE Act). 

Broadband service means any 

technology identified by the 

Administrator as having the capacity to 

provide transmission facilities that 

enable the subscriber to the service to 

originate and receive high-quality voice, 

data, graphics, and video. The Agency 

will publish the minimum rate of data 

transmission that will qualify as 

broadband service in a notice in the 

Federal Register and this rate may be 

different for fixed and mobile 

broadband service. The minimum rate 

of data transmission that defines 

broadband service may be different than 

the broadband lending speed. If a new 

minimum rate of data transmission is 

published in the Federal Register while 

an application is pending, broadband 

service for the purpose of reviewing the 

application will be defined by the 

minimum rate of data transmission that 


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was required at the time the application 

was received by the Agency. 

Build-out means the construction, 

improvement, or acquisition of facilities 

and equipment. 

Competitive analysis means a study 

that identifies service providers and 

products in the service area that will 

compete with the applicant’s proposed 

project. 

Composite economic life means the 

weighted (by dollar amount of each 

class of facility in the loan) average 

economic life as determined by the 

Agency of all classes of facilities 

financed by the loan. 

Cost share means equity, as defined 

by generally accepted accounting 

principles (GAAP). 

Customer premises equipment (CPE), 

in the context of network services, 

means any network-related equipment 

(e.g. routers, switches, modems, etc.) 

used by a customer to connect to a 

service provider’s network. 

Derivative means any right, interest, 

instrument or security issued or traded 

on the credit of the guaranteed loan or 

any guaranteed loan portion, including 

but not limited to any participation 

share of, or undivided ownership or 

other equity interest in, the guaranteed 

loan or any guaranteed loan portion; any 

note, bond or other debt instrument or 

obligation which is collateralized or 

otherwise secured by a pledge of, or 

security interest in, the guaranteed loan 

or any guaranteed loan portion; or any 

such interest in such an interest or any 

such instrument secured by such an 

instrument. 

Economic life means the estimated 

useful service life of an asset financed 

by the loan, as determined by the 

Agency. 

Equity means total assets minus total 

liabilities, as determined by GAAP and 

as classified according to the Agency’s 

system of accounts and as used in this 

Part for purposes of section 306F of the 

RE Act includes the requirements of 

credit support and cost share in Title VI 

of the RE Act. 

Feasibility study means the evaluation 

of the pro forma financial analysis 

prepared by the Agency, based on the 

financial projections supplied by the 

applicant and as found acceptable by 

the Agency, to determine the financial 

feasibility of a loan request. Financial 

feasibility will be based on the entire 

operation of the applicant and not 

limited to the funded project. 

Financial feasibility means the 

applicant’s ability to generate sufficient 

revenues to cover its expenses, 

sufficient cash flow to service its debts 

and obligations as they come due, and 

meet the minimum Times Interest 

Earned Ratio (TIER) requirement of 1.25 

(see § 1738.211(b)(2)(ii)) by the end of 

the forecast period, as evaluated by the 

Agency. 

Fiscal year refers to the applicant or 

borrower’s fiscal year, unless otherwise 

indicated. 

Forecast period means the time period 

used in the feasibility study to 

determine if an application is 

financially feasible. Financial feasibility 

of a loan application is based on fiveyear projections. 

Funded service area means the 

geographic area within which an 

applicant proposes to offer service at the 

broadband lending speed using loan 

funds. (See also ‘‘service area.’’) 

GAAP means generally accepted 

accounting principles. 

Guaranteed-amount debt derivative 

means any note, bond, or other debt 

instrument or obligation which is 

collateralized or otherwise secured by a 

pledge of, or security interest in, the 

guaranteed loan note or any guaranteed 

loan portion note or any derivative, as 

the case may be, which has an exclusive 

or preferred claim to the guaranteed 

loan amount or the respective 

guaranteed loan portion amount or the 

respective guaranteed-amount 

equivalent, as the case may be. 

Guaranteed-amount equity derivative 

means any participation share of, or 

undivided ownership or other equity 

interest in, the guaranteed loan or any 

guaranteed loan portion or any 

derivative, as the case may be, which 

has an exclusive or preferred claim to 

the guaranteed loan amount or the 

respective guaranteed loan portion 

amount or the respective guaranteedamount equivalent, as the case may be. 

Guaranteed-amount equivalent 

means, with respect to any derivative 

which is equal in principal amount to 

the guaranteed loan or any guaranteed 

loan portion, that amount of payment on 

account of such derivative which is 

equal to the guaranteed loan amount or 

the respective guaranteed loan portion 

amount, as the case may be; or with 

respect to any derivative which in the 

aggregate are equal in principal amount 

to the guaranteed loan or any 

guaranteed loan portion, that amount of 

payment on account of such derivatives 

which is equal to the guaranteed loan 

amount or the respective guaranteed 

loan portion amount, as the case may 

be. 

Guaranteed loan amount means the 

amount of the loan which is guaranteed 

by the Agency. 

Guaranteed loan note means, 

collectively, the note or notes executed 

and delivered by the borrower to 

evidence the guaranteed loan. 

Guaranteed loan portion means any 

portion of the guaranteed loan. 

Guaranteed loan portion amount 

means that amount of payment on 

account of any guaranteed loan portion 

which is guaranteed under the terms of 

the guarantee. 

Guaranteed loan portion note means 

any note executed and delivered by the 

borrower to evidence a guaranteed loan 

portion. 

Grantee means any organization that 

has an outstanding broadband grant 

made by the Agency. 

Incumbent service provider (i) Means 

a service provider that: 

(A) Offers terrestrial broadband 

service in the proposed funded service 

area; 

(B) Has not less than five percent of 

the households in an applicant’s 

proposed funded service area 

subscribing to their broadband service at 

the time of application submission; and 

(C) Provides this information to the 

Agency through a timely response to the 

public notice described in § 1738.204. 

(ii) Resellers are not considered 

incumbent service providers. If an 

applicant proposes an acquisition, the 

applicant will be considered a service 

provider for that area. 

Indefeasible right to use agreement 

(IRU) means the effective long-term 

lease of the capacity, or a portion 

thereof, of a cable, specified in terms of 

a certain number of channels of a given 

bandwidth. 

Interim financing means funds used 

for eligible loan purposes after the 

applicant is notified by the Agency that 

the application is complete. Such funds 

may be eligible for reimbursement from 

loan funds if a loan is made. 

Loan means any loan made or 

guaranteed under this part by the 

Agency, unless otherwise noted. 

Loan contract means the loan 

agreement between the Agency and the 

borrower, including all amendments 

thereto. 

Loan documents means the loan 

agreement, note(s), and security 

instrument between the borrower and 

the Agency and any associated 

documents pertaining to the broadband 

loan. 

Loan guarantee means a loan made by 

another lender, some portion of which 

is guaranteed by the Agency. 

Loan guarantee documents means the 

guarantee agreement between RUS and 

the lender, the loan and security 

agreement(s) between the guaranteed 

lender and the borrower, the loan note 

guarantee made by RUS, the guaranteed 

loan note, and other security 

documents. 

Loan funds means funds provided 

pursuant to a broadband loan made or 


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guaranteed under this part by the 

Agency. 

Market survey means the collection of 

information on the supply, demand, 

usage, and rates for proposed services to 

be offered by an applicant within each 

service area. It supports the applicant’s 

financial projections. 

Pre-loan expense means any expense 

associated with the preparation of a loan 

application. Pre-loan expenses may be 

reimbursed with loan funds, as 

approved by RUS. 

RE Act means the Rural Electrification 

Act of 1936, as amended (7 U.S.C. 901 

et seq.). 

Reject means that the Agency returns 

the application to the applicant and 

discontinues processing of the loan 

application because the application 

failed to meet the requirements set forth 

herein. If an application is rejected, the 

loan application loses its place in the 

application processing queue. 

