Editorial Note on Part 1980
Editorial Note: Nomenclature changes to part 1980 appear at 80 FR 9905, Feb. 24, 2015.

§ 1980.451 Filing and processing applications. ( a ) *Borrowers' and lenders' contact.* Borrowers and lenders desiring Rural Developmentassistance as provided in this subpart may file preapplications or applications with the County Supervisor or District Director servicing the area in which the project is to be located. In either case, the requirements of § 1980.46 of subpart A of this part must be met. The County Supervisor or District Director receiving the request for assistance will promptly notify the State Director of the nature and facts of the request. The Rural Development State Director will promptly arrange an early meeting with the borrower and lender representatives to discuss assembly, preparation and processing of preapplications and applications. The State Director may call upon the County Supervisor and District Director to assist the State Office in any way necessary.
( b ) *Applications from cooperatives.* Borrowers eligible for loans from the Bank for Cooperatives will be encouraged to obtain guaranteed loans from that source since the Bank for Cooperatives is experienced in making and servicing such loans and can provide substantial counsel to the applicant. Applications must be submitted to the Bank for Cooperatives as a test for credit elsewhere when an insured loan is being considered. (See RD Instruction 2000-Q available in any Rural Development office for Memorandum of Understanding between Rural Development and Farm Credit Administration.)
( c ) *Borrowers eligible for Small Business Administration (SBA) assistance.* All borrowers for loan guarantees eligible for SBA assistance will be advised by Rural Development at the time of receipt of the preapplication of the availability of such assistance and will be encouraged to apply to that agency. (See RD Instruction 2000-P available in any Rural Development office for Memorandum of Understanding between SBA and Rural Development).
( d ) *Loan Priorities.* Applications and preapplications received by Rural Development will be considered in the order received; however, for the purpose of assigning priorities as described in paragraph (d)(3) of this section, Rural Development will compare an application to other pending applications. ( 1 ) Rural Development will cooperate fully with appropriate State agencies in guaranteeing and insuring loans in a manner which will assure maximum support of the State's strategies for development of its rural areas.
( 2 ) When applications on hand otherwise have equal priority, the applications from a veteran will have preference. A veteran is a person who has been discharged or released from the active forces of the United States Army, Navy, Air Force, Marine Corps, or Coast Guard under conditions other than dishonorable and who served on active duty in such forces: ( i ) During the period April 6, 1917, though March 31, 1921;
( ii ) During the period of December 7, 1941, through December 31, 1946;
( iii ) During the period of June 27, 1950, through January 31, 1955; or
( iv ) For a period of more than 180 days, any part of which occurred after January 31, 1955; but on or before May 17, 1975. Discharges under conditions other than dishonorable include “clemency discharges.”
( 3 ) Priorities will be assigned by Rural Development to eligible applications on the basis of a point system that takes into account project location, the creation and saving of jobs, the cost at which those jobs would be created or saved, seasonal and part-time job impact, and leveraging of Rural Development assistance. The application and supporting information submitted with it will be used to determine an eligible proposed project's priority for available funds or guarantee authority. The priorities described in this paragraph will be used by Rural Development to score projects. A copy of the calculation of the score should be placed in the case file for future reference. ( i ) *Location priorities.* The priority score for location will be the score for the highest-ranked category in which the project fits. If the location does not fit one of these categories, its receives no points for location. The categories, and their point scores, are: ( A ) Located in a city or area under 25,000 population (10 points).
( B ) Located in a city or area under 25,000 population that is in an area of high unemployment as of the date of application (20 points).
( C ) Located in an area of high unemployment as of the date of application, provided the borrower certifies in writing to the State Director in simple narrative or letter form that the project will employ on a permanent, full-time basis (providing at its own cost such training or retraining as may be needed) persons (numbering no fewer than 25 percent of the project's employment) who are members of displaced farm families which recently derived from farming or ranching the majority of their combined incomes but are no longer actively engaged in farming or ranching as operators or employees (35 points).
( ii ) *Jobs priorities.* The priority score for jobs created and/or saved is the score for the highest-ranked category in which the project fits. If the project does not fit one of these categories, it receives no points for jobs. The categories, and their point scores, are: ( A ) Project will contribute to the overall economic stability of the project area and generate permanent jobs beyond the entrepreneur and the entrepreneur's household (10 points).
( B ) Project will contribute to the overall economic stability of the project area and will employ on a permanent, full-time basis a number of persons that is significant in the context of the area's economy (20 points).
