[Federal Register Volume 89, Number 189 (Monday, September 30, 2024)]
[Rules and Regulations]
[Pages 79698-79729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21920]



[[Page 79697]]

Vol. 89

Monday,

No. 189

September 30, 2024

Part II





Department of Agriculture





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Rural Utilities Service





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7 CFR Part 5001





OneRD Guarantee Loan; Final Rule

Federal Register / Vol. 89 , No. 189 / Monday, September 30, 2024 / 
Rules and Regulations

[[Page 79698]]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 5001

[Docket No. RUS-19-Agency-0030]
RIN 0572-AC63


OneRD Guarantee Loan

AGENCY: Rural Business-Cooperative Service, Rural Housing Service, 
Rural Utilities Service, USDA.

ACTION: Final rule; request for comments.

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SUMMARY: Rural Development's Rural Business-Cooperative Service, Rural 
Housing Service, and Rural Utilities Service, agencies of the United 
States Department of Agriculture (USDA), collectively referred to as 
the Agency in this document, are publishing this final rule for the 
OneRD Guarantee Loan Program (OneRD). The intent of this rule is to 
make necessary revisions to the policy and procedures which will 
strengthen oversight and management of the growing Community Facilities 
(CF), Water and Waste Disposal (WWD), Business and Industry (B&I), and 
Rural Energy for America (REAP) guarantee portfolios. This action is 
part of a continuing effort by the Agency to improve customer service 
for its lenders and create a more efficient work process for its staff.

DATES: 
    Effective date: This final rule is effective November 29, 2024.
    Comments due date: Comments must be submitted on or before October 
30, 2024.

ADDRESSES: You may submit comments, identified by docket number RUS-19-
Agency-0030 and Regulatory Information Number (RIN) number 0572-AC63 
through https://www.regulations.gov.
    Instructions: All submissions received must include the Agency name 
and docket number or RIN for this rulemaking. All comments received 
will be posted without change to https://www.regulations.gov, including 
any personal information provided.
    Docket: For access to the docket to read background documents or 
comments received, go to https://www.regulations.gov.
    Additional information about Rural Development and its programs is 
available on the internet at https://www.rd.usda.gov.

FOR FURTHER INFORMATION CONTACT: Susan L. Woolard, Regulations 
Management Division, Rural Development Innovation Center, U.S. 
Department of Agriculture, 1400 Independence Ave. SW, Stop 1522, 
Washington, DC 20250; telephone 202-720-9631; email 
<a href="/cdn-cgi/l/email-protection#bccfc9cfddd292cbd3d3d0ddced8fcc9cfd8dd92dbd3ca"><span class="__cf_email__" data-cfemail="0c7f797f6d62227b6363606d7e684c797f686d226b637a">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Rural Housing Service (RHS), the Rural Business-Cooperative 
Service (RBCS), and the Rural Utilities Service (RUS), agencies of the 
USDA Rural Development mission area, hereinafter collectively referred 
to as the Agency, published a final rule with comment on July 14, 2020 
(85 FR 42494) that created a unified guaranteed loan platform for 
enhanced delivery of four existing guaranteed loan programs: Community 
Facilities (CF) administered by RHS; Water and Waste Disposal (WWD) 
administered by RUS; and Business and Industry (B&I) and Rural Energy 
for America (REAP) administered by RBCS. The final rule was effective 
on October 1, 2020, and Rural Development began operating under the new 
guaranteed loan platform on that date.
    Collectively, Rural Development's guaranteed loan programs work to 
assist in building and maintaining sustainable rural communities. 
Through the public comment period and monthly office hours with lenders 
and staff, the Agency has solicited feedback on the requirements and 
policies contained in the rule implemented on October 1, 2020. The 
Agency has identified areas for revision or clarification that are 
amended with this final rule with comment. This OneRD final rule with 
comment incorporates revisions intended to simplify, clarify, improve, 
expand, and enhance the delivery of the four guaranteed loan programs.

II. Summary of Changes to Regulation

1. Sec.  5001.3 Definitions

    a. The definition of ``affiliate'' is updated to provide additional 
information on affiliation determination and include a reference to 13 
CFR 121.03.
    b. The definition of ``agricultural producer'' is updated to 
include additional information regarding what constitutes agricultural 
operations income for the calculation of the five-year average for 
eligibility determinations. Additional information on the location of 
an agricultural producer for eligibility determinations is also added.
    c. The definition of ``collateral'' is updated to include 
assignments of relevant agreements as acceptable collateral.
    d. The definition of ``Debt Collection Improvement Act'' is updated 
to correct the title of the act and provide additional information on 
the Debt Collection Improvement Act of 1996.
    e. The definition of ``delinquency'' is updated to provide 
additional information on how this term is used in the Part.
    f. The definition of ``energy efficient equipment and systems'' is 
updated to include clear demonstration of energy efficiency as an 
application requirement.
    g. The definition of ``federal debt'' is updated to include 
additional information on the Debt Collection Improvement Act of 1996.
    h. The definition of ``guarantor'' is updated to include 
responsibility for repayment as an undertaking of a guarantor.
    i. The definition of ``hospital'' is updated to include additional 
information on Certification Numbers.
    j. The definition of ``hybrid'' is updated to include additional 
information and an example on the eligibility of hybrid systems.
    k. The definition of ``local owner'' is updated to include 
information on what constitutes a normal commuting area.
    l. The definition of ``matching funds'' is updated to include the 
percentage of matching funds required to be eligible for a REAP 
guaranteed loan.
    m. The definition of ``natural resource value-added product'' is 
updated to provide non-definitive examples of eligible and ineligible 
projects.
    n. The definition of ``professional service'' is updated to include 
that a loan finder fee is not considered a professional service under 
the Part.
    o. The definition of ``refurbished'' is updated to provide an 
example of an acceptable refurbishment and also to provide information 
on what is considered as ineligible.
    p. The definition of ``renewable energy system (RES)'' is updated 
to include information on items that are not considered RES.
    q. The definition of ``retrofitting'' is updated to include 
examples of eligible projects.
    r. The definition of ``rural and rural area'' is updated to include 
additional information to identify ineligible areas, define rural-in-
character determinations as project specific determinations, provide 
additional information on ``strings'' or areas that are attached to the 
urbanized are by a contiguous area of urbanized blocks, and to specify 
that applications cannot be approved subject to meeting rural area 
requirements.
    s. The definition of ``simple payback'' is updated to include 
additional

[[Page 79699]]

information on items to include in the calculation and calculating 
shared meter proration.
    t. The definition of ``small business'' is updated to include 
additional information on average net income, net worth thresholds and 
to update the size standard to meet the new Small Business 
Administration's definition.
    u. The definition of ``total project costs'' is updated to include 
additional information on ineligible project costs and retrofitting for 
existing RES.
    v. The definition of ``underserved communities'' is updated to 
expand on populations that should be considered for awarding of 
priority points.

2. Section 5001.9 Standards for Financial Information

    a. The Agency added language at Sec.  5001.9(a) to reinforce that 
the loan is the lender's, and their standard operating procedures 
apply.
    b. ``For those situations,'' is added to Sec.  5001.9(b) to clarify 
the subject of the last sentence.
    c. At Sec.  5001.9(c) additional language is added to provide 
information on the use of tax returns as financial statements and their 
suitability for eligibility determinations.

3. Section 5001.101 Introduction

    a. Sec.  5001.101(a) is amended to add ``. . . through 5001.119 . . 
.'' to include all four program areas.
    b. Sec.  5001.101(f) is added to identify the location in the 
regulation of eligible and ineligible uses of funds respectively.

4. Section 5001.102 Project Eligibility--General

    a. To direct REAP applicants to refinancing information specific to 
the REAP program, language is added to Sec.  5001.102(d).
    b. Sec.  5001.102(d)(1) is modified to provide further 
clarification on refinancing limits on debts owed to another creditor 
and (d)(2) provides an expanded description of ``better rates or 
repayment terms''.
    c. ``Special conditions and limitations on loans'' and ``Loan 
Guarantees for Water, Wastewater, and Essential Community Facilities 
Loans'' is added to paragraph 5001.102(d)(3) to further identify 
sections 333 and 306(a)(24)(C), respectively, of the Consolidated Farm 
and Rural Development Act.
    d. Sec.  5001.102(d)(4)(iii) is modified to provide additional 
information for loans where debt refinancing is the majority purpose.
    e. Sec.  5001.102(d)(5) is modified to specify program 
applicability, lender's responsibility for providing the requested 
information and update information on total debt service coverage 
ration as the current language implies an acceptable ratio that is not 
intended.

5. Section 5001.103 Eligible CF Projects and Requirements

    a. Assisted living facilities are added to Sec.  5001.103(a)(1) to 
identify them, in certain situations, as health care facilities.
    b. Sec.  5001.103(a)(3) is updated to include eligibility 
requirements for business incubators (when not inherently commercial), 
thrift stores, and fairgrounds, agricultural exposition centers, 
farmers markets, food distribution and food banks.
    c. Sec.  5001.103(b)(1) is updated to include information on public 
use requirements of Veterans of Foreign Wars and American Legion post 
facilities.
    d. Sec.  5001.103(d) is added to provide limitations on leased 
space in a CF project.
    e. Sec.  5001.103(e) is added to provide the documentation 
necessary when the project is to otherwise improve an essential 
community facility through the purchase of an existing facility.

6. Section 5001.104 Eligible WWD Projects and Requirements

    a. Introductory paragraph is updated to correct regulatory 
references and remove duplication.
    b. Sec.  5001.104(a)is updated to better describes eligible WWD 
projects.
    c. Sec.  5001.104(a)(1) is updated by removing ``To construct, 
enlarge, extend, or otherwise improve the following types of 
facilities: . . .'' as those actions are eligible uses of funds and not 
types of projects.
    d. Remove Sec.  5001.104(a)(2) as these items are listed at Sec.  
5001.121(b)(10) ``Eligible use of loan funds''. The duplication has 
caused confusion.

7. Section 5001.105 Eligible B&I Projects and Requirements

    a. Sec.  5001.105(b)(7) is updated to add examples of eligible 
agricultural production projects.
    b. Sec.  5001.105(b)(14) is updated to include additional 
information on what constitutes a leasehold improvement for this part 
and to provide further security enhancements.
    c. Sec.  5001.105(b)(15)(i)(D) is updated to include the timing of 
agreements with retail and institutional clients in regard to locally 
or regionally produced agricultural products.
    d. Sec.  5001.105(b)(20) is updated to include information on 
independent living facilities' eligibility for a guarantee.
    e. Sec.  5001.105(b)(22) (vii) is updated to expand on the 
demonstration of technical merit for energy projects.
    f. Sec.  5001.105(d) is updated to add information on balance 
sheets used to show that capital and equity requirements are met.
    g. Sec.  5001.105(d)(1)(iii) is updated to reflect the correct 
owner-contributed capital calculation.
    h. Sec.  5001.105(d)(6) is deleted and the content moved to Sec.  
5001.452(b)(8)(iii)(X) as this certification was not intended to be 
separate from the lender's certification required as part of the 
documents submitted for issuance of the loan note guarantee.

8. Section 5001.106 Eligible REAP--Renewable Energy System (RES) 
Projects and Requirements

    Sec.  5001.106(e)(2) is updated to include how a non-response in an 
area of a technical report will be scored.

9. Section 5001.108 Eligible REAP--Energy Efficient Equipment and 
Systems (EEE) Projects and Requirements

    The introductory paragraph for Sec.  5001.108 is updated to include 
that EEE projects may be located in rural or non-rural areas as long as 
the energy efficient equipment of systems are used for agricultural 
production or processing in accordance with this part.

10. Sec.  5001.115 Ineligible Projects--General

    a. Sec.  5001.115(l) is updated to provide additional information 
to clarify when telephone systems may be considered as an eligible 
project.
    b. Sec.  5001.115(n) is updated to provide additional information 
to clarify when owner-occupied housing may be considered for funding.
    b. Sec.  5001.115(r) is updated to provide additional information 
to religious organizations on items that may cause their project to be 
deemed ineligible.

11. Sec.  5001.116 Neligible CF Projects

    a. Sec.  5001.116(b) is updated to add a reference to Sec.  
5001.103(d) for eligibility of commercial enterprises leasing space in 
an eligible CF project.
    b. Sec.  5001.116(e) is updated to include characteristics of 
ineligible purchase transactions.

12. Sec.  5001.121 Eligible Uses of Loan Funds

    a. Sec.  5001.121(a)(2) is updated to include the installed conduit 
is not essential to the operation of the eligible essential community 
facility or service to be financed and to add an example.
    b. Sec.  5001.121(a)(3)(iv) is updated to clarify that guaranteed 
loan proceeds

[[Page 79700]]

may be used to pay interim financing in full, if used, and that payment 
in full includes interest on that interim financing.
    c. Sec.  5001.121(b) is revised in its entirety to classify 
eligible uses of funds as those that must be part of a construction 
project and those that are non-construction. Additionally, the purchase 
and installation of RES for use by an eligible facility, the use of up 
to 10 percent of project funds to construct, improve, or acquire 
broadband infrastructure, and professional service fees, such as 
engineering or environmental services and preplanning evaluation 
procedures are added as eligible uses of funds. Additional information 
regarding the purchase of land and/or rights, including water rights is 
added as well as providing clarification on payment of interim 
financing, limiting initial operating expenses to newly constructed 
facilities and clarifying that purchase of equipment must include 
installation and is not for the purpose of increasing inventory is also 
included.
    d. Sec.  5001.121(d)14)(vi) is added to provide additional 
information on what is considered refinancing under the REAP program.

13. Sec.  5001.121 Eligible Uses of Loan Funds

    a. Sec.  5001.121(c)(6) is updated to provide additional 
flexibility to the programs.
    b. Sec.  5001.121(d) is updated to clarify what the percentage 
includes.
    c. Sec.  5001.121(d)(14) is updated to add information that paying 
interim financing is not considered refinancing.

14.Sec.  5001.122 Ineligible Uses of Loan Funds

    a. Sec.  5001.122(k) is updated to include as an additional 
ineligible use of loan funds any costs for RES and/or EEI projects that 
are used to improve a vehicle's ability to propel itself.
    b. Sec.  5001.122(l) is updated to clarify that a former owner may 
remain as an employee of the business during a reasonable transition 
period and to align the language with the definition of conflict of 
interest.
    c. Sec.  5001.122(n) is added to include lease payments as 
ineligible uses of funds.

15. Sec.  5001.126 Borrower Eligibility

    a. Sec.  5001.126 (a)and (a)(1) are updated to clarify that the 
borrower must own and retain control of the project at all times under 
all ownership structures.
    b. Sec.  5001.126(c)(2) is updated to notify lenders that they are 
required to certify in writing that their borrower is unable to afford 
commercial credit at reasonable rates and terms without the guarantee.
    c. Sec.  5001.126(d)(3)(iii) is updated to reference the definition 
of citizen and to clarify that applications will not be approved, nor 
will conditional commitments be issued subject to meeting the 
citizenship requirement.
    d. Sec.  5001.126(d)(4) is updated to further ensure benefit to 
U.S. residents.
    e. Sec.  5001.126(e)(1) is updated to provide more specificity on 
eligible borrower entity types.
    f. Sec.  5001.126(e)(2) is updated to clarify the timing of when 
and how long a borrower must own or control a project and the site for 
the project to at the time of application or no later than guaranteed 
loan closing and for the term of the guaranteed loan.

16. Sec.  5001.127 Borrower Ineligibility Conditions

    a. Sec.  5001.127(a) is updated to specify that the 20 percent 
ownership interest in the borrower does not apply to passive investors 
and expands on delinquent debt under a repayment plan.
    b. Sec.  5001.127(a)(4) is updated to add that lenders must check 
SAM exclusions at https://sam.gov to ensure compliance with 2 CFR 
180.300.
    c. Sec.  5001.127(d) is updated to include a prohibition on 
projects receiving income from marijuana operations.
    d. Sec.  5001.127(f) is updated to specify that lender's directors, 
stockholders, or other owners that are officers, directors, 
stockholders, or other owners of the borrower without management 
control or ownership of less than 5% must recuse themselves from the 
decision-making process associated with the guaranteed loan.

17. Sec.  5001.130 Lender Eligibility Requirements

    a. Sec.  5001.130(a)(3) is updated to reduce risk and meet the 
requirements of 31 U.S.C. 3354.
    b. Sec.  5001.130(c)(2) is updated to include instructions on how 
non-regulated lending entities may apply for approved lender status.
    c. Sec.  5001.130(c)(4) is updated to provide additional 
information on what an approved lender renewal review will include.
    d. Sec.  5001.130(c)(4)(iv) is updated to provide additional 
information to lenders that have not been active in the Agency's 
guaranteed loan program or whose loans have caused a loss to the Agency 
on approved lender status renewal.
    e. Sec.  5001.130(c)(4)(v) is added to notify lenders that the 
renewal term are for a period of 5 years.
    f. Sec.  5001.130(d)(2) is updated to provide non-regulated lending 
entities serving Tribal trust lands additional guidance on submittal of 
information needed for applications to be determined as approved 
lenders.
    g. Sec.  5001.130(d)(4) is updated to provide non-regulated lending 
entities serving Tribal trust lands information on what will be 
considered during the approved lender renewal review.
    h. Sec.  5001.130(d)(4)(v) is added to notify lenders that renewals 
are for a period of 5 years.

18. Sec.  5001.131 Lender's Agreement

    Section 5001.131 is updated to include that approval as a lender 
under one program is approval for all programs covered under this part, 
that non-regulated lenders approval expires January 31st of the fifth 
year after the date of Agency approval and that only one lenders 
agreement will be issued for each lending entity based on their tax 
identification number. This paragraph is also updated to include the 
requirement that a lending entity continue to service their outstanding 
loan guarantees made under this part even if they fail to renew its 
lenders agreement and loses its approved lender status.

19. Sec.  5001.132 Maintenance of Approved Lender Status

    a. Sec.  5001.132(a)(4) is updated to clarify that a non-regulated 
lending entity that fails to renew its approval status within 5 years 
from the execution of the lender's agreement will lose its approved 
status.
    b. Sec.  5001.132(b) is updated to include that revocation of 
approved lender status may apply to the entire entity, specific 
branches, or personnel as appropriate. This addition also requires the 
lender to revoke the level II eAuthentication privileges of all 
individuals included in the revocation notice.

20. Sec.  5001.140 Cooperative Stock/Cooperative Equity

    a. Sec.  5001.140(a)(4) is updated to include that in event of 
default if the stock is not sufficient to satisfy the debt, the 
borrower is fully liable for the entire debt regardless of the success 
or failure of the cooperative; the lender will maximize recovery; and, 
that DCIA may impose significant restrictions on delinquent Federal 
debtors.
    b. Sec.  5001.140(b) is updated to include that in event of default 
if the stock is not sufficient to satisfy the debt, the borrower is 
fully liable for the entire debt regardless of the success or failure 
of the cooperative; the lender will maximize recovery; and, that DCIA 
may

[[Page 79701]]

impose significant restrictions on delinquent Federal debtors.
    c. Sec.  5001.140(d)(3) is updated to include that in event of 
default if the stock is not sufficient to satisfy the debt, the 
borrower is fully liable for the entire debt regardless of the success 
or failure of the cooperative; the lender will maximize recovery; and, 
that DCIA may impose significant restrictions on delinquent Federal 
debtors.

21. Sec.  5001.141 New Markets Tax Credit

    a. The title is updated to New Markets Tax Credit Program. The 
introductory paragraph is updated to reinforce that requests for loan 
guarantees that include NMTC are subject to all applicable program 
eligibility requirements, credit analysis and due diligence as required 
by 7 CFR part 5001. Additional information is provided on the treatment 
of tax benefit or loss of tax benefits in the servicing actions of a 
guaranteed loan.
    b. Sec.  5001.141(b)(iii) is updated to clarify leveraged lender 
entity requirements.
    c. Sec.  5001.141(b)(6) is updated to include guidance for QALICB's 
and their owners regarding guarantees of the guaranteed loan as 
stipulated in Sec.  5001.204.
    d. Sec.  5001.141(b)(14) is added to inform applicants that they 
NMTC structure must be approved by the Agency.

22. Sec.  5001.202 Lender's Credit Evaluation

    a. The introductory paragraph is updated to provide additional 
information to lenders on timing of application submittal and 
completion of the lender's internal credit evaluation process as part 
of a complete application package. The update also includes a 
requirement for the lender's credit evaluation to include a written 
review and comment on the ``Five Cs'' of credit as outlined in Sec.  
5001.202(b)(1) through (5).
    b. Sec.  5001.202(a) is updated to include reference to the 
lender's responsibility to evaluate the relationships between all 
associated parties in the event of affiliated entities.
    c. Sec.  5001.202(b)(6)(iii) is amended to add that any steps taken 
or proposed to address any financial or industry weakness must be 
reasonable and adequately addressed.
    d. Sec.  5001.202(b)(6)(iv) is updated to include additional 
guidance on borrower projections and substantiation of increases of 
revenues, profit margins or profitability.
    e. Sec.  5001.202(b)(6)(iv) is updated to include the source of the 
cash flow in the analysis of the operational cash flow when lenders are 
requesting the loan note guarantee prior to project completion.

23. Sec.  5001.203 Appraisals

    a. The introductory paragraph is updated to include, ``. . . as 
determined by the approval official.'' to indicate who determines 
appraisal acceptability. Additionally, information on the handling of 
value attributed to business valuation or as a going concern and 
discounting is added. For applications that include an existing 
facility, the Agency is including that it is expected that the 
appraiser will physically visit the property unless otherwise approved 
by the Agency approval official, as these ``desktop products'' are not 
reliable and present the potential for additional valuation risk to the 
Agency.
    b. Sec.  5001.203(b) is updated to provide additional assurances 
during the loan underwriting review process.
    c. Sec.  5001.203(c) is updated to incorporate the language from 
Sec.  5001.203(c)(1)(i).
    d. Sec.  5001.203(c)(1) is removed. The language from the current 
Sec.  5001.203(c)(1)(i) is incorporated into Sec.  5001.203(c). The 
current language in Sec.  5001.203(c)(1)(ii) is not necessary as the 
Agency's expectations are adequately covered in previous language.
    e. Sec.  5001.203(d) (1) is updated to allow for other than a State 
Certified General Appraiser when approved by the Agency as some project 
types are unique enough that a qualified appraiser may not be 
available.
    f. Sec.  5001.203(f) is updated to require immediate notification 
to the Agency if potential contamination is observed or identified.
    g. Sec.  5001.203(h) is updated to reiterate that appraisal fees 
are eligible project costs, and that the Agency does not pay for 
appraisals at the time of application but that servicing appraisals 
will be handled in accordance with 7 CFR 5001 subpart F.

24. Sec.  5001.205 General Project Monitoring Requirements

    a. Sec.  5001.205(a)(4) is added to include compliance with section 
70914 of the Build America, Buy America Act within the Infrastructure 
Investment and Jobs Act (Pub. L. 117-58).
    b. Sec.  5001.205(b)(1) is updated to include compliance with the 
Uniform Relocation Assistance and Real Property Acquisition Policies 
Act of 1970 to ensure that all property transactions are conducted 
accordingly.
    c. Sec.  5001.205(e)(1)(i) is removed and the information combined 
with Sec.  5001.205(e)(1) as a separate (i) was not necessary.
    d. Sec.  5001.205(e)(2)(iii) is updated to include the requirement 
that the lender must provide evidence of sufficient cash flow to 
complete the project construction, including contingencies for cost 
overruns, plus working capital during the business start-up period.
    e. Sec.  5001.205(e)(2)(iv) is updated to include the requirement 
that, in all cases, borrower equity must be injected prior to any 
guaranteed loan funds.
    f. Sec.  5001.205(e)(2)(vii) is updated so that the credit 
underwriting of the independent technology development firm is not 
limited only to renewable energy projects, but may include energy 
efficiency, renewable chemical, and biobased manufacturing projects.