Reseller means, in the context of 

network services, a company that 

purchases network services from 

network service providers in bulk and 

resells them to commercial businesses 

and residential households. Resellers 

are not considered incumbent service 

providers. 

Rural area means any area, as 

confirmed by the latest decennial 

census of the Bureau of the Census, 

which is not located within: 

(i) A city, town, or incorporated area 

that has a population of greater than 

20,000 inhabitants; or 

(ii) An urbanized area contiguous and 

adjacent to a city or town that has a 

population of greater than 50,000 

inhabitants. For purposes of the 

definition of rural area, an urbanized 

area means a densely populated 

territory as defined in the latest 

decennial census of the U.S. Census 

Bureau. 

Security documents means any 

mortgage, deed of trust, security 

agreement, financing statement, or other 

document which grants to the Agency or 

perfects a security interest, including 

any amendments and supplements 

thereto. 

Service area means the geographic 

area within which a service provider 

offers telecommunications service. 

Service level objectives (SLOs) means 

the characteristics of the service to be 

delivered to the customer, for example 

the speed with which new service will 

be established, service availability, and 

response time for reports of system 

failure at a residence. 

Service provider means an entity 

providing telecommunications service. 

Service territory means ‘‘service area.’’ 

Start-up means a new business 

venture without operations or service 

delivery available. 

System of accounts means the 

Agency’s system of accounts for 

maintaining financial records as 

described in RUS Bulletin 1770B–1. 

Telecommunications means 

electronic transmission and reception of 

voice, data, video, and graphical 

information using wireline and wireless 

transmission media. 

Telecommunications loan means any 

telecommunication loan made or 

guaranteed under Title II, III, or IV of 

the RE Act. 

TIER means times interest earned 

ratio. TIER is the ratio of an applicant’s 

net income (after taxes) plus (adding 

back) interest expense, all divided by 

interest expense (existing and that 

required in the proposed loan), and with 

all financial terms defined by GAAP. 

Underserved household or 

Underserved area means a household or 

an area that is not offered broadband 

service, or that is offered broadband 

service by only one incumbent service 

provider. 

Unguaranteed amount equivalent 

means all amounts of payment on 

account of any derivative other than the 

respective guaranteed-amount 

equivalent. 

Unguaranteed loan amount means all 

amounts of payment on account of the 

guaranteed loan other than the 

guaranteed amount. 

Unguaranteed loan portion amount 

means all amounts of payment on 

account of any guaranteed loan portion 

other than the respective guaranteed 

loan portion amount. 

(b) Accounting terms not otherwise 

defined in this part shall have the 

definition ascribed to them under GAAP 

and shall be recorded using the 

Agency’s system of accounts. 

§ 1738.3 Substantially underserved trust 

areas. 

(a) If the Administrator determines 

that a community in ‘‘trust land’’ (as 

defined in section 3765 of title 38, 

United States Code) has a high need for 

the benefits of the Broadband Loan 

Program, he/she may designate the 

community as a ‘‘substantially 

underserved trust area’’ (as defined in 

section 306F of the RE Act). 

(b) In order to improve the availability 

of the Broadband Loan Program in 

communities in substantially 

underserved trust areas, the 

Administrator retains the discretion to 

(1) Make available to qualified 

utilities or applicants, financing with an 

interest rate as low as 2 percent, and 

with extended repayment terms; 

(2) Waive nonduplication restrictions, 

matching fund and equity requirements, 

or credit support requirements; and 

(3) Give the highest funding priority 

to designated projects in substantially 

underserved trust areas. 

(c) The Administrator will only make 

loans and loan guarantees that RUS 

finds are financially feasible and that 

provide eligible program benefits to 

substantially underserved trust areas. 

(d) Applicants should notify the 

National Office before preparing their 

applications that they are planning to 

seek waivers or adjustments based on 

this section (see § 1738.201). 

§§ 1738.4–1738.50 [Reserved] 

Subpart B—Eligible and Ineligible Loan 

Purposes 

§ 1738.51 Eligible loan purposes. 

Loan funds may be used to pay for the 

following expenses: 

(a) To fund the construction, 

improvement, or acquisition of all 

facilities required to provide service at 

the broadband lending speed to rural 

areas, including facilities required for 

providing other services over the same 

facilities. 

(b) To fund the cost of leasing 

facilities required to provide service at 

the broadband lending speed if such 

lease qualifies as a capital lease under 

GAAP. Notwithstanding, loan funds can 

only be used to fund the cost of the 

capital lease for no more than the first 

three years of the loan amortization 

period. 

(c) To fund an acquisition, provided 

that: 

(1) The acquisition is necessary for 

furnishing or improving service at the 

broadband lending speed; 

(2) The acquired service area, if any, 

meets the eligibility requirements set 

forth in § 1738.102; 

(3) The acquisition cost does not 

exceed 50 percent of the broadband loan 

amount; and 

(4) For the acquisition of another 

entity, the purchase provides the 

applicant with a controlling majority 

interest in the entity acquired. 

(d) To refinance an outstanding 

telecommunications loan made under 

the RE Act if refinancing the loan 

supports the construction, 

improvement, or acquisition of facilities 

and equipment for the provision of 

service at the broadband lending speed 

in rural areas provided that: 

(1) No more than 40 percent of the 

broadband loan amount is used to 

refinance the outstanding 

telecommunications loan; 


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(2) The applicant is current with its 

payments on the telecommunication 

loan(s) to be refinanced; and 

(3) The amortization period for that 

portion of the broadband loan that will 

be needed for refinancing will not 

exceed the remaining amortization 

period for the telecommunications 

loan(s) to be refinanced. If multiple 

notes are being refinanced, an average 

remaining amortization period will be 

calculated based on the weighted dollar 

average of the notes being refinanced. 

(e) To fund pre-loan expenses in an 

amount not to exceed five percent of the 

broadband loan excluding amounts 

requested to refinance outstanding 

telecommunication loans. Pre-loan 

expenses may be reimbursed only if 

they are incurred prior to the date on 

which notification of a complete 

application is issued (see § 1738.205). 

§ 1738.52 Ineligible loan purposes. 

Loan funds must not be used for any 

of the following purposes: 

(a) To fund operating expenses of the 

applicant; 

(b) To fund costs incurred prior to the 

date on which notification of a complete 

application is issued (see § 1738.205), 

with the exception of eligible pre-loan 

expenses (see 1738.51(e)). 

(c) To fund the acquisition of the 

stock of an affiliate. 

(d) To fund the purchase or 

acquisition of any facilities or 

equipment of an affiliate, unless 

approved by the Agency in writing. The 

Agency may approve such a purchase or 

acquisition if the applicant 

demonstrates that the purchase or 

acquisition will involve an arms-length 

transaction and that the cost is 

advantageous for the applicant. 

(e) To fund the purchase of CPE and 

the installation of associated inside 

wiring unless the CPE will be owned by 

the applicant throughout its economic 

life or 

(1) The applicant pledges additional 

collateral that is not currently owned by 

the applicant, acceptable to the Agency. 

Such collateral must have a value at 

least equal to the purchase price of the 

CPE and cannot be purchased with loan 

funds; or 

(2) The applicant establishes a 

revolving fund for the initial purchase 

of CPE to be sold, and as CPE is sold to 

the customer, at least the applicant’s 

cost of such equipment is returned to 

the revolving fund and used to purchase 

additional CPE units. 

(f) To fund the purchase or lease of 

any vehicle unless it is used primarily 

in construction or system 

improvements. 

(g) To fund the cost of systems or 

facilities that have not been designed 

and constructed in accordance with the 

loan contract and other applicable 

requirements. 

