[Federal Register Volume 75, Number 103 (Friday, May 28, 2010)]
[Rules and Regulations]
[Pages 30114-30158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11931]



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Part II





Department of Agriculture





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Rural Business-Cooperative Service



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7 CFR Part 4280



Rural Microentrepreneur Assistance Program; Interim Final Rule

Federal Register / Vol. 75 , No. 103 / Friday, May 28, 2010 / Rules 
and Regulations

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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

7 CFR Part 4280

RIN 0570-AA71


Rural Microentrepreneur Assistance Program

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Interim rule with request for comments.

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SUMMARY: This interim rule establishes the Rural Microentrepreneur 
Assistance Program. This interim rule provides technical and financial 
assistance in the form of loans and grants to qualified Microenterprise 
Development Organizations (MDOs) to support microentrepreneurs in the 
development and ongoing success of rural microenterprises.

DATES: This interim rule is effective June 28, 2010. Comments must be 
received on or before July 27, 2010.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
    <bullet> Hand Delivery/Courier: Submit written comments via 
commercial mail delivery or other courier service requiring a street 
address to the Branch Chief, Regulations and Paperwork Management 
Branch, U.S. Department of Agriculture, 300 7th Street, SW., 7th Floor, 
Washington, DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Lori Washington, Loan Specialist, 
Business Programs, Specialty Programs Division, USDA, Rural 
Development, Rural Business-Cooperative Service, Room 6868, South 
Agricultural Building, Stop 3225, 1400 Independence Avenue, SW., 
Washington, DC 20250-3225; Telephone: (202) 720-9815, E-mail: 
<a href="/cdn-cgi/l/email-protection#066a69746f287167756e6f686172696846716265287375626728616970"><span class="__cf_email__" data-cfemail="d7bbb8a5bef9a0b6a4bfbeb9b0a3b8b997a0b3b4f9a2a4b3b6f9b0b8a1">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This interim rule has been determined to be significant and has 
been reviewed by the Office Management and Budget in conformance with 
Executive Order 12866. The Agency conducted a qualitative benefit cost 
analysis to fulfill the requirements of Executive Order 12866. Based on 
the results of this qualitative analysis, the Agency has identified 
potential benefits to prospective program participants and the Agency 
that are associated with improving the availability of microlevel 
business capital, business-based training and technical assistance, and 
enhancing the ability of microlenders to service the microentrepreneurs 
to whom they are making their microloans.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act 1995 (UMRA), Public 
Law 104-4 establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, 
Rural Development generally must prepare a written statement, including 
a cost-benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or tribal 
governments, in the aggregate, or to the private sector of $100 million 
or more in any one year. With certain exception, section 205 of UMRA 
requires Rural Development to identify and consider a reasonable number 
of regulatory alternatives and adopt the least costly, more cost-
effective, or least burdensome alternative that achieves the objectives 
of the rule. This interim rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, and 
tribal governments or the private sector. Participation in this program 
is voluntary. Thus, this rule is not subject to the requirements of 
sections 202 and 205 of the UMRA.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' Rural Development has determined 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and in 
accordance with the National Environmental Policy Act (NEPA) of 1969, 
42 U.S.C. 4321 et seq., an Environmental Impact Statement is not 
required.

Executive Order 12988, Civil Justice Reform

    This interim rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. In accordance with this rule:
    (1) All State and local laws and regulations that are in conflict 
with this rule will be preempted;
    (2) No retroactive effect will be given this rule; and
    (3) Administrative proceedings in accordance with the regulations 
of the Department of Agriculture National Appeals Division (7 CFR part 
11) must be exhausted before bringing suit in court challenging action 
taken under this rule unless those regulations specifically allow 
bringing suit at an earlier time.

Executive Order 13132, Federalism

    It has been determined, under Executive Order 13132, Federalism, 
that this interim rule does not have sufficient federalism implications 
to warrant the preparation of a Federal Assessment. The provisions 
contain in the interim rule will not have a substantial direct effect 
on States or their political subdivisions or on the distribution of 
power and responsibilities among the various government levels.

Regulatory Flexibility Act

    This interim rule has been reviewed with regard to the requirements 
of the Regulatory Flexibility Act (5 U.S.C 601-612). Rural Development 
has determined that this action will not have a significant economic 
impact on a substantial number of small entities for the reasons 
discussed below. While, the majority of MDOs expected to participate in 
this Program will be small businesses, the average cost to an MDO is 
estimated to be approximately 1 percent of the total mandatory funding 
available to the program in fiscal years 2009 through 2012. Further, 
this regulation only affects MDOs that choose to participate in the 
program.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This program is subject to Executive Order 12372, which requires 
intergovernmental consultation with State and local officials. 
Intergovernmental consultation will occur for the assistance to MDOs in 
accordance with the process and procedures outlined in 7 CFR part 3015, 
subpart V. Assistance to rural microenterprises will not require 
intergovernmental review.
    Rural Development will conduct intergovernmental consultation using 
RD Instruction 1940-J, ``Intergovernmental Review of Rural Development 
Programs and Activities,''

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available in any Rural Development office, on the Internet at http://www.rurdev.usda.gov/regs and in 7 CFR part 3015, subpart V. Note that 
not all States have chosen to participate in the intergovernmental 
review process. A list of participating States is available at the 
following Web site: http://www.whitehouse.gov/omb/grants/spoc.html.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on Rural Development in 
the development of regulatory policies that have tribal implications or 
preempt tribal laws. Rural Development has determined that the proposed 
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 the Indian 
tribes. Thus, this interim rule is not subject to the requirements of 
Executive Order 13175.

Programs Affected

    The Catalog of Federal Domestic Assistance Program numbers assigned 
to this program is 10.870.

Paperwork Reduction Act

    Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 
35; see 5 CFR part 1320), the information collection provisions 
associated with this interim rule have been submitted to the Office of 
Management and Budget (OMB) for approval as a new collection and 
assigned OMB number 0570-XXXX. In the publication of the proposed rule 
on October 7, 2009, the Agency solicited comments on the estimated 
burden. The Agency received no public comment letters in response to 
this solicitation. This information collection requirement will not 
become effective until approved by OMB. Upon approval of this 
information collection, the Agency will publish a notice in the Federal 
Register.
    Title: Rural Microentrepreneur Assistance Program.
    OMB Number: 0570-XXXX (assigned).
    Type of Request: New collection.
    Expiration Date: Three years from the date of approval.
    Abstract: The collection of information is vital to Rural 
Development to make decisions regarding the eligibility of projects and 
loan and grant recipients in order to ensure compliance with the 
regulations and to ensure that the funds obtained from the Government 
are being used for the purposes for which they were awarded. 
Microenterprise development organizations seeking funding under this 
program will have to submit applications that include specified 
information, certifications, and agreements as stated in the interim 
rule.
    The estimated information collection burden has decreased by 
approximately $38,500, from $275,844 estimated for the proposed rule to 
$237,339 estimated for the interim rule. The majority of this decrease 
is attributable to removing enhancement grants from the interim rule. 
This change was made in response to public comment, but will be re-
evaluated by the Agency upon receipt of public comment on enhancement 
grants after the interim rule is published.

E-Government Act Compliance

    USDA is committed to complying with the E-Government Act of 2002 
(Pub. L. 107-347, December 17, 2002), to promote the use of the 
Internet and other information technologies to provide increased 
opportunities for citizen access to government information and 
services, and for other purposes.

I. Background

    Title VI, Section 6022 of the Food, Conservation, and Energy Act of 
2008 (Pub. L. 110-246, June 18, 2008) (the Act) established the Rural 
Microentrepreneur Assistance Program (RMAP). This interim rule 
implements the program to make loans and grants to microenterprise 
development organizations (MDOs) to support microentrepreneurs in the 
development and ongoing success of rural microenterprises.
    Under this program, the Agency will make available to MDOs direct 
loans and grants. As provided in the Act, MDOs that qualify for direct 
loans (participating microlenders) will use the funds borrowed from the 
Agency to make fixed interest rate microloans of not more than $50,000 
at a term not to exceed 20 years to microentrepreneurs for startup and 
growing rural microenterprises.
    The Agency will also make available technical assistance (TA) 
grants for microlenders and technical assistance only (TA-only) grants 
for entities that provide training and technical assistance to 
microentrepreneurs and microenterprises but do not wish to fund 
microloans under this program. The TA grants will be annual grants made 
to participating microlenders to provide business based training and 
technical assistance to microentrepreneurs that have received or are 
seeking a microloan from a microlender under this program.
    TA-only grants will also be made available, on a limited basis, to 
MDOs that are not participating in the program as microlenders.

II. Discussion of the Interim Rule

    USDA Rural Development is issuing this regulation as an interim 
rule, with an effective date of June 28, 2010. All provisions of this 
regulation are adopted on an interim final basis, are subject to a 60-
day comment period, and will remain in effect until the Agency adopts a 
final rule.

III. Changes to the Rule

    This section presents changes from the proposed rule. Most of the 
changes were the result of the Agency's consideration of public 
comments on the proposed rule. Some changes, however, are being made to 
clarify proposed provisions. Unless otherwise indicated, rule citations 
refer to those in this interim rule.

A. Highlighted Changes

    The following list highlights some of the changes made to the rule. 
These changes are also discussed in the section specific change portion 
that follows this list. All changes resulting from public comments are 
explained in detail in that portion of the preamble.
    <bullet> Creation of a technical assistance only grant program for 
non-lending MDOs.
    <bullet> Deferral of the enhancement grant category.
    <bullet> Increasing the maximum size of technical assistance 
grants.
    <bullet> Implementation of a simplified interest rate structure.
    <bullet> Removing the maximum margin requirement on loans made by 
the microlender to the microentrepreneur.
    <bullet> Implementation of a minimum score for qualification as a 
microlender or grantee.
    <bullet> Adjusting the cost share and matching requirements, 
including limiting the cost share requirement to loans and the matching 
requirement to grants.
    <bullet> Allowing microlenders two cost share options for 
establishing the rural microloan revolving fund.

B. Section-Specific Changes

Purpose and Scope (Sec.  4280.301)
    There were two primary changes to this section:
    First. The Agency added discussion concerning the availability of 
technical assistance-only grants as one of the types of funding to be 
available under the program (Sec.  4280.301(a)(4) and (d)).
    Second. The Agency clarified that participating microlenders can 
use the