25. Sec.  5001.206 Compliance With USDA Departmental Regulations, 
Policies, and Other Federal Laws

    Section 5001.206(b) is updated to include compliance with the 
Uniform Relocation Assistance and Real Property Acquisition Policies 
Act of 1970 as a requirement if the proposed project requires the 
acquisition of real property or will displace people from their homes, 
business, or farms, and Section 70914 of the Build America, Buy America 
Act within the Infrastructure Investment and Jobs Act, and 31 U.S.C. 
3354 Do Not Pay Initiative.

Subpart D

26. Sec.  5001.301 Beginning the Application Process

    Section 5001.301(a) is updated in its entirety to reflect current 
application submittal practices.

27. Sec.  5001.303 Applications for Loan Guarantee

    Section 5001.303(c)(15) is updated to include the entire title of 
SEC Form 10-K.

28. Sec.  5001.307 Specific Application Requirements for REAP Projects

    Section 5001.307(b) is updated to include clarification on 
application documentation requirements for rural small businesses and 
agriculture operations owned by Tribes.

28. Sec.  5001.315 Application Evaluation and Award Provisions

    a. Sec.  5001.315(b) is updated to include the word ``complete'' to 
describe applications that the Agency will review.
    b. Sec.  5001.315(c)(1) is updated to include the word ``priority'' 
to better describe scoring.

[[Page 79702]]

    c. Sec.  Sec.  5001.315(e)(2) is updated to include notification in 
writing when their application is withdrawn from further funding 
consideration.

29. Sec.  5001.319 REAP Project Priority Point System

    a. The introductory paragraph is updated to add, ``. . . and 
subject to the availability of funds . . .'' to state when the Agency 
will compete each complete and eligible application for RES, EEI and 
EEE projects.
    b. Sec.  5001.319(b)(1)(i) is updated to include when priority 
points will be awarded for retrofitting RES projects and how off-the-
grid and direct-use projects will be awarded priority points.
    c. Sec.  5001.319 (b)(2)(i) is updated to include information on 
calculating the percentage of energy being replaced, whether it is 
categorized a replacement or generation. This does not change the 
underlying calculation but provides clarification.
    d. Sec.  5001.319 (b)(2)(i)(A) is updated to include a requirement 
for documentation to show that the borrower entity incurred the cost of 
the historical energy to be replaced and what may be considered in the 
calculation. This does not change the underlying calculation but 
provides clarification.
    e. Sec.  5001.319(b)(2)(ii) is updated to add information on RES 
projects that are not projecting to increase the amount of renewable 
energy generated and that if documentation of prior energy usage is not 
provided the project will be scored as an energy generation project.
    f. Sec.  5001.319(b)(2)(iii) is updated to add ``vendor 
certification'' as acceptable documentation of energy savings by the 
installation of the EEI project.
    g. Sec.  5001.319(d) is updated to clarify the meaning of 
``received and accepted''.
    h. Sec.  5001.319(e) is updated to specify that an existing 
business must be in operation for at least one full year, not simply a 
year since legal business formation.
    i. Sec.  5001.319(f)(1) is updated to add, for clarity, that RES 
include replacement, generation, and direct-use RES projects.
    j. Sec.  5001.319(g)(6) is updated to clarify that the United 
States Census Bureau information to determine population living in 
poverty is for the last 30 years.

Subpart E

30. Sec.  5001.401 Interest Rate Provisions

    Section 5001.401 is updated to include that in the event of an 
interest rate swap, the Agency's guarantee can only cover principal and 
interest and does not cover any fees related to the swap. A requirement 
for the lender to provide the Agency with an overall effective interest 
rate charged to the borrower in the swap transaction is also added.

31. Sec.  5001.402 Term Length, Loan Schedule, and Repayment

    Section 5001.402(b)(2) is updated to provide additional information 
to lenders on Agency requirements regarding loan amortizations 
including requirements, that balloon payments are not acceptable except 
in some loan servicing cases and that payments must be amortized to 
maximize successful loan repayment and may vary by business type or 
company cash flow.

32. Sec.  5001.406 Guaranteed Loan Amounts

    Section 5001.406(c) is updated to place a limit on total guarantor 
loans.
    Section 5001.406(d) is updated to include that borrowers must 
demonstrate evidence of a financial contribution in the project of at 
least 25 percent of total eligible project costs. Federal grant funds, 
if authorized by the grantor, may be used as the financial 
contribution.

33. Sec.  5001.408 Participation or Assignment of Guaranteed Loan

    Section 5001.408(a)(5) is updated to include a clarification of 
default and that lenders using the multi-note system may sell the 
guarantee on the secondary market for a specific note once that note is 
fully disbursed.

34. Sec.  5001.450 General

    a. Sec.  5001.450(b)(1) is updated to add, ``. . . during the loan 
approval process'' to provide information on when approval of a parity 
or junior lien position request must be approved by the Agency. A 
statement regarding where to find the requirements for guaranteed loans 
to purchase cooperative stock was also added.
    b. Sec.  5001.450(c)(1) is updated to include language on 
requesting the payment of interest up to 180 days past the most recent 
delinquency effective date.
    c. Sec.  5001.450(c)(1)(iii) is updated to provide lenders with 
information on requesting extensions of accrued interest and that 
approved collection efforts that extend beyond 180 days will be limited 
to 90 days of accrued interest payments from the Agency.
    d. Sec.  5001.450(c)(2) is updated to add ``. . . and provide the 
Agency with a copy.'' to provide information for the lender on Agency 
notification of holders in the event of interest termination.

35. Sec.  5001.452 Loan Closing and Conditions Precedent to Issuance of 
Loan Note Guarantee

    a. Sec.  5001.452(a) is updated to add that if at a later date it 
is discovered that all conditions of the conditional commitment had not 
been met prior to loan closing that full enforceability of the 
guarantee may be compromised.
    b. Sec.  5001.452(b)(8)(iii)(U) is updated to include that ``. . . 
or will perform . . .'' may be part of the lender's certification of 
steady state operating level.
    c. Sec.  5001.452(b)(8)(iii)(W) is added to include certification 
of compliance with American Iron and Steel and Build America, Buy 
America requirements for applicable WWD projects.
    d. Sec.  5001.452(b)(8)(iii)(X) is added to include certification 
that, for B&I projects, the capital/equity requirements of the 
Conditional Commitment were met.
    e. Sec.  5001.452(c) is updated to add that a permission to operate 
letter from the energy off-taker is required.

36. Sec.  5001.454 Guarantee Fee

    a. To ensure that the correct guarantee fee is applied, the opening 
paragraph to Sec.  5001.454 is updated to include that the guarantee 
fee rate applied will be the rate as established in the Federal 
Register for the fiscal year in which a guaranteed loan is obligated.
    b. Sec.  5001.454(b) is updated to include that once the guarantee 
is obligated, the guarantee fee rate in effect at the time of 
obligation will remain in place even if the guarantee fee rate changes 
before the loan note guarantee is issued.
    c. Sec.  5001.454(d)(5) is updated to provide additional 
information on what constitutes an additional market for existing local 
business.

Subpart F--Servicing Provisions

37. Sec.  5001.505 Collateral Inspection and Release

    Section 5001.505(b)(3) is revised to add additional information to 
further specify requirements of an arm's length transaction.

38. Sec.  5001.510 Subordination of Lien Position

    Section 5001.510(b)(3) is updated to include additional information 
on discounting of collateral when determining sufficient collateral 
coverage.

39. Sec.  5001.516 Protective Advances

    a. Sec.  5001.516(c) is updated to inform lender that payment of 
real estate taxes is not considered a protective advance and does not 
require Agency approval.

[[Page 79703]]

    b. Sec.  5001.516(d) is updated to inform lenders that it is their 
responsibility to ensure that protective advances will be secured by 
the collateral of the guaranteed loan.

40. Sec.  5001.517 Liquidation

    a. Sec.  5001.517(c)(1) is updated to include items that may be 
used to establish the lender's ownership of the guaranteed loan 
promissory note and related security instruments.
    b. Sec.  5001.517(c)(2) is updated to include additional 
requirements of the liquidation plan including: transaction history for 
the loan; if the interest rate was a variable rate, the lender must 
include documentation of changes to the agreed upon base rate and when 
the changes in the loan rate became effective; and explanation of any 
special accommodations that were made.
    c. Sec.  5001.517(c)(6)(i) is updated to include that a copy of the 
appraisal or valuation will be provided to the Agency with the 
liquidation plan or as soon as it is available.
    d. Sec.  5001.517(c)(10) is updated to include a non-exhaustive 
list of examples of liquidation expenses that may be incurred.
    e. Sec.  5001.517(c)(11) is updated to include: a non-exhaustive 
list of possible protective advances; that protective advances may be 
made to maintain services or address unique situations with proper 
justification; and non-Agency approved advances of funds will not be 
guaranteed.
    f. Sec.  5001.517(e)(1)(i) is updated to add ``actively marketing 
the collateral.'' Additionally, consideration of submitting a final 
loss claim is added as a possible next action if the lender is unable 
to sell the collateral.

41. Sec.  5001.521 Loss Calculations and Payment

    Section 5001.521(d)(2) is updated to include information to 
borrowers and lenders on project development issues that could reduce 
any loss claim payable.
    The Agency also plans to correct minor spelling, grammatical and 
capitalization errors. All changes to appendices C, D and E to Subpart 
D of Part 5001 correct spelling, grammatical or capitalization errors.

III. Executive Orders and Acts

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches to maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility.
    This final rule has been determined to be not significant for 
purposes of Executive Order (E.O.) 12866 and therefore has not been 
reviewed by the Office of Management and Budget (OMB).

National Environmental Policy Act

    In accordance with the National Environmental Policy Act of 1969, 
Public Law 91-190, this final rule has been reviewed in accordance with 
7 CFR part 1970 (``Environmental Policies and Procedures''). The Agency 
has determined that i) this action meets the criteria established in 7 
CFR 1970.53(f); ii) no extraordinary circumstances exist; and iii) the 
action is not ``connected'' to other actions with potentially 
significant impacts, is not considered a ``cumulative action'' and is 
not precluded by 40 CFR 1506.1. Therefore, the Agency has determined 
that the action does not have a significant effect on the human 
environment, and therefore neither an Environmental Assessment nor an 
Environmental Impact Statement is required.

Executive Order 12988, Civil Justice Reform

    This final 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 conflict 
with this rule will be preempted. No retroactive effect will be given 
to this rule.

Executive Order 13132, Federalism

    The policies contained in this final rule do not have a 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.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-602) generally 
requires an agency to prepare a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements under the 
Administrative Procedure Act (``APA'') or any other statute. The APA 
exempts from notice and comment requirements rules ``relating to agency 
management or personnel or to public property, loans, grants, benefits, 
or contracts'' (5 U.S.C. 553(a)(2)), so therefore an analysis has not 
been prepared for this rule.

Executive Order 12372, Intergovernmental Consultation

    This final 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).

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on the Agency. The Agency 
has determined that the rule does not have a substantial direct effect 
on one or more Indian Tribe(s) or on either the relationship or the 
distribution of powers and responsibilities between the Federal 
Government and Indian Tribes. Thus, this rule is not subject to the 
requirements of Executive Order 13175. If Tribal leaders are interested 
in consulting with the Agency on this rule, they are encouraged to 
contact USDA's Office of Tribal Relations or the Agency's Native 
American Coordinator at: <a href="/cdn-cgi/l/email-protection#b2f3fbf3fcf2c7c1d6d39cd5ddc4"><span class="__cf_email__" data-cfemail="37767e7679774244535619505841">[email protected]</span></a> to request such a consultation.

Assistance Listing Number

    The Assistance Listing (formerly known as the Catalog of Federal 
Domestic Assistance (CFDA)) numbers assigned to the 4 programs within 
this rule are: 10.766 for Community Facility Programs, 10.760 for Water 
and Waste Disposal Programs, 10.768 for Business and Industry Programs 
and 10.868 for Rural Energy for America Program. The complete catalog 
is available on the internet at https://sam.gov/content/assistance-listings.

Paperwork Reduction Act and Recordkeeping Requirements

    This rule contains no new reporting or recordkeeping burdens under 
OMB control number 0572-0166 that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

[[Page 79704]]

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act of 2002, which requires Government agencies in general to provide 
the public the option of submitting information or transacting business 
electronically to the maximum extent possible.

Civil Rights Impact Analysis

    RD has reviewed this Final rule in accordance with USDA Regulation 
4300-4, Civil Rights Impact Analysis,'' to identify any major civil 
rights impacts the rule might have on program participants on the basis 
of age, race, color, national origin, sex, disability, gender identity 
(including gender expression), genetic information, political beliefs, 
sexual orientation, marital status, familial status, parental status, 
veteran status, religion, reprisal and/or resulting from all or a part 
of an individual's income being derived from any public assistance 
program. This final rule is within a guarantee-based program. 
Guarantees are not covered under Title VI of the Civil Rights Act of 
1964, Section 504 of the Rehabilitation Act of 1973, and Title IX of 
the Education Amendments Act of 1972, as amended, when the Federal 
assistance does not include insurance or interest credit loans. Lenders 
must comply with other applicable Federal laws, including Equal 
Employment Opportunities, the Equal Credit Opportunity Act, the Fair 
Housing Act, and the Civil Rights Act of 1964. Guaranteed loans that 
involve the construction of or addition to facilities that accommodate 
the public must comply with the Architectural Barriers Act 
Accessibility Standard. The borrower and lender are responsible for 
ensuring compliance with these requirements.

USDA Non-Discrimination Statement

    In accordance with Federal civil rights laws and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Mission Areas, agencies, staff offices, employees, and institutions 
participating in or administering USDA programs are prohibited from 
discriminating based on race, color, national origin, religion, sex, 
gender identity (including gender expression), sexual orientation, 
disability, age, marital status, family/parental status, income derived 
from a public assistance program, political beliefs, or reprisal or 
retaliation for prior civil rights activity, in any program or activity 
conducted or funded by USDA (not all bases apply to all programs). 
Remedies and complaint filing deadlines vary by program or incident.
    Program information may be made available in languages other than 
English. Persons with disabilities who require alternative means of 
communication to obtain program information (e.g., Braille, large 
print, audiotape, American Sign Language) should contact the 
responsible Mission Area, agency, or staff office; or the 711 Relay 
Service.
    To file a program discrimination complaint, a complainant should 
complete a Form AD-3027, USDA Program Discrimination Complaint Form, 
which can be obtained online at https://www.usda.gov/sites/default/files/documents/ad-3027.pdf from any USDA office, by calling (866) 632-
9992, or by writing a letter addressed to USDA. The letter must contain 
the complainant's name, address, telephone number, and a written 
description of the alleged discriminatory action in sufficient detail 
to inform the Assistant Secretary for Civil Rights (ASCR) about the 
nature and date of an alleged civil rights violation. The completed AD-
3027 form or letter must be submitted to USDA by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 
20250-9410; or
    (2) Fax: (833) 256-1665 or (202) 690-7442; or
    (3) Email: <a href="/cdn-cgi/l/email-protection#265654494154474b084f4852474d43665355424708414950"><span class="__cf_email__" data-cfemail="c3b3b1aca4b1a2aeedaaadb7a2a8a683b6b0a7a2eda4acb5">[email protected]</span></a>.

Severability

    It is USDA's intention that the provisions of this rule shall 
operate independently of each other. In the event that this rule or any 
portion is ultimately declared invalid or stayed as to a particular 
provision, it is USDA's intent that the rule nonetheless be severable 
and remain valid with respect to those provisions not affected by a 
declaration of invalidity or stayed. USDA concludes it would separately 
adopt all of the provisions contained in this final rule.
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects in 7 CFR Part 5001

    Business and industry, Community facility, Energy efficiency 
improvement, Loan programs, Renewable energy, Rural areas, Rural 
development, Water and waste disposal.

    For the reasons set forth in the preamble, under the authority at 5 
U.S.C. 301 and 7 U.S.C. 1989, 7 CFR part 5001 is amended as follows:

PART 5001--Guaranteed Loans

0
1. The authority citation for part 5001 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1926(a); 7 U.S.C. 1932(a); 
and 7 U.S.C. 8107.

Subpart A--General Provisions

0
2. Amend Sec.  5001.1 by revising (b) to read as follows:


Sec.  5001.1  General.

* * * * *
    (b) The applicability of the provision of this part for processing 
and approving applications and for servicing guaranteed loans depend on 
when a complete application is received. The Agency will process and 
approve applications, and service guaranteed loans according to the 
provisions of this part for all complete guaranteed loan applications 
that it receives on or after October 1, 2020, including guaranteed loan 
applications submitted under any of the programs whose authorization is 
identified in this section. All complete applications received before 
October 1, 2020, will be processed, and awarded and guaranteed loans 
serviced in accordance with the existing regulations in effect at the 
complete application date for the program under which the application 
was submitted.

0
3. Amend Sec.  5001.2 by revising paragraphs (b) and (d) to read as 
follows:


Sec.  5001.2  Structure.

* * * * *
    (b) Subpart B. This subpart contains provisions for determining 
project, borrower, and lender eligibility that are applicable to each 
guaranteed loan made under this part. It also contains a list of 
eligible and ineligible uses of loan funds, ineligible projects and 
conditions that would make an otherwise eligible borrower ineligible. 
The lender's agreement is addressed as well as maintenance of approved 
lender status.
* * * * *
    (d) Subpart D. This subpart contains provisions relating to 
applications for a loan guarantee under this part, including 
preliminary eligibility reviews, the application process, application 
evaluation, and the application award processes that are applicable to 
each guaranteed loan made under this part.
* * * * *

0
4. Amend Sec.  5001.3 by revising the definitions of ``Affiliate'', 
``Agricultural producer'', ``Collateral'', ``Commercially available, 
``Debt Collection Improvement Act'', ``Delinquency'', ``Energy 
efficient equipment and

[[Page 79705]]

systems'', ``Federal debt'', ``Guarantor'', ``Hospital'', ``Hybrid'', 
``Local owner'', ``Matching funds'', ``Natural resource value-added 
product'', ``Professional service'', ``Refurbished'', ``Renewable 
energy system (RES)'', ``Retrofitting'', ``Rural and rural area'', 
``Simple payback'', ``Small business'', ``Total project costs'', and 
``Underserved communities'' to read as follows:


Sec.  5001.3  Definitions.

* * * * *
    Affiliate means a person that is connected with or controlled by 
another organization. Factors such as ownership, management, current 
and previous relationships with or ties to another person, and 
contractual relationships, will be considered in determining whether 
affiliation exists. Affiliation is determined using the principles 
outlined in 13 CFR 121.103.
* * * * *
    Agricultural producer means a person, including non-profits, 
directly engaged in the production of agricultural products through 
labor management and operations, including the cultivating, growing, 
and harvesting plants and crops (including farming); breeding, raising, 
feeding, or housing of livestock (including ranching); forestry 
products; hydroponics; nursery stock; or aquaculture, whereby 50 
percent or greater of their gross income is derived from the 
operations. All gross income of the applicant entity is included for 
agricultural producer eligibility. The percentage is calculated as the 
average of gross agricultural operations income of the concern divided 
by the gross non-farm income of the concern for the five most recent 
years. If the concern has been in operation for less than 60 months but 
for at least 12 months, average gross agricultural operations income, 
and gross non-farm income for as long as the concern has been in 
operation will be used. Agricultural operations income may include such 
items as production contracts, crop insurance, commodity payments, etc. 
Total income may include W-2 wages, schedule C income, and other income 
not related to the agricultural operation. Calculations will be using 
the applicant's five most recent tax years. Each year's gross 
agricultural operations income will be divided by the applicant's gross 
total income, then the five years will be averaged to determine 
eligibility. An agricultural producer could be located in either a 
rural or a non-rural area.
* * * * *
    Collateral means the asset(s), including assignments of relevant 
agreements, pledged by the borrower to the lender as security for the 
guaranteed loan.
* * * * *
    Debt Collection Improvement Act (DCIA) means the Debt Collection 
Improvement Act of 1996, 31 U.S.C. 3701 et seq., which requires that 
any nontax monies that are payable or may become payable from the 
United States under contracts and other written agreements to any 
person not an agency or subdivision of a state or local government may 
be subject to certain collection options, such as administrative 
offset, for a delinquent debt the person owes to the United States 
implemented under 7 CFR part 3.
* * * * *
    Delinquency means a situation that exists when a scheduled loan 
payment on a guaranteed loan made under this part is more than 30 
calendar days past due and cannot be cured within the next 30 calendar 
days. For purposes of this part, delinquency provides guidance for 
completing borrower status reports and is not used to define monetary 
or non-monetary default or undertaking-related servicing actions.
* * * * *
    Energy efficient equipment and systems (EEE) means equipment or 
systems for agricultural production or processing that exceed any of 
the following standards. Applications for energy efficient equipment 
and systems must clearly demonstrate energy efficiency.
* * * * *
    Essential community facility means a public improvement, operated 
on a non-profit basis, needed for the orderly development of a rural 
community where the rural community is a city or town, or its 
equivalent county or multi- county area. The term ``facility'' refers 
to both the physical structure financed, and the resulting service 
provided to rural residents or rural businesses. Facilities may 
include, but are not limited to, courthouses, community centers, 
libraries, firehouses, health care, education, transportation, and 
industrial parks. An industrial park consists of land and the necessary 
access ways and utilities to the site, but not improvements erected on 
such site.
* * * * *
    Federal debt means debt owed to the Federal Government that is 
subject to collection under the Debt Collection Improvement Act of 
1996, 31 U.S.C. 3701, et seq.
* * * * *
    Guaranteed loan means a loan made and serviced by a lender for 
which the Agency and lender have entered into a lender's agreement and 
for which the Agency has issued a loan note guarantee. Unless otherwise 
specified, guaranteed loan refers to a loan that the Agency has 
guaranteed under this part.
* * * * *
    Guarantor means a person giving assurance to the Agency under an 
Agency-approved written agreement that the borrower's obligations will 
be fulfilled and promising its undertaking of responsibility for 
repayment of a guaranteed loan if the borrower should default.
* * * * *
    Hospital (1) For the purpose of refinancing rural hospital debt in 
accordance with Sec.  5001.102(d)(5), hospital means the following 
types of facilities defined in the Social Security Act, Section 1861 
(42 U.S.C. 1395x):
    (i) Hospital (section 1861(e)).
    (ii) Psychiatric hospital (section 1861(f)).
    (iii) Long-term care hospital (section 1861(ccc)); and shall also 
include the following other provider types defined in the Social 
Security Act, Section 1861 (42 U.S.C. 1395X):
    (A) Critical access hospital (section 1861(mm)(1)).
    (B) Religious nonmedical health care institution (section 
1861(ss)(1)).
    (2) The Agency will use the applicant provider's Centers for 
Medicare and Medicaid Services (CMS) Certification Number (CCN) to 
verify the applicant provider is listed as a ``Hospital'' for the 
``Provider or Supplier Type'' category on the CMS Quality Certification 
and Oversight Reports (QCOR) website qcor.cms.gov/index_new.jsp.
* * * * *
    Hybrid means a combination of two or more renewable energy 
technologies that are incorporated into a unified system to support a 
single project. Projects which propose two or more different renewable 
energy technologies that are not incorporated into a unified system and 
projects which propose different renewable energy technologies at two 
or more locations (a different technology at each site) are not 
eligible. For example, installing wind technologies at one location and 
solar technologies at another location is not considered hybrid but 
installing wind and solar technologies that are incorporated into a 
unified system to support a single project at both locations is 
considered hybrid.
* * * * *
    Local owner means an individual who owns any portion of an entity 
that is the eligible borrower and whose primary residence is located 
within the normal