(h) To fund broadband facilities 

leased under the terms of an operating 

lease. 

(i) To fund merger or consolidation of 

entities. 

§§ 1738.53–1738.100 [Reserved] 

Subpart C—Eligibility Requirements 

§ 1738.101 Eligible applicants. 

(a) To be eligible for a broadband 

loan, an applicant may be either a 

nonprofit or for-profit organization, and 

must take one of the following forms: 

(1) Corporation; 

(2) Limited liability company (LLC); 

(3) Cooperative or mutual 

organization; 

(4) Indian tribe or tribal organization 

as defined in 25 U.S.C. 450b; or 

(5) State or local government, 

including any agency, subdivision, or 

instrumentality thereof. 

(b) To be eligible for a broadband 

loan, the applicant must: 

(1) Submit a loan application which 

meets the requirements set forth herein 

as well as any additional requirements 

published in the Federal Register; 

(2) Agree to complete the build-out of 

the broadband system described in the 

loan application within three years from 

the day the applicant is notified that 

loan funds are available. The loan 

application must demonstrate that all 

proposed construction be completed 

within this three year period with the 

exception of CPE. CPE can be funded 

throughout the forecast period; 

(3) Demonstrate an ability to furnish, 

improve, or extend broadband facilities 

to provide service at the broadband 

lending speed in rural areas; 

(4) Demonstrate an equity position 

equal to at least 10 percent of the 

amount of the loan requested in the 

application (see § 1738.207); and 

(5) Provide additional security if it is 

necessary to ensure financial feasibility 

(see § 1738.208) as determined by the 

Administrator. 

§ 1738.102 Eligible service area. 

(a) A service area may be eligible for 

a broadband loan if all of the following 

are true: 

(1) The service area is completely 

contained within a rural area; 

(2) At least 25 percent of the 

households in the service area are 

underserved households; 

(3) No part of the service area has 

three or more incumbent service 

providers; 

(4) No part of the funded service area 

overlaps with the service area of current 

RUS borrowers and grantees; 

(5) No part of the funded service area 

is included in a pending application 

before RUS seeking funding to provide 

broadband service. If two or more 

applications are submitted for the same 

service area, a lending decision must be 

made on the application that was 

submitted to the Agency first before a 

lending decision can be made on the 

other application(s). 

(b) Multiple service areas may be 

included in a single broadband loan 

application. Non-contiguous areas are 

considered separate service areas and 

must be treated separately for the 

purpose of determining service area 

eligibility. If non-contiguous areas 

within an application are determined to 

be ineligible, the Agency may pursuant 

to this regulation consider the 

remaining areas in the application. If an 

applicant fails to respond to agency 

requests for additional information or 

modifications to remove ineligible areas, 

the application may be returned and the 

application will lose its place in the 

processing queue. 

§ 1738.103 Eligible service area exceptions 

for broadband facility upgrades. 

(a) Broadband borrowers that apply to 

upgrade existing broadband facilities in 

its existing service area are exempt from 

the requirement concerning the number 

of underserved households in 

§ 1738.102(b)(2). 

(b) Incumbent service providers, 

including borrowers and grantees, 

which apply to upgrade existing 

broadband facilities in existing service 

territories are exempt from the 

requirement concerning the number of 

incumbent service providers in 

§ 1738.102(b)(3) unless they are eligible 

for funding under Titles II and III of the 

RE Act. Eligibility requirements for 

entities that would be eligible under 

Titles II and III can be found in 7 CFR 

part 1735. 

(c) An applicant which is a borrower, 

grantee or incumbent service provider 

may submit one application to upgrade 

existing broadband facilities in existing 

service areas, which qualify for the 

exemptions specified in paragraphs (a) 

and (b) of this section, and to expand 

services at the broadband lending speed 

into new service areas, provided the 

upgrade area and the expansion area are 

proposed as two separate service areas 

even if the upgrade and expansion areas 

are contiguous. 

(d) The applicant will be asked to 

remove areas determined to be ineligible 

from their funding request. The 

application will then be evaluated on 


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the basis of what remains. The applicant 

may be requested to provide additional 

information to the agency relating to the 

ineligible areas. If the applicant fails to 

respond, the application will be 

returned and the application will lose 

its place in the processing queue. 

§ 1738.104 Preliminary assessment of 

service area eligibility. 

(a) The Agency will make information 

available to prospective applicants to 

allow a preliminary assessment of a 

proposed service area’s eligibility. At a 

minimum, the prospective applicant 

will be able to determine: 

(1) Whether the proposed service area 

is located in a rural area; 

(2) Whether the proposed service area 

overlaps with any part of a borrower’s 

or grantee’s service area; and 

(3) Whether the proposed service area 

overlaps with any part of a proposed 

service area in a pending application for 

a loan. 

(b) A preliminary assessment of 

service area eligibility does not account 

for all eligibility factors, and the 

situation within a proposed service area 

may change between the preliminary 

assessment and application submission. 

A preliminary assessment indicating 

that a proposed service area may be 

eligible does not guarantee that the area 

will remain eligible at the time of 

application. 

§§ 1738.105–1738.150 [Reserved] 

Subpart D—Direct Loan Terms 

§ 1738.151 General. 

(a) Direct loans shall be in the form of 

a cost-of-money loan, a 4-percent loan, 

or a combination of the two. 

(b) The amount of funds available for 

each type of loan, as well as maximum 

and minimum loan amounts, will be 

published in the Federal Register. 

(c) An applicant that provides 

telecommunications or broadband 

service to at least 20 percent of the 

households in the United States is 

limited to a loan amount that is no more 

than 15 percent of the funds available to 

the Broadband Loan Program for the 

Federal fiscal year. 

§ 1738.152 Interest rates. 

(a) Direct cost-of-money loans shall 

bear interest at a rate equal to the cost 

of borrowing to the Department of 

Treasury for obligations of comparable 

maturity. The applicable interest rate 

will be set at the time of each advance. 

(b) [Reserved]. 

§ 1738.153 Loan terms and conditions. 

Terms and conditions of loans are set 

forth in a mortgage, note, and loan 

contract. Samples of the mortgage, note, 

and loan contract can be found on the 

Agency’s Web site. 

(a) Unless requested to be shorter by 

the applicant, broadband loans must be 

repaid with interest within a period 

that, rounded to the nearest whole year, 

is equal to the expected composite 

economic life of the assets to be 

financed, as determined by the Agency 

based upon acceptable depreciation 

rates. 

(b) Loan advances are made at the 

request of the borrower. Principal 

payments for each advance are 

amortized over the remaining term of 

the loan and are due monthly. Principal 

payments will be deferred until one year 

after the date of the first advance of loan 

funds. Interest begins accruing when the 

advance is made and interest payments 

are due monthly, with no deferral 

period. 

(c) Borrowers are required to carry 

fidelity bond coverage. Generally this 

amount will be 15 percent of the loan 

amount, not to exceed $5 million. The 

Agency may reduce the percentage 

required if it determines that the 

amount is not commensurate with the 

risk involved. 

§ 1738.154 Loan security. 

(a) The broadband loan must be 

secured by the assets purchased with 

the loan funds, as well as all other assets 

of the applicant and any other signer of 

the loan documents except as provided 

in § 1738.155. 

(b) The Agency must be given an 

exclusive first lien, in form and 

substance satisfactory to the Agency, on 

all of the applicant’s property and 

revenues and such additional security 

as the Agency may require. The Agency 

may share its first lien position with 

another lender on a pari passu, prorated 

basis if security arrangements are 

acceptable to the Agency. 

(c) Unless otherwise designated by the 

Agency, all property purchased with 

loan funds must be owned by the 

applicant. 