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TA grants to provide technical assistance not only to 
microentrepreneurs who have actually received a loan from the 
microlender, but also to microentrepreneurs who are seeking a loan from 
the microlender (Sec.  4280.301(a)(2)).
    As the purpose of this Program is to support the development and 
ongoing success of rural microentrepreneurs and microenterprises, 
microentrepreneurs are encouraged to contact the Agency for a list of 
MDOs in or near their geographic area that are participating in this 
Program.
Definitions and Abbreviations (Sec.  4280.302)
    The Agency made changes to the definitions section of the rule, 
including adding several new definitions. Except for terms in which the 
changes were grammatical, the following identify each affected term.
    Agency personnel. Because no Agency personnel are eligible for a 
microloan under the interim rule, revised by removing the last clause 
(``who are more than 6 months from separating from the Agency'') 
because it is no longer necessary.
    Close relative. Added to clarify the implementation of Sec.  
4280.323(d) concerning the restrictions on the use of loan funds.
    Default. Has been simplified for purposes of clarity.
    Eligible project cost. Has been added as part of the implementation 
of the cost share requirement.
    Facilitation of access to capital. To clarify this term, the words 
``access to'' have been added.
    Fiscal year. Added the word ``Federal'' for clarity.
    Indian tribal government employee. Has been removed as a conforming 
change.
    Loan loss reserve fund. Revised by removing text not associated 
with the definition of the term, but which was also covered elsewhere 
within the rule.
    Microborrower. Added for clarification in implementing the rule.
    Microentrepreneur. Revised to clarify that both the 
microentrepreneur and the microenterprise to be assisted under the 
program must be located in a rural area. In addition, the phrase 
``business financing'' was replaced with ``business capital.'' Lastly, 
a sentence was added to note that a microentrepreneur who has received 
a loan under this program may also be referred to as a microborrower 
within the rule.
    Military personnel. Revised to add the words ``or grade'' after the 
word ``rank''; ``United States'' after the word ``active''; ``active 
duty'' after the word ``their''; and to remove to the word 
``enlisted''.
    Nonprofit entity. Has been simplified and reference to the ``U.S. 
Internal Revenue Service'' has been removed.
    Rural microenterprise. Revised the term to ``microenterprise'' and 
expanded the definition for clarity.
    Rural microloan revolving fund. Revised for clarity.
    Significant outmigration. Removed because the term is not used in 
the interim rule for the reasons discussed in the responses to 
comments.
    State. Added to clarify the applicability of the program.
Review of Appeal Rights and Administrative Concerns (Sec.  4280.304)
    In paragraph (a), the words ``a microlender, or grantee MDO'' were 
added after the word ``MDO'' to clarify the applicability of this 
paragraph.
Nondiscrimination and Compliance With Other Federal Laws (Sec.  
4280.305)
    In paragraph (a), ``Applicant'' was replaced with ``Any entity 
receiving funds under this subpart'' to clarify the applicability of 
this paragraph.
Forms, Regulations, and Instructions (Sec.  4280.306)
    This section has been added to identify where applicants can access 
forms, regulations, and instructions noted within the subpart.
Program Requirements for MDOs (Sec.  4280.310)
    This section has been revised and redesignated. The substantive 
changes are described below:
    First. The citizenship requirements have been clarified to apply 
only to non-profit entities (paragraph (a)(2)), not American Indian 
tribes or United States public institutions of higher education.
    Second. In addition to moving the requirements specific to 
potential microlenders into paragraph (a)(4), the Agency has added a 
new provision (paragraph (a)(4)(ii)) regarding obtaining an attorney's 
opinion regarding the microlender's legal status and its ability to 
enter into program transactions at the time of initial entry into the 
program.
    Third. A minimum score threshold has been added for MDOs to be 
considered for receiving an award under this subpart (paragraph (b)). 
Generally, applicants must receive at least 70 points out of 100 in 
order to be eligible to receive an award under the program.
    Fourth. The Agency removed ``is delinquent in meeting U.S. Internal 
Revenue Service (IRS) requirements'' from the list of provisions 
identifying ineligible applicants.
Loan Provisions for Agency Loans to Microlenders (Sec.  4280.311)
    A number of changes have been made to this section, including 
grammatical changes and redesignation of paragraphs. The substantive 
changes are described below:
    First. The Agency revised the provisions associated with the cost 
share requirements by applying them only to loans and identifying two 
options for how microlenders can establish Rural Microloan Revolving 
Funds (RMRFs). The provisions also allow microlenders the option of 
setting up multiple RMRFs (paragraph d)). Because of this revision, a 
conforming change was made to paragraph (c) to refer to ``RMRF'' funds 
instead of ``Agency loan'' funds.
    Second. The provisions concerning the term of a loan have been 
recast to state that a term shorter than 20 years will be considered if 
requested by the applicant MDO and must be agreed to by the microlender 
and the Agency (paragraph (e)(3)).
    Third. The number of days loan closing must take place has been 
revised to within 90 days, rather than 60 days as proposed, before 
funds would be forfeited (paragraph (e)(8)).
    Fourth. Revised the number of day microlenders have to make at 
least one microloan from within 30 days to within 60 days of 
disbursement (paragraph (e)(10)). Further, failure to make a microloan 
within this time period may result in the microlender not receiving any 
additional funds from the Agency and may result in the Agency demanding 
return of any funds already disbursed to the microlender.
    Fifth. Revised substantially the interest rate provisions. In the 
interim rule, each microloan made to a microlender during the first 
five years of participation will bear an interest rate of 2 percent and 
each loan made to the microlender after the fifth year of participation 
will bear an interest rate of 1 percent (paragraph (e)(12)).
    Sixth. Revised several dates in the section, including the date 
when the Agency will calculate and amortize the microlender's debt 
after the deferral period (e.g., (paragraph (e)(13)).
    Seventh. Removed the provisions associated with negative 
amortization and reamortization (proposed Sec.  4280.311(d)(15)(i) and 
(ii)).
    Eighth. Modified the rule to indicate that loans can be used to 
recapitalize existing Agency funded RMRFs (paragraph (f)(2)).
    Ninth. Added a provision to provide microlenders 30 days to 
replenish the loan loss reserve fund (LLRF) if it falls

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below the required amount (paragraph (g)(2)(i)).
    Tenth. Removed the phrase ``and partially funded'' in paragraph 
(g)(4).
    Eleventh. Added a conforming change to the requirement for 
maintaining a minimum 100 percent of the amount owed by the microlender 
to the Agency for those microlenders with 3 years or less experience 
(paragraph (h)(2)).
    Twelfth. Added a provision requiring microlenders to provide Agency 
access to any of the microlender's records pertaining to any microloan 
made to the microlender under this program. This was added to enable 
the Agency to better enforce the provision of this program (paragraph 
(h)(7)).
    Thirteenth. Added a provision requiring prior written Agency 
approval before the microlender makes any key personnel changes 
(paragraph (h)(8)).
Loan Approval and Closing (Sec.  4280.312)
    This section has been added and is comprised of proposed Sec.  
4280.311(g) and (h) for clarity. Changes to these paragraphs are:
    <bullet> The promissory note and security agreement have been added 
to the list of items that may be used to demonstrate that the RMRF and 
LLRF have been established and the LLRF has been, or will be, funded as 
described in Sec.  4280.11(f)(4) prior to loan closing (paragraph 
(c)(1)).
    <bullet> This section has been clarified to explain what 
constitutes ``sufficient evidence'' to demonstrate that no law suits 
are pending or threatened that would adversely affect the security of 
the microlender when the security instruments are filed (paragraph 
(c)(3)).
Grant Provisions (Sec.  4280.313)
    This section has been redesignated (proposed Sec.  4280.312) and a 
number of changes have been made, including grammatical changes and 
reordering of paragraphs. The substantive changes are described below:
    First. The calculation of the maximum TA grant amount has been 
revised such that the maximum annual TA grant to any one microlender 
could be $205,000 (paragraphs (a)(1)(i) and (b)(2)). The maximum TA 
grant amount for a microlender is now calculated as 25 percent of the 
first $400,000 of outstanding microloans owed to the microlender under 
this program, plus an additional 5 percent of the outstanding loan 
amount owed by the microborrowers to the lender over $400,000 up to and 
including $2.5 million.
    Second. The addition of provisions that a microlender who expends 
more than 10 percent of its TA grant funding on administrative expenses 
will be considered in performance default and may have to forfeit 
funding (paragraph (b)(3)(iii)).
    Third. Provisions have been added to address funding of the TA-only 
grants (paragraphs (a)(1)(ii) and (c)).
    Fourth. The matching requirements have been revised (paragraph 
(a)(2)).
    Fifth. The Agency added a provision requiring prior written Agency 
approval before the microlender makes any key personnel additions 
(paragraph (a)(5)).
    Sixth. The grant oversight provisions were moved from this section 
and consolidated with those in Sec.  4280.320.
MDO Application and Submission Information (Sec.  4280.315)
    Most of the changes to the section reflect a reorganization of the 
provisions found in the proposed rule. Substantive changes include:
    <bullet> Redefining less experienced MDOs as those with 3 years or 
less experience, rather than less than 3 years experience, and 
redefining more experienced MDOs as those with more than 3 year 
experience, rather than 3 or more years experience;
    <bullet> Requiring certificates of good standing to be not more 
than 6 months old;
    <bullet> Adding documentation requirements for TA-only grant 
applications;
    <bullet> Requiring documentation that the applicant has certified 
to the Agency that it cannot find credit elsewhere (pursuant to the 
requirements as provided in the Consolidated Farm and Rural Development 
Act (Sec. 333(1));
    <bullet> Revising and simplifying the requirement associated with 
separate applications to indicate that MDOs may only submit and have 
pending for consideration, at any given time, one application, 
regardless of funding category; and
    <bullet> Requiring all applicants seeking status as a microlender 
to identify which cost share option(s) they will use to set up their 
RMRF(s) and the amount(s) and source(s) of the non-Federal share.
Application Scoring (Sec.  4280.316)
    A number of changes have been made to this section, including 
grammatical changes, redesignation of paragraphs, and clarification as 
to whether the information to be submitted applied to rural or non-
rural microentrepreneurs and microenterprises, or both, and to 
microloans or loans or the microlenders entire portfolio. The 
substantive changes are described below:
    The Agency notes that, except for applications from microlenders 
with more than 5 years experience with this program:
    1. The maximum number of points that each application can receive 
is 100;
    2. Each application will be scored against the criteria specified 
in Sec.  4280.316(a) for which it can receive a maximum of 45 points;
    3. Each application will be scored against the criteria specified 
in Sec.  4280.316(b), (c), or (d), as applicable, for which it can 
receive a maximum of 55 points; and
    4. An application must receive at least 70 points in order to be 
eligible.
    Applications from lenders with more than 5 years experience in this 
program will be scored on a pass/fail basis. Those applications that 
pass will be assigned a score of 90 points.
    Figure 1 illustrates the RMAP scoring process.

Application Requirements for All Applicants (Sec.  4280.316(a))

BILLING CODE 3410-XY-P

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[GRAPHIC] [TIFF OMITTED] TR28MY10.002

BILLING CODE 3410-XY-C

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    Changes to these application requirements are mostly editorial in 
nature; there were no changes in the basic scoring criteria or points 
to be awarded. Substantive changes included:
    <bullet> Indicating that there should be a corresponding resume for 
each of the key individuals noted and named on the organizational 
chart;
    <bullet> Noting that the mission statement does not need to be 
submitted twice if it is already included in other submitted documents; 
and
    <bullet> Deleting ``as well as the needs of the service area'' and 
reference to areas of significant outmigration from the scoring 
criterion addressing information regarding the geographic area to be 
served.

Program Loan Application Requirements for MDOs Seeking To Participate 
as RMAP Microlenders With More Than 3 Years of Experience (Sec.  
4280.316(b))

    There were several important changes associated with the scoring 
criteria for these applications, including:
    <bullet> Removing reference to demographic group and replacing that 
term with reference to racial and ethnic minorities, women, and the 
disabled in Figure 1;
    <bullet> Replacing reference to the U.S. Census Bureau with the 
``applicable decennial census for the State'' (paragraph (b)(1)(v));
    <bullet> Replacing ``race, ethnicity, and socio-economic status'' 
with ``racial and ethnic minority status'' and indicating that 
disability will be defined as under The Americans with Disabilities Act 
under the scoring criterion for diversity (paragraph (b)(1)(v));
    <bullet> Replacing ``percentage points'' with ``percent'' 
(paragraph (b)(1)(v));
    <bullet> Removing the scoring criterion for outmigration and adding 
``non-rural'' to the total number of microentrepreneurs that received 
both microloans and TA services in the scoring criterion for history of 
provision of technical assistance to microentrepreneurs (paragraph 
(b)(3));
    <bullet> Removing ``socially-disadvantaged'' and clarifying that 
the percentage of rural entrepreneurs that received both microloans and 
TA services will be broken down by racial and ethnic minority, 
disabled, and gender in paragraph (b)(3)(iii); and
    <bullet> Adding a new scoring criterion on the ratio of TA clients 
that also received microloans during each of the last three years 
(paragraph (b)(4)).
    With the removal of outmigration as a scoring criterion for loans 
and the addition of the new scoring criterion, the points associated 
with most of the criteria also changed.

Application Requirements for MDOs Seeking To Participate as RMAP 
Microlenders With 3 Years or Less Experience (Sec.  4280.316(c))

    There are no significant substantive changes to the scoring 
criteria for these applications other than a redistribution of points.

Application Requirements for MDOs Seeking Technical Assistance-Only 
Grants (Sec.  4280.316(d))

    This is a completely new set of scoring criteria required by the 
addition to the interim rule of providing technical assistance grants 
to MDOs that are otherwise not participating as a microlender. The 
criteria included address: History of provision of technical assistance 
to microentrepreneurs, ability to provide technical assistance to 
microentrepreneurs, technical assistance plan, and proposed 
administrative expenses to be spent from TA grant funds.