[[Page 79706]]

commuting area, typically 100 miles or less, of the guaranteed loan 
project.
* * * * *
    Matching funds means the 25 percent of total eligible project costs 
required by 7 U.S.C. 8107 (REAP) to be eligible to receive a guaranteed 
loan. Funds provided by the borrower in excess of matching funds are 
not matching funds.
* * * * *
    Natural resource value-added product means a product derived from 
any naturally occurring resource, including agricultural resources, 
that is further processed to add value or used to generate energy or 
renewable energy. For example, wind or the sun being used for energy 
generation, grapes that are processed into wine or jam, or straw that 
is processed into particle board. Feeding grain to livestock is not 
considered as part of this definition.
* * * * *
    Professional service means services used by the borrower for 
planning and developing a project, including, but not limited to, 
appraisals, architectural services, surveys, environmental impact 
analyses, implementing mitigation measures, and establishing or 
acquiring property rights. Such services are generally rendered by 
persons licensed or certified by States or accreditation associations, 
such as architects, engineers, accountants, attorneys, or appraisers, 
and those rendered by loan packagers, but not including loan finders. A 
loan finder fee is not considered a professional service.
* * * * *
    Refurbished means a piece of equipment or renewable energy system 
that has been brought into a commercial facility, thoroughly inspected, 
and worn parts replaced and has a warranty that is approved by the 
Agency or its designee An example of refurbished equipment is a diesel 
engine that has been rebuilt to factory specifications. The purchase of 
used equipment which has not been refurbished is not eligible.
* * * * *
    Renewable energy system (RES) means a system that produces usable 
energy from a renewable energy source. Co-firing with fossil fuels, 
natural gas or petroleum-based products or materials such as coal and 
other fuels, oils, chemicals, tires, or plastic are not eligible; and 
may include:
    (1) Distribution components necessary to move energy produced by 
such system to the initial point of sale; and
    (2) Other components and ancillary infrastructure of such system, 
such as a storage system; however, such system may not include a 
mechanism for dispensing energy at retail e.g., a flexible fuel pump.
* * * * *
    Retrofitting means a modification to an existing building or 
installed equipment that incorporates a function or feature(s) not 
included in the original design when built or for the replacement of 
existing components with components that improve the original design 
and does not affect original warranty if the warranty is still in 
existence. Examples of retrofitting include:
    (1) Installing newly designed blades to an existing wind turbine to 
enhance energy production.
    (2) Adding equipment or processes to or altering or enhancing an 
existing RES to improve production, efficiency, or financial viability, 
such as a feedstock retreater on an existing biodiesel production 
plant;
    (3) Adding a battery system to an existing RES;
    (4) Installing a steam turbine at an ethanol plant, or;
    (5) Installing a combined heat and power system for a pellet 
production facility.
* * * * *
    Rural and rural area means any area of a State not in a city or 
town that has a population of more than 50,000 inhabitants, and which 
excludes certain populations pursuant to 7 U.S.C. 1991(a)(13)(H), 
according to the latest decennial census of the United States and not 
in the urbanized area contiguous and adjacent to a city or town that 
has a population of more than 50,000 inhabitants. In making this 
determination, the Agency will use the latest decennial census of the 
United States. Applications cannot be approved subject to meeting rural 
area requirements. Locations that are contiguous and adjacent to an 
urbanized area will be delineated as a non-eligible area in the Rural 
Development Property Eligibility Map found at: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do. This map is 
maintained independently by another government agency and is oriented 
through census tract data. The following exclusions apply:
    (1) Any area in the urbanized area contiguous and adjacent to a 
city or town that has a population of more than 50,000 inhabitants that 
has been determined to be ``rural in character'' as follows:
    (i) The determination that an area is ``rural in character'' will 
be made by the Under Secretary of Rural Development. Rural in character 
requests and determinations are project specific; e.g., if approved, 
the determination does not apply to any future request made within the 
same area. The process to request a determination under this provision 
is outlined in paragraph (1)(ii) of this definition. The determination 
that an area is ``rural in character'' under this definition will apply 
to areas that are within:
    (A) An urbanized area that has two points on its boundary that are 
at least 40 miles apart, which is not contiguous or adjacent to a city 
or town that has a population of greater than 150,000 inhabitants or 
the urbanized area of such a city or town; or
    (B) An urbanized area contiguous and adjacent to a city or town of 
greater than 50,000 inhabitants that is within \1/4\ mile of a rural 
area.
    (ii) Units of local government may petition the Under Secretary of 
Rural Development for a ``rural in character'' designation by 
submitting a petition to the appropriate Rural Development State 
Director for recommendation to the Administrator on behalf of the Under 
Secretary. The petition shall document how the area meets the 
requirements of paragraph (1)(i)(A) or (B) of this definition and 
discuss why the petitioner believes the area is ``rural in character,'' 
including, but not limited to, the area's population density, 
demographics, and topography and how the local economy is tied to a 
rural economic base. Upon receiving a petition, the Under Secretary 
will consult with the applicable governor or leader in a similar 
position and request comments to be submitted within 5 business days, 
unless such comments were submitted with the petition. The Under 
Secretary will release to the public a notice of a petition filed by a 
unit of local government not later than 30 days after receipt of the 
petition by way of publication in a local newspaper and posting on the 
Agency's website at rd.usda.gov/onerdguarantee, and the Under Secretary 
will make a determination not less than 15 days, but no more than 60 
days, after the release of the notice. Upon a negative determination, 
the Under Secretary will provide to the petitioner an opportunity to 
appeal a determination to the Under Secretary, and the petitioner will 
have 10 business days to appeal the determination and provide further 
information for consideration. The Under Secretary will make a 
determination of the appeal in not less than 15 days, but no more than 
30 days.
    (iii) Rural Development State Directors may also initiate a request 
to the Under Secretary to determine if an area is ``rural in 
character.'' A written recommendation must document how

[[Page 79707]]

the area meets the statutory requirements of paragraph (1)(i)(B) of 
this definition and discusses why the State Director believes the area 
is ``rural in character,'' including, but not limited to, the area's 
population density, demographics, topography, and how the local economy 
is tied to a rural economic base. Upon receipt of such a request, the 
Administrator will review the request for compliance with the ``rural 
in character'' provisions and make a recommendation to the Under 
Secretary. Provided a favorable determination is made, the Under 
Secretary will consult with the applicable Governor and request 
comments within 10 business days, unless gubernatorial comments were 
submitted with the request. A public notice will be published by the 
State Office in accordance with paragraph (1)(ii) of this definition. 
There is no appeal process for requests made on the initiative of the 
State Director.
    (2) An area that is attached to the urbanized area of a city or 
town with more than 50,000 inhabitants by a contiguous area of 
urbanized census blocks that is not more than two census blocks wide. 
Applicants from such an area should work with their Rural Development 
State Office to request a determination of whether their project is 
located in a rural area under this provision. This applies to areas 
that would not be considered a rural area because they are attached to 
the urbanized area of a city or town of greater than 50,000 inhabitants 
by a ``string'' area that is two census blocks wide or less (which are 
typically interstates or major highways). As long as the ``string'' 
area is two census blocks wide or less, the area outside of the 
urbanized area, beginning with the ``string'' area, may be considered 
rural. Once an area is approved as a string exception, any project 
within that area is eligible.
    (3) For the Commonwealth of Puerto Rico, the island is considered 
Rural and eligible except for the San Juan Census Designated Place 
(CDP) and any other CDP with greater than 50,000 inhabitants. Areas 
within CDPs with greater than 50,000 inhabitants, other than the San 
Juan CDP, may be determined to be Rural if they are ``not urban in 
character.''
    (4) For the State of Hawaii, all areas within the State are 
considered rural and eligible except for the Honolulu CDP within the 
County of Honolulu and any other CDP with greater than 50,000 
inhabitants. Areas within CDPs with greater than 50,000 inhabitants, 
other than the Honolulu CDP, may be determined to be rural if they are 
``not urban in character.''
    (5) For the purpose of defining a rural area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the Agency shall determine what constitutes rural and 
rural Area based on available population data.
* * * * *
    Simple payback means the estimated simple payback of a project 
funded under this part as calculated using paragraph (1), (2), or (3) 
of this definition, as applicable.
    (1) Energy efficiency improvement projects simple payback = (Total 
Project Costs) / (Dollar value of energy saved).
    (i) Energy saved will be determined by subtracting the projected 
energy (determined by the method in paragraph (1)(i)(B) of this 
definition) to be consumed from the historical energy consumed 
(determined by the method in paragraph (1)(i)(A) of this definition), 
and converting the result to a monetary value using a constant value or 
price of energy (determined by the method in paragraph (1)(i)(C) of 
this definition).
    (A) Actual energy used in the original building and/or equipment, 
as applicable, prior to the EEI project, must be based on the actual 
average annual total energy used in British thermal units (BTU) over 
the most recent 12, 24, 36, 48, or 60 consecutive months of operation.
    (B) Projected energy use if the proposed EEI project had been in 
place for the original building and/or equipment, as applicable, for 
the same time period used to determine that actual energy use under 
paragraph (1)(i)(A) of this definition.
    (C) Value or price of energy must be the actual average price paid 
over the same time period used to calculate the actual energy used 
under paragraph (1)(i)(A) of this definition.
    (ii) Energy efficiency improvement projects simple payback does not 
allow EEI to monetize benefits other than the dollar amount of the 
energy savings the agricultural producer or rural small business 
realizes as a result of the improvement.
    (iii) Proposed additional energy consumption by a business which 
would result in greater savings if implemented is not considered in the 
payback calculation.
    (2) Renewable energy systems projects simple payback = (total 
project costs) / (dollar value of energy units replaced, credited, 
sold, or used and fair market value of byproducts as applicable in a 
typical year).
    (i) Value of energy replaced will be calculated based on the 
borrower entity's historical energy consumption with actual average 
price paid for the energy replaced, following the methodology outlined 
in paragraph (1)(i) of this definition RES replacement projects which 
generate more energy than the applicant's historical records document, 
may add to the replacement value, the value obtained by taking the 
excess energy generated times a documented market price in order to 
derive at total dollar value of energy units replaced, credited, sold, 
or used.
    (ii) Value of energy credited or sold will be calculated based on 
the amount of energy units to be sold at the proposed rate per unit, as 
documented in utility net metering or crediting policies and/or a 
purchase agreement.
    (iii) If proposed energy will be used in a new facility (includes 
any direct-use project), value of energy used will be calculated based 
on the amount of energy units to be used at the documented price per 
unit of conventional fuel alternative.
    (iv) Value of byproducts produced by and used in the project or 
related enterprises should be documented at the fair market value to be 
received for the byproducts in a typical year.
    (v) Renewable energy systems projects simple payback does not 
include any one-time benefits such as but not limited to construction 
and investment-related benefits, nor credits which do not provide 
annual income to the project, such as tax credits. These benefits may 
be considered when appropriate for calculating repayment ability of 
guaranteed loans.
    (vi) For RES projects that involve a shared meter with a residence 
where the cost of the system has been prorated, only the eligible 
prorated amount of energy attributed to the rural business or 
agricultural producer will be used in the payback calculation. For 
projects that involve in-eligible expenses other than residential, the 
full amount of energy production will be used in the payback 
calculation.
    (3) Energy efficiency equipment and systems projects simple payback 
= (total project costs) / (dollar value of efficiency savings). 
Efficiency savings will be determined by subtracting the annual value 
of energy to be consumed by the proposed energy efficient equipment 
from the annual value of energy that a conventional equipment 
alternative would have consumed. Adequate documentation must be 
provided for all consumption estimates and values utilized in the 
calculation.
* * * * *
    Small business means an entity that meets the requirements of 
paragraphs (1) and (2) of this definition:

[[Page 79708]]

    (1) An entity or utility, as applicable, as further defined in 
paragraphs (1)(i) through (iv) of this definition and meeting the 
requirements in paragraph (2) of this definition. With the exception of 
the entities identified in this paragraph, all other non-profit 
entities are not small businesses for the purposes of REAP program 
eligibility:
    (i) A private for-profit entity, including a sole proprietorship, 
partnership, or corporation. The application must sufficiently describe 
the operations of the applicant's business entity;
    (ii) A cooperative (including a cooperative qualified under section 
501(c)(12) of the Internal Revenue Code);
    (iii) An electric utility (including a Tribal or governmental 
electric utility) that provides service to rural consumers and operates 
independent of direct government control; or
    (iv) A Tribal corporation or other Tribal business entities that 
are chartered under Section 17 of the Indian Reorganization Act (25 
U.S.C. 5124) or have similar structures and relationships with their 
Tribal governments and are acceptable to the Agency. The Agency will 
determine the small business status of such Tribal entity without 
regard to the resources of the Tribal government. This means that only 
the applicant entity must meet the definition of a small business; and
    (2) An entity that meets the requirements of (i) or (ii) below:
    (i) The Small Business Administration size standards in accordance 
with 13 CFR 121.301(a), and any successor regulation. The size of the 
applicant alone (without affiliates) must not exceed the size standard 
designated for the industry in which the applicant is primarily 
engaged. Also, the size of the applicant combined with its affiliates 
must not exceed the size standard designated for either the primary 
industry of the applicant alone or the primary industry of the 
applicant and its affiliates, whichever is higher. Size standards to be 
utilized are found in 13 CFR 121.201, and any successor regulation. The 
size standards themselves are expressed either in number of employees 
or annual receipts in millions of dollars, unless otherwise specified. 
The number of employees or annual receipts indicates the maximum 
allowed for an entity and its affiliates and are calculated using the 
following criteria:
    (A) The number of employees is calculated using the guidance found 
in 13 CFR 121.106, and any successor regulation. The average number of 
employees is used based upon number of employees for each of the pay 
periods for the preceding 24 months. Part-time and temporary employees 
are counted as full-time employees. If the entity has not been in 
business for 24 months, the average number of employees is used for 
each of the pay periods during which it has been in business; or
    (B) Annual receipts are calculated using the guidance found in 13 
CFR 121.104, and any successor regulation. Federal income tax returns 
and any amendments filed with the IRS on or before the date of 
application must be used. If an entity has not filed a Federal income 
tax return, the Agency will calculate the entities annual receipts 
using any other available information such as regular books of account, 
or audited financial statements; or
    (ii) The size standard outlined in 13 CFR 121.301(b)(2), and any 
successor regulation. Including its affiliates, the entity must not 
have a tangible net worth in excess of $20 million, and average net 
income after Federal income taxes (excluding carry over losses) for the 
preceding two completed fiscal year not in excess of $6.5 million.
* * * * *
    Total project costs means the sum of all costs associated with a 
completed project. All costs associated with a completed project, 
including ineligible project costs, must be included. Total project 
costs for retrofitting an existing RES includes the costs associated 
with the modifications or replacement of the existing components.
* * * * *
    Underserved communities mean communities (including urban or rural 
communities and Indian tribal communities) that have limited access to 
affordable, healthy foods, including fresh fruits and vegetables, in 
grocery retail stores or farmer-to-consumer direct markets and that 
have either a high rate of hunger or food insecurity or a high poverty 
rate as reflected in the most recent decennial census or other Agency-
approved census. For purposes of awarding priority points, when 
applicable, this definition shall also include unserved or underserved 
populations, including minorities or protected groups, persistent 
poverty areas, or areas where Rural Development projects have not been 
awarded in the past five years. High poverty rate is based on current 
census data and is not the same as persistent poverty which uses data 
for the last 30 years.
* * * * *

0
5. Amend Sec.  5001.6 by revising paragraph (b) to read as follows:


Sec.  5001.6  General lender responsibilities.

* * * * *
    (b) Lenders can contract for services, but such contracting does 
not relieve a lender from its responsibilities as identified in this 
part or, where applicable, in the applicable guaranteed loan program 
identified in Sec.  5001.1.
* * * * *

0
6. Revise Sec.  5001.7 to read as follows:


Sec.  5001.7  Agency's special initiatives.

    Applicants submitting applications that support the implementation 
of strategic or special initiatives are encouraged to review the 
Agency's annual notice to determine if their projects are eligible for 
receiving priority for projects. These projects may also support the 
implementation of strategic economic development and community 
development plans on a multi-jurisdictional and multi-sectoral basis in 
accordance with section 6401 of the Agriculture Improvement Act of 2018 
(Pub. L. 115-334).

0
7. Amend Sec.  5001.8 by revising paragraphs (e) introductory text and 
(e)(1) to read as follows:


Sec.  5001.8  Approvals, regulations, and forms.

* * * * *
    (e) 7 CFR part 5001 does not prohibit or consent to electronic 
signatures. Rural Development will accept electronic signatures from 
lenders for origination, loan closing, and servicing documents in 
accordance with the E-Sign Act unless otherwise prohibited by law or 
program. Lenders may use electronic signatures for electronic 
promissory notes (eNotes), deeds of trust and other documents relevant 
to the loan transaction, providing that the lender perfects and 
maintains a first lien position, an enforceable promissory note, and 
meets all other agency requirements including the following:
    (1) Lenders may submit forms to Rural Development electronically 
using USDA's Service Center Agencies Online Services website. 
Registration is limited to individuals and each individual authorized 
by the lender must register and upon registration may electronically 
sign and submit certain forms on behalf of the lender.
* * * * *

0
8. Revise and republish Sec.  5001.9 to read as follows:


Sec.  5001.9  Standards for financial information.

    (a) All financial information (e.g., financial statements, balance 
sheets, financial projections, and income statements) must be prepared 
and

[[Page 79709]]

submitted in accordance with accounting practices acceptable to the 
Agency. Such practices can include, but are not limited to, Generally 
Accepted Accounting Principles (GAAP) and the industry's standard 
accounting practice. Unless the applicant or borrower meets the 
threshold for an audit in accordance with 2 CFR part 200 subpart F, the 
type of financial statement, e.g., borrower prepared, compiled, 
reviewed, or audited, required is typically the decision of the lender.
    (b) For sole proprietorships and other situations where business 
assets are held personally, financial statements must be prepared using 
only the assets and liabilities directly attributable to the 
applicant's project. For these situations, assets, plus any 
improvements, must be valued at the lower of cost or market value.
    (c) A tax return is not an acceptable financial statement when 
underwriting a loan guaranteed under this part; however, tax return 
information may be used to prepare financial statements and to 
determine REAP eligibility.

0
9. Amend Sec.  5001.101 by:
0
a. Revising paragraphs (a) and (b); and
0
b. Adding paragraph (f)
    The revisions and addition read as follows:


Sec.  5001.101  Introduction.

* * * * *
    (a) Project eligibility. Sections 5001.102 through 5001.108 
identify requirements for projects to be eligible to receive a loan 
guarantee under this part. Sections 5001.115 through 5001.119 identify 
types of projects that are not eligible for a loan guarantee under this 
part. The Agency will not issue a loan guarantee under this part for 
any project that does not meet the applicable eligibility criteria as 
specified.
    (b) Borrower eligibility. Section 5001.126 identifies the types of 
borrowers that are eligible to receive a loan guarantee for their 
projects under this part. The types of borrowers eligible to receive 
loan guarantees for their projects vary based on the guaranteed loan 
program they are applying under and that guaranteed loan program's 
authorizing statute as set forth in Sec.  5001.1. Section 5001.127 
identifies conditions that would make an otherwise eligible borrower 
ineligible for receiving a loan guarantee for its project under this 
part.
* * * * *
    (f) Use of funds. Section 5001.121 identifies eligible uses of 
guaranteed loan funds and Sec.  5001.122 identifies ineligible uses of 
guaranteed loan funds.
* * * * *

0
10. Amend Sec.  5001.102 by revising and republishing paragraph (d) to 
read as follows:


Sec.  5001.102  Project eligibility--general.

* * * * *
    (d) Debt refinancing. The Agency can guarantee loans for debt 
refinancing, as described in paragraphs (d)(1) through (5) of this 
section when the guaranteed loan extinguishes the debt being 
refinanced. These paragraphs do not apply to REAP loans, see Sec.  
5001.121(d)(14) for REAP refinancing provisions. Longer-term financing 
to pay off a lender's interim construction loan after project 
completion will not be treated as debt refinancing as long as it meets 
the requirements for takeout of interim financing in Sec.  
5001.121(c)(6). An eligible debt refinancing project is:
    (1) Refinancing of debt on one or more loans owed to another 
creditor. There is no limit on percent of total use of funds if a new 
lender is refinancing debt owed to another creditor;
    (2) Refinancing of debt owed to the applicant lender or any part 
thereof provided that the applicant lender debt being refinanced does 
not exceed 50 percent of the total use of funds in the new aggregated 
federally-guaranteed debt, the applicant lender debt being refinanced 
is in a current status for the past six months and the new guaranteed 
loan is providing better rates or repayment terms. Better rates or 
repayment terms can be shown in a variety of ways including the lender 
providing a fixed rate over a lower variable rate provided the change 
is advantageous to the borrower's long-term repayment ability. The 
current status cannot be achieved by the lender forgiving the 
borrower's debt or by servicing actions that impact the borrower's 
repayment schedule; or
    (3) Refinancing of debt owed directly to the Federal Government or 
that is federally-guaranteed, including any guaranteed debt owed to the 
applicant lender, when a refinance of this debt is consistent with 
sections 333, ``Special Conditions and Limitations on Loans'' and 
306(a)(24)(C), ``Loan Guarantees for Water, Wastewater, and Essential 
Community Facilities Loans'' of the Consolidated Farm and Rural 
Development Act (as amended by the Agriculture Improvement Act of 2018, 
Pub. L. 115-334). Such guaranteed debt shall not be included in the 
amount of applicant lender debt when calculating the maximum percentage 
of the total use of funds in the new guaranteed loan as stated in 
paragraph (d)(2) of this section; and,
    (4) When the refinancing is in accordance with paragraphs (d)(1) 
through (3) of this section, the following requirements must be met:
    (i) The Agency has determined that the project is viable, and debt 
refinancing is necessary to improve cash flow;
    (ii) The debt is reflected on the borrower's balance sheet and the 
original loan funds were used for project-eligible purposes. 
Refinancing of existing of lines of credit is considered an eligible 
purpose for debt refinancing in the B&I program;
    (iii) For loans to existing businesses where debt refinancing is a 
majority purpose of the guaranteed loan, the borrower must demonstrate 
historical debt service coverage ratios using proposed debt service 
requirements of not less than 1.1 times, or the borrower's current 
financial performance demonstrates it has corrected or recovered from 
impacts or issues adversely affecting its past financial performance. 
The debt service coverage ratio computed based on the current income 
statement must be at least 1:1 to demonstrate correction or recovery.
    (5) For CF guaranteed loan requests only, refinancing of debt, not 
including new construction, incurred by a rural hospital to preserve 
access to a health service when the refinancing will meaningfully 
improve the financial position of the hospital. The debt can be 
existing Agency direct loan debt, Agency guaranteed debt, or another 
lender's debt (including other non-Agency Federal guaranteed debt). 
Loan requests to refinance rural hospital debt must demonstrate that 
the new amount of annual debt repayment on the debt being refinanced 
will be less than the existing amount of annual debt repayment and 
provide a total debt service coverage ratio of at least 1.1 based on 
historical cash flow. To calculate the ratio, the new debt service 
amount will include annual capital expense reserve and annual debt 
repayment reserve requirements. This information will be provided by 
the lender on an Agency approved application for loan guarantee and its 
associated supporting documentation.