(d) In the case of loans that include 

financing of facilities that do not 

constitute self-contained operating 

systems, the applicant shall furnish 

assurance, satisfactory to the Agency, 

that continuous and efficient service at 

the broadband lending speed will be 

rendered. 

(e) The Agency will require financial, 

investment, operational, reporting, and 

managerial controls in the loan 

documents. 

§ 1738.155 Special terms and conditions. 

(a) The Agency may, when it is in the 

best interest of the Agency and its 

mission, the affected community, and 

the applicant, aid in achieving financial 

feasibility in an underserved area by 

taking the following steps: 

(1) Extend the loan term up to 35 

years, and 

(2) Modify its security requirements. 

(b) The Agency may reduce the 

security requirements discussed in 

§ 1738.154(a) to ensure that the security 

is commensurate with the risk involved. 

§ 1738.156 Other Federal requirements. 

(a) To receive a broadband loan, the 

applicant must certify or agree in 

writing to comply with a variety of 

Federal regulations including, but not 

limited to: 

(1) The nondiscrimination and equal 

employment opportunity requirements 

of Title VI of the Civil Rights Act of 

1964, as amended (7 CFR part 15); 

(2) Section 504 of the Rehabilitation 

Act of 1973, as amended (29 U.S.C. 794 

et seq.; 7 CFR part 15b); 

(3) The Age Discrimination Act of 

1975, as amended (42 U.S.C. 6101 et 

seq.; 45 CFR Part 90); 

(4) Executive Order 11375, amending 

Executive Order (E.O.) 11246, Relating 

to Equal Employment Opportunity 

(3 CFR, 1966–1970). See 7 CFR parts 15 

and 15b and 45 CFR part 90, RUS 

Bulletin 1790–1 (‘‘Nondiscrimination 

Among Beneficiaries of RUS Programs’’), 

and RUS Bulletin 20–15:320–15 (‘‘Equal 

Employment Opportunity in 

Construction Financed with RUS 

Loans’’); 

(5) The Architectural Barriers Act of 

1968, as amended (42 U.S.C. 4151 et 

seq.); 

(6) The Uniform Federal Accessibility 

Standards (UFAS) (Appendix A to 41 

CFR subpart 101–19.6); 

(7) The requirements of the National 

Environmental Policy Act of 1969 

(NEPA), as amended; 

(8) The Council on Environmental 

Quality Regulations for Implementing 

the Procedural Provisions of NEPA and 

certain related Federal environmental 

laws, statutes, regulations, and 

Executive Orders found in 7 CFR part 

1794; 

(9) The Uniform Relocation 

Assistance and Real Property 

Acquisition Policies Act of 1970, as 

amended, 42 U.S.C. 4601 et seq., and 

with implementing Federal regulations 

in 49 CFR part 24 and 7 CFR part 21; 

(10) The regulations implementing 

E.O. 12549, Debarment and Suspension, 

7 CFR 3017.510, Participants’ 

Responsibilities; 

(11) The requirements regarding 

Lobbying for Contracts, Grants, Loans, 

and Cooperative Agreements in 31 

U.S.C. 1352; 


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(12) Certification regarding Flood 

Hazard Area Precautions; 

(13) Certification regarding 

Debarment, Suspension, and Other 

Responsibility Matters—Primary 

Covered Transactions; and 

(14) Certification that the borrower is 

not delinquent on any Federal debt and 

has been informed of the collection 

options the Federal Government may 

use to collect delinquent debt. 

(b) Applicants must agree in writing 

to comply with all Federal, State and 

local laws, rules, regulations, 

ordinances, codes, and orders 

applicable to the project. 

§§ 1738.157–1739.200 [Reserved] 

Subpart E—Application Review and 

Underwriting 

§ 1738.201 Application submission. 

(a) Loan applications must be 

submitted directly to the Agency’s 

National Office or to the General Field 

Representative (GFR) that is assigned to 

the area where the applicant’s 

headquarters are located. A list of GFRs 

and the areas they are assigned can be 

found on the Agency’s Web site. All 

applications must contain two hard 

copies and an electronic copy of the 

entire application. An application is 

considered received upon receipt of the 

hard and electronic copies by the 

National Office. The date and time of 

that receipt will establish the 

application’s placement in the 

processing queue. 

(b) The Agency may publish 

additional application submission 

requirements in the Federal Register. 

§ 1738.202 Elements of a complete 

application. 

An applicant must submit to the 

Agency a complete application in a 

format as required by the Agency in the 

Rural Broadband Access Loan and Loan 

Guarantee Program Application Guide 

(the Application Guide). To be 

considered complete, the application 

must contain at least the following 

items, each of which must be completed 

in a manner acceptable to the Agency: 

(a) A completed RUS Form 532, 

including any additional items required 

by the form; 

(b) Information required for the public 

notice to determine service area 

eligibility (see § 1738.204); 

(c) Documentation demonstrating how 

the applicant will meet the equity 

requirement (see § 1738.207); 

(d) A market survey, unless not 

required by § 1738.209(b); 

(e) A competitive analysis (see 

§ 1738.210); 

(f) Required financial information (see 

§ 1738.211); 

(g) A network design (see § 1738.212); 

(h) A legal opinion that addresses the 

applicant’s ability to enter into a loan as 

requested in the loan application, to 

pledge security as required by the 

Agency, to describe all pending 

litigation matters, and such other 

requirements as are detailed in the 

Application Guide; 

(i) All required licenses and 

regulatory approvals for the proposed 

operation or the status of obtaining 

these items; and 

(j) Additional items that may be 

required by the Administrator through a 

notice in the Federal Register. 

§ 1738.203 Priority for processing loan 

applications. 

(a) Except as provided in Section 

306F of the RE Act (SUTA) and section 

1738.3 herein, in making or 

guaranteeing loans, the Agency shall 

give priority to applications in the 

following order: 

(1) Applications in which no 

broadband service is available in any 

funded service area; 

(2) Applications in which at least 75 

percent of households in the funded 

service area have no incumbent service 

provider. For applications with multiple 

funded service areas, the 75 percent 

calculation is based on all funded 

service areas combined; 

(3) Applications in which at least 50 

percent of households in the funded 

service area have no incumbent service 

provider. For applications with multiple 

funded service areas, the 50 percent 

calculation is based on all funded 

service areas combined; 

(4) Applications in which at least 25 

percent of households in the funded 

service area have no incumbent service 

provider. For applications with multiple 

funded service areas, the 25 percent 

calculation is based on all funded 

service areas combined; and 

(5) All other applications. 

(b) Once applications have been 

prioritized according to the criteria 

listed in paragraph (a) of this section, 

the applications will be processed on a 

first-in, first-out basis within each 

priority category. 

(c) The Agency shall establish the 

National and State reserve levels in 

accordance with Title VI of the RE Act. 

In instances when funds in a particular 

area are insufficient to cover a loan 

request, priority will be given to 

processing applications for which 

funding is available. 

§ 1738.204 Public notice. 

(a) The Agency will publish a public 

notice of each application. The 

application must provide a summary of 

the information required for such public 

notice including all of the following 

information: 

(1) The identity of the applicant; 

(2) A map of each service area 

showing the rural area boundaries and 

the underserved areas using the 

Agency’s Mapping Tool; 

(3) The estimated number of 

underserved households in each service 

area; 

(4) The estimated number of 

households without terrestrial-based 

broadband service in each service area; 

and 

(5) A description of all the types of 

services that the applicant proposes to 

offer in each service area. 