Re-Application Requirements for Participating Microlenders With More 
Than 5 Years Experience as a Microlender Under This Program (Sec.  
4280.316(e))

    The substantive changes to this section were to:
    <bullet> Replace ``the number of businesses'' with ``the number and 
percent of program microentrepreneurs and microenterprises'' and 
replace ``after loan repayment'' with ``after microloan disbursement'' 
in paragraph (e)(1)(iii);
    <bullet> Add to paragraph (e)(2) ``over the life of its 
participation in the program'' to indicate the appropriate timeframe 
that data are to be reported;
    <bullet> Provide better guidance on requirements for assessing 
overall program performance with regards to the successful use of TA 
dollars (paragraph (e)(2)(iii));
    <bullet> Replaced proposed Sec.  4280.316(e)(2)(iv), because it is 
duplicative of Sec.  4280.316(e)(1)(iii), with a request for a 
statement discussing the need for more funding; and
    <bullet> Removing proposed Sec.  4280.316(e)(2)(vi) regarding other 
such issues as deemed appropriate.
Selection of Applications for Funding (Sec.  4280.317)
    A few changes have been made to this section as briefly described 
below:
    <bullet> The introductory text is revised to clarify that all 
applications will be scored on a 100-point scale and will be ranked 
together and to allow the Administrator to prioritize applications that 
score the same for geographic diversity. This latter provision is added 
in order to facilitate the distribution of limited program funds 
throughout rural America, because the Agency does not want program 
funds to be concentrated in a few states.
    <bullet> Provisions for application packages have been added 
(paragraph (a)(1)).
    <bullet> Provisions associated with internal procedures were 
removed (proposed Sec.  4280.317(c) and (d)).
    <bullet> Clarification that awardees have 90 days to close or 
forfeit their funding (paragraph (d)).
Grant Administration (Sec.  4280.320)
    The changes made to this section addressed presentation of the 
requirements and updating and revising the forms to be submitted. This 
section now also states that if a microlender has more than one grant 
from the Agency, a separate report must be made for each.
Loans From the Microlenders to the Microentrepreneurs and 
Microenterprises (Sec.  4280.322)
    A number of changes have been made to this section, including 
grammatical changes and reordering of paragraphs. The substantive 
changes are described below:
    <bullet> The provision limiting the margin of the interest rate on 
the loan made to the microborrower has been deleted. Instead, the 
microlender may establish its margin of earnings but may not adjust the 
margin so as to violate Fair Credit Lending laws. In addition, margins 
must be reasonable so as to ensure that microloans are affordable to 
the microborrowers (paragraph (b)(3)).
    <bullet> The provisions in Sec.  4280.322(c) concerning insurance 
requirements have been revised by removing ``except that * * * 
excessive.''
    <bullet> The requirement that a microborrower has been turned down 
has been removed and replaced with more appropriate options for meeting 
the test that have a lesser impact on the microborrower's ability to 
build a favorable credit history. (paragraph (d)), In the introductory 
text of paragraph (f), the rule clarifies that Agency loan funds may be 
used for any legal business purpose provided it is not identified in 
Sec.  4280.323 as ineligible.
    <bullet> The rule includes clarification on the eligibility of 
military personnel for funding under the program (paragraph (g)). The 
rule also clarifies that Indian Tribal government employees will be 
treated as any other MDO employee regarding eligibility for a 
microloan.
Ineligible Microloan Purposes (Sec.  4280.323)
    A few changes have been made to this section:

[[Page 30120]]

    <bullet> Reference to ``his/her family members'' has been removed 
(paragraph (d));
    <bullet> The paragraph on military personnel has been moved to 
Sec.  4280.322;
    <bullet> Reference to swimming pools has been removed from 
(paragraph (l);
    <bullet> Proposed paragraphs (o) and (p) have been removed; and
    <bullet> Lines of credit and subordinated liens were added as an 
ineligible purpose (paragraphs (n) and (o)).

IV. Discussion of Comments

    The proposed rule was published in the Federal Register on October 
7, 2009 (74 FR 51713), with a 45-day comment period that ended November 
23, 2009. Comments were received from 48 commenters yielding over 450 
individual comments on the proposed rule, which have been grouped into 
similar categories. Commenters included members of Congress, Rural 
Development personnel, microenterprise development organizations, trade 
associations, states, universities, environmental organizations, and 
individuals. As a result of some of the comments, the Agency made 
changes in the rule. The Agency sincerely appreciates the time and 
effort of all commenters. Responses to the comments on the proposed 
rule are discussed below.

General

    Comment: Several commenters provided general support for the 
program, and positive discussion of other microenterprise development 
activities and programs to address rural need.
    One commenter provided general support for the program's efforts to 
build the capacity of the microenterprise development industry to 
achieve new levels of performance and effectiveness. Due to tightened 
credit markets as a result of the recession, microlenders face 
increased demands to provide capital and technical assistance to both 
start-ups and existing microentrepreneurs.
    Several commenters stated that they strongly support this 
commenter's comments on the proposed rule.
    Response: The Agency appreciates the support for the program 
reflected by the commenters, acknowledges the microenterprise 
development work that has produced positive activity both in the United 
States and abroad for several decades, and looks forward to formalizing 
the Agency's participation in this economic development sector.
    Comment: One commenter stated that they believe RMAP will do much 
good in reversing the economic and financial crisis in rural 
communities. With many rural areas underserved or not served at all by 
MDOs, the Agency should be doing all it can to recruit as many 
qualified organizations as possible to become engaged in rural training 
and microentrepreneur lending. The proposed rule's scoring should 
encourage the effort to build MDO networks to serve these communities 
with as many organizations with the necessary expertise as possible.
    Response: The Agency acknowledges the commenter's support.
Funding Allocations
    Comment: Four commenters stated that the terms of the proposed rule 
make it difficult to determine how USDA will make decisions on 
applications that seek funding from different components (the so-called 
``enhancement grants'' and the loans/TA grants) without stating how 
much of available funding goes to each component. The commenters 
recommended that the final rule should contain information concerning 
program funding, including the subsidy rate that will be used to 
calculate the RMAP loan program level and legislative intent in the 
USDA FY 2010 appropriations bill. If this information is unattainable 
or otherwise not available, the commenter recommended that all RMAP 
dollars not previously identified by Congress as loan subsidy dollars 
be used to provide TA training grants to MDOs.
    Response: The Agency considered a standard division among the 
program components and determined that such a balance should be 
adjustable in future years based on market demands and conditions. 
Therefore, the Agency has not included program funding in the rule with 
one exception. As noted later in this preamble, the Agency plans to use 
up to 10 percent of program funding each year for technical assistance 
only grants for MDOs that are not otherwise participating in the 
program. The Agency will publish program levels annually in a Notice of 
Funding Availability (NOFA).
Existing MDO Emphasis
    Comment: Several commenters were concerned that the proposed rule 
applies exclusively to existing MDOs, especially those heavily involved 
in lending. The commenters stated that one of the purposes of the law 
is to build and enhance microenterprise services in rural areas, 
particularly remote rural areas and believe the application and scoring 
emphasis on MDO history (particularly an MDO's lending history) implies 
funding only for existing MDOs, and the ``enhancement grants'' 
provision (of the proposed rule) is defined in terms of 
``microlenders'' and ``projects'' and activities that enhance the 
microlenders' capabilities, implying that funds will go exclusively for 
existing MDOs involved in lending. According to the commenters, this 
upsets the intended balance in RMAP between training, technical 
assistance (not connected to loans to MDOs) and lending, and between 
existing MDOs and developing a network of MDOs in unserved and 
underserved rural areas. The commenters suggested that the final rule 
restore the intended balance in both respects.
    Response: With regard to the comment concerning training and 
technical assistance, the Agency agrees that microlenders who are not 
participating in RMAP as lenders should have access to technical 
assistance grants in order to provide such assistance to rural 
microentrepreneurs. Thus, the Agency has included in the rule Sec.  
4280.301 provisions for MDOs who are otherwise not participating in the 
program to be eligible to receive technical assistance grants.
    With regard to the comment concerning existing MDOs and developing 
a network of MDOs, the Agency disagrees with the commenters that the 
rule does not address both. As provided in both the proposed rule and 
this interim rule, MDOs with less than 3 years experience are eligible 
to compete for program funds. Thus, this would allow for developing a 
network of MDOs. However, to further meet the need for developing a 
network, the Agency is requesting that comments and suggestions 
regarding the delivery of an enhancement grant program be submitted 
(see Section V of this preamble).
Administrative Management
    Comment: One commenter expressed concern that the interest rate 
criteria specified were too complex for the current automated systems 
to monitor or effectively manage.
    Response: During the development of the regulation, the program 
area has been engaged in system requirements discussions with Agency 
information technology staff. The Agency anticipates that, by the time 
the first applications are received, systems (the Rural Utilities Loan 
Servicing System (RULSS)) will be ready to accommodate the interest 
rate provisions in the rule.
    Comment: One commenter stated that the program should be aligned 
with existing Rural Development programs and administrative 
capabilities. The

[[Page 30121]]

commenter believes that the Administrative requirements overall are too 
complex to manage within existing Agency systems and substantially out 
of sync with other Agency programs to be cost-effective to the taxpayer 
for management. According to the commenter, the proposed rule must 
align payment and deferral options with the Intermediary Relending 
Program (IRP) in order to be cost-effective.
    Response: The Agency disagrees with the commenter's 
characterization of the proposed RMAP regulation. The Agency is in the 
process of placing its administrative systems under RULSS. RMAP will be 
aligned with other similar programs to leverage electronic reporting 
resources with the objective of improved information-gathering and more 
efficient program management. The RMAP program will begin the program 
area's move to newer, more flexible, more responsive administration of 
the program. This is expected to result in improved electronic 
reporting, less paper-based program administration, and mitigation of 
duplicative or unnecessary work, thereby allowing RMAP to be 
implemented efficiently.
    Furthermore, RMAP is different from the IRP and, thus, certain 
provisions will not align intentionally with the IRP. Finally, the 
Agency believes that the RMAP provisions are very similar to other 
existing Federal microenterprise programs and the participating 
entities will understand the provisions contained in RMAP.
    Comment: One commenter believes that the rule as proposed could 
cause issues with Office of the Inspector General (OIG) audits.
    Response: The Agency believes that OIG audits are helpful in terms 
of suggesting program improvements. It further believes that programs 
that are efficiently and effectively managed will have few negative 
comments as the result of such audits.
Micromanagement
    Comment: One commenter stated that as proposed there is too much 
micro-management in the program, especially if the MDO is applying for 
the minimum loan amount of $50,000. According to the commenter, the 
reporting burden is too great to make it worth their while.
    Response: Reporting requirements for this program have been kept to 
a minimum as a result of instituting an electronic reporting system. 
Reporting is flexible, automated, and easily accessed by lenders, 
grantees, and agency personnel.
Loans, TA Grants, Enhancement Grants
    Comment: A number of commenters believe that the proposed rule 
should be revised to maintain the intent of Congress by restoring the 
balance between the funding for loan capital and funding for training 
and technical assistance. As one claimed, the proposed rule is in 
``direct contradiction to the law'' because it eliminates all grants to 
microenterprise programs to provide business training to existing and 
prospective microentrepreneurs. The commenter stated that, by 
eliminating the training funds (and by capping technical assistance 
funds), the proposed rule will make it difficult for organizations to 
fund the staff needed to work with borrowers and other clients.
    Another commenter stated that the proposed rule directs most of the 
RMAP funds to loan capital and gives short shrift to support for 
training, financial planning, and critical support services that MDOs 
offer. The proposed rule does this by limiting the purposes of grants 
to support microenterprise development and by capping the maximum 
technical assistance grant an MDO can receive at $100,000, rather than 
25 percent of the MDO's total balance of microloans.
    Response: The Agency disagrees that the proposed rule was in direct 
contradiction to the law, because it provided for loans and for grants 
for both technical assistance to microentrepreneurs (referred to as 
technical assistance grants) and training of MDOs staff to enhance 
their capabilities in providing technical assistance to their clients 
(referred to as enhancement grants). Nevertheless, the Agency, as noted 
later in this preamble, has added in Sec.  4280.301 that technical 
assistance grants may be made available to MDOs that are not otherwise 
participating in RMAP. The Agency believes that this change provides 
for an improved program and satisfies the concerns expressed by these 
commenters.
    Finally, the Agency understands that those seeking technical 
assistance funding would prefer no funding cap. The Agency believes 
that, in order to fund more MDOs in rural areas nationwide, a cap is 
necessary. However, as later discussed, the maximum amount of technical 
assistance grants has been increased.
Inflexibility
    Comment: Several commenters stated that the proposed rule is 
inflexible and will unnecessarily increase expenses for microenterprise 
service providers. To illustrate their concern, one commenter states 
that programs must identify prospective borrowers before they can 
receive loan funds from USDA. The result is that more time must be 
spent completing paperwork, leaving less time to serve 
microentrepreneurs. These rules ignore the flexibility needed to help 
microentrepreneurs be successful.
    One commenter believes that the proposed rule does not reflect the 
reality of how lending to microentrepreneurs actually works.
    Another commenter believes that the approach is far too elaborate 
and unnecessarily complex, particularly in the way RMAP loans are 
structured and reamortized and in the scoring system. The commenter 
stated there is the maximum need for flexibility and latitude for the 
program to succeed.
    Three of the commenters stated that the rule, as proposed, will add 
to the administrative burdens on MDOs and decrease the portion of staff 
time that can be devoted where it should be devoted--servicing loans, 
providing technical assistance and conducting outreach that brings more 
microentrepreneurs in the door for services.
    Response: It is not the intent of the Agency to require 
microlenders to identify prospective borrowers before they can receive 
loan funds from the USDA. There is no such requirement in the proposed 
rule. Similarly, the restrictions placed on the relationship between 
the microlender and the microborrowers are minimal and stem from 
statutory requirements, such as the maximum loan amount, the maximum 
term of a microloan, and the provision of technical assistance and 
training for microborrowers. The proposed rule did, however, require 
that the microlender make a microloan within 30 days of receipt of 
funds from the Agency. To the extent that the commenter may be 
referring to this policy, the interim rule instead adopts a 60 day 
requirement to provide microlenders more flexibility.
Notice of Funding Availability
    Comment: Two commenters proposed that the Agency set a timeline for 
a NOFA that both reflects the Congressional funding process and allows 
for greater accountability to RMAP participants. The commenter 
recommended that a NOFA be made either no later than 45 days after the 
enactment of the appropriate spending bill or no later than 30 days 
after the disbursement of funds and/or budget authority to USDA.
    Response: The Agency disagrees that it is necessary to set a 
timeline for issuing a NOFA, in part because there is no relationship 
between when the