( C ) Project will contribute to the overall economic stability of the project area, will employ on a permanent, full-time basis a number of persons that is significant in the context of the area's economy, and will retain in that area a significant number of jobs that would otherwise be lost (35 points)
( iii ) *Job cost priorities.* The priority score for the project's cost per job is the score for the highest-ranked category in which the project fits. First, divide the amount of the Rural Development guaranteed loan by the number of jobs created or saved. This will result in the cost per job. Count only full-time jobs. Part-time jobs may be reduced to a fraction of a full-time job and counted. For example, a 20-hour-per-week job, or a job that is full-time for six months per year, is one-half of a job. Second, determine the State's nonmetropolitan household income as described in § 1980.451(d)(3)(vi). Third, divide the cost per job by the State's nonmetropolitan household income. For example, if the cost per job is $10,000 and the State's nonmetropolitan household income is $20,000, the result will be 0.5. The categories, and their point scores are: ( A ) Loans on which the result is greater than 1.5 but less than 2.0 (5 points).
( B ) Loans on which the result is from 1.0 to 1.5 (15 points).
( C ) Loans on which the result is less than 1.0 (25 points). If the result exceeds 2.0, a high cost per job in that State, no points are received for job cost.
( iv ) *Additional Points.* There shall be added to the score the points indicated for any and all of the following criteria met by the project. ( A ) FmHA or its successor agency under Public Law 103-354 guaranteed loan is less than 50 percent of project cost (5 points).
( B ) Percentage of guarantee is 10 or more percentage points less than the maximum allowable for a loan of its size (5 points).
( C ) Project will, in addition to any permanent full-time jobs, create a significant number of part-time or seasonal jobs that will provide additional income to underemployed residents of the project area without their having to give up any present part-time or seasonal jobs (10 points).
( v ) *Administrative Points.* The State Director may assign up to 20 points to an application in addition to those points scored under § 1980.451(d)(3) (i) through (iv). These administrative points are intended to be assigned by a State Director only in cases of unforeseen exigencies, emergencies, benefits to other FmHA or its successor agency under Public Law 103-354-assisted projects (including the limiting of financial risks affecting FmHA or its successor agency under Public Law 103-354 loans and loan guarantees) or the loss of financing if Rural Development funds are not committed in a timely fashion. They may also be assigned in cases in which the project's goods or services are essential to other Federally assisted projects and activities in the area or to the successful implementation of an economic development strategy for the area that is sponsored and/or operated by an agency of the Federal or State government. An explanation for the assigning of these points by the State Director will be appended to the calculation of the project score maintained in the case file. If an application is considered in the National Office, the Administrator may also assign up to 20 points. An assignment of points by the Administrator will be by memorandum, stating the Administrator's reasons, and that memorandum will be appended to the calculation of the project score maintained in the case file. In assigning priorities to applications and in selecting projects for funding, Rural Development will consider State development strategies. Funds (guarantee authority) allocated for use as prescribed in this regulation are to be considered for use by Indian tribes within the State regardless of whether State development plans include Indian reservations within the State's boundaries. It is essential that Indians residing on such reservations have equal opportunity to participate in any benefits of these programs.
( vi ) *Indexation.* When current, annual data are not available to determine a State's nonmetropolitan household income for purposes of the calculations described in paragraph (d)(3)(iii) of this section, indexation of census data is necessary. The State Director will use the figure from the most recent decennial census of the United States, increased by a factor representing the increase since the year of that census in the Consumer Price Index (“CIP-U”). That factor shall be furnished annually by the National Office, Rural Development.
( e ) *Filing preapplications and applications.* Borrowers or lenders may file preapplications described in paragraph (f) of this section if they desire an expression of Rural Development interest prior to assembling the complete application and request for Loan Note Guarantee or they may present the complete application, in one package, including the material required in paragraphs (f), (i), (j), and (k) of this section.
( f ) *Preapplications.* Applicants may file preapplications with the County, District, or State Office including: ( 1 ) A letter prepared by the borrower and the lender which shall include: ( i ) Borrower's name, address, contact person and telephone number.
( ii ) Amount of loan request.
( iii ) Name of the proposed lender, address, contact person, and telephone number.
( iv ) Brief description of the projects, products and services provided.
( v ) Type and number of employment opportunities and unemployment rate where the project will be located.
( vi ) Amount of borrower's equity and guarantees offered.
( vii ) Anticipated loan maturity and interest rates.
( viii ) Availabiity of raw materials and supplies.