(b) The Agency will publish the 

public notice on an Agency webpage 

after the application has been received 

in the Agency’s National Office. The 

notice will remain on the webpage for 

a period of 30 calendar days. The notice 

will ask existing service providers to 

submit to the Agency, within this 30- 

day period, the following information: 

(1) The number of residential and 

business customers within the 

applicant’s service area that are 

currently offered broadband service by 

the existing service provider; 

(2) The number of residential and 

business customers within the 

applicant’s service area currently 

purchasing the existing service 

provider’s broadband service, the rates 

of data transmission being offered, and 

the cost of each level of broadband 

service charged by the existing service 

provider; 

(3) The number of residential and 

business customers within the 

applicant’s service area receiving the 

existing service provider’s nonbroadband services and the associated 

rates for these other services; and 

(4) A map showing where the existing 

service provider’s services coincide 

with the applicant’s service area using 

the Agency’s Mapping Tool. 

(5) Whether the existing service 

provider is an existing RUS borrower or 

grantee. 

(c) The Agency will use the 

information submitted to determine if 

the existing service provider will be 

classified as an incumbent service 

provider. If an existing service provider 

does not submit a response within the 

timeframe specified in the public notice, 

it will not be considered an incumbent 

service provider. However, all existing 

service providers will be considered in 

the Agency’s feasibility study and 

lending decision. 

(d) The Agency will determine 

whether the service areas included in 


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the application are eligible for funding 

based on the information provided 

during the public notice period, 

whether all portions of the service area 

qualify as rural areas, and the number 

of incumbent service providers 

servicing any portion of the service area. 

If the applicant’s funded service area is 

ineligible, the Agency will contact the 

applicant and require that those 

ineligible areas be removed from the 

funded service area. If the ineligible 

service areas are not removed from the 

funding request, the Agency will reject 

the application and remove it from the 

processing queue. The applicant will be 

notified, in writing, and the application 

will be returned with an explanation of 

the reasons for the rejection. 

(e) The information submitted by an 

existing service provider will be treated 

as proprietary and confidential to the 

extent permitted under applicable law. 

§ 1738.205 Notification of completeness. 

If all funded service areas are eligible, 

the Agency will review the application 

for completeness. The completeness 

review will include an assessment of 

whether all required documents and 

information have been submitted and 

whether the information provided is of 

adequate quality to allow further 

analysis. 

(a) If the application contains all 

required documents and information 

and is of adequate quality, the Agency 

will notify the applicant, in writing, that 

the application is complete. The 

notification of completeness will mark 

the date as of which costs incurred for 

the eligible purposes listed in 

§ 1738.51(a) through (d) can be 

reimbursed with loan funds if the loan 

is ultimately made and proper 

procedures have been followed. A 

notification of completeness is not a 

commitment that the loan will be 

approved. 

(b) If the application is of adequate 

quality but does not contain all required 

documents and information, the Agency 

will notify the applicant, in writing, that 

the application is incomplete. The 

notification of incompleteness will 

include a list of items that the applicant 

must address and will specify a date by 

which the applicant’s additional 

information must be received. 

(1) If the applicant fails to respond by 

the specified date, the application will 

be rejected. 

(2) If the applicant responds by the 

specified date but does not satisfactorily 

address the issues identified, the 

Agency will assess the applicant’s 

progress toward submission of a 

complete application. If the applicant 

has made progress acceptable to the 

Agency, a second notification of 

incompleteness will be provided. If the 

applicant’s progress is not acceptable to 

the Agency, the application will be 

rejected. 

(c) If the application is considered to 

be of inadequate quality, the Agency 

will notify the applicant, in writing, that 

the application has been rejected. The 

rejection letter will include an 

explanation of the reasons for the 

rejection and the application will be 

removed from the queue. 

§ 1738.206 Evaluation for feasibility. 

After an applicant is notified that the 

application is complete, the Agency will 

evaluate the application’s financial and 

technical feasibility. The Agency will 

only make a broadband loan if the 

applicant’s financial operations, taking 

into account the impact of the facilities 

financed with the proceeds of the loan 

and the associated debt, are financially 

and technically feasible, as determined 

by the Agency. 

(a) The Agency will determine 

financial feasibility by evaluating the 

applicant’s equity, market survey (if 

required), competitive analysis, 

financial information, and other 

relevant information in the application. 

(b) The Agency will determine 

technical feasibility by evaluating the 

applicant’s network design and other 

relevant information in the application. 

§ 1738.207 Equity requirement. 

(a) To be eligible for a loan, an 

applicant must demonstrate a minimum 

equity position equal to 10 percent of 

the requested loan amount at the time 

of application which must remain 

available at loan closing. In addition to 

this minimum equity requirement, 

please refer to section § 1738.208, 

Additional Cash Requirements which 

could cause the equity requirement to 

be higher than 10 percent. 

(b) If the applicant does not have the 

required equity at the time the 

application is submitted, the applicant 

may satisfy the equity requirement at 

the time of application with an 

investor’s unconditional legal 

commitment to cover the shortfall by 

providing additional equity. The 

additional equity must be transferred to 

the applicant prior to loan closing. If 

this option is elected, the applicant 

must provide evidence in the 

application that clearly identifies the 

investor’s commitment to the applicant; 

the amount, terms, and conditions of the 

investment; and the investor’s bank or 

financial statements that demonstrate its 

ability to fulfill its commitment. The 

terms and conditions of the investment 

must be acceptable to the Agency, 

which generally prohibits redemption of 

the investment until such time as stated 

requirements and financial thresholds 

are achieved by the applicant. The 

Agency will reject applications that do 

not provide evidence acceptable to the 

Agency regarding the investor’s 

commitment. 

(c) For State and local government 

applicants, the equity requirement can 

be satisfied with a general obligation 

bond, as long as the additional equity 

will be available to the applicant at 

closing. If the equity requirement is 

satisfied with a general obligation bond, 

the broadband loan cannot be 

subordinate to the bond. The applicant 

must submit an opinion from its legal 

counsel that the applicant has the 

authority to issue a general obligation 

bond in an amount sufficient to meet 

the minimum equity requirement. 

Revenue bonds supported by the 

operations to be funded cannot be used 

to satisfy the equity requirement. 

§ 1738.208 Additional cash requirements. 

(a) If the Agency’s financial analysis 

indicates that the applicant’s entire 

operation (existing operations and new 

operations combined) will show a 

negative cash balance at the end of any 

year during the five-year forecast period, 

the Agency will require the applicant to 

obtain additional cash infusions 

necessary to maintain an appropriate 

cash balance throughout the five-year 

forecast period. This cash infusion 

would be in conjunction with the 

required 10 percent minimum equity 

position. 

(1) The Agency will require the 

applicant and its investors to: 

(i) Infuse additional cash to cover 

projected deficits for the first two years 

of operations at loan closing; and 

(ii) Enter into legal arrangements that 

commit them to making additional cash 

infusions to ensure that the operation 

will sustain a positive cash position on 

a quarterly basis throughout the fiveyear forecast period. 

(2) For purposes of identifying the 

additional cash requirement for a startup operation or an operation that has 

not demonstrated positive cash flow for 

the two years prior to the submission 

date of the application, 50 percent of 

projected revenues for each year of the 

five-year forecast period will be 

considered to determine if an operation 

can sustain a positive cash position. In 

addition to the initial financial 

projections required to demonstrate 

financial feasibility, such applicants 

must complete adjusted financial 

projections using the reduced revenue 

projections in order to identify the 

amount of additional cash that will be 


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Federal Register / Vol. 76, No. 49 / Monday, March 14, 2011 / Rules and Regulations 13793 

required. Projections must be fully 

supported with assumptions acceptable 

to the Agency. The applicant may 

present evidence in its loan application 

that projected revenues or a portion of 

projected revenues are based on binding 

commitments and request that more 

than 50 percent of the projected 

revenues be considered for the purpose 

of identifying the additional cash 

requirement. 