[[Page 30122]]

Agency will accept applications and when it issues a NOFA. It is the 
Agency's intent, however, to publish RMAP NOFAs as early as possible 
each fiscal year. This comment is associated with the administration of 
RMAP and not with the proposed rule itself. Thus, no changes have been 
made to the rule as a result of this comment.
MDO Administrative Costs
    Comment: One commenter believes that the Agency's expectation, 
noted under its Regulatory Flexibility Act discussion, that 
participating MDOs will be able to cover most of their administrative 
costs by ``the interest rate spread between the one percent loan from 
Rural Development and the interest rate on loans made to the 
microentrepreneurs by the MDO'' seems to be in conflict with subsequent 
sections of the proposed rule that severely limit MDO uses of interest 
income and must be clarified.
    Response: The Agency agrees with the commenter that the statement 
in the preamble to the proposed rule was in error. The Agency has not 
repeated this statement in this preamble.
Intermediary Relending Program
    Comment: One commenter recommended that the program be delivered 
under the published IRP regulations with the exception that the term 
must be 20 years and that microborrowers comply with the criteria in 
the proposed rule (i.e., proposed Sec. Sec.  4280.322 and 4280.323). 
The commenter further suggested that RMAP grant funds be administered 
under the published Rural Business Enterprise Grants regulations with 
the exception that the RMAP grants would be awarded in the proportional 
amounts indicated in the proposed rule (25 percent of the RMAP loan) 
and accompany RMAP loan awards. According to the commenter, adopting 
existing, well-understood, functional program regulations will allow 
rapid deployment and operation of the important RMAP initiative.
    Response: The Agency disagrees with the commenter's recommendation 
to administer RMAP under the IRP and RBEG regulations because of the 
many statutory differences between the programs.
Purpose and Scope--(Sec.  4280.301)
    Comment: In referring to proposed Sec.  4280.301(b), one commenter 
expressed concern that the sentence ``Technical assistance grants will 
be awarded to microlenders to provide technical assistance to 
microentrepreneurs who have received one or more microloans from the 
MDO under this program'' would mean that entrepreneurs that have not 
received a microloan from an MDO under this program would not be able 
to receive technical assistance.
    Response: The Agency agrees that it is in the best interest of the 
program not to limit technical assistance only to those microborrowers 
who actually receive a microloan under RMAP. Therefore, the Agency has 
revised the sentence for clarity to indicate that a microentrepreneur 
seeking a microloan would also be eligible to receive technical 
assistance.
Definitions and Abbreviations--(Sec.  4280.302)
Administrative Expenses
    Comment: One commenter recommended removing the limitation on the 
percent of TA grant funding that may be used to fund expenses because 
it has nothing to do with the definition.
    Response: While the Agency does not disagree with the commenter's 
observation, the Agency believes that it is helpful here to explain the 
limitations to the public and Agency staff. For these reasons, and 
because it does ``no harm,'' the Agency has not revised the definition 
as suggested by the commenter.
Agency Personnel
    Comment: Two commenters asked why there was a distinction made in 
the definition for personnel who are more than 6 months from separating 
from the Agency. One of the commenters also asked how someone would 
know that they are more than 6 months from separating from the Agency. 
One of the commenters believes that it is inappropriate, if not 
illegal, for the Agency to ask its staff when they plan to separate and 
the other commenter suggested deleting this phrase.
    Response: As proposed, the Agency intended to allow Agency 
personnel who knew that they would be leaving the Agency within 6 
months to apply for and receive RMAP funds. This distinction was 
intended to parallel the provisions for military personnel elsewhere in 
the proposed rule. After considering this and other similar comments, 
the Agency has determined that a ``blanket'' prohibition for all Agency 
employees while they are still with the Agency is easier to implement 
and consistent with other program regulations. The Agency, therefore, 
has removed the language from the rule.
Application
    Comment: One commenter suggested adding ``required to be'' after 
the word ``documentation'' in the definition, so that it would read: 
``The forms and documentation required to be submitted by an MDO for 
acceptance into the program.''
    Response: The Agency disagrees with the commenter's suggestion. The 
application is what is submitted, not what is required. Section 
4280.315 makes clear what items are required for a complete 
application. Therefore, the Agency has not revised this definition.
Business Incubator
    Comment: One commenter stated that a business incubator is not an 
organization, but is generally a ``thing'', such as a building.
    Response: The Agency disagrees with the commenter. As used in this 
interim rule, a business incubator is an organization that can perform 
such tasks as renting space, using equipment, etc. A building cannot do 
such tasks. The Agency, however, is adding to the definition the 
condition that, to be considered a business incubator, the organization 
provides temporary premises ``at below market rates.'' This is a 
condition that the Agency overlooked when proposing the rule and 
believes is an important aspect of a business incubator.
Default
    Comment: One commenter asked why a definition of default was 
included in the proposed rule.
    Response: The Agency is including a definition of default for 
clarity because its history in the administration of other loan 
programs has shown that defaults other than the more common monetary 
default (e.g., nonperformance is a form of default) can and do occur.
    Comment: One commenter stated the definition of monetary default 
(found in paragraph (i) of the proposed definition of default) is 
extremely and unnecessarily complex. Further, according to the 
commenter, it is inconsistent with current Agency practice of annual 
installments for principal and interest or semi-annual installments for 
interest.
    Response: The Agency agrees that a simpler definition is sufficient 
and has revised the definition accordingly. The Agency notes that it 
will collect payments on a monthly basis via an automated system.
Fiscal Year
    Comment: One commenter stated that ``fiscal year'' should be 
clarified as ``Federal fiscal year'' because most organizations work 
off of either the calendar year or their individual fiscal year.
    Response: The Agency agrees with the commenter and has revised the 
rule to

[[Page 30123]]

more clearly identify the fiscal year as being the Federal fiscal year.
MDO
    Comment: One commenter suggested adding quasi-public entities that 
are formed by State or other governmental statutes whose purposes for 
operation are consistent with the program as eligible MDOs. According 
to the commenter, many quasi-public state agencies operate business and 
micro-business programs and, therefore, they need to be included as 
eligible entities.
    Another commenter believes the term ``non-profit'' is used rather 
ambiguously in the proposed rule and recommended that the Agency 
provide a clarification to ensure that public non-profit entities, such 
as Councils of Governments, Regional Planning Commissions and Economic 
Development Districts, are eligible to apply for program assistance as 
MDOs. The commenter stated that many of these entities are experienced 
lenders as they currently operate USDA IRP, a program similar to RMAP, 
which also provides valuable assistance for financing business and 
economic development activity in rural regions of this country.
    A third commenter requested that local governments be included as 
eligible applicants for program funds. The commenter asked why their 
local government organization is not considered the equivalent of an 
MDO, or at least eligible to apply for the funding as USDA has 
considered them capable of providing these services in the past when 
they awarded funding. The commenter suggests the language of the RMAP 
be changed to refer to MDOs and other entities that provide assistance 
to microentrepreneurs.
    Response: Section 379E of the Consolidated Farm and Rural 
Development Act provides the definition for MDO. The Agency cannot 
change the definition and, thus, for example, quasi-governmental 
organizations cannot be included unless they otherwise meet the 
definition. Consistent with the eligibility requirements provided in 
other loan programs under the Consolidated Farm and Rural Development 
Act, the reference to non-profits is understood to mean only private 
non-profits. If Congress had intended to include other entities, they 
would have done so as they have done for other provisions in the 
Consolidated Farm and Rural Development Act. For this reason, the 
Agency has not revised the definition of MDO as suggested by the 
commenters.
    Comment: A number of commenters requested that the rule clarify the 
ability of multiple groups to collaborate on an application (example: 
statewide microenterprise associations, statewide community action 
agency/programs). According to the commenters, such collaboratives 
could prove valuable in unserved and underserved rural areas, and bring 
together efficient and effective microenterprise development services 
among multiple MDOs. Potential collaborations are likely to be non-
profit entities as contained in the definition of MDO in the proposed 
rule. The commenters suggest that the final rule be clarified to allow 
applications by such collaborations where other eligibility 
requirements are met. Scoring of such collaborative applications should 
consider the combined strengths and experiences of the collaborators.
    Three of the commenters further stated that the Agency should 
apportion 20 percent of available funds to enhancement grants and allow 
collaborations and associations that have proven track records in 
providing capacity building services to MDOs to apply for these grants. 
Enhancement programs are an opportunity to build the capacity of MDOs 
to reach more clients with stronger and more effective services. This 
involves training trainers; curriculum development; increasing access 
to markets; quality assessment and evaluation; and much more. One of 
the purposes of this legislation is to create a strong network of MDOs. 
Collaborations and associations serve to build the strength of the 
entire industry.
    Response: The Agency is not opposed to collaborative MDO efforts. 
MDOs selected to participate in the program are encouraged to develop 
community-based partnerships. However, such partnerships and 
collaboratives will be developed outside of the relationship between 
the Agency and the participating MDOs.
    The Agency disagrees with the commenters' suggestion to specify a 
percent of available funds to be apportioned to any single aspect of 
the program. In order to facilitate equitable distribution between 
loans and grants and provide for flexibility to meet program needs, the 
Agency will announce anticipated distributions in an annual Federal 
Register notice.
Microentrepreneur
    Comment: Two commenters pointed out that the proposed definition 
states that ``All microentrepreneurs assisted under this regulation 
must be located in rural areas.'' The commenters recommended changing 
this to read ``All microenterprises assisted under this regulation must 
be located in rural areas''. The commenters stated that, while some 
entrepreneurs do work from home, they are concerned that an 
entrepreneur that provides a service or operates a microenterprise in a 
rural area may be disqualified from participation under this 
definition.
    Response: The Agency disagrees with the commenters' recommendation. 
It is the Agency's intent that both the microenterprise and 
microentrepreneur be located in a rural area, so both definitions have 
been revised to clearly state this. The Agency has not revised this 
definition as suggested by the commenter.
Military Personnel
    Comment: One commenter was concerned that the proposed rule was 
purposefully eliminating National Guard employees that are not 
deployed. The commenter pointed out that there was an administrative 
notice issued for the IRP that addressed IRP loans to certain military 
personnel. The commenter, therefore, recommended that RMAP be as 
inclusive as it can to service members.
    Response: Although it was not the intent of the Agency, the Agency 
agrees with the commenter that National Guard employees that are not 
deployed would have been excluded from the program. The Agency has 
revised the definition to remove the reference to ``enlisted'' and 
added other provisions (see Sec.  4280.322(g)) that would make such 
personnel eligible under this program.
Nonprofit Entity
    Comment: One commenter recommended removing ``that has applied for 
or received such designation from the U.S. Internal Revenue Service'' 
as a criterion for defining a non-profit entity. According to the 
commenter, this criterion is inconsistent with all other Rural 
Development programs. The commenter suggested that instead the 
criterion should be ``registered as a non-profit in the State, 
Commonwealth, Territory, etc. in which the entity is located.''
    Response: The Agency agrees with the commenter that the proposed 
rule would have been too restrictive. Therefore, the Agency removed the 
IRS requirement from the definition and has revised it to read: ``A 
private entity chartered as a nonprofit entity under State law.''
Rural or Rural Area
    Comment: One commenter stated that, for the purposes of this 
program, the terms ``rural'' and ``rural area'' are defined as any area 
of a State not in a city or town that has a population of more than 
50,000 inhabitants, according to the latest decennial census of the

[[Page 30124]]