( ix ) If a corporation, names and addresses of borrower's parent, affiliates and/or subsidiary firms and a brief description of relationship, products and ownership among borrower, parent, affiliates and subsidiary firms.
( 2 ) Form RD 449-22, “Certification of Non-Relocation and Market and Capacity Information Report.”
( 3 ) Form RD 449-4, “Statement of Personal History,” for a proprietor (owner), each partner, officer, director, key employee and stockholders holding 20 percent or more interest in the borrower except for those corporations listed on a major stock exchange and for those so listed if required by Rural Development. Forms RD 449-4 are not required to be submitted for elected officials and appointed officials in connection with loan applications from public bodies. Failure to report full, complete and accurate information on the Statement of Personal History may result in Rural Development's not making or guaranteeing the loan. Whenever possible, a local, regional, or national credit report, furnished by the lender, will be used to verify data on Form RD.
( 4 ) A record of any pending or final regulatory or legal (civil or criminal) action against the borrower, parent, affiliate, proposed guarantors, subsidiaries, principal stockholders, officers and directors.
( 5 ) For existing businesses, a current balance sheet, and latest profit and loss statement (not more than 60 days old) and financial statements including parent, affiliate and subsidiary firms, for at least the last 3 years or more if necessary for a thorough evaluation.
( 6 ) A detailed projection of gross revenue, net earnings and cash flow statements for 3 years including assumptions upon which such forecasts are based.
( 7 ) Sales projections indicating the percent of the national and local market the business expects to obtain.
( 8 ) Intergovernmental consultation should be carried out in accordance with 2 CFR part 415, subpart C, “Intergovernmental Review of Department of Agriculture Programs and Activities.”
( g ) *Preliminary determination by Rural Development.* If preparation information indicates the project will not meet Rural Development's minimum credit standards for a sound loan, is ineligible, does not have sufficient priority or that funds or guarantee authority are not available for the project, Rural Development will so inform the lender. The lender will be notified in writing with all reasons for the decision indicated. If it appears that the project is eligible, has sufficient priority, is economically feasible and loan guarantee authority is available, Rural Development will inform the lender and borrower in writing and request that they complete the application.
( h ) *Department of Labor certifications.* Rural Development will submit Form RD 449-22 to the Department of Labor for the necessary certification that the proposal will not be in conflict with § 1980.412(c) and (d).
( i ) *Content of Applications:* ( 1 ) Form RD 449-1.
( 2 ) Form RD 449-2.
( 3 ) Environmental review documentation as required in accordance with 7 CFR part 1970.
( 4 ) Architectural or engineering plans, if applicable.
( 5 ) Cost estimates and forecasts of contingency funds to cover inflation or project changes.
( 6 ) Appraisal reports.
( 7 ) For existing businesses a pro forma balance sheet at startup and for at least three additional projected years, indicating the necessary startup capital, operating capital and short-term credit based on financial statements for the last three years, or more (if available); and projected cash flow and earnings statements for at least three years supported by a list of assumptions showing the basis for the projections. The business should submit a current balance sheet with a debt schedule of any debts to be refinanced and an income statement to Rural Development, through the lender, every 90 days from the time the application is filed with the lender to the time of issuance of the Loan Note Guarantee. If debt refinancing is requested, a debt schedule is prepared (correlated to the latest balance sheets) reflecting the debts to be refinanced including the name of the creditor, the original loan amount and loan balance, date of loan, interest rate, maturity date, monthly or annual payments, payment status and collateral that secured such loans.
( 8 ) For new businesses, a pro forma balance sheet at startup and for the next three years, project cash flow (monthly first year, quarterly for two additional years) and projected earnings statements for three years supported by a list of assumptions showing the basis for the projections.
( 9 ) Any credit reports obtained by the lender or Rural Development on the borrower, its principals and parent, affiliate and subsidiary firms.
( 10 ) Form RD 400-1, “Equal Opportunity Agreement,” if construction costing more than $10,000 is involved.
( 11 ) Copies of building permits, if applicable, and any necessary certifications and recommendations of appropriate regulatory or other agency having jurisdiction over the project including any pollution control agency.
( 12 ) Personal and corporate financial statements of those guarantors named in § 1980.443.
( 13 ) Proposed loan agreement. (See paragraph VII of Form RD 449-35). Loan agreements between the borrower and lender will be required. The final executed loan agreement must include the Agency requirements as set forth in the Form RD 449-14 including the requirements for periodic financial statements in accordance with § 1980.445. The loan agreement must also include, but is not limited to, the following: ( i ) Prohibition against assuming liabilities or obligations of others.