0
11. Amend Sec.  5001.103 by:
0
a. Revising paragraphs (a)(1), (a)(3) and (b)(1); and
0
b. Adding paragraphs (d) and (e).
    The revisions and additions read as follows:


Sec.  5001.103  Eligible CF projects and requirements.

* * * * *
    (a) * * *
    (1) Health care facilities and services, including but not limited 
to hospitals and assisted living facilities providing

[[Page 79710]]

daily living and health care assistance in compliance with Federal, 
Tribal and/or State licensure or certification requirements;
* * * * *
    (3) Community, public, social, educational, or cultural facilities 
or services, including but not limited to:
    (i) Business incubators when not an inherently commercial 
enterprise, and the applicant demonstrates the following:
    (A) Applicant is a mission-driven organization such as a local or 
regional economic development organization;
    (B) The facility will be used to provide technical assistance, 
training, workforce development, administrative support services and 
vocational training to address workforce shortages in the community or 
region; and
    (C) Capacity building and support services that include at a 
minimum the following with the borrower demonstrating expertise in one 
or more of these services or presents a sustainable economically 
feasible program to outsource such activities:
    (1) Business plan development;
    (2) Administrative support services;
    (3) Training and technical assistance;
    (4) Mentoring, coaching, and leadership;
    (5) Finance and accounting workshops;
    (6) Programs to access capital; and
    (7) High-speed internet access;
    (ii) Thrift stores that operate as charitable organizations to 
enrich the quality of life for residents of the rural community they 
serve demonstrated by the following activities:
    (A) Collect and resell used or donated merchandise to community 
residents and may also provide other services such as job training or 
food pantries;
    (B) Receive donations, gifts, or bequests of money to help fund the 
organization and its purpose with a significant portion obtained from 
the rural community it serves.
    (C) Profits are reinvested in the facility or in charitable 
activities in the rural community served to ensure the goals of the 
organization are met.
    (iii) Fairgrounds, agricultural exposition centers, farmers 
markets, food distribution and food banks;
* * * * *
    (b) * * *
    (1) To demonstrate availability for public use, the borrower may 
not restrict use of or membership to its facility or service based on 
race, color, religion, sex, national origin, age, disability, sexual 
orientation, or marital or familial status Veterans of Foreign Wars and 
American Legion post facilities must be open and available for use by 
appointment or lease to community residents or groups.
* * * * *
    (d) Leased space. Eligible projects may include leased space to 
ineligible organizations or leased space used for ineligible commercial 
activities provided the floor space leased to ineligible organizations 
or used for ineligible commercial activity is less than 25 percent of 
the facility's floor space. The ineligible organization and the 
ineligible commercial activity must be related to and enhance the 
primary purpose of the eligible project. Examples include a hair salon 
in an assisted living facility, or a pharmacy in a medical facility.
    (e) Purchase of existing facility. When the project is to otherwise 
improve an essential community facility through the purchase of an 
existing facility as defined in Sec.  5001.3 the following are 
required:
    (1) An appraisal which demonstrates the purchase price is fair and 
reasonable and represents the market value of the facility through an 
arm's length transaction; and
    (2) If the transaction is necessary to improve the facility, 
documentation of the improvements that will be required and the plan, 
including source of funding, to complete those improvements within a 
reasonable timeframe; or
    (3) If the transaction is necessary to prevent a loss of service, 
documentation in the form of a financial analysis that demonstrates the 
seller will not have the financial means to continue to operate the 
facility and provide the needed services.

0
12. Amend Sec.  5001.104 by revising the introductory text and 
paragraphs (a) and (d)(1) to read as follows:


Sec.  5001.104  Eligible WWD projects and requirements.

    For a WWD project to be eligible for a loan guarantee under this 
part, it must meet the criteria specified in Sec.  5001.102 and this 
section and be for a borrower eligible to submit an application for the 
project in accordance with Sec.  5001.126.
    (a) Type of project. The project must be for one or more of the 
following facilities:
    (1) Drinking water facilities, including but not limited to water 
source, treatment and distribution;
    (2) Sanitary sewage facilities, including but not limited to 
collection and treatment;
    (3) Solid waste facilities; or,
    (4) Stormwater facilities.
* * * * *
    (d) * * *
    (1) The project must be installed to serve any user within the 
service area who desires service and can be feasibly and legally 
served.
* * * * *

0
13. Amend Sec.  5001.105 by revising paragraphs (b)(7), (b)(10), 
(b)(14), (b)(15)(i)(D), (b)(18)(i), (b)(18)(ii) introductory text, 
(b)(20), (b)(22)(vii), (d) introductory text, and (d)(1)(iii) to read 
as follows:


Sec.  5001.105  Eligible B&I projects and requirements.

* * * * *
    (b) * * *
    (7) Agricultural production, when not eligible for Farm Service 
Agency (FSA) farm loan programs assistance and when it is part of an 
integrated business also involved in the processing of agricultural 
products. Any agricultural production considered for guaranteed loan 
financing must be owned, operated, and maintained by the business 
receiving the guaranteed loan. Examples of potentially eligible 
agricultural production include but are not limited to an apple orchard 
in conjunction with a food processing plant; poultry buildings linked 
to a meat processing operation; or sugar beet production coupled with 
storage and processing.
* * * * *
    (10) Development and construction of broadband and 
telecommunication systems, including modification of existing systems, 
that are not otherwise eligible for funding in the RUS program or if 
funding is unavailable in the RUS program, subject to the public notice 
filing requirements of 7 CFR 1738.106(a) and the additional reporting 
requirements of 7 CFR 1738.107.
* * * * *
    (14) Leasehold improvements when the lease contains no reverter 
clauses or restrictive clauses that would impair the use or value of 
the property as security for the loan. The term of the lease must be 
equal to or greater than the term of the loan. Leasehold improvements 
are physical enhancements made to property by or on behalf of the 
property's lessee. When improvements are made to real property and 
those improvements are permanently affixed to the property, the title 
to those improvements automatically transfers to the owner of the 
property upon termination of the lease.
    (15) * * *
    (i) * * *
    (D) Includes an appropriate agreement with retail and institutional 
clients to inform consumers that they are

[[Page 79711]]

purchasing or consuming locally or regionally produced agricultural 
food products. The agreement(s) must be in place prior to issuance of 
the loan note guarantee and stated as part of the lender's 
certification at loan closing.
* * * * *
    (18) * * *
    (i) Guaranteed loans to eligible cooperatives may be made in 
principal amounts up to $40 million if the project is located in a 
rural area, the cooperative facility being financed provides for the 
value-added processing of agricultural commodities, and the total 
amount of guaranteed loans exceeding $25 million does not exceed 10 
percent of the funds available for the fiscal year. Guaranteed loans in 
excess of $25 million in accordance with this provision may only be 
approved by the Secretary, whose authority may not be redelegated.
    (ii) Guaranteed loans to eligible cooperatives may also be made in 
non-rural areas provided:
* * * * *
    (20) Nursing homes and assisted living facilities where constant 
medical care is provided and available onsite to the residents. 
Independent living facilities are not eligible in accordance with Sec.  
5001.118(a). Independent living facilities are considered residential 
property as they have many similarities to a multi-family housing 
complex, whereas nursing home and assisted living facility tenants rely 
on those entities to provide needed personal or medical care. 
Properties consisting of both assisted care facilities and independent 
senior living may be eligible if the availability of the on-site 
medical services is an optional service to the independent living 
residents, or if the predominant residents of the facility require 
assisted living care.
* * * * *
    (22) * * *
    (vii) Operations and maintenance. The demonstration of technical 
merit is the completion of two operating cycles at its designed 
production level. ``Operating cycle'' is the average time between the 
acquisition of materials or the providing of services and the final 
cash realization of that acquisition or provision of services.
* * * * *
    (d) Capital and equity. Borrowers are required to have sufficient 
capital or equity to mitigate the ongoing financial and operational 
risks of the business. The capital/equity requirement must be met in 
the form of either cash or earning assets contributed to the business 
and reflected on the borrower's balance sheet. Transfers of assets at 
fair market value between related parties, which are not arm's length 
transactions, must be in accordance with GAAP and require evidence that 
the transaction was entered into at market terms. Equity cannot include 
appraisal surplus or bargain purchase gains. Subordinated debt may be 
included when the subordinated debt is in exchange for cash injected 
into the business that remains in the business for the life of the 
guaranteed loan. The note or other form of evidence must be submitted 
to the Agency in order for subordinated debt to count towards meeting 
the balance sheet equity requirement. Balance sheet equity will be 
determined based upon current and projected borrower financial 
statements. A balance sheet as of loan closing is required and should 
reflect the new debt and use of proceeds. If there are multiple 
borrowers, consolidated financial statements should be presented. The 
following capital and equity requirements must be met at the time of 
lender's closing of the guaranteed loan.
    (1) * * *
    (iii) Owner contributed capital, as reflected in the equity section 
of the balance sheet, that is equal to or greater than 10 percent of 
net total fixed assets plus depreciation.
* * * * *

0
14. Amend Sec.  5001.106 by revising the introductory text, paragraphs 
(d)(2), (e)(2) and (e)(3) introductory text to read as follows:


Sec.  5001.106  Eligible REAP-Renewable Energy System (RES) projects 
and requirements.

    For a REAP RES project to be eligible for a loan guarantee under 
this part, it must meet the criteria specified in Sec.  5001.102(a) 
through (c) and in paragraphs (a) through (e) of this section and be 
for a borrower eligible to submit an application for the project in 
accordance with Sec.  5001.126.* * *
* * * * *
    (d) * * *
    (2) The borrower may install or elect to conditionalize funding 
upon the installation of a device (such as a second meter) that results 
in 100 percent of the energy generated by the RES project to be used 
only by the agricultural operation or rural small business.
* * * * *
    (e) * * *
    (2) Pass/pass with conditions/fail assignments. The Agency will 
assign each area of the technical report, as specified in paragraph 
(e)(1) of this section, a ``pass,'' ``pass with conditions,'' or 
``fail.'' An area will receive a ``pass'' if the information provided 
for the area has no weaknesses and meets or exceeds any requirements 
specified for the area. An area will receive a ``pass with conditions'' 
if the information provided for the area has minor weaknesses which 
could be conditioned and reasonably resolved by the borrower. 
Otherwise, if the information provided for the area is conclusively 
deemed to be a major weakness, or if the area has not been addressed by 
the applicant, the area will receive a fail.
    (3) Determination. The Agency will compile the results for each 
area of the technical report to determine if the project has technical 
merit.
* * * * *

0
15. Amend Sec.  5001.107 by revising and republishing paragraph (a) to 
read as follows:


Sec.  5001.107  Eligible REAP--Energy Efficiency Improvement (EEI) 
projects and requirements.

* * * * *
    (a) The EEI project must use less energy on an annual basis than 
the original building and/or equipment that it will improve or replace 
as demonstrated in an energy assessment or energy audit as applicable.
    (1) If the project's total project cost is greater than $80,000, 
the energy assessment must be conducted by an energy auditor, an energy 
assessor, or an individual supervised by either an energy assessor or 
energy auditor. The final energy assessment must be validated and 
signed by the energy assessor, the energy auditor who conducted the 
energy assessment, or by the supervising energy assessor or energy 
auditor of the individual who conducted the assessment, as applicable.
    (2) If the project's total project cost is $80,000 or less, the 
energy assessment may be conducted in accordance with paragraph (a)(1) 
of this section or by a person that has at least 3 years of experience 
and completed at least five energy assessments or energy audits on 
similar type projects. Eligible EEI include, but are not limited to:
    (i) Efficiency improvements to existing RES; and
    (ii) Construction of a new building only when the new building is 
used for the same purpose as the existing building and if, based on an 
energy assessment or energy audit, as applicable, it is more cost 
effective to construct a new building that will use less energy on 
annual basis than to improve the energy efficiency of the existing 
building.
* * * * *

[[Page 79712]]


0
16. Amend Sec.  5001.108 by revising the introductory text to read as 
follows:


Sec.  5001.108  Eligible REAP--Energy Efficient Equipment and Systems 
(EEE) projects and requirements.

    For a REAP EEE project to be eligible for a loan guarantee under 
this part, it must meet the criteria specified in Sec.  5001.102(a) 
through (c) and in paragraphs (a) through (d) of this section and be 
for a borrower that is an agricultural producer eligible to submit an 
application for the project in accordance with Sec.  5001.126. The EEE 
project can be located in a rural or non-rural area as long as the 
energy efficient equipment or systems are used for agricultural 
production or processing in accordance with paragraph (a) of this 
section. If the borrower plans to use taxable bonds as debt instruments 
the provision Sec.  5001.105(b)(19) must be met.
* * * * *

0
17. Amend Sec.  5001.115 by revising paragraphs (l), (n) and (r) to 
read as follows:


Sec.  5001.115  Ineligible projects--general.

* * * * *
    (l) Telephone systems. In certain circumstances, when not eligible 
for assistance through the Agency's telecommunications program these 
projects may be eligible for assistance under this part.
* * * * *
    (n) Except as provided in Sec.  5001.105(b)(8), owner-occupied 
housing. Owner-occupied housing, such as bed and breakfasts, and hotels 
and motels, are only eligible when the pro-rata value of the owner's 
living quarters, based on square footage, is deducted from the loan 
proceeds.
* * * * *
    (r) Loans supporting inherently religious activities, such as 
worship, religious instruction, proselytization, or to pay costs 
associated with acquisition, construction, or rehabilitation of 
structures for inherently religious activities, including the financing 
of multi-purpose facilities where religious activities will be among 
the activities conducted. However, religious organizations may 
participate in projects eligible for funding under section 306(a)(24) 
of the Consolidated Farm and Rural Development Act, 7 U.S.C. 
1926(a)(24), provided they do not use Agency assistance for inherently 
religious activities in accordance with 7 CFR part 16, ``Equal 
Opportunity for Religious Organizations.'' If an organization conducts 
religious activities, they must be offered separately, in time, or 
location from programs or services supported with the guaranteed loan. 
Participation in the religious activities must be voluntary, and not 
mandatory, for the beneficiaries of the program or services. Religious 
organizations may not discriminate against a beneficiary or prospective 
beneficiary, on the basis of religion or religious beliefs. 
Sanctuaries, chapels, or other rooms that are used as a principal place 
of worship are ineligible for guaranteed financing under this part.
* * * * *

0
18. Amend Sec.  5001.116 by revising paragraphs (b) and (e) to read as 
follows:


Sec.  5001.116  Ineligible CF projects.

* * * * *
    (b) Inherently commercial enterprises: This type of project is 
typically operated by a private enterprise with an essential 
characteristic to produce profits. This term does not include projects 
operated by private enterprises on a not-for-profit basis that provide 
education, childcare, geriatric care, or health care to rural 
communities. Inherently commercial enterprises include but are not 
limited to: grocery stores; television and radio services or 
facilities; that portion of a water and/or waste disposal facility 
normally provided by a business or industrial user; and 
telecommunication facilities or services, including broadband or fiber 
network services that do not meet the requirements of Sec.  
5001.103(a)(6). See Sec.  5001.103(d) for the eligibility of a 
commercial enterprise leasing space in an eligible project;
* * * * *
    (e) Projects involving the purchase of existing facilities in which 
the transaction's purpose is to primarily retire the debt of the seller 
in order for the seller to continue to use the facility at a lower 
cost. Characteristics of ineligible purchase transactions may include 
the following:
    (1) An entity, which may or may not be an eligible CF borrower, 
forms a new eligible entity or uses an existing eligible related entity 
to purchase all or part of its assets;
    (2) The new entity uses CF guaranteed loan funds to purchase the 
assets at the agreed upon price and leases the assets back to the 
seller, generally at a rate which equates to the new debt payments; and
    (3) The seller uses the proceeds of the sale to retire its high-
cost debt and continues to use the facilities at a lower cost.

0
19. Amend Sec.  5001.121 by revising the introductory text, paragraphs 
(a)(2), (a)(3)(iv), (b), (c)(6), (d) introductory text, and (d)(14) 
introductory text to read as follows:


Sec.  5001.121  Eligible uses of loan funds.

    Guaranteed loan funds can only be used for the items specified in 
this section and any other items the Agency identifies in the Federal 
Register. In addition, RD may allow a recipient of a loan guarantee 
under this part to use up to 10 percent of project funds to construct, 
improve, or acquire broadband infrastructure subject to the 
requirements of 7 CFR part 1980, subpart M.
* * * * *
    (a) * * *
    (2) To pay the cost of conduit, such as pipe, tube, or tile for 
protecting electric wires or cables, and its installation in 
conjunction with financing facilities authorized in Sec.  5001.103, 
when the cost of the conduit is less than 25 percent of the total 
project cost and the conduit is not essential to the operation of the 
eligible essential facility or service to be financed. The borrower 
must be the owner of the conduit. The conduit must be installed at the 
time of project construction and must be for public use. A project 
example is construction of a road. While work is being completed in 
preparation for the eligible road project, the borrower takes advantage 
of the construction to install underground conduit in anticipation of 
installing fiber optic cables in the near future.
    (3) * * *
    (iv) Interest on guaranteed loans until the facility is self-
supporting, but not for more than three years; interest on guaranteed 
loans secured by general obligation bonds until tax revenues are 
available for payment, but not for more than two years; and when the 
borrower obtains interim financing for the eligible project, the 
guaranteed loan proceeds may be used to pay off the interim financing 
as well as the interest on interim financing;
* * * * *
    (b) WWD projects. Guaranteed loan funds for a WWD project receiving 
a loan guarantee may be used to pay the following:
    (1) Constructing, extending, or otherwise improving an eligible 
facility outlined in Sec.  5001.104(a), and may include the cost of 
materials and labor in addition to the following:
    (i) Cost of acquiring interests in land, rights (e.g., water 
rights, leases, permits, rights-of-way), and other evidence of land or 
water control or protection necessary for development of the project.

[[Page 79713]]

    (ii) Purchasing or renting equipment necessary to construct, or 
extend the facility services, for owner construction.
    (iii) Cost of additional borrower labor and other expenses 
necessary to install, extend, or protect the facility.
    (iv) Interest incurred during construction in conjunction with 
interim financing, and the payoff of the interim loan with the 
permanent financing.
    (v) Initial operating expenses, including interest, for a period 
ordinarily not exceeding one year when the borrower is unable to pay 
such expenses, for construction of a new facility. The lender must 
provide justification and the Agency must document the reason for 
granting the longer time.
    (vi) Professional service fees and charges provided the Agency 
approves the amounts as reasonable and customary in the area.
    (vii) Water reuse, renewable energy, and other construction 
projects to improve the sustainability or resilience of an eligible 
facility.
    (2) Stand-alone projects not involving construction may also be 
made for the following purposes:
    (i) Costs of acquiring interests in land, rights (e.g., water 
rights, leases, permits, rights-of-way), and other evidence of land or 
water control or protection necessary for the maintenance or operation 
of the facility.
    (ii) Purchase of equipment to operate, maintain, or protect 
facilities, such as computers, generators, vehicles, backhoes, meters, 
pipe, and pumps, etc. The purchase of equipment must include 
installation and not be for the sole purpose of increasing inventory. 
Owner construction or installation is an option.
    (iii) The purchase or acquisition of existing facilities when it is 
necessary either to improve service or prevent the loss of service.
    (iv) The purchase and installation of RESs for use by an eligible 
facility (even if it does not include construction).
    (v) Planning, studies, and designs for incorporating renewable 
energy or water reuse, or to improve the sustainability or resilience 
of an eligible facility.
    (vi) The Agency may allow a recipient of a loan guarantee under 
this part to use up to 10 percent of project funds to construct, 
improve, or acquire broadband infrastructure subject to the 
requirements of 7 CFR part 1980, subpart M.
    (vii) Professional service fees for engineering and environmental 
services that provide services for preplanning evaluation procedures, 
such as leak detection, or inflow and infiltration analysis, as 
reasonable and customary in the area to evaluate an existing facility's 
need for improvements or repairs. Such services will be in accordance 
with professional service agreements with copies of analysis to be 
provided in the application package for such reports as preliminary 
engineering report, final design with plans and specifications, bidding 
documents, or the completed environmental review analysis.
    (viii) Refinancing in accordance with Sec.  5001.102(d).
    (3) Other expenses related to any project under (b)(1) and (2), 
including:
    (i) Guarantee fees, as determined under Sec.  5001.454.
    (ii) Lender fees, as provided in Sec.  5001.403.
    (iii) Payoff of interim financing including principal and interest.
    (c) * * *
    (6) Takeout of interim financing: Guaranteeing a loan that provides 
for permanent, long-term financing after project completion to pay off 
a lender's interim loan will not be treated as debt refinancing 
provided that the lender submits a complete request for preliminary 
eligibility review or complete application that proposes such interim 
financing prior to closing the interim loan. The borrower must take no 
action until the conclusion of the environmental review process prior 
to any action that would have an adverse effect on the environment or 
limit the choices of any reasonable alternatives to be considered by 
the Agency. Interim financing is typically used to pay costs associated 
with a planned project, such as construction or installation of 
equipment, however, the Agency will consider, on a case-by-case basis, 
other reasons to use interim financing. The term for interim financing 
loans should be for the construction period plus a reasonable time for 
the business to begin generation of working capital to amortize the 
loan. Guaranteed promissory notes that do not convert the interim 
financing payment schedule to an amortizing permanent schedule in the 
same note are not allowed. In certain cases, the applicant lender may 
use interim financing to pay-off a borrower's maturing loan with 
another lender if it is in the best interests of the borrower. The 
takeout of interim financing is only eligible when the permanent loan 
on which the guarantee will be placed takes out the interim financing 
that financed the planned project and when the lender submits a 
complete preliminary eligibility review or application to the Agency 
that proposes the interim financing prior to closing the interim loan. 
If the interim financing does not meet these requirements, it is 
considered debt refinancing and must comply with Sec.  5001.102(d). If 
the guarantee is issued prior to construction, the promissory note must 
contain and convert the terms of the interim financing to permanent 
financing. The Agency will not guarantee takeout of interim financing 
loans that prevent a meaningful environmental assessment prior to 
Agency loan approval. Even for projects with interim financing, the 
Agency cannot approve the loan nor issue a conditional commitment until 
the environmental process is complete. The Agency assumes no 
responsibility or obligation for interim loans.
* * * * *
    (d) REAP projects. Guaranteed loan funds for a project receiving a 
loan guarantee under REAP may be used to pay the expenses associated 
with the items identified in paragraphs (d)(1) through (14) of this 
section, provided such items are directly related to and their use and 
purpose are limited to the RES, EEI, or EEE project. The expenses 
associated with the items specified in paragraphs (d)(8) through (11) 
of this section cannot exceed more than ten percent of the loan amount. 
Ten percent is an aggregate amount, not ten percent for each item.
* * * * *
    (14) Refinancing outstanding long-term debt. It is not considered 
refinancing if loans were structured as construction or bridge loans 
for short-term financing needs (interim financing) in preparation for a 
long-term loan. Refinancing will be considered when--
* * * * *

0
20. Amend Sec.  5001.122 by revising the introductory text and 
paragraphs (a), (k) and (l), and adding paragraph (n) to read as 
follows:


Sec.  5001.122  Ineligible uses of loan funds.