United States; and the contiguous and adjacent urbanized area. The 
commenter then pointed out that the Freely Associated States (Republic 
of Palau, Republic of the Marshall Islands, and the Federated States of 
Micronesia) are not under the jurisdiction of the U.S. Census Bureau 
and do their own internal Census. The commenter, therefore, recommended 
adding after ``according to the latest decennial census of the United 
States'' the following: ``or of any of the Freely Associated States, as 
appropriate.''
    Response: The Agency agrees with the commenter's concern. However, 
rather than revising the text as suggested by the commenter, the Agency 
has added a definition of ``State'' to include reference to each of the 
Freely Associated States identified by the commenter. By doing so, it 
is unnecessary to make the change suggested by the commenter.
Significant Outmigration
    Comment: Four commenters stated that this definition was more 
restrictive than it should be and that the definition rejects the 
definitions of the term that already exist in law or proposed in 
legislation. The commenters provided, as examples, the American Jobs 
Creation Act of 2004 (Pub. L. 108-357) and the proposed ``New Homestead 
Act of 2007'' (S. 1093). These use a net out-migration of at least 10 
percent during a 20-year period. The commenters suggested defining 
``significant outmigration'' as outmigration of 7.5 percent over two 
Census periods and/or 5 percent outmigration over one Census period in 
order to recognize the current state of rural demographics and to 
enable the program to be widespread throughout the nation.
    Another commenter suggested that the population outmigration 
criteria be lowered from 15 percent over thirty years to 10 percent 
over thirty years. In Iowa, this change would provide a threefold 
increase in the number of targeted outmigration counties compared to 
the 12 counties under the currently proposed criteria.
    One commenter stated that the U.S. Department of the Treasury's 
Community Development Financial Institutions Fund (CDFI Fund) uses the 
following definition of ``significant outmigration:'' ``In counties 
located outside of a Metropolitan Area, the county population loss 
during the period between the most recent decennial census and the 
previous decennial census is at least 10 percent; or (5) in counties 
located outside of a Metropolitan Area, the county net migration loss 
during the five-year period preceding the most recent decennial census 
is at least five percent.'' The commenter urged USDA to adopt this 
definition.
    Response: The Agency agrees that the definition of outmigration 
should take other current definitions into consideration. However, 
because outmigration issues apply to enhancement grants only, the 
Agency will address this issue when it publishes the final rule.
    Comment: One commenter pointed out that the Freely Associated 
States (Republic of Palau, Republic of the Marshall Islands, and the 
Federated States of Micronesia) are not under the jurisdiction of the 
U.S. Census Bureau and do their own internal Census. The commenter, 
therefore, recommended revising the definition of significant 
outmigration to reflect this.
    Response: The Agency agrees with the commenter's concern regarding 
the Freely Associated States. The Agency has revised the text in this 
definition (as noted in the response to the previous comment) and, in 
doing so, has removed reference to the U.S. Census Bureau.
Socially Disadvantaged
    Comment: One commenter requested that the Agency define racially 
and ethnically diverse populations by using the same definition as 
found in the Small, Socially Disadvantaged Producer Program. Socially-
Disadvantaged Individuals are those who have been subjected to racial, 
ethnic or gender prejudice because of their identity as members of a 
group, without regard for their individual qualities.
    Another commenter recommended either including a definition for 
``socially disadvantaged'' under proposed Sec.  4280.302 that includes 
women and other disadvantaged groups or expanding proposed Sec.  
4280.316(b)(1)(v) to include an explanation of the term ``socially 
disadvantaged.'' The commenter pointed out that the scoring rules 
concerning provision of technical assistance to microentrepreneurs 
(proposed Sec.  4280.316(b)(3)(iii)) contain a reference to an 
undefined group of ``socially disadvantaged'' microentrepreneurs. It is 
not stated whether ``socially disadvantaged'' includes gender 
(presumably female microentrepreneurs). This is inconsistent with 
proposed Sec.  4280.316(b)(1)(v) where gender is a specifically-
mentioned demographic group. The commenter stated that any provision 
under the Program's rules should ensure that female microentrepreneurs 
should be considered ``socially disadvantaged.''
    Response: The Agency agrees with the commenters that, as proposed, 
the rule did not adequately address whether gender was included in 
``socially disadvantaged.'' The Agency, however, has determined that 
``socially disadvantaged'' is too broad a phrase and has changed the 
scoring criteria to include racial and ethnic minorities, the disabled, 
and gender. The Agency made this determination in consultation with 
Agency Civil Rights staff, consideration of other agencies, and Civil 
Rights reporting requirements. The latter is based on demographic data 
and ``socially disadvantaged'' is not specified.
Non-Discrimination and Other Federal Laws--(Sec.  4280.305)
    Comment: One commenter expressed concern with the use of the word 
``applicants'' in the beginning of proposed Sec.  4280.305(a) that 
states ``All applicants must comply with other applicable Federal 
laws.'' The commenter asked: What about ultimate recipients? The 
commenter suggested that there needs to be consistency with this 
proposed rule and the IRP.
    Response: The Agency agrees with the commenter that the provisions 
of this paragraph need to apply to both the microlender participating 
in this program and to the microborrower receiving RMAP funds from the 
participating microlender. Therefore, the Agency has revised the text 
in this paragraph to state clearly that any entity receiving funds 
under this program is covered by this paragraph.
MDO Requirements--(Sec.  4280.310)
General
    Comment: One commenter recommended that the rule minimize 
duplication, and the unintended development of underutilized surplus 
reserves in local RMRF loan capacity, by discouraging MDOs from 
providing services in overlapping service areas unless the MDO first 
approved in a designated area provides a letter of endorsement for the 
second MDO. According to the commenter, differing MDOs may target 
different market segments, which can be a rationale for overlapping 
service areas. However, the application approach should encourage 
collaboration when appropriate and discourage duplication when 
inappropriate.
    Response: The Agency acknowledges that different MDOs may target 
different market segments, but disagrees with suggestion to discourage 
MDOs from providing services in overlapping areas. The Agency has 
determined that

[[Page 30125]]

encouraging competition generally provides the greatest potential for 
benefits for intended end users. The Agency encourages collaboration 
among MDOs regarding client referrals across different market segments. 
No changes have been made in response to this general comment.
Eligibility (Proposed Sec.  4280.310(a))
    Comment: One commenter suggested replacing ``under RMAP'' with 
``per Sec.  4280.302(a)''.
    Response: While not inaccurate, the Agency believes that ``under 
this program'' should reference the subpart instead and has rephrased 
the text to read, in part, ``To be eligible for a loan or grant award 
under this subpart, an applicant''. The Agency believes the broader 
designation is more appropriate than the commenter's suggested cross-
reference to Sec.  4280.302(a) by itself.
Citizenship (Proposed Sec.  4280.310(a)(2))
    Comment: One commenter believes the requirement in Sec.  
4280.310(a)(2) for MDO ``citizenship'' is unworkable because 
nonprofits, tribes, and institutions of higher learning are entities 
with no ``owners''. Therefore, establishing their citizenship is not 
possible. Instead, the commenter suggests requiring that the nonprofit/
tribe/institution of higher learning be legally established within the 
U.S.
    Response: The Agency agrees with commenter that the citizenship 
requirements would not be ``workable'' as applied to tribes and 
institutions of higher learning. However, for nonprofit entities, the 
Agency has determined that the citizenship requirements are applicable. 
Therefore, the Agency has revised the citizenship requirements in the 
rule to apply only to applicants that are non-profit entities, as is 
consistent with other Rural Development programs.
Legal Authority/Responsibility (Proposed Sec.  4280.310(a)(3))
    Comment: One commenter asked whether the Rural Development State 
Office will determine whether the applicant has the legal authority to 
carry out the purpose of the award or, as in the case with Rural 
Business Opportunity Grants (RBOG), will concurrence from the Office of 
General Counsel (OGC) be required. The commenter stated that having the 
applicant provide a current (not more than 6 months old) Certificate of 
Good Standing in addition to articles and by-laws would allow the 
Agency (National or State Office official) to make a preliminary 
determination. The commenter then recommended that OGC concurrence be 
obtained for entities with an initial application and subsequent 
applicants that have experienced a material change to their articles or 
bylaws since their last OGC eligibility concurrence.
    Response: The Agency will make an eligibility determination, 
including whether the applicant has the legal authority necessary to 
carry out the purpose of the award, based on the information provided 
in the application. Consultation with OGC is an internal operating 
procedure which is beyond the scope of this regulation. The rule now 
requires an attorney's opinion regarding the microlender's legal status 
to make loans specifically to allow the Agency to make such 
determination. The Agency may seek OGC advice as needed.
Direct Loans (Proposed Sec.  4280.310(a)(4))
    Comment: One commenter would like the Agency to consider easing the 
requirement for receiving education and training from a qualified 
microenterprise training entity (proposed Sec.  4280.310(a)(4)(ii)). 
Being a relatively new lending concept, such education, according to 
the commenter, is not common to a majority of professionals involved in 
agriculture in the U.S. nor is such training readily available. If not, 
the commenter states the Agency should define what is considered 
``adequate experience.''
    Response: The microenterprise development industry has been active 
in the United States for more than two decades. It is important that 
the minimum standards of quality that have been generally recognized 
over time be maintained so that the industry can continue to grow. The 
Agency has determined that experience (as determined in the scoring), 
or training/education, or participation in the similar Small Business 
Administration (SBA) Microloan Program will help to ensure a baseline 
of capacity. No changes have been made in response to this comment.
    Comment: In commenting on proposed Sec.  4280.310(a)(4)(iii), one 
commenter suggested easing the requirement that MDOs be ``actively and 
successfully participating as an intermediary lender.'' According to 
the commenter, this requirement will exclude many small producer groups 
with clientele that would benefit greatly from a microenterprise 
lending program. According to the commenter, most microlending 
institutions in the U.S. are located in major urban areas serving urban 
clients, not rural ones.
    Response: The Agency notes that Sec.  4280.310(a)(4)(i) indicates 
that only one of the three provisions found in Sec. Sec.  
4280.310(a)(4)(i)(A), 4(i)(B), or 4(i)(C), is required to be met, not 
all three. Thus, an applicant is eligible if it meets any one of the 
following:
    <bullet> Has demonstrated experience in the management of a 
revolving loan fund, or
    <bullet> Certifies that it, or its employees, have received 
education and training as described, or
    <bullet> Is actively and successfully participating as an 
intermediary lender in good standing under the SBA Microloan Program or 
other similar Federal loan program.
    Thus, no single organization will be required to meet all three of 
these requirements and newer organizations will be accommodated via the 
second option.
Enhancement Grants (Proposed Sec.  4280.310(a)(5))
    Comment: Several commenters believe that the proposed rule fails to 
properly implement section 379E(b)(4)(A) of the Consolidated Farm and 
Rural Development Act as added by the 2008 Farm Bill, which addresses 
grants to support rural microenterprise development, and as expressed 
in the report accompanying the 2008 Farm Bill.
    One commenter noted that the proposed rule limits enhancement 
grants to organizations that already operate a program for training and 
other enhancement services, which would ultimately result in 
strengthening these organizations internally. According to the 
commenter, the overall purpose of section 379E(b)(4)(A) was to develop 
the technical infrastructure necessary to increase the success of 
microentrepreneurs by offering them training in critical business 
skills. This could be accomplished by building the capacity of local 
nonprofit organizations to provide training and technical assistance to 
microentrepreneurs. The proposed rule does not contemplate this 
approach and should be changed to accommodate the capacity building, 
training, and technical assistance clearly authorized under the law. By 
eliminating the training funds and capping technical assistance funds, 
the proposed rule will make it difficult for organizations to provide 
the services microentrepreneurs need to succeed.
    One commenter stated that the proposed rule leaves out rural 
microenterprise development grants. The commenter stated that the final 
rule should be amended to include the missing statutory subprogram. 
According to the commenter, there are two appropriate ways to 
accomplish this. First, retain the enhancement grant