(3) For purposes of satisfying the 

additional cash requirements for an 

existing operation that has 

demonstrated a positive cash flow for 

the two fiscal years prior to the 

submission date of the application, 100 

percent of the projected revenues for 

each year of the five-year forecast period 

will be used to determine if an 

operation can sustain a positive cash 

position, as long as these projections are 

fully supported with assumptions 

acceptable to the Agency. 

(4) If debt is incurred to satisfy the 

additional cash requirement, this debt 

must take a subordinate lien position to 

the Agency debt and must be at terms 

acceptable to the Agency. 

(b) An applicant may satisfy the 

additional cash requirement with an 

unconditional, irrevocable letter of 

credit (LOC) satisfactory to the Agency. 

The LOC must be issued from a 

financial institution acceptable to the 

Agency and must remain in effect 

throughout the forecast period. The 

applicant and the Agency must both be 

payees under the LOC. The LOC must 

have payment conditions acceptable to 

the Agency, and it must be in place 

prior to loan closing. The applicant 

cannot secure the LOC with its assets 

and cannot pay for any LOC charges or 

fees with its funds. 

(c) If the Agency offers a loan to the 

applicant, the applicant must ensure 

that the additional cash infusion 

required in the first two years is 

deposited into its bank account within 

120 days from the date the applicant 

signs the loan offer letter (see 

§ 1738.251) and must enter into any 

other legal arrangements necessary to 

cover further projected operating 

deficits (or in the case of the LOC, to 

provide an acceptable LOC to the 

Agency) prior to closing. If these 

requirements are not completed within 

this timeframe, the loan offer will be 

terminated, unless the applicant 

requests and the Agency approves an 

extension based on extenuating 

circumstances that the Agency was not 

aware of at the time the offer was made. 

(d) The Administrator may modify the 

requirements of this section for loans in 

service areas that are underserved when 

it is in the best interests of the Agency. 

§ 1738.209 Market survey. 

(a) Except as provided in paragraph 

(b) of this section, the applicant must 

complete a separate market survey for 

each service area where the applicant 

proposes to provide service at the 

broadband lending speed. Each market 

survey must demonstrate the need for 

the service at the broadband lending 

speed, support the projected penetration 

rates and price points for the services to 

be offered, and support the feasibility 

analysis. The market survey must also 

address all other services that will be 

provided in connection with the 

broadband loan. Additional information 

on the requirements of the market 

survey can be found in the Application 

Guide. 

(b) The applicant is not required to 

complete a market survey for any 

service offering for which the applicant 

is projecting less than a 20 percent 

penetration rate in each service area by 

the end of the five-year forecast period. 

For example, if the applicant is 

projecting a penetration rate of 30 

percent for data services and 15 percent 

for video services, a market survey must 

be completed for the data services. The 

proposed prices for those services with 

a projected penetration rate less than 20 

percent must be affordable, as 

determined by the Agency. 

(c) For a market survey to be 

acceptable to the Agency, it must have 

been completed within six months of 

the application submission date. The 

Agency may reject any application in 

which the financial projections are not 

supported by the market survey. If the 

demographics of the proposed service 

area have significantly changed since 

the survey was completed, the Agency 

may require an updated market survey. 

(d) The Administrator may modify the 

requirements of this section for loans in 

service areas that are underserved when 

it is in the best interests of the Agency. 

§ 1738.210 Competitive analysis. 

The applicant must submit a 

competitive market analysis for each 

service area regardless of projected 

penetration rates. Each analysis must 

identify all existing service providers 

and all resellers in each service area 

regardless of the provider’s market 

share, for each type of service the 

applicant proposes to provide. This 

analysis must include each competitor’s 

rate packages for all services offered, the 

area that is being covered, and to the 

extent possible, the quality of service 

being provided. 

§ 1738.211 Financial information. 

(a) The applicant must submit 

financial information acceptable to the 

Agency that demonstrates that the 

applicant has the financial capacity to 

fulfill the loan requirements and to 

successfully complete the proposed 

project. 

(1) If the applicant is an existing 

company, it must provide complete 

copies of audited financial statements 

(opinion letter, balance sheet, income 

statement, statement of changes in 

financial position, and notes to the 

financial statement) for the three fiscal 

years preceding the application 

submission. If audited statements are 

not available, the applicant must submit 

unaudited financial statements and tax 

returns for those fiscal years. 

Applications from start-up entities 

must, at a minimum, provide an 

opening balance sheet dated within 30 

days of the application submission date. 

(2) If the applicant is a subsidiary 

operation, it must also provide complete 

copies of audited financial statements 

for the parent operation for the fiscal 

year preceding the application 

submission. If audited statements are 

not available, unaudited financial 

statements and tax returns for the 

previous year must be submitted. 

(3) If the applicant relies on services 

provided by an affiliated operation, it 

must also provide complete copies of 

audited financial statements for any 

affiliate for the fiscal year preceding the 

application submission. If audited 

statements are not available, unaudited 

statements and tax returns for the 

previous year must be submitted. 

(4) Applicants must provide a list of 

all its outstanding obligations. Copies of 

existing notes and loan and security 

agreements must be included in the 

application. 

(5) Applicants must provide a 

detailed description of working capital 

requirements and the source of these 

funds. 

(b) Applicants must submit the 

following documents that demonstrate 

the proposed project’s financial viability 

and ability to repay the requested loan. 

(1) Customer projections for the fiveyear forecast period that substantiate the 

projected revenues for each service that 

is to be provided. The projections must 

be provided on at least an annual basis 

and must be developed separately for 

each service area. These projections 

must be clearly supported by the 

information contained in the market 

survey, unless no market survey is 

required (see § 1738.209(b)). 

(2) Annual financial projections in the 

form of balance sheets, income 

statements, and cash flow statements for 

the five-year forecast period. Prior to the 

submission of an application, an 

applicant may request that alternative 


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information related to financial viability 

be considered when the applicant can 

for good cause demonstrate why a full 

five-year forecast cannot be provided. If 

this request is approved by the Agency, 

then the applicant can submit the 

application using the alternative 

information that was approved. 

(i) These projections must use a 

system of accounts acceptable to the 

Agency and be supported by a detailed 

narrative that fully explains the 

methodology and assumptions used to 

develop the projections. 

(ii) The financial projections 

submitted by the applicant must 

demonstrate that their entire operation 

will be able to meet a minimum TIER 

requirement equal to 1.25 by the end of 

the five-year forecast period. 

Demonstrating that the operation can 

achieve a projected TIER of 1.25 does 

not ensure that the Agency will approve 

the loan. 

(iii) If the financial analysis suggests 

that the operation will not be able to 

achieve the required TIER ratio, the 

Agency will not approve the loan 

without additional capital, additional 

cash, additional security, and/or a 

change in the loan terms. 

(c) Based on the financial evaluation, 

the loan documents will specify TIER 

requirements that must be met 

throughout the amortization period. 

§ 1738.212 Network design. 