    Projects that receive a loan guarantee under this part cannot use 
the guaranteed loan funds for those expenses or purposes identified in 
paragraphs (a) through (n) of this section and for any other item the 
Agency identifies in accordance with Sec.  5001.10.
    (a) Payment in excess of actual costs (e.g., profit, overhead, 
indirect costs, and wages to owners) incurred by the contractor or 
other service provider on a contract or agreement that has been entered 
into at less than an arm's length transaction or has a potential for a 
conflict of interest. In situations where there is common ownership or 
an otherwise closely related company is being paid to do construction 
or installation work for a borrower, only documented costs associated 
with the

[[Page 79714]]

construction or installation can be paid with guaranteed loan funds and 
cannot include any profit or wages to such related person.
* * * * *
    (k) Agricultural tillage equipment, used equipment, and vehicles 
are ineligible for loans as specified under REAP. Costs include costs 
for RES and/or EEI projects that are used to improve a vehicle's 
ability to propel itself are ineligible uses for loan funds. For 
example, modifying an existing vehicle's engine to run on renewable 
fuels or replacing an older vehicle with a new more efficient vehicle 
are ineligible uses of loan funds. Projects similar to purchasing and 
installing solar panels to power a refrigerator or the replacement of a 
refrigerator for a more efficient one on a food truck may be considered 
eligible uses of loan funds if all other borrower and project 
eligibility requirements are met.
    (l) Distribution or payment to an individual or entity that will 
retain an ownership interest in the borrower or distribution or payment 
to a beneficiary of the borrower. Distribution or payment to a member 
of the immediate family of an owner, partner, or stockholder will not 
be permitted, except for change in ownership interest and the Agency 
determines the price paid to be reasonable based upon an appraisal. 
This prohibition does not apply to transfers of ownership for ESOPs or 
worker cooperatives, to cooperatives where the cooperative pays the 
member for product or services, or where member stock is transferred 
among members of the cooperative in accordance with Sec.  5001.140 of 
this part. This paragraph does not preclude the former owner from 
remaining an employee of the business during a reasonable transition 
period. The payment of personal debt is considered a distribution or 
payment to an owner, except for the refinancing of debt for an asset 
that is used in the business when the owner is a co-borrower on the 
loan.
* * * * *
    (n) Lease payments, including lease to own or capitalized leases. 
This does not preclude a REAP applicant from leasing out REAP financed 
and installed equipment to a third party (lessee) such as a non-profit, 
school district, or municipal government. The third party (lessee) must 
directly utilize the equipment to fulfill the statutory purposes of 
REAP, to generate renewable energy or provide energy savings. The 
borrower must maintain ownership and control of the project for the 
entire useful life of the project, including site, income and expenses 
via the lease agreement. Additionally, all other REAP requirements, 
must be reviewed in this scenario to ensure complete eligibility is 
obtained with a lease in place. This includes, but is not limited to, 
project eligibility, including prohibitions on residential use and 
other prescribed eligible project costs. A REAP applicant may lease out 
a commercial building, improved with REAP funds, to various tenants. 
This may include an office complex in which a Federal Government Agency 
is a tenant. This is allowable as long as conflict of interest 
requirements are complied with.

0
21. Amend Sec.  5001.126 by revising the introductory text, paragraphs 
(a) introductory text, (a)(1), (b)(2)(i), (c)(2), (d)(3) introductory 
text, (d)(3)(iii), (d)(4), (e)(1) and (2) to read as follows:


Sec.  5001.126  Borrower eligibility.

    To be eligible for a loan guarantee under this part, a borrower 
must meet the requirements specified in this section at the time of 
each guaranteed loan's approval and through issuance of the loan note 
guarantee. A borrower must meet the eligibility requirements specified 
in paragraph (a) of this section and in paragraphs (b) through (e), as 
applicable, of this section.
    (a) Legal authority and responsibility. The borrower must have, or 
obtain before issuance of the loan note guarantee, the legal authority 
necessary to construct, operate, and maintain the proposed facility and 
services and to obtain, give security for, and repay the proposed loan.
    (1) Operate and maintain the facility. The borrower is responsible 
for operating, maintaining, and managing the facility and providing for 
its continued availability and use. The borrower will retain this 
responsibility even though the facility may be operated, maintained, or 
managed by a third party under contract, management agreement, or 
written lease. Leases may be used for certain projects when they are 
the only feasible way to provide the service or facility, are the 
customary practice to provide such service or facility within the 
industry or in the State and provide for the borrower's management 
control of the project. Contracts, management agreements, or written 
leases must not contain options or other provisions for transfer of 
ownership unless approved by the Agency. The borrower must own and 
retain control of the facility at all times; however, various types of 
ownership structures are permitted to bring in passive investor equity. 
These include but are not limited to partnership flips and inverted 
leases, which are common in the renewable energy industry. The 
anticipated release of passive tax credit investor entities resulting 
in a change in ownership control that does not impact the financial 
performance of the loan, as outlined at time of loan closing, does not 
constitute a transfer or assumption, nor require concurrence from the 
Agency.
* * * * *
    (b) * * *
    (2) * * *
    (i) Association with or control by a public body or bodies 
typically evidenced in the organizational documents of the borrower; or
* * * * *
    (c) * * *
    (2) Credit elsewhere. In accordance with 7 U.S.C. 1983, certify in 
writing, subject to Agency verification, that the borrower is unable to 
finance the proposed project from their own resources or through 
commercial credit without a guarantee, at reasonable rates and terms. A 
loan guarantee will not be provided to borrowers who are able to obtain 
sufficient credit elsewhere to finance project costs at reasonable 
rates and terms, taking into consideration prevailing private and 
cooperative rates and terms in the community in or near where the 
borrower resides, for loans for similar purposes and periods of time, 
or to borrowers who are able to finance project costs from their own 
resources. All lenders are required to provide written certification 
that their borrowers are unable to afford commercial credit at 
reasonable rates and terms without the guarantee.
* * * * *
    (d) * * *
    (3) A borrower who is an individual must meet the requirements of 
(i) through (iii) below. Applications will neither be approved, nor a 
conditional commitment issued subject to meeting the citizenship 
requirement.
* * * * *
    (iii) Be a citizen or resident of the Republic of Palau, the 
Federated States of Micronesia, American Samoa, Guam, the Commonwealth 
of the Northern Mariana Islands, or the Republic of the Marshall 
Islands.
    (4) A borrower must demonstrate, to the Agency's satisfaction, that 
guaranteed loan funds will remain in the United States and the project 
being financed will primarily create new or save existing jobs for 
rural U.S. residents. To ensure that loan funds remain in the United 
States, loans must be collateralized with fixed assets that remain in 
the United States.
    (e) * * *

[[Page 79715]]

    (1) Type of borrower. The borrower must be either an agricultural 
producer or a rural small business if applying for RES or EEI funding. 
The borrower must be an agricultural producer if applying for EEE 
funding. For-profit rural small businesses that provide long-term care 
services that benefit residents, such as nursing homes and assisted 
living facilities, are eligible. For-profit rural small businesses that 
provide short-term housing, such as hotels, are also eligible. Newly 
formed special purpose entities or equivalents that are clearly created 
solely for the circumvention of provisions prohibited by REAP statute 
are not eligible.
    (2) Ownership. The borrower at the time of application or no later 
than guaranteed loan closing and for the term of the guaranteed loan 
must:
    (i) Own the project; and
    (ii) Own or control the site for the project at the time of 
application and for the term of the guaranteed loan.
* * * * *

0
22. Amend Sec.  5001.127 by revising paragraphs (a) introductory text, 
(a)(3), (a)(4), (d), and (f) to read as follows:


Sec.  5001.127  Borrower ineligibility conditions.

* * * * *
    (a) An entity is ineligible if any of the conditions identified in 
paragraphs (a)(1) through (4) of this section applies to the borrower, 
any owner with more than 20 percent ownership interest in the borrower 
(does not include passive investors), or any owner with control of the 
borrower. Entities with delinquent debt, as identified in paragraphs 
(a)(1) through (a)(4), under a repayment plan are not eligible until 
the debt is paid in full.
* * * * *
    (3) Delinquency on Federal debt.
    (4) Debarment or suspension from receiving Federal assistance. The 
lender is responsible for verification of the borrower's status. 
Verification can be done at sam.gov.
* * * * *
    (d) An entity is ineligible if it derives income from illegal 
drugs, drug paraphernalia, or any other illegal product or activity as 
defined under Federal statute. A borrower that intends to lease space 
or enter into a power purchase agreement with a marijuana dispensary is 
not eligible given our borrower would be receiving income from the 
marijuana operation which is a violation of Federal laws as marijuana 
is a controlled substance under Federal law and subject to Federal 
prosecution under the Controlled Substances Act (21 U.S.C. 812).
* * * * *
    (f) An entity is ineligible if its lender or any of the lender's 
officers has an ownership interest in the borrower or is an officer or 
director of the borrower with management control or where the borrower 
or any of its officers, directors, stockholders, or other owners have 
more than a five percent ownership interest in the lender. Any of the 
lender's directors, stockholders, or other owners that are officers, 
directors, stockholders, or other owners of the borrower without 
management control or ownership less than 5 percent must be recused 
from any decision-making process associated with the guaranteed loan.
* * * * *

0
23. Amend Sec.  5001.130 by:
0
a. Redesignating (a)(3) through (a)(6) as (a)(4) through (a)(7) and 
adding new paragraph (a)(3);
0
b. Revising paragraphs (c)(1)(iii), (c)(2) introductory text, 
(c)(2)(viii)(H), (c)(4) introductory text, (c)(4)(iv);
0
c. Adding paragraph (c)(4)(v);
0
d. Revising paragraphs (d)(2) introductory text, (d)(4) introductory 
text, and (d)(4)(iv) ; and,
0
e. Adding paragraph (d)(4)(v).
    The additions and revisions read as follows:


Sec.  5001.130  Lender eligibility requirements.

* * * * *
    (a) * * *
    (3) Be free from default and delinquency on any debt owed to the 
Federal Government;
* * * * *
    (c) * * *
    (1) * * *
    (iii) Have and agree to maintain balance sheet equity in accordance 
with Sec.  5001.105(d) of this part of at least 10 percent of assets 
and sufficient funds available to disburse the guaranteed loans it 
proposes to approve within the first six months of being approved as a 
lender;
* * * * *
    (2) Written request. A non-regulated lending entity that seeks to 
become a lender must submit a written request to the Agency via 
<a href="/cdn-cgi/l/email-protection#135c7d7641577f767d777661726363617c65727f53666077723d747c65"><span class="__cf_email__" data-cfemail="440b2a21160028212a202136253434362b32252804313720256a232b32">[email protected]</span></a>, and must include the following 
information:
* * * * *
    (viii) * * *
    (H) Proposed interest rate structure and loan fees, including any 
loan origination, loan preparation, and servicing fees.
* * * * *
    (4) Renewals. To maintain its status as an approved lender, the 
non-regulated lending entity must submit a written request to the 
Agency for renewal of its approved lender status at least 60, but not 
more than 120, calendar days prior to the expiration of the existing 
lender's agreement to be assured of a timely renewal. A review of the 
lender's performance will be completed to determine whether the lender 
has continually met the eligibility criteria described in paragraphs 
(c) and (d) of this section. The lender's activity in the program and 
its delinquency/default rate will also be considered when making a 
determination regarding renewal. Any action by the lender since it was 
designated an eligible lender that could be cause for revoking its 
status, in accordance with Sec.  5001.132, will be considered cause for 
denying the renewal of eligible status. The lender will be notified in 
writing whether the request is approved, reasons for denial, or any 
conditions the lender must meet for approval. The lender's written 
request must provide the information specified in paragraphs (c)(2)(i) 
and (iii) through (v) of this section; and
* * * * *
    (iv) The Agency may require lenders with limited guaranteed loan 
activity over the previous five years, or a lender that has originated 
guaranteed loans with servicing issues or a loss to the Agency, to 
resubmit all the information required by paragraph (c)(2) of this 
section. A lender who is not active in the Agency guaranteed loan 
programs should provide evidence that they remain active in other 
commercial lending activity with acceptable underwriting and servicing 
performance. Lenders with loans that cause a loss to the Agency are a 
concern and those projects will be reviewed to determine the cause of 
the loss, including whether the lender's analysis or servicing 
processes were insufficient.
    (v) The renewal will be for a term of 5 years.
    (d) * * *
    (2) Written request. A non-regulated lending entity serving Tribal 
trust lands that seeks to become a lender must submit a written request 
to the Agency via <a href="/cdn-cgi/l/email-protection#317e5f5463755d545f555443504141435e47505d71444255501f565e47"><span class="__cf_email__" data-cfemail="511e3f3403153d343f353423302121233e27303d11242235307f363e27">[email protected]</span></a> that includes the 
following information:
* * * * *
    (4) Renewals. To maintain its status as an approved lender, the 
non-regulated lending entity serving Tribal trust land must submit a 
written request to the Agency for renewal of its approved lender status 
at least 60 and not more than 120 calendar days prior to the expiration 
of the existing lender's agreement to be assured of a timely renewal. A 
review of the lender's

[[Page 79716]]

performance will be completed to determine whether the lender has 
continually met the eligibility criteria described in paragraphs (c) 
and (d) of this section. The lender's activity in the program and its 
delinquency/default rate will also be considered when making a 
determination regarding renewal. Any action by the lender since it was 
designated an eligible lender that could be cause for revoking its 
status, in accordance with Sec.  5001.132, will be considered cause for 
denying the renewal of eligible status. The lender will be notified in 
writing whether the request is approved, reasons for denial, or any 
conditions the lender must meet for approval. The lender's written 
request must provide the information specified in paragraphs (c)(2)(i) 
and (iii) through (v) of this section; and
* * * * *
    (iv) The Agency may require lender with limited guaranteed loan 
activity over the previous five years, or a lender that has originated 
guaranteed loans with servicing issues or a loss to the Agency, to 
submit updated information required by paragraph (c)(2) of this 
section.
    (v) The renewal will be for a term of 5 years.
* * * * *

0
24. Revise Sec.  5001.131 to read as follows:


Sec.  5001.131  Lender's agreement.

    When approved to participate as a lender under this part, the 
lender must execute a lender's agreement before the Agency will issue a 
loan note guarantee. A new lender's agreement must be executed with any 
existing lender making new loans on or after October 1, 2020. Approval 
under one program is approval for all programs. The eligibility 
expiration date for non-regulated lenders will be five years from the 
date of the original execution of a lender's agreement as specified in 
Sec.  5001.130(c) and (d). There will be only one lender's agreement 
issued for each lending entity based on their tax identification 
number. Lender's agreements will not be issued for individual branches. 
Subsequent loans do not require a new lender's agreement. A lender who 
fails to renew its lender's agreement and loses its approved lender 
status must continue to service any outstanding guaranteed loans in 
conformance with the lender's agreement last in effect and the 
applicable regulation under which the lender became an approved lender. 
Such lenders cannot submit requests for new loan guarantees.
* * * * *

0
25. Amend Sec.  5001.132 by revising paragraphs (a)(3) and (4), (b) 
introductory text, (b)(14), and (c) to read as follows:


Sec.  5001.132  Maintenance of approved lender status.

* * * * *
    (a) * * *
    (3) Is a regulated lending entity and fails to remain in good 
standing with its regulator;
    (4) Is a non-regulated lending entity and fails to renew its 
approval status within 5 years of the expiration date of the lender's 
agreement.
    (b) Revocation of approved status and debarment of lender. The 
Agency can revoke a lender's status as an approved lender at any time 
for cause as specified in the lender's agreement. A decision to revoke 
a lender's approved status will be made by the Agency and the lender 
will be notified in writing. The revocation may apply to all branches 
of the lender, specific branches, or personnel, as appropriate. The 
lender must revoke the level II eAuthentication privileges of all 
individuals included in the revocation notice. Cause for revoking 
lender status includes, but is not necessarily limited to, the 
circumstances identified in paragraphs (b)(1) through (14) of this 
section.
* * * * *
    (14) Violation of applicable nondiscrimination laws, including, but 
not limited to, statutes, regulations, USDA Departmental Regulations, 
the USDA Non-Discrimination Statement, and the Equal Credit Opportunity 
Act. USDA's Non-Discrimination Statement is located on the Agency's 
website, see usda.gov/non-discrimination-statement. In addition to 
revoking the lender's status, the Agency may debar the lender in 
compliance with 2 CFR part 180.
    (c) Servicing of outstanding loans. Any lender who loses its status 
as an approved lender under any of the conditions identified in 
paragraph (a) or (b) of this section must reapply under the provisions 
of Sec.  5001.130 to be reinstated as an approved lender. A lender who 
loses its approved lender status must continue to service any 
outstanding guaranteed loans in conformance with the lender's agreement 
last in effect and the applicable regulation under which the lender 
became an approved lender. In addition, such lenders cannot submit 
requests for new loan guarantees.

0
26. Amend Sec.  5001.140 by revising paragraphs (a)(4), (b) 
introductory text and (d)(3) to read as follows:


Sec.  5001.140  Cooperative stock/cooperative equity.

* * * * *
    (a) * * *
    (4) The lender will, at a minimum, obtain a valid lien on the 
stock, an assignment of any patronage refund, and the ability to 
transfer the stock to another party, or any other right or ability 
necessary to liquidate and dispose of the collateral in the event of a 
default by the borrower. The lender and borrower understand that the 
borrower is fully liable for the entire debt, regardless of the success 
or failure of the cooperative. The lender is expected to maximize 
recovery on the loan, including collection of personal, partnership and 
corporate guarantees. In addition, provisions of the DCIA may impose 
significant restrictions on delinquent Federal debtors, including 
eligibility for other Federal programs.
* * * * *
    (b) Purchase of transferable stock shares. The Agency may also 
guarantee loans for the purchase of transferable stock shares of any 
type of existing cooperative, which would primarily involve new or 
incoming members. Such stock may provide delivery or some form of 
participation rights and may only be traded among cooperative members. 
The lender and borrower understand that the borrower is fully liable 
for the entire debt, regardless of the success or failure of the ESOP. 
The lender is expected to maximize recovery on the loan, including 
collection of personal, partnership and corporate guarantees. In 
addition, provisions of the DCIA may impose significant restrictions on 
delinquent Federal debtors, including eligibility for other Federal 
programs.
* * * * *
    (d) * * *
    (3) The lender must, at a minimum, obtain a valid lien on the 
stock, an assignment of any patronage refund, and the ability to 
transfer the stock to another party, or otherwise liquidate and dispose 
of the collateral in the event of a default by a borrower. The lender 
and borrower understand that the borrower is fully liable for the 
entire debt, regardless of the success or failure of the cooperative or 
ESOP. The lender is expected to maximize recovery on the loan, 
including collection of personal, partnership and corporate guarantees. 
In addition, provisions of the DCIA may impose significant restrictions 
on delinquent Federal debtors, including eligibility for other Federal 
programs.
* * * * *

0
27. Amend Sec.  5001.141 by:

[[Page 79717]]

0
a. Revising the section heading, the introductory text, and paragraphs 
(b)(1)(iii), (b)(4), (6) and (8); and
0
b. Adding (b)(14).
    The revisions and addition read as follows:


Sec.  5001.141  New Markets Tax Credits Program.

    The New Markets Tax Credits (NMTC) Program is administered by the 
U.S. Department of the Treasury's (Treasury) Community Development 
Financial Institutions (CDFI) Fund with NMTC credits allocated to 
Treasury-certified Community Development Entities (CDE) across the 
United States to make Qualified Equity Investments (QEI) in low-income 
communities. NMTC related definitions and terms in this section are 
governed by section 45(D) of the Internal Revenue Code (26 U.S.C. 45D), 
and applicable Treasury regulations (26 CFR 1.45D-1). A CDE will 
generally establish a new subsidiary of a CDE (sub-CDE) for individual 
NMTC projects. Lenders and their borrowers with guaranteed loan 
projects that include NMTC investments must comply with the provisions 
in this section. To be a lender for a guaranteed loan project that 
involves financing under the NMTC provisions, the lending entity must 
meet the applicable eligibility criteria in Sec.  5001.130. The Agency 
will not waive its servicing rights to a guaranteed loan or be a party 
to any forbearance agreement in conjunction with a NMTC project. 
Requests for loan guarantees that include NMTC are subject to all 
applicable program eligibility requirements, credit analysis, and due 
diligence required by part 5001. In all cases the Agency will undertake 
efforts to protect the best financial interests of the Federal 
government and collection of its guaranteed loan. The Agency will not 
consider any tax benefit or loss of tax benefits to the CDE, sub-CDE or 
NMTC investor in the servicing actions of a guaranteed loan.
* * * * *
    (b) * * *
    (1) * * *
    (iii) When the borrower is a leveraged lender entity it must relend 
one hundred percent of the guaranteed loan funds to an investor fund 
entity. In all cases one hundred percent of the guaranteed loan funds 
are or will be invested by the investment fund entity in one or more 
sub-CDEs that will then be loaned directly to a QALICB, as defined by 
applicable regulations of the Internal Revenue Service, through a 
direct tracing method, and such guaranteed loan funds are, or will be 
used by the QALICB in accordance with the eligibility requirements in 
subpart B of this part. The QALICB's project must be the ultimate use 
of one hundred percent of the guaranteed loan funds.
* * * * *
    (4) The loan terms found in Sec.  5001.402 of this part apply to 
both the borrower and the QALICB. The maturity and related payment 
schedule of the lender's guaranteed loan to the borrower must be no 
longer than the maturity and related payment schedule of the sub-CDE's 
loan to the QALICB. An Agency approved unequal or escalating schedule 
of principal and interest payments can be used for a NMTC loan. The 
lender may require additional principal repayment by a co-borrower, 
such as an owner or principal participant of the QALICB. The provisions 
of Sec.  5001.402(b)(3) notwithstanding, the Agency may consider the 
payment of interest-only payments by a borrower pursuant to an 
interest-only term not to exceed seven years on a loan made under an 
NMTC structure if the lender requires:
    (i) A debt repayment reserve fund or sinking fund in an amount at 
least equal to the guaranteed loan's principal amortization that would 
have otherwise applied to the loan if equally amortized payments were 
collected during the seven-year term; and
    (ii) Such reserve funds or sinking funds are applied to the 
guaranteed loan as an additional payment of principal at the end of 
such interest-only term. The debt repayment reserve fund or sinking 
fund may be accumulated during the loan terms, or the full amount may 
be funded at loan closing.
* * * * *
    (6) The personal, partnership and corporate guarantee provisions of 
Sec.  5001.204 of this part apply when the guaranteed loan borrower is 
a leveraged lender entity in a NMTC project. Guaranteed loans made 
directly to an investor fund entity as the borrower do not require a 
personal, partnership, or corporate guarantee from the investor fund 
entity's owner, who is the NMTC tax credit investor and considered a 
passive investor. The Agency shall obtain the personal, partnership or 
corporate guarantee from the QALICB ownership for a guaranteed loan to 
an investor fund entity in compliance with Sec.  5001.204, subject to 
the eligibility requirements of the NMTC program. The Agency may 
require additional personal, partnership or corporate guarantees if 
warranted by an Agency evaluation of potential financial risk. The 
QALICB is the ultimate user of the guaranteed loan funds, and their 
owners should provide a guarantee of the guaranteed loan as stipulated 
in Sec.  5001.204.
* * * * *
    (8) The financial report provisions of Sec.  5001.504 of this part 
apply to both the borrower and the QALICB.
* * * * *
    (14) Agency concurrence of the NMTC structure is required on all 
projects leveraging the NMTC program.
* * * * *

0
28. Amend 5001.202 by revising the introductory text, paragraphs (a), 
(b)(5) introductory text, and (b)(6)(iii), (iv) and (vi) to read as 
follows:


Sec.  5001.202  Lender's credit evaluation.