[[Page 30126]]

category, which is overall a very helpful idea, and to create a rural 
microenterprise development grant category and purpose statement. 
Second, incorporate the enhancement grant idea into the rural 
microenterprise development grant category and purpose as a noteworthy 
addition to the statutory requirements. One of these two approaches is 
required in order for the rule to conform to the statute.
    Another commenter also believes that the Agency misinterpreted the 
statutory provision as well as the accompanying report language in 
creating ``enhancement grants.'' According to this commenter, the 
statute shows the primary intent to be the provision of operating 
grants to MDOs, so they may better serve rural microentrepreneurs, and 
the commenter believes that the proposed ``enhancement grant'' method 
is not an accurate regulatory representation of statute. In support of 
this position, the commenter referred to the report language 
accompanying the statute (H. Rept. 110-256 Sec.367(b)(3)), which states 
that ``The Secretary may make a grant under the program to a qualified 
organization (i) to provide training, operational support, or a rural 
capacity building service to a qualified organization to assist the 
qualified organization in developing microenterprise training, 
technical assistance * * * and other related services.'' According to 
the commenter, the proposed ``enhancement grants'' fail to meet stated 
Congressional intent as expressed in the law's report language, 
primarily by awarding grants to MDO trainees rather than MDO trainers 
as mandated.
    This commenter claimed that the result of these misinterpretations 
are that the proposed ``enhancement grants'' result in neither 
technical assistance to rural microentrepreneurs, as intended by the 
law, nor as a tool for broader field-wide capacity building. While 
capacity building can involve the staff development purposes expressed 
in the ``enhancement grants'' provision, capacity building of the rural 
microenterprise development field as a whole provides a broader scope 
by which to build the field's infrastructure capacity. As a general 
rule, rural MDOs have few resources for technical assistance for their 
clients, and RMAP should be designed and implemented to help to fill 
the gaps in service that exist in many rural areas.
    This commenter, therefore, (and as similarly expressed by several 
other commenters) recommended deleting ``enhancement grants'' and 
replacing them with ``Rural Microenterprise Field Technical Assistance 
Grants'' that adheres to both statute and report language. The 
commenter suggested several approaches including funding for State 
Microenterprise Associations and for MDOs. The commenter also 
recommended a 4:1 ratio towards providing MDOs with core funding.
    Response: In consideration of these comments, the Agency considered 
a number of options for implementing a technical assistance and network 
enhancement category. As noted, the comments differed on appropriate 
approaches. Due to the broad range of suggestions, and the considerable 
interest in an enhancement grant program, this interim rule is 
published without reference to an enhancement grant category. Instead, 
comments and concepts regarding the best delivery approaches are 
requested (see Section V of this preamble). Submitted comments and 
concepts will be fully considered prior to publication of an RMAP final 
rule.
    However, the interim rule does make technical assistance grants 
available to MDOs that are not participating in the program as 
microlenders (see Sec.  4280.313(c)). By broadening the eligibility for 
technical assistance grants, the Agency is addressing the concerns of 
the commenters indicating the need for more technical assistance 
funding. No specific provision was made for State Associations.
Technical Assistance Grants (Proposed Sec.  4280.310(a)(6))
    Comment: One commenter suggested that the text ``with the exception 
that up to 10 percent of the grant funds may be used to cover 
administrative expenses'' be revised by replacing ``to cover'' with 
``for MDO''.
    Response: The Agency revised the text (see Sec.  4280.313(b)(3)) 
identified by the commenter by inserting ``the microlender's'' as 
follows: ``may be used to cover the microlender's administrative 
expenses.'' The Agency believes this adequately addresses the 
commenter's suggestion.
Delinquencies (Proposed Sec.  4280.310(a)(8))
    Comment: One commenter suggested that proposed Sec.  4280.310(a)(8) 
be made part of Sec.  4280.310(a)(7), Ineligible applicants.
    Response: The Agency understands the commenter's suggestion, but 
has elected to keep the subject paragraph as a stand-alone paragraph to 
ensure its visibility to the public (see Sec.  4280.310(d)).
Business Incubators (Proposed Sec.  4280.310(c))
    Comment: One commenter was unclear as to what the ``business 
incubator'' paragraph was saying.
    Response: The paragraph referred to by the commenter (now Sec.  
4280.310(f)) states that a microlender who owns or operates a small 
business incubator is eligible to participate in RMAP. The paragraph 
also states that such a microlender may use RMAP funding to make a loan 
to an eligible microentrepreneur who is a tenant in that microlender's 
facility. This language is clear and was not further clarified. 
However, regulatory instructions will be published after promulgation 
of the interim rule that may assist with this commenter's concern.
Loan Provisions for Agency Loans to Microlenders (Sec.  4280.311)
Complicated Process
    Comment: Eleven commenters stated that the proposed rule outlines 
an unnecessarily complicated process for the disbursement of loan funds 
to lenders participating in RMAP, with one commenter referencing in 
particular proposed Sec.  4280.311(d)(10), (11), and (12). The 
commenters expressed concern that if these rules are not revised, the 
cumbersome methods outlined for loan disbursement will keep many 
qualified rural MDOs from participating in RMAP.
    Response: Of particular concern to the commenters was that the 
Agency would require a list of probable microentrepreneurs prior to 
disbursement of loan funds. This is not the case and language has been 
added to Sec.  4280.311(e)(11) to address this concern. Specifically, 
descriptions of anticipated need provided with a request for 
disbursement will indicate the anticipated amount and number of 
microloans to be made with the funds but need not identify each loan. 
These requirements are needed to adequately monitor use of program 
funds.
Co-financing
    Comment: One commenter recommended that co-financing with local 
lenders and revolving loan funds for projects with total loan requests 
up to $150,000 be allowed with the $50,000 microloan maximum and 
subordinated position of the RMRF. According to the commenter, this 
would multiply the benefits of the program, encourage collaboration 
rather than duplication with commercial lenders and other loan funds, 
and encourage the transition of microloan clients back to commercial

[[Page 30127]]

lenders. The commenter also noted that this would be consistent with 
the flexibility for MDOs that is allowed under the SBA Microloan 
program.
    Response: The Agency understands the recommendation that 
microlenders be allowed more flexibility in lending to microborrowers. 
In addition, small businesses that can receive loans from commercial 
lenders should not be able to receive microloans, because 
microborrowers must meet the credit elsewhere test; that is, 
microborrowers must be able to show that, but for the microloan, they 
would not have access to business capital. At this time, lines of 
credit and subordinated liens will not be authorized. However, the 
Agency will continue to accept comments during the interim rule phase.
Purpose of Loan (Proposed Sec.  4280.311(a))
    Comment: One commenter was unclear as to what ``interest earnings'' 
were being referred to in the introductory text to proposed Sec.  
4280.311(a). The commenter stated that this could be referring to 
either bank account accrued interest or to loan payment interest and 
that this needed to be clarified.
    Response: The intent of this paragraph is to refer to any type of 
interest earnings, including the two types referenced by the commenter. 
While the Agency has removed the referenced text from Sec.  
4280.311(a), the Agency has revised the text in Sec.  4280.311(e)(2) to 
more clearly address the issue raised by the commenter.
    Comment: Two commenters recommended that the Agency clarify that 
proposed Sec.  4280.311(a) applies only to interest earnings on the 
underlying USDA loan to the MDO.
    Response: The Agency disagrees. The commenters are most likely 
referring to the sentence in the proposed rule that states: ``Interest 
earnings accrued by the RMRF will become part of the RMRF and may be 
used only for the purposes stated above.'' The rule requires 
microlenders to retain the interest earned in the RMRF and LLRF 
accounts so that earnings may be reloaned or used to recapitalize the 
LLRF.
    Comment: One commenter referred to the sentence: ``However, with 
advance written approval by the Agency, the microlender may increase 
the funding in its LLRF with interest earnings from the RMRF.'' 
According to the commenter, this is going to be very hard to monitor 
and will ultimately result in OIG findings because the Agency has 
failed to provide advance approval to increase the account via interest 
earnings.
    Response: The Agency disagrees that monitoring the movement of 
interest earnings will be difficult because the movement of those 
earnings between the RMRF and the LLRF will be evident in bank 
statements and quarterly reports. Because it will be able to monitor 
such movement, the Agency further disagrees with the commenter's 
assertion that this provision will lead to OIG concerns or 
investigations. Finally, the Agency will emphasize during training that 
microlenders need Agency written permission to move money out of the 
RMRF unless it is to make a payment on their Agency loan.
    Comment: One commenter stated that Community Development Financial 
Institutions (CDFIs) often reinvest interest earnings into capital 
available for lending. However, interest earnings are also a source of 
operations revenue that help support technical assistance, allow CDFIs 
to lower the interest rate to borrowers, and otherwise provide products 
and services to their markets. Especially if the Agency maintains the 
scoring criteria related to use of administrative funds, it should 
allow flexibility in the use of interest earned from the RMRF and LLRF. 
USDA should, in addition, explicitly state that income earned from RMAP 
loans to microborrowers belongs to the lender and can be used flexibly.
    Two other commenters stated that USDA should codify that interest 
income from microloans: (a) Need not be deposited into the RMRF, and/or 
(b) may be deposited and withdrawn from the RMRF without restriction. 
The commenters stated that failure to clearly allow MDOs to keep and 
use microloan interest income would likely render RMAP unusable for 
MDOs.
    Twelve commenters noted that the proposed rule does not explicitly 
state that income earned from RMAP loans to microborrowers belongs to 
the lender. They stated that they believe that microlenders should be 
allowed to keep earnings on microloans, and that this needs to be 
explicitly stated in the appropriate section of the RMAP final rule.
    Three other commenters stated that limiting MDO use of accrued 
interest that comes about as a result of an agreement between the MDO 
and a borrower is an overreach by USDA, limits the ability of an MDO to 
realize program income from its activities, and ultimately will limit 
the ability of MDOs to fund their programs and services. The commenters 
suggested the Final Rule remove all limits on use of interest accrued 
by RMRFs. In particular, The commenters suggested that, because the law 
and the proposed rule limit the amount funding for administrative 
expenses to an MDO, administrative expenses should be an allowed use of 
interest earnings on the RMRF in proposed Sec.  4280.311(d)(2).
    Two commenters recommended allowing accrued interest to be used by 
MDOs for purposes consistent with the mission of the organization and 
the purposes of the RMAP statute. One commenter noted that this would 
be consistent with current practices with other USDA loan funds 
including IRP. As proposed, such interest must be deposited in the 
LLRF.
    One other commenter stated that, as written, the proposed rule 
would not allow the MDO to use any revenues from the operation of the 
microloan funds to cover its administrative expenses. All repayments on 
microloans must be deposited in the loan fund and used for either new 
microloans or payments to USDA. Thus, there is no provision for paying 
the MDO's loan officer, etc. and the presumption is that all these 
costs will be covered by other funding sources. According to the 
commenter, this is unfair to the MDO, which should be able to use the 
revenues from their operations for the operation of the microloan 
program.
    Response: While the Agency acknowledges the points raised, the 
Agency has not revised RMAP as recommended by the commenters. It is the 
Agency's position that, because the interest is earned on monies owed 
back to the Agency, the Agency is within its purview to dictate the use 
of interest earned on that money. Further, requiring interest earned to 
be used to recapitalize the RMRF and LLRF will help ensure that those 
two funds are maintained at adequate levels over time and that earnings 
that remain in the LLRF account will help to mitigate the cost of 
reimbursing the RMRF from the LLRF in the event of a loss. Such 
earnings may also be used to help fund the non-Federal share.
    Finally, the Agency notes that the rule allows MDOs that receive 
technical grants to use up to 10 percent of the funds to cover MDO 
administrative expenses for administering the technical assistance 
grants.
Term of Loan (Proposed Sec.  4280.311(d)(3))
    Comment: One commenter recommended that the Agency eliminate the 
uncertainty about the term ``20 years and may be less'' and simply 
follow the loan structure used by the IRP program--a 1 percent fixed 
rate loan with a 20-year term with 3 years of interest-only payments 
and with annual payments. The commenter stated that

[[Page 30128]]