(a) Applications must include a 

network design that demonstrates the 

project’s technical feasibility. The 

network design must fully support the 

delivery of service at the broadband 

lending speed, together with any other 

services to be provided. In measuring 

speed, the Agency will take into account 

industry and regulatory standards. The 

design must demonstrate that the 

project will be complete within three 

years from the day the Agency notifies 

the applicant that loan funds are 

available and must include the 

following items: 

(1) A detailed description of the 

proposed technology that will be used 

to provide service at the broadband 

lending speed. This description must 

clearly demonstrate that all households 

in the funded service area will be 

offered service at the broadband lending 

speed; 

(2) A detailed description of the 

existing network. This description 

should provide a synopsis of the current 

network infrastructure; 

(3) A detailed description of the 

proposed network. This description 

should provide a synopsis of the 

proposed network infrastructure; 

(4) A description of measurable 

service metrics and target service level 

objectives (SLOs) that will be provided 

to the customer, and the methods that 

will be used to measure performance 

and respond to unmet SLOs; 

(5) A description of the approach and 

methodology for monitoring ongoing 

service delivery and service quality for 

the services being deployed; 

(6) Estimated project costs detailing 

all facilities that are required to 

complete the project. These estimated 

costs must be broken down to indicate 

costs associated with each proposed 

service area and must specify how 

Agency and non-Agency funds will be 

used to complete the project; 

(7) A construction build-out schedule 

of the proposed facilities by service area 

on a quarterly basis. The build-out 

schedule must include: 

(i) A description of the work force that 

will be required to complete the 

proposed construction; 

(ii) A timeline demonstrating project 

completion within three years from the 

date the Agency notifies the applicant 

that loan funds are available; 

(iii) Detailed information showing 

that all households within the funded 

service area will be offered service at the 

broadband lending speed when the 

system is complete; and 

(iv) Detailed information showing that 

construction of the proposed facilities 

will start within six months from the 

date the Agency notifies the borrower 

that loan funds are available. 

(8) A depreciation schedule for all 

facilities financed with loan and nonloan funds; 

(9) An environmental report prepared 

in accordance with 7 CFR part 1794; 

and 

(10) Any other system requirements 

required by the Administrator through a 

notice published in the Federal 

Register. 

(b) The network design must be 

prepared by a registered Professional 

Engineer with telecommunications 

experience or by qualified personnel on 

the applicant’s staff. If the network 

design is prepared by the applicant’s 

staff, the application must clearly 

demonstrate the staff’s qualifications, 

experience, and ability to complete the 

network design. To be considered 

qualified, staff must have at least three 

years of experience in designing the 

type of broadband system proposed in 

the application. 

(c) The Administrator may modify the 

requirements of this section for loans in 

underserved service areas. 

§ 1738.213 Loan determination. 

(a) If the application meets all 

statutory and regulatory requirements 

and the feasibility study demonstrates 

that the TIER requirement can be 

satisfied, the application will be 

submitted to the Agency’s credit 

committees for consideration. 

Submission of the application to the 

Agency’s credit committees does not 

guarantee that a loan will be approved. 

In making a loan determination, the 

Administrator shall consider the 

recommendations of the credit 

committees. 

(b) The applicant will be notified of 

the Agency’s decision in writing. If the 

Agency approves the loan, a loan offer 

will be extended. If the Agency does not 

approve the loan, a rejection letter will 

be sent to the applicant, and the 

application will be returned with an 

explanation of the reasons for the 

rejection. 

§§ 1738.214—1738.250 [Reserved] 

Subpart F—Closing, Servicing, and 

Reporting 

§ 1738.251 Loan offer and loan closing. 

The Agency will notify the applicant 

of the loan offer, in writing, and the 

applicant will typically have 10 working 

days to accept the offer. If the applicant 

accepts the loan offer, a loan contract 

will be executed and sent to the 

applicant. The applicant must execute 

the loan contract and satisfy all 

conditions precedent to loan closing 

within the timeframe specified by the 

Agency which is typically 120 days 

from the date of the loan contract. If the 

conditions are not met within this 

timeframe, the loan offer will be 

terminated, unless the applicant 

requests and the Agency approves an 

extension. The Agency may approve 

such a request if the applicant has 

diligently sought to meet the conditions 

required for loan closing and has been 

unable to do so for reasons outside its 

control. 

§ 1738.252 Construction. 

(a) Construction paid for with 

broadband loan funds must comply 

with 7 CFR part 1788, 7 CFR part 1794, 

RUS Bulletin 1738–2 and any other 

guidance from the Agency. 

(b) Upon notification by the Agency 

that an applicant has submitted all the 

required documentation and the 

application is considered complete for 

analysis (see § 1738.205), the applicant, 

at its own risk, may enter into an 

interim financing agreement with a 

third-party lender or use its own funds 

to start construction that is included in 

the loan application. For this 

construction to be eligible for 

reimbursement with loan funds, all 

construction procedures contained 


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herein must be followed. The Agency’s 

determination that an application is 

complete is not a commitment that a 

loan will be approved. 

(c) The borrower must begin 

construction within six months from the 

date the Agency notifies the applicant 

that loan funds are available. This is the 

final step in closing the loan with the 

applicant. If the borrower fails to begin 

construction, the Agency may cancel the 

loan. 

(d) The build-out must be complete 

within three years from the day the 

Agency notifies the applicant that loan 

funds are available. Build-out is 

considered complete when the network 

design has been fully implemented, the 

service operations and management 

systems infrastructure is operational, 

and the borrower is ready to support the 

activation and commissioning of 

individual customers to the new system. 

§ 1738.253 Servicing. 

(a) Borrowers must make payments on 

the broadband loan as required in the 

note. 

(b) Borrowers must comply with all 

terms, conditions, affirmative 

covenants, and negative covenants 

contained in the loan documents. 

(c) In the event of default of any 

required payment or other term or 

condition: 

(1) A late charge shall be charged on 

any payment not made in accordance 

with the terms of the note. 

(2) The Agency may exercise the 

default remedies provided in the loan 

documents but is not required to do so. 

(3) If the Agency chooses to not 

exercise its default remedies, it does not 

waive its right to do so in the future. 

§ 1738.254 Accounting, reporting, and 

monitoring requirements. 

(a) Borrowers must adopt a system of 

accounts for maintaining financial 

records acceptable to the Agency, as 

described in 7 CFR 1770, subpart B. 

(b) Borrowers must submit annual 

audited financial statements along with 

a report on compliance and on internal 

control over financial reporting, and 

management letter in accordance with 

the requirements of 7 CFR part 1773. 

The Certified Public Accountant (CPA) 

conducting the annual audit is selected 

by the borrower and must be approved 

by RUS as set forth in 7 CFR 1773.4. 

(c) Borrowers must comply with all 

reasonable Agency requests to support 

ongoing monitoring efforts. The 

Borrower shall afford RUS, through its 

representatives, reasonable opportunity, 

at all times during business hours and 

upon prior notice, to have access to and 

the right to inspect the Broadband 

System, and any other property 

encumbered by the Mortgage, and any 

or all books, records, accounts, invoices, 

contracts, leases, payrolls, timesheets, 

cancelled checks, statements, and other 

documents, electronic or paper of every 

kind belonging to or in the possession 

of the Borrower or in anyway pertaining 

to its property or business, including its 

subsidiaries, if any, and to make copies 

or extracts therefore. 

(d) Borrowers records shall be 

retained and preserved in accordance 

with the provisions of 7 CFR part 1770, 

subpart A. 

§§ 1738.255–1738.300 [Reserved] 

Subpart G—Loan Guarantee 

§ 1738.301 General. 

(a) Applicants wishing to obtain a 

loan guarantee for private financing are 

subject to the same requirements as 

direct loan borrowers with respect to: 

(1) Loan purposes as described in 

Subpart B; 

(2) Eligible borrowers and eligible 

areas as described in Subpart C; 

(3) The loan terms described in 

Subpart D, with the exception of the 

interest rates described in § 1738.152; 

and 

(4) The application review and 

underwriting requirements in Subpart E. 

(b) The Agency will publish a notice 

annually in the Federal Register 

indicating any additional requirements, 

as well as the amount of funds available, 

if any, for loan guarantees. 

§ 1738.302 Eligible guaranteed lenders. 