    For each application, the lender must prepare a credit evaluation 
that is consistent with Agency standards found in this part. Lenders 
are required to only submit complete loan applications that have been 
approved by their institution after completion of their internal credit 
evaluation. The components of a lender's credit evaluation will include 
a written review and comment on the ``Five Cs'' of credit that are 
outlined in Sec.  5001.202(b)(1) through (5). The Agency should be able 
to obtain sufficient details on the project, the borrower, and the 
borrower's ability to repay the loan from the lender's credit 
evaluation.
    (a) Lender's evaluation guidelines. The lender must conduct a 
credit evaluation using credit documentation procedures and 
underwriting processes that are consistent with generally accepted 
prudent lending practices for commercial, public and project financing, 
and also consistent with the lender's own policies, procedures, and 
lending practices. The underwriting process must include a review of 
each loan for which a loan guarantee is being sought under this part. 
Applications involving affiliated entities must include a global credit 
evaluation and if applicable a global historical and projected debt 
service coverage analysis. The lender should evaluate the relationships 
between all associated parties to determine potential risks which may 
affect our borrower and its ability to repay the loan. Entities which 
may have an impact on the borrower or significantly contribute to the 
repayment ability of the loan should provide financials for global 
analysis. Applications involving guarantor(s) must also include a 
global debt service coverage analysis of the guarantor(s) including the 
cash flow of the guarantor(s). In addition, the lender must review all 
applicable contracts, management agreements, and leases to determine 
they will not adversely affect

[[Page 79718]]

either the borrower's repayment ability or the value of the collateral 
securing the guaranteed loan. The lender's evaluation must address any 
financial or other credit weaknesses of the borrower and project and 
discuss risk mitigation requirements imposed by the lender.
    (b) * * *
    (5) Conditions. This paragraph (b)(5) refers to the general 
business environment, including the regulatory environment affecting 
the business or industry, and status of the borrower's industry. 
Consideration will be given to items listed in paragraphs (b)(5)(i) 
through (ix) of this section and when applicable the lender should 
submit supporting documentation (e.g., feasibility study, market study, 
preliminary architectural or engineering reports, etc.) in accordance 
with Sec. Sec.  5001.304 through 5001.307:
* * * * *
    (6) * * *
    (iii) Spreadsheets and analysis of the financial statements 
provided in accordance with Sec.  5001.303, with appropriate ratios and 
comparisons with industry standards (such as Dun & Bradstreet or the 
Risk Management Association). The spreadsheets should enable a reviewer 
to easily scan the data, spot trends, and make comparisons. Steps taken 
or proposed to address any financial or industry weakness must be 
reasonable and adequately addressed.
    (iv) Financial projections deviating from historical financial 
performance must be substantiated and documented. The borrower's 
projections should be consistent with their past performance. Increases 
to revenues, profit margins or profitability should be reasonable and 
substantiated in the analysis.
* * * * *
    (vi) Operational cash flow analysis on a quarterly basis from the 
current financial statements through start-up or occupancy for projects 
involving construction when lenders are requesting the loan note 
guarantee prior to completion of construction The lender and borrower 
are required to provide a construction schedule with their application 
for a loan guarantee prior to construction completion. The projected 
cash flow needs should mirror the quarterly construction costs as the 
project is being completed. The cash flow analysis must indicate 
whether this cash flow is being provided by the guaranteed loan, 
borrower equity, or other sources.

0
29. Amend Sec.  5001.203 by revising the introductory text, paragraphs 
(b), (c), (d)(1), (f) and (h) to read as follows:


Sec.  5001.203  Appraisals.

    Appraisals of collateral are required as set forth in this section. 
The lender is responsible for ensuring that appraisal values adequately 
reflect the actual value of the collateral based on an arm's length 
transaction. Completed appraisals should be submitted when the 
application is filed. If the appraisal has not been completed when the 
application is filed, the lender must submit an estimated appraised 
value. Prior to the issuance of the loan note guarantee, the estimated 
value must be supported with an appraisal acceptable to the approval 
official. If an appraisal is received containing any value attributed 
to business valuation or as a going concern, the business valuation or 
going concern value must be deducted from the reconciled market value 
prior to discounting. The Agency expects that, for appraisals of 
existing facilities, the appraiser will physically visit the property 
unless prior permission from the Agency is obtained. Appraisals are not 
typically required when security consists of either a revenue or 
general obligation bond or liens on real estate for WWD projects which 
rely on revenues of the facilities for loan repayment.
* * * * *
    (b) Existing chattel. The lender must obtain appraisal(s) for 
existing chattel collateral when its value exceeds $250,000 and will be 
used to meet loan to value requirements.
    (c) Real estate. The lender must obtain appraisals for real estate 
collateral when the value of the collateral exceeds $250,000 or the 
current limitation established under the Financial Institutions Reform, 
Recovery, and Enforcement Act (FIRREA) Public Law 101-73, 103 Stat. 183 
(1989). Real estate and chattels with a value below these thresholds 
must be evaluated in accordance with the lender's primary regulator's 
policies relating to appraisals and evaluations or, if the lender is 
not regulated, in accordance with normal banking practices and 
generally accepted methods of determining value. For construction 
projects, the lender must obtain the ``As is'' market value and the 
``prospective'' market value as of the date of construction completion 
to determine the value of the real estate property.
    (d) * * *
    (1) Each real estate appraisal must be conducted by an independent 
qualified appraiser in accordance with the USPAP or similar Agency 
approved standard. The appraiser must have the specific qualification, 
experience, and competency to appraise the type of facility being 
financed. All real estate appraisals must meet the requirements 
contained in the FIRREA, and the appropriate guidelines contained in 
Standards 1 and 2 of the USPAP or similar Agency approved standard, 
and, unless approved by the Agency approval official, be performed by a 
State Certified General Appraiser licensed in the State in which the 
real estate is located.
* * * * *
    (f) Environmental considerations. When the Agency will take a lien 
on real property, the real estate appraisals must include consideration 
of the potential effects from a release of hazardous substances or 
petroleum products or other environmental hazards on the market value 
of the collateral, as determined in accordance with the appropriate 
ASTM International Real Estate Assessment and Management environmental 
standards. Potential contamination that has been observed on the 
property or identified through research or interviews with individuals 
knowledgeable about the property should be immediately reported to the 
Agency.
* * * * *
    (h) Appraisal fees. Unless otherwise stated in this part, appraisal 
fees or any other associated costs will not be paid by the Agency. 
Appraisal fees are eligible loan purposes. The Agency does not pay for 
appraisals required at the time of loan application. Appraisals for 
servicing actions are handled in accordance with section 5001 subpart 
F.

0
30. Amend Sec.  5001.204 by revising paragraphs (b)(2) and (3) to read 
as follows:


Sec.  5001.204  Personal, partnership, and corporate guarantees.

* * * * *
    (b) * * *
    (2) Guarantees from any person or entity owning less than a 20-
percent interest or membership in the borrower; and
    (3) Guarantees from persons whose ownership interest in the 
borrower is held indirectly through intermediate or affiliated 
entities.
* * * * *

0
31. Amend Sec.  5001.205 by revising and republishing paragraph (a), 
and revising paragraphs (b)(1), (e)(1), (e)(2)(iii), (iv), (vii) and 
(f)(1)(i) to read as follows:


Sec.  5001.205  General project monitoring requirements.

* * * * *
    (a) Design requirements. The lender must ensure that all facilities

[[Page 79719]]

constructed with guaranteed loan funds are:
    (1) Designed using accepted architectural, engineering, and design 
practices, taking into consideration any Agency comments when the 
facility is being designed;
    (2) Designed in conformance to applicable Federal, Tribal, State, 
and local codes and requirements;
    (3) Constructed to support operations at the level and quality 
contemplated by the borrower using accepted architectural and 
engineering practices; and
    (4) Compliant with applicable domestic procurement preference 
requirements including section 70914 of the Build America, Buy America 
Act (BABAA) within the Infrastructure Investment and Jobs Act (Pub. L. 
117-58).
    (b) * * *
    (1) Obtained valid, continuous, and adequate rights-of-way and 
easements, in compliance with Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970 (URA) if applicable, needed 
for the construction, operation, and maintenance of a project; and
* * * * *
    (e) * * *
    (1) Construction inspections. The lender must notify the Agency of 
any scheduled field inspections during construction. The Agency may 
attend any field inspections the lender may conduct. Any Agency 
inspection, including those with the lender, are for the benefit of the 
Agency only (and not for the benefit of other parties in interest) and 
do not relieve any parties of interest of their responsibilities to 
conduct necessary inspections. On a case-by-case basis in the event 
that the Agency determines that there is additional risk to the 
government, the Agency may require the use of a qualified, independent 
inspector to inspect construction to ensure the project is being 
adequately built to meet the borrower's requirements of the borrower's 
approved project and comply with all applicable codes and legal 
requirements.
    (2) * * *
    (iii) The borrower and lender have agreed to a detailed timetable 
for the project with a corresponding budget of costs setting forth the 
parties responsible for payment. The timetable and budget will be 
confirmed as adequate for the planned development by a qualified 
independent consultant (e.g., the project architect or engineer) with 
demonstrated experience relating to the project's industry. The lender 
must provide evidence that there is sufficient cash flow to complete 
the project construction, including contingencies for cost overruns, 
plus working capital during the business start-up period;
    (iv) The borrower has entered into a firm, fixed-price construction 
contract with an independent general contractor with costs outlined in 
detail and terms specifying change order approvals, the agreed 
retainage percentage, and the disbursement schedule. In all cases, 
borrower equity must be injected prior to any guaranteed loan funds;
* * * * *
    (vii) When applicable, the borrower has entered into a contract 
with an independent technology development firm guaranteeing completion 
of the project with the necessary technology to successfully run the 
project and system performance for projects that utilize integrated 
processing equipment and systems, such as biorefineries, RESs, and 
chemical manufacturing plants. The credit underwriting of the 
independent technology development firm must be satisfactory to and 
approved by the Agency. This is not limited only to renewable energy 
projects, but may include energy efficiency, renewable chemical, and 
biobased manufacturing projects. The intent of the provision is to 
ensure that all technology proposed for the project can be successfully 
integrated together to ensure successful installation and performance 
of the system. The respective technology providers usually guarantee 
their specific technology with quality parameters of input such that 
the end-product is what is proposed in both quality and yield. An 
engineering, procurement, construction (EPC) provider is responsible 
for the construction and assembly of the plant or facility. They adopt 
the quality limits and guarantee that the integrated facility that is 
built will perform according to specifications such that the input and 
operational bounds are met. The provision is likely applicable to the 
following types of projects:
    (A) Anaerobic digester. An anaerobic digester project which uses a 
biological process that requires specific conditions and environment to 
be able to produce the product of biogas that can be refined to 
renewable natural gas (RNG). In some simpler cases the gas will be used 
for heat or electricity, but in other more involved cases, it will be 
cleaned and refined to make RNG that is marketable, and quality 
assessed to enter an interconnect pipeline. These types of projects 
should be approved and verified by an independent technology firm, for 
integrated performance integrity and operability as well as yield 
integrity.
    (B) Landfill biogas. Like anaerobic digesters projects, a landfill 
biogas project will have multiple steps and processes such as 
collection, clean-up, flaring and refinement to a fuel or the gas can 
be used to produce electricity. These types of projects should be 
approved and verified by an independent technology firm for integrated 
performance integrity and operability, as well as yield integrity.
    (C) Biofuel, biomass, ethanol, biodiesel. A biofuel, ethanol, 
biomass, or biodiesel system will have multiple steps in which it must 
operate in line with the design proposed that has been from 
demonstration campaigns. It is paramount that an independent technology 
firm verify and guarantee the operation and performance of these 
integrated systems as they will have multiple processes which need to 
work in concert for the project to be successful. These types of 
projects should be approved and verified by an independent technology 
firm for integrated performance integrity and yield.
    (D) Solar thermal. Solar thermal systems must have multiple 
processes in order to provide the end product of power, hot water, or 
heat. Due to their potential complexity, these systems should be 
approved and verified by an independent technology firm for performance 
integrity and operability.
    (E) Hydrogen. These types of projects should be approved and 
verified by an independent technology firm for integrated performance 
integrity.
    (F) Geothermal. Depending on system complexity and if it has 
multiple processes, the project should be fortified with a guarantee 
that the system will operate definitively.
    (G) Renewable chemical. A project utilizing a series of chemical 
processes and reactions to produce a polymer that can be sold to make 
biodegradable plastics. An example of a BBP project utilizing 
gasification technology to produce a biochar or soil amendment as an 
end-user product.
* * * * *
    (f) * * *
    (1) * * *
    (i) Certification by the independent engineer or qualified 
consultant to the lender that the work referred to in the draw has been 
successfully completed; and;
* * * * *

0
32. Amend Sec.  5001.206 by revising paragraph (b) to read as follows:

[[Page 79720]]

Sec.  5001.206  Compliance with USDA Departmental Regulations, 
Policies, and other Federal laws.

* * * * *
    (b) Other Federal laws. Lenders and borrowers must comply with 
other applicable Federal laws including, but not limited to the 
following:
    (1) Equal Employment Opportunity.
    (2) Americans with Disabilities Act.
    (3) Equal Credit Opportunity Act.
    (4) Fair Housing Act.
    (5) Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970 (URA).
    (6) Section 70914 of the Build America, Buy America Act (BABAA) 
within the Infrastructure Investment and Jobs Act (Pub. L. 117-58).
    (7) 31 U.S.C. 3354 Do Not Pay Initiative.

0
33. Amend Sec.  5001.207 by revising paragraphs (a)(1), and (b)(2) to 
read as follows:


Sec.  5001.207  Environmental responsibilities.

* * * * *
    (a) * * *
    (1) The lender is responsible for becoming familiar and ensuring 
compliance with Federal environmental requirements. The lender must 
alert the Agency to any environmental issues related to a project or 
items that may require extensive environmental review. Proposals that 
minimize the potential of any project to adversely impact the 
environment must be developed and provided upon request by the Agency.
* * * * *
    (b) * * *
    (2) The lender must assist in the collection of additional data 
when the Agency needs such data to complete its environmental review of 
the project and mitigation of environmental issues.

0
34. Revise Sec.  5001.301 to read as follows:


Sec.  5001.301  Beginning the application process.

    (a) The lender must file applications and related documents through 
their Agency contact.
    (b) The lender may complete either a request for preliminary 
eligibility review in accordance with Sec.  5001.302 or a full 
application in accordance with Sec. Sec.  5001.303 through 5001.307, as 
applicable, to begin the process for obtaining a guaranteed loan. The 
Agency encourages, but does not require, lenders to file requests for 
preliminary eligibility reviews in order to obtain Agency comments 
before submitting a full application.

0
35. Amend Sec.  5001.303 by revising paragraph (c)(15) and (d) to read 
as follows:


Sec.  5001.303  Applications for loan guarantee.

* * * * *
    (c) * * *
    (15) Securities and Exchange Commission (SEC) Form 10-K, ``Annual 
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act 
of 1934,'' as noted in Sec.  5001.306(a)(4).
* * * * *
    (d) Application modification. Once a complete application is 
accepted by the Agency and prior to Agency award of a loan note 
guarantee, any modification to the application will be treated as a new 
application and the Agency will process the information accordingly. 
The submission date of record for a modified application is the date 
the Agency receives the modified application information.

0
36. Amend Sec.  5001.304 by revising the introductory text and (a)(4) 
introductory text to read as follows:


Sec.  5001.304  Specific application requirements for CF projects.

    In addition to the requirements specified in Sec.  5001.303 as 
applicable, a lender seeking a loan guarantee for a CF project must 
submit a financial feasibility report prepared by a qualified firm or 
individual acceptable to the Agency. All projects financed under this 
section must meet the financial feasibility requirements of this 
section and must be based on projected taxes, assessments, revenues, 
fees, or other sources of revenues in an amount sufficient to provide 
for project operation and maintenance, debt payments, and compliance 
with lender reserve requirements, when applicable. Other sources of 
revenue or existence of payment guarantors are particularly important 
in considering the feasibility of eligible recreation projects. The 
financial feasibility report must take into consideration any interest 
rate adjustment that may be instituted under the terms of the 
promissory note. Financial projections for projects that are assisted 
living facilities, skilled nursing facilities, or similar types of 
eligible residential facilities must be based on no more than 90 
percent occupancy. Utility projects dependent on user fees for debt 
repayment shall base their income and expense forecast on user 
estimates supported by either a State statute or local ordinance 
requiring mandatory hookup or signed and enforceable user agreements. 
If the primary use of the essential community facility is by a business 
and the success or failure of the facility is dependent on that 
business, then the economic viability of that business must also be 
assessed. For projects that include the purchase and installation of 
RES that meet the eligibility requirements of Sec.  5001.103(a)(8), a 
technical report on the RES as outlined in Sec.  5001.307(e)(1) and 
(2), as applicable, will be included with the applicable financial 
feasibility report. The type of financial feasibility report required 
will depend upon the size of the guaranteed loan, the collateral 
securing the guaranteed loan, and the financial history of the 
borrower. The two types of financial feasibility report and when they 
are required are described in paragraphs (a) and (b) of this section.
    (a) * * *
    (4) The Agency may require a feasibility study when the lender's 
analysis, borrower's business plan, or project information is not 
sufficient to determine the technical feasibility, market feasibility, 
or economic viability of the project.
* * * * *

0
37. Amend Sec.  5001.305 by revising paragraph (a)(2) and adding 
paragraph (d) to read as follows:


Sec.  5001.305  Specific application requirements for WWD projects.

* * * * *
    (a) * * *
    (2) The lender must ensure that the project is designed utilizing 
accepted architectural and engineering practices and conforms to 
applicable Federal requirements (e.g., the seismic requirements of 
Executive Order 12699 (55 FR 835, 3 CFR, 1990 Comp., p. 269), the 
debarment requirements of 2 CFR part 180 as supplemented by 2 CFR part 
417, American Iron and Steel (Section 746 of Title VII of the 
Consolidated Appropriations Act of 2017), and the Copeland Anti-
Kickback Act (18 U.S.C. 874)); State, local and Tribal codes and 
requirements; and facility plans or plans and specifications reviewed 
and approved by the applicable State, local and/or Tribal regulatory 
agency. The lender must also ensure that the planned project will be 
completed within the available funds and once completed, will be 
suitable for the borrower's needs. Upon completion of the project, the 
lender must certify that all applicable Federal requirements were met.
* * * * *
    (d) Domestic procurement preference. (1) American Iron and Steel 
(AIS). Guaranteed loans must comply with AIS requirements. Lenders and 
borrowers are responsible for meeting the AIS requirements of Section 
746 of Title VII of the Consolidated Appropriations Act of 2017 and the 
continuing resolutions adopted thereafter.

[[Page 79721]]

    (2) Build America, Buy America Act (BABAA). BABAA was enacted as 
part of the Infrastructure and Jobs Act (Pub. L. 117-58) on November 
15, 2021 and became effective on May 14, 2022. Under Section 70914(a) 
of BABAA, ``none of the funds made available for a Federal financial 
assistance program for infrastructure may be obligated for a project 
unless all of the iron, steel, manufactured products, and construction 
materials used in the project are produced in the United States.'' 
Additional information may be found on the Agency's Build America, Buy 
America website at https://www.rd.usda.gov/build-america-buy-america.
    (3) Compliance. Owners are ultimately responsible for compliance 
with the domestic procurement preference requirements and should 
consult with the Agency early in project development. Compliance must 
be certified to prior to the issuance of the loan note guarantee. The 
lender must include any domestic preference language, provided by the 
Agency, in the loan agreement and other appropriate loan documents.
* * * * *

0
38. Amend Sec.  5001.306 by revising paragraphs (a)(3) introductory 
text and (b) introductory text to read as follows:


Sec.  5001.306  Specific application requirements for B&I projects.

* * * * *
    (a) * * *
    (3) The Agency may require a feasibility study when the lender's 
analysis, borrower's business plan, or project information is not 
sufficient to determine the technical feasibility, market feasibility, 
or economic viability of the project.
* * * * *
    (b) Applications requesting a guaranteed loan in an amount of 
$600,000 or less. Guaranteed loan applications may be processed under 
this paragraph (b) if the amount of the guaranteed loan does not exceed 
$600,000, provided the Agency determines that the lender's analysis, 
borrower's business plan, or other project or borrower information 
submitted by the lender is sufficient to determine the technical 
feasibility, market feasibility, and economic viability of the project. 
If any of the items in paragraphs (a)(1) through (4) of this section 
apply, the lender must collect the information and maintain it in their 
file. A lender may need to resubmit or modify an application if the 
application does not contain sufficient information for the Agency to 
make an informed loan approval decision.
* * * * *

0
39. Amend Sec.  5001.307 by revising paragraphs (a)(1) and (2), (b) 
introductory text, (e) introductory text, (e)(1)(ii), (e)(1)(v) 
introductory text, (e)(1)(v)(A)(2) and (3), (e)(1)(v)(C)(2) and (3) to 
read as follows:


Sec.  5001.307  Specific application requirements for REAP projects.

* * * * *
    (a) * * *
    (1) Eligible borrowers must meet the definition of agricultural 
producer or rural small business as defined in Sec.  5001.3. 
Agricultural producers seeking funding for a RES or EEI project may 
apply as either a rural small business or as an agricultural producer, 
provided they meet the applicable eligibility requirements. 
Agricultural producers seeking funding for an EEE project must be 
eligible and apply as an agricultural producer.
    (2) The borrower must provide the primary NAICS code applicable to 
the borrower's business concern and certify on the Agency approved 
application form or system that it meets the definition of agricultural 
producer or rural small business. The Agency reserves the right to 
request supporting documentation to verify borrower eligibility.
    (b) Borrower description. Describe the ownership of the borrower, 
including the information specified in paragraphs (b)(1) through (3) of 
this section, as applicable. Include a description of the borrower's 
existing farm, ranch, or business operation, including how long the 
borrower has been in operation. Rural small businesses and agriculture 
operations owned by Tribes should provide documentation to adequately 
show the separation of the applicant and the Tribal government.
* * * * *
    (e) Technical report. All eligible projects must have technical 
merit and provide information as identified in Sec.  5001.106(e), Sec.  
5001.107, or Sec.  5001.108 and (e)(1) through (3) of this section.
    (1) * * *
    (ii) For RES projects, sufficient information to enable the 
calculation of the percentage of historical use of energy compared to 
the amount of renewable energy that will be generated once the project 
is operating at its steady state operating level. If the project is 
closely associated with a residence, satisfactory demonstration must be 
made that 50 percent or more of the projected renewable energy will 
benefit the agricultural operation or rural small business; and
* * * * *
    (v) For total project costs in the amount of $80,000 or less, a 
technical report, as identified in Sec.  5001.303(c)(16), prepared in 
accordance with the following paragraphs, as applicable:
    (A) * * *
    (2) Vendor/installer certification that the EEI project uses 
commercially available technology;
    (3) Vendor/installer certified projections on the quantity of 
energy to be saved;
* * * * *
    (C) * * *
    (2) Vendor/installer certification that the EEE project uses 
commercially available technology;
    (3) Vendor/installer certification of the proposed energy 
consumption quantity and price per unit of the energy efficiency 
equipment to be installed;
* * * * *

0
40. Amend Sec.  5001.315 by revising paragraphs (a) introductory text, 
(b) introductory text, (c)(1) and (2), (d)(4) and (e)(2) to read as 
follows:


Sec.  5001.315  Application evaluation and award provisions.