( ii ) Restrictions on dividend payments.
( iii ) Limitation on purchase or sale of equipment and fixed assets.
( iv ) Limitations on compensation of officers and owners.
( v ) Minimum working capital requirements.
( vi ) Maximum debt to net worth ratio.
( vii ) Restrictions concerning consolidations, mergers or other circumstances.
( viii ) Limitations on selling the business without concurrence of the lender and Rural Development.
( ix ) Repayment and amortization of the loan.
( x ) List of collateral for the loan including a list of persons and/or corporations guaranteeing the loan with a schedule for providing the lender and Rural Development with personal and/or corporate financial statements. (See § 1980.443)
( 14 ) A complete feasibility study when required. (See § 1980.442)
( 15 ) Any additional information required by Rural Development.
( 16 ) For companies listed on major stock exchanges and/or subject to the Securities and Exchange Commission regulations, a copy of Form 10-K, “Annual Report Pursuant to section 13 or 15 D of the Act of 1934.”
( 17 ) Documented evidence that the project is located within or without special flood or mudslide hazard areas.
( 18 ) Notices of compliance with the Privacy Act of 1974. ( i ) If the borrower is acting in a personal capacity and not as an entrepreneur for such entities as proprietorships, partnerships, or corporations, and Rural Development solicits personal information for him/her, the individual will be provided Form RD 410-9, “Statement Required by the Privacy Act.”
( ii ) If Rural Development desires to obtain information concerning an individual from any source, Rural Development will provide such source with Form RD 410-10, “Privacy Act Statement to References.”
( 19 ) On any request for refinancing of existing loan(s) as authorized under § 1980.411(a)(11), the lender is required, as a minimum, to obtain the previously held collateral as security for the guaranteed loan(s). Additional collateral will be required by Rural Development when refinancing of unsecured or undersecured loans is unavoidable in order to accomplish the necessary strengthening of the firm's current position.
( j ) *Use of forms.* Rural Development numbered forms will be used where shown in both preapplications and applications. Otherwise, lenders should use their forms, real estate mortgages, security instruments and other agreements, provided such forms do not contain any provisions that are in conflict or are inconsistent with provisions of the subpart.
( k ) *Certificate of need.* If the loan request is for health care facilities (e.g., hospitals or nursing homes), a “Certificate of Need” will be obtained by the borrower from the appropriate regulatory or other agency having jurisdiction over the project and submitted to Rural Development by the lender. If a significant part of the project's income will be from third party payors, (e.g., medicare or medicaid), the project will be designed and operated in a manner necessary to meet the requirements of the third-party payors.
Administrative A. The State Director: 1. Determines if material and information submitted is completed and signed by the appropriate party in the appropriated capacity. 2. May request the comments and recommendations of the County Supervisor and District Director. Such comments will include but are not limited to the following: Community attitude toward project; a summary of comments regarding the proposal by the lender, county leaders and other interested parties; whether the project is likely to result in the need for additional community facilities such as schools, water, sewer and health care services, and if so, the community's plan for providing such facilities; availability of any required additional labor force and training plans for such force, if needed; an economic forecast of the effect on the community should the project fail, if financed. 3. Will furnish all individuals acting in a personal capacity at the time of filing a preapplication or application and two copies of Form RD 410-9. The individual will sign both copies, retaining one and providing Rural Development with the other copy which becomes a part of the loan file. 4. Will provide any source whom Rural Development obtains information concerning an individual with two copies of Form Rural Development 410-10. The source will sign both copies, retain one and provide Rural Development with the other copy which becomes a part of the loan file. 5. Will input the necessary data via terminal screens into the Rural Community Facility Tracking System (RCFTS). The RCFTS data structure consists of 3 sets: Applicant/Borrower (BOR), Facility (FAC), and Loan/Grant Request (LGR) sets. There are multiple screens for the BOR and LGR sets. The State Director may, if he/she so desires, prepare a Form RD 2033-34, “Management System Card—Business and Industry,” in accordance with RD Instruction 2033-F. 6. Will forward immediately to the National Office on all projects. (a) Form RD 449-22 (7 copies) for loans over $1 million and when direct employment increases more than 50 employees. (b) For insured loans where the borrower leases facilities to another, submit Form RD 449-22 for such borrower. The lessor(s) will also be required to provide Form RD 449-22. Subsequent loan requests require resubmission of Form RD 449-22. (c) A local, national or regional credit report and Form RD 449-4 for all loans over one million dollars or for loans, regardless of size, when the State Director believes a character evaluation check is advisable. Note:
Forms RD 449-22 and RD 449-4 should *only* be processed if a *complete* preapplication or application has been received.