To be eligible for a loan guarantee, a 

guaranteed lender must be: 

(a) A financial institution in good 

standing that has been a concurrent 

lender with RUS; or 

(b) A legally organized lending 

institution, such as commercial bank, 

trust company, mortgage banking firm, 

insurance company, or any other 

institutional investor authorized by law 

to loan money, which must be subject 

to credit examination and supervision 

by a Federal or State agency, unless the 

Agency determines that alternative 

examination and supervisory 

mechanisms are adequate. 

§ 1738.303 Requirements for the loan 

guarantee. 

At the time of application, applicants 

must provide in form and substance 

acceptable to the Agency: 

(a) Evidence of the guaranteed 

lender’s eligibility under § 1738.302; 

(b) Evidence that the guaranteed 

lender has the demonstrated capacity to 

adequately service the guaranteed loan; 

(c) Evidence that the guaranteed 

lender is in good standing with its 

licensing authority and meets the loan 

making, loan servicing, and other 

requirements of the jurisdiction in 

which the lender makes loans; 

(d) Evidence satisfactory to the 

Agency of its qualification under this 

part, along with the name of the 

authority that supervises it; 

(e) A commitment letter from the 

guaranteed lender that will be providing 

the funding, and the terms of such 

funding, all of which may be 

conditioned on final approval of the 

broadband loan guarantee by the 

Agency; and 

(f) A description of any and all 

charges and fees for the loan, along with 

documentation that they are comparable 

to those normally charged other 

applicants for the same type of loan in 

the ordinary course of business. Such 

charges and fees will not be included 

within the Agency’s loan guarantee. 

§ 1738.304 Terms for guarantee. 

Loan guarantees will only be given on 

the conditions that: 

(a) The loan guarantee is no more than 

80 percent of the principal amount, 

which shall exclude any and all charges 

and fees; 

(b) The guarantee is limited to the 

outstanding loan repayment obligation 

of the borrower and does not extend to 

guaranteeing that the guaranteed lender 

will remit to a holder, loan payments 

made by the borrower; 

(c) The interest rate must be fixed and 

must be the same or lesser for the 

guaranteed loan amount or the 

respective guaranteed loan portion 

amount or the respective guaranteed 

amount equivalent, as the case may be, 

and unguaranteed loan amount or the 

respective unguaranteed loan portion 

amount or the respective unguaranteedamount equivalent, as the case may be; 

(d) The entire loan will be secured by 

the same security with equal lien 

priority for the guaranteed loan amount 

or the respective guaranteed loan 

portion amount or the respective 

guaranteed-amount equivalent, as the 

case may be, and unguaranteed loan 

amount or the respective unguaranteed 

loan portion amount or the respective 

unguaranteed-amount equivalent, as the 

case may be; 

(e) The unguaranteed loan amount or 

the respective unguaranteed loan 

portion amount or the respective 

unguaranteed-amount equivalent, as the 

case may be, will neither be paid first 

nor given any preference or priority over 

the guaranteed loan amount or the 

respective guaranteed loan portion 

amount or the respective guaranteedamount equivalent, as the case may be; 


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(f) Prior written approval is obtained 

from the Agency for any assignment by 

the guaranteed lender. Any assignment 

shall entitle the holder to all of the 

guaranteed lender’s rights but shall 

maintain the guaranteed lender 

responsible for servicing the entire loan; 

(g) The borrower, its principal 

officers, members of the borrower’s 

board of directors and members of the 

immediate families of said officials shall 

not be a holder of the guaranteed 

lender’s loan; 

(h) The Agency will not guarantee any 

loan under this subpart that provides for 

a balloon payment of principal or 

interest at the final maturity date of the 

loan or for the payment of interest on 

interest; 

(i) All loan guarantee documents 

between the Agency and the guaranteed 

lender are prepared by the Agency; and 

(j) The guaranteed loan agreement 

between the borrower and the lender 

shall be subject to Agency approval. 

§ 1738.305 Obligations of guaranteed 

lender. 

Once a loan guarantee has been 

approved, the guaranteed lender will be 

responsible for: 

(a) Servicing the loan; 

(b) Determining that all prerequisites 

to each advance of loan funds by the 

lender under the terms of the contract 

of guarantee, all financing documents, 

and all related security documents have 

been fulfilled; 

(c) Obtaining approval from the 

Agency to advance funds prior to each 

advance; 

(d) Billing and collecting loan 

payments from the borrower; 

(e) Notifying the Administrator 

promptly of any default in the payment 

of principal and interest on the loan and 

submit a report no later than 30 days 

thereafter, setting forth the reasons for 

the default, how long it expects the 

borrower will be in default, and what 

corrective actions the borrower states 

that it is taking to achieve a current debt 

service position; and 

(f) Notifying the Administrator of any 

known violations or defaults by the 

borrower under the lending agreement, 

contract of guarantee, or related security 

instruments or conditions of which the 

lender is aware which might lead to 

nonpayment, violation, or other default. 

§ 1738.306 Agency rights and remedies. 

(a) The guarantee must provide that 

upon notice to the lender, the Agency 

may assume loan servicing 

responsibilities for the loan or the 

guaranteed loan amount or the 

respective guaranteed loan portion 

amount or the respective guaranteedamount equivalent, as the case may be, 

or require the lender to assign such 

responsibilities to a different entity, if 

the lender fails to perform its loan 

servicing responsibilities under the loan 

guarantee agreement, or if the lender 

becomes insolvent, makes an admission 

in writing of its inability to pay its debts 

generally as they become due, or 

becomes the subject of proceedings 

commenced under the Bankruptcy 

Reform Act of 1978 (11 U.S.C. 101 et 

seq.) or any similar applicable Federal 

or State law, or is no longer in good 

standing with its licensing authority, or 

ceases to meet the eligibility 

requirements of this subpart. Such 

negligent servicing is defined as the 

failure to perform those services which 

a reasonable prudent lender would 

perform in servicing its own portfolio of 

loans that are not guaranteed and 

includes not only a failure to act but 

also not acting in a timely manner. 

(b) The guarantee shall cease to be 

effective with respect to any guaranteed 

loan amount or any guaranteed loan 

portion amount or any guaranteedamount equivalent to the extent that: 

(1) The guaranteed loan amount or the 

respective guaranteed loan portion 

amount or the respective guaranteed 

amount equivalent, as the case may be, 

is separated at any time from the 

unguaranteed loan amount or the 

respective unguaranteed loan portion 

amount or the respective unguaranteedamount equivalent, as the case may be, 

in any way, directly or through the 

issuance of any guaranteed-amount 

equity derivative or any guaranteedamount debt derivative; or 

(2) Any holder of the guaranteed loan 

note or any guaranteed loan portion 

note or any derivative, as the case may 

be, having a claim to payments on the 

guaranteed loan receives more than its 

pro-rata percentage of any payment due 

to such holder from payments made 

under the guarantee at any time during 

the term of the guaranteed loan. 

§ 1738.307 Additional policies. 

The Agency shall provide additional 

loan guarantee policies, consistent with 

OMB Circular A–129, in order to 

achieve its mission of promoting 

broadband in rural areas, which shall be 

published annually in the Federal 

Register. 

§ 1738.308 Full faith and credit of the 

United States. 

Loan guarantees made under this part 

are supported by the full faith and credit 

of the United States and are 

incontestable except for fraud or 

misrepresentation of which the holder 

had actual knowledge at the time it 

became a holder. 

§§ 1738.309–1738.349 [Reserved] 

§ 1738.350 OMB control number. 

The information collection 

requirements in this part are approved 

by the Office of Management and 

Budget (OMB) and assigned OMB 

control number 0572–0130. 

Dated: March 8, 2011. 

Jessica Zufolo, 

Acting Administrator, Rural Utilities Service. 

[FR Doc. 2011–5615 Filed 3–11–11; 8:45 am] 

BILLING CODE 3410–15–P 


emcdonald on DSK2BSOYB1PROD with RULES2