this will allow for a predictable payment level for the MDO which is 
very helpful in running a microlending program.
    Response: The Agency disagrees that RMAP needs to set the same term 
requirements as found in the IRP. While the Agency acknowledges that 
setting a standard term length would simplify the loan structure, the 
Agency wants to provide flexibility to accommodate lesser term lengths 
as permitted by statute. The Agency has revised the rule to allow a 
term of less than 20 years if requested by the microlender and as 
agreed upon between the microlender and the Agency.
Loan Repayments (Proposed Sec.  4280.311(d)(4))
    Comment: One commenter stated that the reference to the 24th month 
of the life of the loan is confusing at this point in the rule because 
not until later in the rule is the 2-year deferral referred to.
    Response: The Agency has rearranged and revised proposed paragraphs 
(d)(4), (d)(5), and (d)(8), as discussed in response to a later 
comment. This rearrangement addresses the commenter's concern by 
placing this provision after reference to the two-year deferral period.
    Comment: One commenter recommended that proposed Sec.  
4280.311(d)(4) be revised to state the payments would begin on the 1st 
day of the 25th month instead of making payments beginning on the last 
day of the 24th month. The commenter noted that traditionally the 
Agency has avoided making payments due on the 29th, 30th, or 31st of 
the month due to the fluctuating number of days in the month and the 
fact that the payments are not credited to the account for several days 
after the beginning of the next month. Thus, all end-of-the-month 
reports will show the payment not made when, in fact, the funds may 
already be in the Finance Office.
    Response: The Agency disagrees with the commenter and has kept the 
provision to read ``on the last day of the 24th month'' to be 
consistent with RULSS system requirements.
    Comment: One commenter stated that monthly installments are not 
practical and that annual payments would be far less burdensome and 
labor intensive for both the MDO and USDA. According to the commenter, 
this approach works well with the IRP program and there is no real 
advantage to using monthly payments. Many microentrepreneur borrowers, 
especially farm borrowers, will not have year-round, monthly revenues 
and so will not be able to make monthly payments to the MDO. The 
commenter asked how, in such cases, the MDO can be expected to make 
monthly payments to USDA.
    Response: The Agency disagrees with the commenter that monthly 
installments are not practical. It is the Agency's experience that by 
requiring monthly payments, lenders are better able to manage and match 
their portfolio cash flow and that the Agency is better able to monitor 
the repayment behavior of the microlender. Therefore, the Agency has 
not revised the rule as suggested by the commenter.
Prepayment (Proposed Sec.  4280.311(d)(5))
    Comment: One commenter recommended that proposed Sec.  
4280.311(d)(5) simply state that there is no pre-payment penalty.
    Response: The Agency is satisfied that this paragraph clearly 
states a no pre-payment penalty provision, but has clarified that this 
also applies to pre-payments during the deferral period (see Sec.  
4280.311(e)(5)).
Deferral Period (Proposed Sec.  4280.311(d)(8))
    Comment: One commenter asked why the proposed rule was making the 
2-year deferral automatic and what if the MDO does not want a deferral.
    Response: Section 379E of the Act allows the Agency to defer 
payments for 2 years. The Agency has provided a commensurate default 
provision wherein no payments are required until this 2-year period is 
completed. However, if a microlender wishes to make payments prior to 
the end of the 2-year period, the microlender can do so and without any 
prepayment penalties being assessed. The Agency has revised and 
rearranged proposed paragraphs (d)(4), (d)(5), and (d)(8) to make this 
more clear.
Loan Closing (Proposed Sec.  4280.311(d)(9))
    Comment: Five commenters were concerned about the 60 day time limit 
imposed by this paragraph. According to one of the commenters, it is 
often difficult to get loan closing instructions from OGC and get title 
set up and the loan closed in 60 days. This commenter was also 
concerned that there may be unusual and unavoidable issues that prevent 
a loan being closed within 60 days of loan approval. To address these 
concerns, the commenter recommended adding at the end of the paragraph: 
``Unless otherwise negotiated and agreed to by the Agency.''
    Two of the other commenters recommended a longer deadline of 90 or 
120 days. Finally, one commenter recommended that the period be 
extended to at least 180 days, and further suggested that the timeframe 
be left to the judgment of the USDA State Office.
    Response: In considering all of the commenters' suggestions, the 
Agency has revised the proposed timeframe for closing loans from 60 
days to 90 days (see Sec.  4280.311(e)(8)). This longer timeframe is 
sufficient to close loans under RMAP. The Agency has not accepted the 
suggestion to include ``unless otherwise negotiated and agreed to by 
the Agency.'' The Agency is concerned that such an open-ended deadline 
would result in unnecessary delays. Lastly, if loans are not closed 
within 90 days, the funds will be forfeited.
Loan Disbursement (Sec.  4280.311(e)(10))
    Comment: Several commenters noted that the rule, as proposed, 
allows microlenders to receive a disbursement of up to 25 percent of 
the total loan amount at the time of the loan closing. In general, the 
commenters stated that it is not clear why this limit is necessary and 
that it appears arbitrary. According to the commenters, this draw down 
limitation has the potential to limit the number of loans an MDO can 
make and limit the funds an MDO can loan. The commenters suggested 
modifying the rule to allow MDOs to draw down their entire loan if 
needed.
    Another commenter recommended that, once a loan has been closed 
between the Agency and a microlender, the MDO be able to draw down at 
least half of the total loan amount. The commenter stated, in addition, 
that requests for draw downs should not require an iteration of 
specific pending loans for specific amounts, but should be based on the 
organization's lending history schedule. The commenter noted that 
successful microlending is more time consuming than conventional 
lending and that onerous paperwork requirements subtract from the time 
MDO staff can spend conducting outreach, providing technical 
assistance, and servicing loans. If an MDO has the track record, 
credibility and financial controls in place to warrant a loan from the 
Agency that MDO should be trusted to do their work and not be hamstrung 
by unnecessarily rigid requirements.
    Response: The Agency included the provision (see Sec.  
4280.311(e)(9)) to limit full disbursement of the loan to the 
microlender in order to ensure that microloans are made in an expedient 
fashion and that disbursed funds are not accruing interest on the 
Agency loan before they begin to earn interest on microloans. The 
Agency, therefore, has

[[Page 30129]]

not revised the rule as suggested by the commenters.
30-Day Disbursement Provision (Proposed Sec.  4280.311(d)(11))
    Comment: A number of commenters noted that the requirement for an 
MDO to make one or more microloans within 30 days of any disbursement 
it receives from USDA seems to be an unnecessary rule. The commenters 
stated that, if an MDO is drawing down funds, they are clearly planning 
on placing loans in the near future and that if a loan to a client 
would not happen at the last minute, programs could easily violate this 
30 day rule. One of the commenters stated that it seems arbitrary to 
insist that at least one loan be made within 30 days of disbursement 
and not particularly realistic given the realities of microlending in 
the field. The commenters, therefore, recommended omitting this from 
the rule.
    Another commenter stated that the limitations that a microlender 
can only request funds once a quarter based on their pipeline and then 
must relend the drawn funds within 30 days is unnecessarily burdensome. 
The commenter acknowledged that there is certainly an expectation that 
the drawn funds will be promptly reloaned, but recommended that 
mitigating circumstances be allowed for.
    Response: As noted by the commenters, the proposed rule required 
that the microlender make a microloan within 30 days of receipt of 
funds from the Agency. The Agency agrees that this may be too short 
under certain circumstances, but disagrees with the suggestion to have 
no timeframe. For example, some microlenders will already have a list 
of potential microborrowers for RMAP funds. For these microlenders, 
some amount of time may be required to evaluate and verify the 
eligibility of the microborrower for participation in the program. Some 
microlenders will not begin aggressively marketing the availability of 
RMAP loan funds until such funds have been drawn. Some amount of time, 
therefore, will be required to attract microentrepreneurs to the 
program. Thus, the Agency believes that a 30-day period may be 
insufficient. The Agency has, therefore, revised the rule to reflect a 
60-day requirement (see Sec.  4280.311(e)(10)).
    Comment: One commenter asked what the ramifications would be if 
loans are not made within the specified timeframe.
    Response: If a microlender fails to make a loan within 60 days of 
disbursement, the Agency may not provide the microlender with any 
additional funds and the Agency may demand return of any funds already 
disbursed to the microlender (see Sec.  4280.311(e)(10)).
Quarterly Disbursement of Funds (Proposed Sec.  4280.311(d)(12) and 
Sec.  4280.320)
    Comment: Several commenters were concerned over the proposed 
disbursement of loans and grants on a quarterly basis as found in 
proposed Sec. Sec.  4280.311(d)(12) and 4280.320(b).
    One commenter asked why grant payments would not be made more often 
than quarterly. According to the commenter, monthly payments for loans 
or grants can be acceptable if they are accompanied by a brief 
narrative of activity that justifies the requested funds. The commenter 
also asked why the Agency should not allow monthly draw downs for 
loans.
    Another commenter stated that the requirement for quarterly 
disbursements seems overtly regulatory rather than necessary. According 
to this commenter, an active MDO may need funds prior to the end of the 
90 waiting period. The commenter stated that the IRP currently allows 
disbursements every 30 days.
    Another commenter stated that the quarterly disbursement of loan 
dollars is cumbersome and unnecessary. The commenter stated that, if 
the Agency's goal in restricting loan disbursements is to ultimately 
prevent the misuse of the loan dollars as well as the technical 
assistance grant dollars that accompany those loan dollars, a better 
way to do this would be to allow the MDO to draw down as needed and 
receive annual or quarterly technical assistance grants. As currently 
designed, an MDO with four loans from the Agency would need to keep 
track of four RMRF accounts, and submit various reports per year. 
According to the commenter, these regulations are unnecessarily 
burdensome, and could deter many small, rural MDOs from participating 
in RMAP. The commenter, thus, recommended allowing MDOs to draw down as 
needed and receive annual or quarterly technical assistance grants 
based on statutory allowances, program performance, and demonstrated 
needs.
    Another commenter noted that, with the tools of electronic funds 
transfer, the approach should simply be that an MDO may request RMAP 
draws as microloans are ready to close; they should not be limited to 
once a quarter.
    Response: The Agency is requiring quarterly draws rather than 
monthly draws for several reasons. The Agency has determined that 
quarterly payments enable both the Agency and the MDO to more 
efficiently utilize staff resources in part because quarterly payments 
match the quarterly reporting requirements. Further, monthly draws 
would require undue Agency resources. Second, matching fund payments 
with reporting requirements allows the Agency and the microlender to 
keep like calendars, which will facilitate reconciliations. Thus, the 
Agency has not incorporated the commenter's suggestion into the rule.
    Comment: Two commenters stated that proposed Sec.  4280.311(d)(12) 
requires that requests by MDOs for loan disbursement must be 
accompanied by a description of the incoming microloan pipeline. The 
commenters stated that it is questionable whether any MDO has a 
``microloan pipeline'' that can be described to a funder. Generally, 
MDOs do not line up loans and then make a drawdown. The incoming 
pipeline is totally unpredictable. MDOs typically base their drawdowns 
on previous history and draw down as needed. The commenters recommended 
that the Agency remove this requirement from the rule and replace it 
with a provision that draw downs be allowed as needed by the MDO. 
According to the commenters, keeping this requirement will add to the 
administrative burdens on MDOs and decrease the portion of staff time 
that can be devoted where it should be devoted--servicing loans, 
providing technical assistance and conducting outreach that brings more 
microentrepreneurs in the door for services.
    Another commenter stated that, regarding the ``microloan 
pipeline,'' the rule has two very serious flaws: (a) It conflates 
borrower interest in pursuing a microloan with the certainty of that 
borrower qualifying for a microloan, and (b) it fails to consider the 
impact of unpredictable economic factors and outside forces. This 
commenter stated that a ``microloan pipeline,'' as the term is used in 
the microenterprise field, is not a predictor of future borrowers, but 
rather an expression of loans in the process of closing. While an MDO 
may work to forecast demand for microloans, the incoming pipeline is 
ultimately unpredictable and does not provide a reliable proxy by which 
to judge the intent of MDOs requesting a loan disbursement. The 
commenter recommended that the ``microloan pipeline'' be utilized as an 
indicator of microloan demand.
    Response: Agency experience indicates that lenders are able to 
anticipate what they will lend over the next 3 to 6 months. Generally, 
a microloan pipeline can be anticipated by assessing those clients that 
are in the pre-loan technical assistance and

[[Page 30130]]