*B. Miscellaneous Administrative provisions:* 1. *Par (f).* Preapplications are not to be accepted or processed unless a lender has agreed in writing to finance the proposal. The preapplication letter is a joint letter prepared by the borrower and lender. 2. *Par (g).* Upon receipt of all preapplications in excess of $5 million, the State Director will transmit to the National Office the material required under paragraph (f)(1), (f)(4) and (f)(5) of this section together with recommendations and observations an analysis of the quality and permanency of the employment opportunities involved in the project. The National Office will review the proposed project in relation to objectives, priorities and intent of the program and will advise the State Director. After receiving the National Office advice or for loans less than $5 million, the State Director will inform the borrower of the decision. 3. *Par (i).* State Director submits a transmittal letter with recommendations on loan applications requiring National Office review. Included are: (a) Loan file. (b) Form RD 449-29, “Project Summary—Business Industrial Loan Division,” including State Director's a spread sheets, financial history and projections (use attachments to Project Summary if necessary). (c) Proposed Form RD 449-14. (d) Copy of Rural Development State Loan Review Board Minutes. (e) Notification of required financial and other reports, their frequency, due dates and fiscal yearend. 4. *Par (i)(9), Credit reports.* (a) The National Office has a contract to provide credit reports for preapplications, applications, and in instances after the loan(s) is made, where a credit report is needed. (b) States should first try to have the lender provide such a report because credit reports are the responsibility of the lender. (c) Any state needing a credit report should telephone the National Office, Director, B&I, and give the name of the business and the city and State location. The report will be mailed to the State the same day, if possible. 5. *File documentation.* Applications will be organized in a loan file in accordance with RD Instruction 2033-A (available in any Rural Development office.) An 8-position folder with tabs will be utilized. The State Director may supplement the Position Guides to include specific legal requirements within their State. If the lender prepares a complete application package, it may accompany the docket provided the docket is organized in a binder, indexed and tabbed. Feasibility studies should be kept separate. It is the responsibility of Rural Development employees who work on applications or servicing actions to add to the correspondence section of the loan file (also known as the running record) a written report of any field visits, meetings, telephone conversations and memorandums covering decisions or reasons for Rural Development's actions on the cases. Particular attention must be given to this requirement on cases that become delinquent or problems in order that Rural Development position will be defensible in the event of an adverse action. 6. *Par (i), (13), Audit agreements and requirements.* Rural Development urges the use of a written agreement between the lender and borrower to assure that there is no misunderstanding concerning Rural Development audit requirements. 7. *Par (i), Forms and documents found in loan docket.* The following table is a guide to forms and documents used in completing an application and loan docket. The filing position within the 8 position folder is shown on the right. Some of these items may not be applicable for a particular loan. However, a complete loan docket may need to include items in addition to the following:
Description of Record or Form Number and Title
Filing position AD-425
Contractor's Affirmative Action Plan For Equal Employment Opportunity
1 RD 400-1
Equal Opportunity Agreement
6 RD 400-3
Notice to Contractors and Applicants
6 RD 400-4
Assurance Agreement
3 RD 400-6
Compliance Statement
6 RD 410-8
Applicant Reference Letter
3 RD 410-9
Statement Required by the Privacy Act
3 RD 410-10
Privacy Act Statement to References
3 RD 424-12
Inspection Report
6 RD 1940-3
Request for Obligation of Funds—Guaranteed Loans; Filing Position 2
2 RD 1970-1
Environmental Checklist for Categorical Exclusions
3 Environmental Reports
3 Environmental Assessments
3 Environmental Impact Statements
3 RD 440-57
Acknowledgement of Obligated Funds/Check Request
2 RD 449-1
Application for Loan and Guarantee
3 RD 449-2
Statement of Collateral
5 RD 449-4
Statement of Personal History
3 Loan Closing Opinion of Lender's Legal Counsel
[52 FR 6501, Mar. 4, 1987, as amended at 53 FR 40401, Oct. 17, 1988; 53 FR 45258, Nov. 9, 1988; 55 FR 26199, June 27, 1990; 56 FR 8271, Feb. 28, 1991; 61 FR 18495, Apr. 26, 1996; 76 FR 80731, Dec. 27, 2011; 79 FR 76012, Dec. 19, 2014; 80 FR 9906, Feb. 24, 2015; 81 FR 11047, Mar. 2, 2016; 81 FR 26667, May 4, 2016]