    (a) General. The Agency will evaluate all applications according to 
the provisions of this part and may require the lender to obtain 
additional assistance in those areas where the lender does not have the 
necessary expertise to originate or service the guaranteed loan. For 
the purposes of this paragraph (a), ``those areas'' mean:
* * * * *
    (b) Evaluation and eligibility determinations. The Agency will 
review each complete application to make a formal determination as to: 
the eligibility of the borrower, lender, project, and guaranteed loan 
purpose and proposed use of funds; if there is a reasonable assurance 
of repayment ability; if sufficient collateral and equity exists; if 
the proposed guaranteed loan complies with all applicable statutes and 
regulations; and if the environmental review is complete. The Agency 
will only guarantee loans that are sound and that have a reasonable 
assurance of repayment.
* * * * *
    (c) * * *
    (1) Lenders must provide necessary information related to 
determining the priority score, if requested by the Agency. To the 
extent possible, lenders should consider the established priorities of 
the Agency when submitting projects for a loan guarantee.

[[Page 79722]]

Higher scoring applications will receive first consideration for 
funding.
    (2) The Agency may establish a minimum priority score for each 
guarantee program. The Agency will, if established, publish the minimum 
score in a document in the Federal Register. Applications that do not 
meet the applicable minimum score will compete with all other 
guaranteed loan applications for each specific program in a competition 
on the first business day of September of the Federal fiscal year in 
which the application is ready for funding.
* * * * *
    (d) * * *
    (4) If a lender agrees to the lower loan guarantee amount offered 
by the Agency under either paragraph (d)(1) or (2) of this section, the 
lender must certify that the purpose(s) of the project can still be met 
at the lower funding level and must provide documentation that the 
borrower has obtained the remaining funds needed to complete the 
project as originally proposed.
    (e) * * *
    (2) If an unfunded application has a priority score less than any 
applicable minimum score and remains unfunded after the competition 
held on the first business day of September of the fiscal year in which 
the application is ready for funding, the Agency will notify the 
applicant in writing and withdraw the application from further funding 
consideration.
* * * * *

0
41. Amend Sec.  5001.316 by adding a paragraph heading to paragraph (e) 
and paragraph and revising paragraph (e)(2) to read as follows:


Sec.  5001.316  CF project priority point system and reservation of 
funds.

* * * * *
    (e) Rural priority. * * *
* * * * *
    (2) On July 1 of each year, the Agency will evaluate the dollar 
amount of complete applications on hand for projects in rural areas 
with a population of not more than 20,000 inhabitants. The dollar 
amount of the complete applications will be subtracted from the 
reserved allocation identified in this paragraph (e) and the remaining 
amount will be made available through the end of the Federal fiscal 
year for projects in rural areas with a population of not more than 
50,000 inhabitants.

0
42. Amend Sec.  5001.318 by revising paragraph (b) introductory text to 
read as follows:


Sec.  5001.318  B&I project priority point system.

* * * * *
    (b) Location priority. An application is eligible to receive points 
under each of the categories identified in paragraphs (b)(1) through 
(3) of this section if the project is located within:
* * * * *

0
43. Amend Sec.  5001.319 by revising the introductory text, paragraphs 
(a) introductory text, (b)(1)(i) introductory text, (b)(2)(i) 
introductory text, (b)(2)(i)(A), (b)(2)(ii), (b)(2)(iii) introductory 
text, (d) introductory text, (e), (f) introductory text, (f)(1) 
introductory text and (g)(6) introductory text to read as follows:


Sec.  5001.319  REAP project priority point system.

    This section applies to REAP projects seeking a loan guarantee. On 
a periodic basis, and subject to the availability of funds, the Agency 
will compete each complete and eligible RES, EEI, and EEE application 
that is ready to be funded and whose priority score, as determined in 
this section, meets, or exceeds the minimum priority score. 
Applications that do not meet the applicable minimum score will be 
considered as provided in Sec.  5001.315(c)(2). A maximum score of 90 
points is possible.
    (a) Environmental benefits. The Agency will award up to 5 points 
under this criterion based on documentation or the applicant's 
indication in the application that the project will have a positive 
effect on resource conservation, public health, and the environment. If 
the project will have a positive impact on:
* * * * *
    (b) * * *
    (1) * * *
    (i) Renewable energy systems. The quantity of energy generated or 
replaced per guaranteed loan dollar requested will be determined by 
dividing the projected total annual energy generated or replaced by the 
RES or RES retrofit (minus energy for residential use), which will be 
converted to BTUs, by the guaranteed loan dollars requested. 
Applications for retrofitting of a RES that are not projecting to 
increase the amount of renewable energy that the RES is generating, 
while still eligible for REAP, will not be awarded points under this 
criteria. Off-the-grid projects and direct-use projects which are not 
replacements, will be awarded points based on proposed energy 
generation. Points will be awarded under this sub-criterion based on 
the annual amount of energy generated or replaced (minus energy for 
residential use) per dollar of guaranteed loan amount requested for the 
RES project. The Agency will award up to 10 points as determined under 
paragraph (b)(1)(i)(A) and (B) of this section below. If the annual 
amount of energy generated per dollar of guaranteed loan amount 
requested calculated under paragraph (b)(1)(ii) of this section is:
* * * * *
    (2) * * *
    (i) Energy replacement. The Agency will award points under this 
sub-criterion for an RES project based on the amount of energy replaced 
by the project compared to the amount of energy used by the applicable 
process(es) over a 12-month period. If the estimated energy produced is 
more than 150 percent of the energy used by the applicable process(es), 
the project will be scored as an energy generation project under 
paragraph (b)(2)(ii) of this section. When calculating the percentage 
of energy being replaced and whether it is categorized as a replacement 
or generation, the entire amount of energy produced by the new system 
will be used in the calculation, regardless of whether the project is 
being prorated because it shares a meter with a residence or if it has 
ineligible project costs.
    (A) Documentation for energy replacement. For a RES project to 
qualify as energy replacement, the borrower must provide documentation 
in its application on prior energy use incurred by the borrower. 
Documentation must be shown that the borrower entity incurred the cost 
of the historical energy to be replaced, in order for the project to 
qualify as energy replacement. Replacement of existing direct use 
renewable energy can be considered in the replacement calculation as 
long as the borrower entity owns the existing RES system. For a project 
involving a recent acquisition, historical energy costs of the previous 
owner can be used to document prior energy use. Applicant entities 
cannot utilize historical energy costs of affiliate businesses to 
document prior energy use. Proposed energy use, such as that attributed 
to an expansion, is not considered in the replacement calculation. For 
a RES project involving new construction and being installed to serve 
the new facility, the project can be classified as energy replacement 
only if the borrower can document prior energy use from a facility that 
is within plus or minus 10 percent of the size of the facility it is 
replacing. The estimated quantities of energy must be converted to 
either BTUs, watts, or similar energy equivalents to facilitate 
scoring.
* * * * *
    (ii) Energy generation. If the RES project is intended for 
production of

[[Page 79723]]

energy or is a proposed retrofitting of an existing RES which increases 
the amount of energy generated, the Agency will award 10 points. 
Applications for retrofitting of an RES that are not projecting to 
increase the amount of renewable energy that the RES is generating, 
while still eligible for REAP, will not be awarded points under this 
criteria. If the borrower cannot document prior energy use, the project 
will be scored as an energy generation project, regardless of whether 
or not there is an agreement in place to sell the power.
    (iii) Energy saved. The Agency will award up to 15 points under 
this sub-criterion for an EEI project based on the percentage of 
estimated energy saved by the installation of the project as determined 
by the projections in the applicable vendor certification, energy 
assessment or energy audit. If the estimated energy expected to be 
saved over the same period used in the energy assessment or energy 
audit, as applicable, will be--
* * * * *
    (d) Previous grantees or borrowers. The Agency will award up to 15 
points under this criterion based on whether the borrower has received 
and accepted a REAP grant award under 7 CFR part 4280 or a guaranteed 
loan commitment under either this part or 7 CFR part 4280. Received and 
accepted means REAP grant funds were disbursed and/or a REAP loan note 
guarantee was issued by the Agency. The determination is based on the 
fiscal year in which the obligation was made.
* * * * *
    (e) Existing businesses. A maximum of 5 points will be awarded for 
an existing agricultural producer business or rural small business that 
meets the definition of existing business in Sec.  5001.3. The business 
must be in operation for at least one full year, not simply a year 
since legal business formation.
    (f) Simple payback. A maximum of 15 points will be awarded for this 
criterion based on the simple payback of the project as defined in 
Sec.  5001.3. Points will be awarded for either RES, EEI, or EEE; 
points will not be awarded for more than one category. See definition 
of simple payback for calculations. Simple payback calculations will be 
calculated based only on the documented information provided with the 
application.
    (1) Renewable energy systems. RESs includes replacement, 
generation, and direct-use RES projects. If the simple payback of the 
project is:
* * * * *
    (g) * * *
    (6) The project is located in an area where 20 percent or more of 
its population is living in poverty, as defined by the United States 
Census Bureau, for the last 30 years; an underserved community; or an 
area which has experienced long-term population decline, or loss of 
employment.
* * * * *

0
44. Revise and republish appendix C to subpart D of part 5001 to read 
as follows:

Appendix C to Subpart D of Part 5001--Technical Reports for Energy 
Efficiency Improvement (EEI) Projects With Total Project Costs of More 
Than $80,000

    For all EEI projects with total project costs of more than 
$80,000, provide the information specified in Sections A and D and 
in Section B or Section C, as applicable. If the application is for 
an EEI project with total project costs of $80,000 or less, please 
see Sec.  5001.307(e) for the technical report information to be 
submitted with your application.
    If the application is for an EEI project with total project 
costs of $200,000 and greater, you must conduct an energy audit 
(EA). However, if the application is for an EEI project with total 
project costs of less than $200,000, you may conduct either an 
energy assessment or an energy audit. Energy audits that meet the 
American Society of Heating, Refrigeration and Air-Conditioning 
Engineers (ASHREA) Level II Energy Survey; Analysis and American 
National Standards Institute (ANSI); or American Society of 
Agricultural and Biological Engineers (ASABE) S162 Standard for 
performing on farm energy audits will be considered by the Agency to 
be acceptable audits.

Section A. Project Information

    Describe how all the improvements to or replacement of an 
existing building and/or equipment meet the requirements of being 
commercially available. Describe how the design, engineering, 
testing, and monitoring are sufficient to demonstrate that the 
proposed project will meet its intended purpose, ensure public 
safety, and comply with applicable laws, regulations, agreements, 
permits, codes, and standards. Describe how all equipment required 
for the EEI(s) is available and able to be procured and delivered 
within the proposed project development schedule. In addition, 
present information regarding component warranties and the 
availability of spare parts.

Section B. Energy Audit

    If conducting an EA, provide the following information.
    (1) Situation Report. Provide a narrative description of the 
existing building and/or equipment, its energy system(s) and usage, 
and activity profile. Also include average price per unit of energy 
(electricity, natural gas, propane, fuel oil, renewable energy, 
etc.) paid by the customer for the most recent 12 months, or an 
average of 2, 3, 4, or 5 years, for the building and equipment being 
audited. Any energy conversion should be based on use rather than 
source.
    (2) Potential Improvement Description. Provide a narrative 
summary of the potential improvement and its ability to reduce 
energy consumption or improve energy efficiency, including a 
discussion of reliability and durability of the improvements.
    (i) Provide preliminary specifications for critical components.
    (ii) Provide preliminary drawings of project layout, including 
any related structural changes.
    (iii) Identify significant changes in future related operations 
and maintenance costs.
    (iv) Describe explicitly how outcomes will be measured.
    (3) Technical Analysis. Give consideration to the interactions 
among the potential improvements and the current energy system(s).
    (i) For the most recent 12 months, or an average of 2, 3, 4, or 
5 years, prior to the date the application is submitted, provide 
both the total amount and the total cost of energy used for the 
original building and/or equipment, as applicable, for each 
improvement identified in the potential project. In addition, 
provide for each improvement identified in the potential project an 
estimate of the total amount of energy that would have been used and 
the total cost that would have been incurred if the proposed project 
were in operation for this same time period.
    (ii) Calculate all direct and attendant indirect costs of each 
improvement;
    (iii) Rank potential improvements measures by cost-
effectiveness; and
    (iv) Provide an estimate of simple payback, including all 
calculations, documentation, and any assumptions.
    (4) Qualifications of the auditor. Provide the qualifications of 
the individual or entity which completed the energy audit.

Section C. Energy Assessment

    If conducting an energy assessment, provide the following 
information.
    (1) Situation Report. Provide a narrative description of the 
existing building and/or equipment, its energy system(s) and usage, 
and activity profile. Also include average price per unit of energy 
(electricity, natural gas, propane, fuel oil, renewable energy, 
etc.) paid by the customer for the most recent 12 months, or an 
average of 2, 3, 4, or 5 years, for the building and equipment being 
evaluated. Any energy conversion shall be based on use rather than 
source.
    (2) Potential Improvement Description. Provide a narrative 
summary of the potential improvement and its ability to reduce 
energy consumption or improve energy efficiency.
    (3) Technical Analysis. Giving consideration to the interactions 
among the potential improvements and the current energy system(s), 
provide the information specified in paragraphs (3)(i) through (iii) 
of this appendix.
    (i) For the most recent 12 months, or an average of 2, 3, 4, or 
5 years, prior to the date the application is submitted, provide 
both the total amount and the total cost of energy used for the 
original building and/or

[[Page 79724]]

equipment, as applicable, for each improvement identified in the 
potential project. In addition, provide for each improvement 
identified in the potential project an estimate of the total amount 
of energy that would have been used and the total cost that would 
have been incurred if the proposed project were in operation for 
this same time period.
    (ii) Document baseline data compared to projected consumption, 
together with any explanatory notes on source of the projected 
consumption data. When appropriate, show before-and-after data in 
terms of consumption per unit of production, time, or area.
    (iii) Provide an estimate of simple payback, including all 
calculations, documentation, and any assumptions.
    (4) Qualifications of the Assessor. Provide the qualifications 
of the individual or entity that completed the assessment. If the 
energy assessment for a project with total project costs of $80,000 
or less is not conducted by energy auditor or energy assessor, then 
the individual or entity must have at least 3 years of experience 
and completed at least five energy assessments or energy audits on 
similar type projects.

Section D. Qualifications

    Provide a resume or other evidence of the contractor or 
installer's qualifications and experience with the proposed EEI 
technology. Any contractor or installer with less than 2 years of 
experience may be required to provide additional information in 
order for the Agency to determine if they are qualified installer/
contractor.


0
45. Revise and republish appendix D to subpart D of part 5001 to read 
as follows:

Appendix D to Subpart D of Part 5001--Technical Reports for Renewable 
Energy System (RES) Projects With Total Project Costs of Less Than 
$200,000 but More Than $80,000

    Provide the information specified in Sections A through D for 
each technical report prepared under this appendix.
    A renewable energy site assessment may be used in lieu of 
Sections A through C if the renewable energy site assessment 
contains the information requested in Sections A through C. In such 
instances, the technical report would consist of Section D and the 
renewable energy site assessment.

    Note: If the total project cost for the RES project is $80,000 
or less, this appendix does not apply. Instead, for such projects, 
please provide the information specified in Sec.  5001.307(e).

Section A. Project Description

    Provide a description of the project, including its intended 
purpose and a summary of how the project will be constructed and 
installed. Describe how the system meets the definition of 
commercially available. Identify the project's location and describe 
the project site.

Section B. Resource Assessment

    Describe the quality and availability of the renewable resource 
to the project. Identify the amount of renewable energy generated 
that will be generated once the proposed project is operating at its 
steady state operating level. If applicable, also identify the 
percentage of energy being replaced by the system.
    If the application is for a bioenergy project, provide 
documentation that demonstrates that any and all woody biomass 
feedstock from National Forest System land or public lands cannot be 
used as a higher value wood-based product.

Section C. Project Economic Assessment

    Describe the projected financial performance of the proposed 
project. The description must address total project costs, energy 
savings, and revenues, including applicable investment and other 
production incentives accruing from government entities. Revenues to 
be considered shall accrue from the sale of energy, offset or 
savings in energy costs, byproducts, and green tags. Provide an 
estimate of simple payback, including all calculations, 
documentation, and any assumptions.

Section D. Project Construction and Equipment Information

    Describe how the design, engineering, testing, and monitoring 
are sufficient to demonstrate that the proposed project will meet 
its intended purpose, ensure public safety, and comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. Describe how all equipment required for the RES is 
available and able to be procured and delivered within the proposed 
project development schedule. In addition, present information 
regarding component warranties and the availability of spare parts.

Section E. Qualifications of Key Service Providers

    Describe the key service providers, including the number of 
similar systems installed and/or manufactured, professional 
credentials, licenses, and relevant experience. When specific 
numbers are not available for similar systems, estimations will be 
acceptable.


0
46. Revise and republish appendix E to subpart D of part 5001 to read 
as follows:

Appendix E to Subpart D of Part 5001--Technical Reports for Renewable 
Energy System (RES) Projects With Total Project Costs of $200,000 and 
Greater

    Provide the information specified in Sections A through G for 
each technical report prepared under this appendix.
    Provide the resource assessment under Section C that is 
applicable to the project. For hybrid projects, technical reports 
must be prepared for each technology that comprises the hybrid 
project.

Section A. Qualifications of the Project Team

    Describe the project team, their professional credentials, and 
relevant experience. The description shall support that the project 
team key service providers have the necessary professional 
credentials, licenses, certifications, and relevant experience to 
develop the proposed project.

Section B. Agreements and Permits

    Describe the necessary agreements and permits (including any for 
local zoning requirements) required for the project and the 
anticipated schedule for securing those agreements and permits. For 
example, interconnection agreements and power purchase agreements 
are necessary for all renewable energy projects electrically 
interconnected to the utility grid.

Section C. Resource Assessment

    Describe the quality and availability of the renewable resource 
and the amount of renewable energy generated through the deployment 
of the proposed system. For all bioenergy projects, except anaerobic 
digesters projects, complete Section C.3 of this appendix. For 
anaerobic digester projects, complete Section C.6 of this appendix.
    (1) Wind. Provide adequate and appropriate data to demonstrate 
the amount of renewable resource available. Indicate the source of 
the wind data and the conditions of the wind monitoring when 
collected at the site or assumptions made when applying nearby wind 
data to the site.
    (2) Solar. Provide adequate and appropriate data to demonstrate 
the amount of renewable resource available. Indicate the source of 
the solar data and assumptions.
    (3) Bioenergy/Biomass Project. Provide adequate and appropriate 
data to demonstrate the amount of renewable resource available. 
Indicate the type, quantity, quality, and seasonality of the 
renewable biomass resource, including harvest and storage, where 
applicable. Where applicable, also indicate shipping or receiving 
method and required infrastructure for shipping. For proposed 
projects with an established resource, provide a summary of the 
resource. Document that any and all woody biomass feedstock from 
National Forest System land or public lands cannot be used as a 
higher value wood-based product.
    (4) Geothermal Electric Generation. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the quality of the geothermal resource, 
including temperature, flow, and sustainability and what conversion 
system is to be installed. Describe any special handling of cooled 
geothermal waters that may be necessary. Describe the process for 
determining the geothermal resource, including measurement setup for 
the collection of the geothermal resource data. For proposed 
projects with an established resource, provide a summary of the 
resource and the specifications of the measurement setup.
    (5) Geothermal Direct Generation. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the quality of the geothermal resource, 
including temperature,

[[Page 79725]]

flow, and sustainability and what direct use system is to be 
installed. Describe any special handling of cooled geothermal waters 
that may be necessary. Describe the process for determining the 
geothermal resource, including measurement setup for the collection 
of the geothermal resource data. For proposed projects with an 
established resource, provide a summary of the resource and the 
specifications of the measurement setup.
    (6) Anaerobic Digester Project/Biogas. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the substrates used as digester inputs, 
including animal wastes or other renewable biomass in terms of type, 
quantity, seasonality, and frequency of collection. Describe any 
special handling of feedstock that may be necessary. Describe the 
process for determining the feedstock resource. Provide either 
tabular values or laboratory analysis of representative samples that 
include biodegradability studies to produce gas production estimates 
for the project on daily, monthly, and seasonal basis. If an 
anerobic digester project, identify the type of operation (e.g., 
dairy, swine, layer, etc.), along with breed, herd population size 
and demographics, and the type of waste collection method and 
frequency information available. For the biogas produced, identify 
the type of digester (e.g., mixed, plug-flow, attached film, covered 
lagoon, etc.), if applicable, or the method of capture (landfill, 
sewage waste treatment, etc.) and treatment. Identify the system 
designer and determine the digester design assumptions such as the 
number and type of animals, the bedding type and estimated annual 
quantity used, the manure and wastewater volumes, and the treatment 
of digester effluent (e.g., none, solids separation by screening, 
etc. with details including use or method of disposal).
    (7) Hydrogen Project. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the renewable biomass 
resource. For solar, wind, or geothermal sources of energy used to 
generate hydrogen, indicate the renewable resource where the 
hydrogen system is to be installed. Local resource maps may be used 
as an acceptable preliminary source of renewable resource data. For 
proposed projects with an established renewable resource, provide a 
summary of the resource.
    (8) Hydroelectric/Ocean Energy Projects. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the quality of the resource, including 
temperature (if applicable), flow, and sustainability of the 
resource, including a summary of the resource evaluation process and 
the specifications of the measurement setup and the date and 
duration of the evaluation process and proximity to the proposed 
site. If less than 1 year of data is used, a qualified consultant 
must provide a detailed analysis of the correlation between the site 
data and a nearby, long-term measurement site.
    (9) Renewable Energy Systems with Storage Components. Provide 
adequate and appropriate data to demonstrate the amount of renewable 
resource available. Indicate the type, quantity, quality, and 
seasonality of the renewable energy resource, where applicable. 
Indicate the storage system specifications and the integrity of the 
system in conjunction with the RES it is integrated with, including 
application, size, lifetime, response time, capital and maintenance 
costs associated with the operation as well as the distribution of 
the stored resource(s).

Section D. Design and Engineering

    Describe the intended purpose of the project and the design, 
engineering, testing, and monitoring needed for the proposed 
project. The description shall support that the system will be 
designed, engineered, tested, and monitored to meet its intended 
purpose, ensure public safety, and comply with applicable laws, 
regulations, agreements, permits, codes, and standards. In addition, 
identify that all major equipment is commercially available, 
including proprietary equipment, and justify how this unique 
equipment is needed to meet the requirements of the proposed design. 
In addition, information regarding component warranties and the 
availability of spare parts must be presented.

Section E. Project Development

    Describe the overall project development method, including the 
key project development activities and the proposed schedule, 
including proposed dates for each activity. The description shall 
identify each significant historical and projected activity, its 
beginning and end, and its relationship to the time needed to 
initiate and carry the activity through to successful project 
completion. The description shall address applicant project 
development cash flow requirements. Details for equipment 
procurement and installation shall be addressed in Section F of this 
Appendix. Applications should include a concise development schedule 
with timelines for activities.

Section F. Equipment Procurement and Installation

    Describe the availability of the equipment required by the 
system. The description shall support that the required equipment is 
available and can be procured and delivered within the proposed 
project development schedule.
    Describe the plan for site development and system installation, 
including any special equipment requirements. In all cases, the 
system or improvement shall be installed in conformance with 
manufacturer's specifications and design requirements, and comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards.

Section G. Operations and Maintenance

    Describe the operations and maintenance requirements of the 
system, including major rebuilds and component replacements 
necessary for the system to operate as designed over its useful 
life. The warranty must cover and provide protection against both 
breakdown and a degradation of performance. The performance of the 
RES or EEI shall be monitored and recorded as appropriate to the 
specific technology.

0
47. Amend Sec.  5001.401 by revising the introductory text and 
paragraph (c) to read as follows:


Sec.  5001.401  Interest rate provisions.

    Interest rates, interest rate caps, and incremental interest rate 
adjustment limitations on a guaranteed loan are negotiated between the 
lender and the borrower. The interest rate for a guaranteed loan can be 
either fixed or variable, or a combination thereof, as long as it is a 
legal rate. Interest rates cannot be more than those rates the lender 
customarily charges its borrowers for non-guaranteed loans in similar 
circumstances in the ordinary course of business. The Agency encourages 
each lender to use the secondary market and pass interest-rate savings 
on to the borrower. If an interest rate swap is utilized, the guarantee 
will only cover principal and interest. The lender must provide the 
Agency with the overall effective interest rate charged to the borrower 
in the swap transaction. The Agency guarantee does not cover any fees 
related to the swap.
* * * * *
    (c) Multi-rates. When multi-rates are used, the lender must provide 
the Agency with the overall effective interest rate for the entire 
loan.
* * * * *

0
48. Amend Sec.  5001.402 by revising paragraph (b)(2) to read as 
follows:


Sec.  5001.402  Term length, loan schedule, and repayment.

* * * * *
    (b) * * *
    (2) Guaranteed loans must require a periodic payment schedule that 
will retire the debt over the term of the loan without a balloon 
payment. Balloon maturities are not allowed, unless required as a loan 
servicing action. Payments must be amortized to maximize successful 
loan repayment and may vary by type of business or cash flow.
* * * * *

0
49. Amend Sec.  5001.403 by revising paragraph (b) to read as follows:


Sec.  5001.403  Lender fees.

* * * * *
    (b) Default charges, penalty interest, late payment fees, and 
additional interest expenses are not covered by the loan note guarantee 
and cannot be added to the principal or interest due under any loan 
note guarantee in the event of a loss claim as prescribed in Sec.  
5001.521 or a repurchase as prescribed in Sec.  5001.511.

[[Page 79726]]


0
50. Amend Sec.  5001.406 by revising paragraphs (c) and (d) 
introductory text to read as follows:


Sec.  5001.406  Guaranteed loan amounts.

* * * * *
    (c) B&I projects. The maximum total amount of B&I guaranteed loans 
(including the guaranteed and unguaranteed portions of any B&I 
guaranteed loans, the outstanding principal and interest balance of any 
existing B&I guaranteed loans, and any new B&I guaranteed loan that is 
the subject of an application) that may be made to a borrower is 
limited to a maximum amount of $25 million. The Secretary, whose 
authority may not be redelegated, may approve, at the Secretary's 
discretion, guaranteed loans in excess of $25 million and up to $40 
million for rural cooperatives that process value-added agricultural 
commodities in accordance with Sec.  5001.105(b)(18)(i). In addition to 
the borrower loan limit, there is a guarantor loan limit of $100 
million.
    (d) REAP projects. The amount of a guaranteed loan that will be 
made available to an eligible project and borrower under this part will 
be at least $5,000, not to exceed 75 percent of eligible project costs. 
Borrowers must demonstrate evidence of a financial contribution in the 
project of not less than 25 percent of total eligible project costs.
* * * * *

0
51. Amend Sec.  5001.408 by revising paragraphs (a)(5) and (e)(1) to 
read as follows:


Sec.  5001.408  Participation or assignment of guaranteed loans.

* * * * *
    (a) * * *
    (5) Secondary market. The lender must properly close their loan and 
fully disburse loan funds of a promissory note for the purposes 
intended prior to assignment of the guaranteed portion of the 
promissory note(s) on the secondary market. The lender can assign all 
or part of the guaranteed portion of the loan only if the loan is not 
in default. Default includes a borrower default in payments or a lender 
default by unpaid periodic guarantee retention fees. A lender using the 
multi-note system may sell the guarantee on the secondary market for a 
specific note once that note is fully disbursed, even if other 
guaranteed notes for the project have not been fully disbursed.
* * * * *
    (e) * * *
    (1) A guarantee and right to require purchase in accordance with 
Sec.  5001.511 will be directly enforceable by a holder notwithstanding 
any fraud or misrepresentation by the lender or any unenforceability of 
the loan guarantee by the lender, except for fraud or misrepresentation 
of which the holder had actual knowledge at the time it became the 
holder or in which the holder participates or condones.
* * * * *

0
52. Amend Sec.  5001.450 by revising paragraphs (b)(1), (c)(1) 
introductory text, (c)(1)(iii) and (c)(2) to read as follows:


Sec.  5001.450  General.

* * * * *
    (b) * * *
    (1) The entire loan must be secured by the same collateral with 
equal lien priority for the guaranteed and unguaranteed portions of the 
loan. The unguaranteed portion of the guaranteed loan will neither be 
paid first nor given any preference or priority over the guaranteed 
portion. A parity or junior lien position in the guaranteed loan 
collateral may be considered on a case-by-case basis and must be 
approved by the Agency during the loan approval process. Requirements 
for guaranteed loans to purchase cooperative stock are found in Sec.  
5001.140.
* * * * *
    (c) * * *
    (1) If the lender owns all or a portion of the guaranteed portion 
of the guaranteed loan or makes a protective advance, the Agency, in 
its sole discretion, may cover interest on the guaranteed portion for 
the 90 days from the most recent delinquency effective date. Per 
paragraph (c)(2) of this section, if applicable, the lender should 
issue an interest termination letter to any holder(s) and provide the 
Agency with a copy. The Agency will entertain the payment of interest 
up to 180 days past the most recent delinquency effective date only if:
* * * * *
    (iii) Concurrence for inclusion of the extended period of interest 
to the lender is received from the Agency. The lender must request an 
extension of accrued interest in writing and document their collection 
efforts and timeframe for full resolution, which must be within 180 
days from the most recent delinquency. Approved collection efforts that 
will extend longer than 180 days from the most recent delinquency date 
will be limited to 90 days of accrued interest payment from the Agency.
    (2) If the guaranteed loan has one or more holders, the lender will 
issue an interest termination letter to each holder establishing the 
termination date for interest accrual and provide the Agency with a 
copy. The loan note guarantee will not cover interest to any holder 
accruing after 90 days from the date of the interest termination 
letter. The Agency at its sole discretion may notify each holder of the 
interest termination provisions if it is determined that lender 
correspondence to holders is inadequate.

0
53. Amend Sec.  5001.452 by:
0
a. Revising paragraphs (a) and (b)(8)(iii)(U);
0
b. Adding paragraphs (b)(8)(iii)(W) and (X); and
0
c. Revising paragraph (c).
    The revisions and additions to read as follows:


Sec.  5001.452  Loan closing and conditions precedent to issuance of 
loan note guarantee.

    (a) The lender must not close the guaranteed loan until all 
conditions of the conditional commitment are met. If, at a later date, 
it is discovered that all conditions were not met, the lender will be 
advised in writing that full enforceability of the guarantee by the 
lender may be compromised if the deficiencies are not corrected.
    (b) * * *
    (8) * * *
    (iii) * * *
    (U) For all RES and EEI projects, the lender must provide 
certification that the project has been performing or will perform at a 
steady state operating level in accordance with the technical 
requirements, plans, and specifications. Any modification to the 30-day 
steady state operating level requirement will be based on the Agency's 
review of the technical report or vendor certification and will be 
incorporated into the conditional commitment.
* * * * *
    (W) For WWD projects, if applicable, the lender must certify that 
the project complied with American Iron and Steel requirements.
    (X) For B&I, the capital/equity requirement set forth in the 
Conditional Commitment was met, as evidenced by a balance sheet as of 
the date the guaranteed loan was closed, giving effect to the entirety 
of the loan in the calculation whether or not the loan itself is fully 
advanced. A copy of the borrower's loan closing balance sheet must be 
included with the lender's certification.
    (c) For RES projects where applicable, the lender must provide to 
the Agency a copy of the executed power purchase agreement and/or a 
permission to operate letter from the energy off-taker.
* * * * *

0
54. Amend Sec.  5001.454 by revising the introductory text, paragraphs 
(b)

[[Page 79727]]

introductory text, (d)(4) and (5) to read as follows:


Sec.  5001.454  Guarantee Fee.

    The guarantee fee is a one-time, non-refundable fee paid by the 
lender to the Agency at or before loan closing and is required to be 
paid before the Agency will issue the loan note guarantee. The 
guarantee fee rate applied will be the rate as established in the 
Federal Register for the fiscal year in which a guaranteed loan is 
obligated. The lender may pass the guarantee fee on to the borrower.
* * * * *
    (b) Guarantee fee rates. The guarantee fee rate is established by 
the Agency in an annual document published in the Federal Register. 
While the fee rate may vary annually, they will not exceed the limits 
in table 1. Once the guarantee is obligated, the guarantee fee rate in 
effect at the time of obligation will remain in place even if the 
guarantee fee rate changes before the loan note guarantee is issued.
* * * * *
    (d) * * *
    (4) Is part of a strategic economic development and community 
development plan on a multi-jurisdictional and multi-sectoral basis in 
accordance with Section 6401 of the Agriculture Improvement Act of 2018 
(Pub. L. 115-334); or
    (5) Provides an additional market for existing local businesses by 
purchasing substantial amounts of products or services from, selling 
product to, or providing services to existing local and regional 
businesses. The additional market for existing local businesses means 
that the borrower uses industry clusters in the same community as a 
substantial part of their product manufacturing or service delivery, or 
the borrower is part of a product chain where they are a substantial 
part of another local business' product manufacturing or service 
delivery. The use of local janitorial or maintenance firms, for 
example, does not meet this criteria.

0
55. Amend Sec.  5005.457 by revising paragraph (b)(1)(ii) to read as 
follows:


Sec.  5001.457  Changes prior to loan closing.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Borrower's written plan, scope of work, or the purpose or 
intent of the project.
* * * * *

0
56. Amend Sec.  5005.459 by revising paragraph (b)(1) to read as 
follows:


Sec.  5001.459  Replacement of loan note guarantee, and assignment 
guarantee agreement.

* * * * *
    (b) * * *
    (1) Be issued by a qualified surety company holding a certificate 
of authority from the Secretary of the Treasury and listed in Treasury 
Department Circular 570, except when the outstanding principal balance 
and accrued interest due the present holder, in accordance with Sec.  
5001.450(c), is less than $1 million as verified by the lender via a 
written letter of certification of balance due;
* * * * *

0
57. Amend Sec.  5005.502 by revising paragraph (d) to read as follows:


Sec.  5001.502  Oversight and monitoring.

* * * * *
    (d) Access to the project. Until the loan note guarantee is 
terminated, the borrower must allow the lender and therefore the Agency 
access to the project and its performance information and permit 
periodic inspections of the project by an authorized representative of 
the lender or the Agency.

0
58. Amend Sec.  5005.505 by revising paragraphs (a), (b)(3) 
introductory text, (b)(3)(iii) to read as follows:


Sec.  5001.505  Collateral inspection and release.

* * * * *
    (a) Inspection of collateral. The lender must inspect the 
collateral as often as necessary to properly service the guaranteed 
loan.
    (b) * * *
    (3) Sale or release transaction. The sale or release of collateral 
must be based on an arm's length transaction, unless otherwise 
approved, in writing, by the Agency when the sale or release of 
collateral results in paying the guaranteed loan in full and 
termination of the loan note guarantee. There must be adequate 
consideration at market value for the release of collateral. Such 
consideration may include, but is not limited to:
* * * * *
    (iii) Application of the net proceeds from the sale of collateral 
to the borrower's guaranteed loan or to its business operation in such 
a manner that a significant improvement to the borrower's debt service 
ability will be clearly demonstrated. The lender's written request must 
detail how the borrower's debt service ability will be improved; and
* * * * *

0
59. Amend Sec.  5001.506 by revising paragraphs (e) and (k) to read as 
follows:


Sec.  5001.506  Loan transfers and assumptions

* * * * *
    (e) Loan agreement. A new loan agreement or an assumption 
agreement, acceptable to the Agency must be executed to establish the 
terms and conditions of the loan being assumed.
* * * * *
    (k) Appraisals. If the proposed transfer and assumption is for less 
than the full amount of the guaranteed loan, an appraisal is required 
on all the collateral being transferred, and the amount of the 
assumption must not be less than this appraised value. The lender is 
responsible for obtaining the appraisal, which must conform to the 
requirements of Sec.  5001.203 of this part. However, if the original 
appraisal is more than one year old, but less than two years old, the 
lender may provide an appraisal with a new effective date of evaluation 
in lieu of a completely new appraisal.
* * * * *

0
60. Amend Sec.  5001.507 by revising paragraphs (a)(3) and (d) to read 
as follows:


Sec.  5001.507  Lender transfer.

* * * * *
    (a) * * *
    (3) Agrees in writing to acquire title to the unguaranteed portion 
of the loan held by the original lender and assumes all original loan 
requirements, including liabilities and servicing responsibilities; and
* * * * *
    (d) In cases when there is a transfer to a new lender or when a 
lender has been merged with or acquired by another lender, the Agency 
and the new lender must execute a new lender's agreement, unless the 
new lender already has a valid lender's agreement with the Agency.
* * * * *

0
61. Amend Sec.  5001.510 by revising paragraph (b)(3) to read as 
follows:


Sec.  5001.510  Subordination of lien position.

* * * * *
    (b) * * *
    (3) Remaining collateral is sufficient to provide for adequate 
collateral coverage of the guaranteed loan after taking into account 
the lender's discount of collateral consistent with the lender's sound 
loan-to-discounted value practices and satisfactory justification of 
the discount used. The Agency may require a current independent 
appraisal in accordance with Sec.  5001.203. However, if the original 
appraisal is more than one year old, but less than two years old, the

[[Page 79728]]

lender may provide an appraisal with a new effective date of evaluation 
in lieu of a completely new appraisal;
* * * * *

0
62. Amend Sec.  5001.511 by revising paragraphs (b) introductory text, 
(c)(9) and (10) to read as follows:


Sec.  5001.511  Repurchase from holders.

* * * * *
    (b) Repurchase by lender for loan servicing purposes. If the 
lender, borrower, and holder are unable to agree to restructuring of 
loan repayment, interest rate, or loan terms to resolve any loan 
problem or resolve any default and repurchase of the guaranteed portion 
of the loan is necessary to adequately service the loan, the holder 
must reassign the guaranteed portion of the loan to the lender. The 
reassignment must be for an amount not less than the holder's unpaid 
principal and accrued interest, in accordance with Sec.  5001.450(c) of 
this part, on such portion less the lender's servicing fee.
* * * * *
    (c) * * *
    (9) Accelerated loan. When the lender has accelerated the loan and 
the lender holds all or a portion of the guaranteed loan, an estimated 
loss claim must be filed by the lender with the Agency within 60 
calendar days from the date the loan was accelerated. Accrued interest 
paid to the lender in accordance with Sec.  5001.450(c)(1).
    (10) Interest termination during bankruptcy. When a borrower files 
a Chapter 7 liquidation plan, the lender shall immediately notify the 
Agency and submit a liquidation plan. The Agency will establish an 
interest termination date based on the date interest was last paid to 
the lender. When a borrower files either a Chapter 9 or Chapter 11 
bankruptcy restructuring plan, the Agency and lender shall meet to 
discuss the bankruptcy procedure, the ability of the borrower to meet 
their restructuring plan, the lender's treatment of accruing interest, 
and potentially establish an interest termination date for the 
guaranteed loan. If the restructuring bankruptcy Chapter 9 or Chapter 
11 is converted to a liquidation bankruptcy Chapter 7 by court order, 
the interest termination date will be the date of such conversion.

0
63. Amend Sec.  5001.516 by revising paragraphs (c) and (d) to read as 
follows:


Sec.  5001.516  Protective advances.

* * * * *
    (c) A lender must obtain written Agency approval for any protective 
advance that will cumulatively amount to more than $200,000, or 10 
percent of the aggregate outstanding balance of principal and interest, 
whichever is less, to the same borrower. Payment of real estate taxes 
by the lender is not considered a protective advance and does not 
require Agency approval.
    (d) Protective advances constitute an indebtedness of the borrower 
to the lender and must be secured by collateral to the same extent as 
the original guaranteed loan. It is the lender's responsibility to 
ensure that any protective advances are secured by the collateral of 
the guaranteed loan.
* * * * *

0
64. Amend Sec.  5001.517 by revising paragraphs (c)(1), (c)(2), 
(c)(6)(i), (c)(10), (c)(11), (d), (e)(1)(i), and (f)(2) to read as 
follows:


Sec.  5001.517  Liquidation.

* * * * *
    (c) * * *
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan promissory note and related security 
instruments. Such proof may include copies of executed notes; and 
copies of mortgages or deeds of trust recorded in the appropriate 
jurisdiction;
    (2) A copy of the payment ledger, if available, or other 
documentation that reflects the current outstanding loan balance, 
accrued interest to date, and the method of computing the accrued 
interest. If the interest rate was a variable rate, the lender must 
include documentation of changes in the agreed upon base rate and when 
the changes in the loan rate became effective.
* * * * *
    (6) * * *
    (i) These values or estimates of the collateral must be obtained by 
the lender through an independent appraisal. If the outstanding balance 
of principal and interest is less than $250,000, the lender may, 
instead of an appraisal, obtain these values or estimates by using 
their primary regulator's policies relating to appraisals and 
evaluations or, if the lender is not regulated, normal banking 
practices and generally accepted methods of determining value. A copy 
of the appraisal or valuation will be provided to the Agency with the 
liquidation plan or as soon as it is available.
* * * * *
    (10) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense. These may 
include attorney, auctioneer, and other professional fees for services 
the lender will need to contract to maximize recovery on the loan. Cost 
could also include legal representation to protect Agency/lender joint 
interest in bankruptcy or receivership;
    (11) Estimated protective advance amounts with justification. 
Protective advances include, but are not limited to, advances made for 
taxes, annual assessments, ground rent, hazard and flood insurance 
premiums affecting the collateral, and other expenses necessary to 
protect the collateral. Protective advances may include advances 
necessary to maintain services or address unique situations with proper 
justification. If the lender has advanced funds without agency approval 
during the life of the loan, such expenditures or loans will not be 
guaranteed;
* * * * *
    (d) Partial liquidation plan. If actions are necessary to 
immediately preserve and protect the collateral, the lender may submit 
a partial liquidation plan and, when approved by the Agency, submit a 
complete liquidation plan prepared by the lender in accordance with 
paragraph (c) of this section.
    (e) * * *
    (1) * * *
    (i) Proceed expeditiously with liquidation. The lender must 
actively market the collateral for a reasonable period of time. If 
after this period of time the lender is unable to sell the collateral, 
then consideration should be given to submission of a final loss claim 
based on the fair market value of the collateral prior to its ultimate 
disposition;
* * * * *
    (f) * * *
    (2) The lender must provide the Agency a copy of the acceleration 
notice, or other acceleration document sent to the borrower.
* * * * *

0
65. Amend Sec.  5001.519 by revising paragraph (d)(2)(i) to read as 
follows:


Sec.  5001.519  Bankruptcy.

* * * * *
    (d) * * *
    (2) * * *
    (i) The lender must request a bankruptcy loss payment of the 
guaranteed portion of the accrued interest and principal discharged by 
the court for all bankruptcies when all or a portion of the debt has 
been discharged. Unless a final court decree approves a subsequent 
change to the bankruptcy plan that is adverse to the lender, only one 
bankruptcy loss payment is allowed during the bankruptcy. Once a final 
court decree has discharged all or part of the guaranteed loan and any 
appeal period has run, the lender must submit

[[Page 79729]]

the documentation necessary for the Agency to review and adjust the 
bankruptcy loss claim to reflect any actual discharge of principal and 
interest.
* * * * *

0
66. Amend Sec.  5001.521 by revising paragraphs (d)(2), (e)(3), (e)(4), 
and (e)(8)(iii) to read as follows:


Sec.  5001.521  Loss calculations and payment.

* * * * *
    (d) * * *
    (2) Non-compliance with the requirements of Sec.  5001.205(a) or 
Sec.  5001.305(a) will result in a reduction of loss claims payable. 
The Agency's review of the non-compliance could result in a total 
reduction of the loss claim payable. The Agency's review of the non-
compliance could result in a total reduction of the loss claim payable. 
The lender must ensure during loan making and project development that 
the project is designed utilizing accepted architectural and 
engineering practices and conforms to applicable Federal requirements 
including the seismic requirements of Executive Order 12699 (55 FR 835, 
January 5, 1990), State and local codes and requirements, and facility 
plans or plans and specifications reviewed and approved by the 
applicable State regulatory agency. The lender must also ensure that 
the planned project will be completed within the available funds and 
once completed, will be suitable for the borrower's needs.
* * * * *
    (e) * * *
    (3) Audit. Upon receipt of the final accounting and report of loss, 
the Agency may audit all applicable documentation to determine the 
final loss. The lender must make its records available to and otherwise 
assist the Agency in making any investigation or audit of the report of 
loss. The documentation accompanying the report of loss must support 
the amounts reported. The Agency must be satisfied that the lender has 
maximized the collections in conducting the liquidation.
    (4) Guarantees. The lender must determine the collectability of 
unsecured personal and corporate guarantees required in accordance with 
Sec.  5001.204 of this part. The lender must promptly collect or 
otherwise dispose of such guarantees prior to completion of the final 
loss report. However, if collection from the guarantors appears 
unlikely or will require a prolonged period of time, the lender must 
file the report of loss when all other collateral has been liquidated. 
Unsecured personal or corporate guarantees outstanding at the time of 
the submission of the final report of loss will be treated as a future 
recovery with the net proceeds to be shared on a pro rata basis by the 
lender and the Agency.
* * * * *
    (8) * * *
    (iii) If a restructuring of a guaranteed loan includes the 
capitalization of interest, the guarantee will not cover the interest 
accrued on the capitalized interest.
* * * * *

Basil I. Gooden,
Under Secretary, Rural Development.
[FR Doc. 2024-21920 Filed 9-27-24; 8:45 am]
BILLING CODE 3410-15-P


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