planning stages. A well managed microlending institution will recognize 
those clients that are ready for loan approval and those clients that 
are not. They will also recognize those clients that intend to borrow 
and those clients that do not. Therefore, it should not be difficult 
for a microlender to anticipate the need for microlending funds. The 
``microloan pipeline'' language, therefore, has been removed to state 
that the request for disbursement will be accompanied by a description 
of the microlender's anticipated need (i.e., the amount and number of 
microloans anticipated to be made with the funding) (see Sec.  
4280.311(e)(11)).
Interest Rate Adjustment (Proposed Sec.  4280.311(d)(13))
    Comment: Many commenters expressed concern over the interest rate 
provisions in the rule at proposed Sec. Sec.  4280.311(d)(13) and 
(d)(17). One of the commenters noted that the statute established a 
minimum interest rate of at least 1 percent for USDA loans (section 
379E(b)(3)(B)(ii)) and claimed that the proposed rule does not 
implement the interest rate as set out under the law. This commenter 
then referred to the proposed formulations in proposed Sec.  
4280.311(d)(17) and stated that they may have merit, but are not 
clearly explained in the rule and have the potential to raise interest 
rate charges to microenterprises. In the interest of time, clarity, and 
ease, the commenter believes that the Agency should follow the law and 
implement the loan rate set out by the statute.
    The other commenters recommended adopting fixed rate loans at a 1 
percent interest rate.
    Response: The Agency agrees that the interest rate provisions found 
in proposed Sec.  4280.311(d)(13) and (d)(17) should be revised to 
reflect a simpler structure. However, the Agency disagrees that the 
rate should be less than 1 percent. The statute does not anticipate a 1 
percent rate at all times on every loan. It only states that the 
interest rate must be at least 1 percent. To address the commenters' 
concerns regarding the rate structure, and Agency concerns regarding 
the cost and broad distribution of loan funds, the Agency has revised 
the rule at Sec.  4280.311(e)(12) to set a fixed interest rate of 2 
percent on all loans to any MDO that are made in the first 5 years of 
an MDO's participation in RMAP. After 5 years of successful and 
continuous participation in RMAP, each new loan to an MDO will be at a 
fixed 1 percent interest rate. Depending on future Treasury bill rates, 
these revised interest rate provisions may be more expensive to the 
Government, but comply with the law and will eventually provide the 
lower 1 percent rate to the best MDO performers. In addition, these 
revised interest rate provisions should encourage microlenders to 
continue successful participation in the program.
Interest Rate Adjustments (Proposed Sec.  4280.311(d)(14) and (d)(15))
    Comment: One commenter asked how the Agency's Financial Office 
would deal with the provisions of proposed Sec.  4280.311(d)(14) and 
(d)(15).
    Response: The RMAP will utilize the RULSS technology platform, 
which includes the calculation of capitalized interest.
Amortization (Proposed Sec.  4280.311(d)(15)(i))
    Comment: One commenter suggested replacing ``subject itself to 
negative amortization'' with ``subject itself to a balloon payment'' as 
being clearer.
    Response: The Agency has revised the rule to remove reference to 
negative amortization. Because the Agency's Finance Office will always 
adjust payments so that negative amortization will not occur, there is 
no need to address this issue in the rule.
    Comment: One commenter asked why amortization calculations are 
performed at month 22 for the end of the deferral period and to start 
payments, but then turning around and automatically reamortizing their 
loan at month 34.
    Response: The Agency has removed the paragraph concerning 
reamortizing loans at month 34, because it is no longer necessary for 
the implementation of this program. The Agency notes that amortization 
calculations are to be performed during the 24th month of the deferral 
period, rather than on the first day of the 22nd month as had been 
proposed. Section 4280.311(e)(13) has been revised accordingly.
Loan Deobligation and Evaluation (Proposed Sec.  4280.311(d)(16) and 
(d)(17))
    Comment: One commenter asked how the Agency's Financial Office 
would deal with the provisions of these paragraphs.
    Response: The RMAP will utilize the RULSS technology platform, 
which can facilitate the calculations.
Interest Rate Adjustments (Proposed Sec.  4280.11(d)(17))
    Comment: Two commenters were concerned over how the Agency was 
proposing to adjust the interest rates on loans made to microlenders. 
One of the commenters requested clarification of when interest rates 
will change for MDO's that have used all their funds (proposed Sec.  
4280.311(d)(17)(i)) by the 24th month and expressed concern regarding 
proposed Sec.  4280.311(d)(17)(ii).
    The other commenter stated that different incentives to reward 
microlenders who relend their funds quickly can be developed instead of 
the interest rate adjustment. The commenter also suggested that 
incentives be built into the use of the TA grant funds.
    Response: For the reasons discussed earlier in response to comments 
on proposed Sec.  4280.311(d)(13), the Agency has revised the interest 
rate structure and has removed proposed Sec.  4280.311(d)(17). Thus, it 
is unnecessary to adopt the commenters' suggestions.
Minimum and Maximum Loan Amounts (Proposed Sec.  4280.311(e)(1))
    Comment: A number of commenters were concerned about the maximum 
loan amounts being proposed. Most recommended raising both the single 
year maximum and the aggregate maximum to $1 million and $5 million, 
respectively. Other amounts suggested were $750,000 for single year 
maximum and $4 million aggregate maximum. Points made by the commenters 
included:
    <bullet> While most rural MDOs will not borrow the maximum amount, 
large lenders that can demonstrate success in making and managing a 
large volume of loans should have the opportunity to do so;
    <bullet> The low limit may constrain MDOs with robust pipelines of 
potential borrowers; and
    <bullet> The low limit creates additional administrative expenses 
for both the Agency and the MDO.
    Response: In order to fund as many qualified microlenders as 
possible, it is important to have a maximum loan amount that is both 
large enough for larger lenders and small enough to allow equitable 
distribution of loan funds. Additionally, the current maximums and 
minimums provide the Agency with the opportunity to spread risk across 
a higher number of local economies than would a more condensed 
distribution. Therefore, the Agency has not revised these limits in 
response to the comments.
    The Agency notes that it has retained the proposed minimum loan 
amount of $50,000 in the interim rule. The Agency considered whether to 
lower this minimum amount, but decided against doing so for two primary 
reasons. First, the Agency is concerned that an MDO seeking to borrow, 
for example, only $10,000 or $20,000 is unlikely to be a well 
established MDO with a sufficient

[[Page 30131]]

``critical mass'' and would therefore present a higher risk to the 
Agency for repayment. Second, even if the MDO seeking such a small 
amount was well-established, the Agency believes that a $10,000 or 
$20,000 loan to the MDO under this Program would represent a small 
portion of the MDO's overall portfolio of loans and would not be the 
type of MDO the Agency is most interested in for the Program.
Use of Funds (Proposed Sec.  4280.311(e)(2))
    Comment: One commenter asked what an MDO would do concerning 
establishing an RMRF if the MDO wants to apply in a subsequent year to 
recapitalize the loan fund.
    Response: The Agency has rewritten the beginning part of Sec.  
4280.311(f)(2) to state: ``Loans must be used only to establish or 
recapitalize an RMRF out of which microloans will be made.'' By 
including ``or recapitalize'', the Agency is allowing MDOs to apply in 
subsequent years for loan funds to recapitalize an existing loan fund. 
In addition, other changes have been made to this paragraph.
    Comment: One commenter suggested revising the sentence ``Interest 
earned by the microlender on these funds may, with advance written 
authorization from the Agency, be used to help fund the LLRF'' to read 
``Repayments plus Interest earned on these funds may be used to help 
fund the LLRF.'' The commenter believes that requiring advance written 
authorization is another opportunity for Agency non-compliance.
    Response: The Agency has not revised the provision requiring 
advanced written notification for using the interest earned on the RMRF 
for increasing funding to the LLRF (see Sec.  4280.311(e)(2)). The 
Agency disagrees with the commenter's assertion that this is an 
opportunity for Agency non-compliance. This requirement is a sound 
oversight provision.
Loan Loss Reserve Fund (LLRF) (Proposed Sec.  4280.311(f))
    Comment: One commenter asked why the LLRF would be set up to cover 
delinquent payments.
    Response: The statute requires the establishment of at least a 5 
percent LLRF (see section 379E(b)(3)(C)). The purpose of the LLRF is to 
cover microloans that have gone into default. This provides a cushion 
to protect the microlender from becoming delinquent to the Federal 
government.
    Comment: One commenter stated the ``105 percent rule'' that 
requires the MDO at all times to maintain a microloan fund and loss 
reserve equal to 105 percent of the RMAP loan balance, or be in 
default, is unworkable and unnecessary. What this means is that if an 
MDO suffers any loss whatsoever (which is realistically likely), it 
either must immediately refund the entire loss up to the 105 percent 
level, or be liquidated by USDA. This is required even if the MDO is 
otherwise current on their RMAP loan and performing as agreed. If an 
MDO suffers a loss but continues to stay current on its payments, it 
should be monitored closely by USDA, but it may yet recover its losses 
through operations or other means. There is no benefit or reason to 
liquidate an MDO that is making payments as agreed and operating its 
microloan fund in accordance with the mission of the RMAP program. 
Again, the IRP program's approach to default is perfectly workable as a 
quick substitute.
    Another commenter recommended that USDA provide further guidance on 
the available grace period for an MDO to replenish the LLRF in case of 
microloan default.
    Response: The statute requires that each microlender establish and 
maintain a loan loss reserve fund of at least 5 percent of the 
outstanding balance of debt owed to the Agency under the program by the 
microlender. It is not the intent of the Agency to declare a 
microlender in default based on the loss by a microborrower. The Agency 
is also aware that it takes time to replenish the reserves. Therefore, 
the Agency has added a 30-day grace period for such replenishment. 
Regarding the reference to the IRP program, it is not the Agency's 
intent to operate the RMAP as if it were an extension of the IRP.
Capitalization and Maintenance (Proposed Sec.  4280.311(f)(2))
    Comment: A number of commenters were concerned with the proposed 
provision that would require the 5 percent funding level for the loan 
loss reserve fund to be met using ``non-Federal funding'' (e.g., RMAP 
funds cannot be used to establish the loan loss reserve) (proposed 
Sec.  4280.311(f)(2)(iii)). The commenters noted that this provision 
would require the LLRF to be funded by the borrower. The commenters 
stated that this is contrary to Congressional intent that the 5 percent 
level be met using the USDA/RMAP loan. Most of the commenters 
recommended that the rule reflect this Congressional intent.
    In supporting this position, several of the commenters stated that 
requiring the use of non-Federal funds would limit the ability of 
smaller rural MDOs to participate in the program. According to the 
commenters, many rural MDOs depend on federal funds to operate, as 
state, local and private funds for microenterprise development are 
limited and decreasing. According to one commenter, even in the best of 
times, securing non-Federal funding is a challenge. These funds provide 
critical resources for achieving the MDOs mission of serving rural 
microenterprises. Making them nearly inaccessible for 20 years will 
pose significant challenges for all MDOs. The commenters believe that, 
if forced to use non-Federal funds for the LLRF, the program will be 
unattractive to many MDOs and many rural MDOs will not be able to 
participate in RMAP because they have no (or limited) non-federal funds 
to capitalize the required loan loss reserve.
    Two of the commenters indicated that they understood the Agency's 
reluctance to allow use of RMAP funds to capitalize the loan loss 
reserve. These commenters stated that some flexibility should be 
provided to allow the use of other federal funds and suggested that, as 
an alternative, this provision be modified to allow federal funds other 
than RMAP (Rural Business Enterprise Grant (RBEG) or Community 
Development Block Grants (CDBG) funds, for example) to capitalize the 
required loan loss reserve.
    Finally, one commenter suggested that the requirement for the LLRF 
as proposed be eliminated in its entirety and be replaced with the 
IRP's approach of requiring that a 6 percent loss reserve be built up 
by the third year of operations and maintained thereafter, with the 
understanding that losses will cut into the reserve and that therefore 
time is allowed in rebuilding the loss reserve.
    Response: While the Agency understands the issues raised by the 
commenters, especially as it regards MDOs with less history, the Agency 
has not revised the requirement to use non-Federal funds. Based on the 
lending program history of Rural Development, it has greatest level of 
long-term success awarding projects with program participants who have 
their own capital in the project rather than having the government 
fully finance the project. In addition, there is a statutory 
requirement in section 379E to provide a 25 percent non-Federal share 
against funds received from the Federal Government for the cost of the 
project. The MDO's non-federal investment in the LLRF can be considered 
a part of the non-Federal share.

[[Page 30132]]

LLRF Funded in Advance (Proposed Sec.  4280.311(f)(4))
    Comment: One commenter in reference to ``The LLRF account must be 
established and partially funded'' asked: If they do not initially 
establish at 5 percent, what is the period of time the microlender has 
to fully capitalize the account? The commenter pointed out that 
proposed Sec.  4280.311(h), Loan closing, requires at least 5 percent 
of initial disbursement be deposited. One commenter also asked: Why 
would the LLRF need to be funded with 5 percent of the initial 
disbursement when the account is required to have 5 percent of each 
loan made. If no loans have been made, the commenter believes that such 
a requirement would be an undue financial burden on the applicant to 
tie up funds for this.
    Response: The initial amount of capitalization will be 5 percent of 
the initial disbursal amount requested from the Agency by the MDO. The 
remaining loan loss reserve funds can be front loaded into the account, 
or built over time as microloans are made. The MDO will maintain a 
minimum cash balance of 5 percent of the amount owed to the Agency 
under this program in the LLRF at all times, including at the time of 
the initial and all subsequent draws, with the exception that if the 
LLRF falls below the required amount, the microlender will have 30 days 
to replenish the LLRF. The paragraph has been clarified accordingly.
Approval/Obligation (Proposed Sec.  4280.311(g))
    Comment: One commenter pointed to the part of proposed Sec.  
4280.311(g) that states that the Request for Obligation of Funds form 
``may be executed by the loan approving official provided the 
microlender has the legal authority to contract for a loan, and to 
enter into required agreements.'' The commenter then asked if OGC will 
be making the determination that the MDO has the legal authority to 
contract for a loan.
    Response: As indicated previously in this preamble, the interim 
rule now requires the MDO to submit an attorney's opinion regarding the 
MDO's legal status to make loans, which the Agency will use in making 
the determination but may consult with OGC as necessary.
    Comment: One commenter suggested replacing ``loan approving 
official'' with ``Agency'' for consistency within the rule.
    Response: The Agency agrees with the suggestion to replace ``loan 
approving official'' with ``Agency'' and has revised the paragraph 
accordingly.
Loan Closing (Proposed Sec.  4280.311(h))
    Comment: One commenter suggested that the proposed rule needs to 
address the applicant signing a promissory note, security agreement, 
financing statement, etc., at loan closing.
    Response: The Agency agrees that the rule needs to identify the 
promissory note and security agreement and has added them accordingly.
    Comment: One commenter asked: Wouldn't the RMRF account have to be 
set up prior to ``loan closing'' because the Agency would have had to 
establish the electronic funds transfer (EFT)?
    Response: The Agency agrees with the commenter that the RMRF 
account would have to be set up prior to loan closing. Section 
4280.312(c)(1) provides, in part: ``Prior to loan closing, microlenders 
must provide evidence that the RMRF and LLRF bank accounts have been 
set up.'' No change has been made in response to this comment.
    Comment: One commenter suggested using the term ``Agency 
Personnel'' in proposed Sec.  4280.311(h)(2)(ii) in order to allow 
seamless movement of the program from the national level to the state 
level at a future date if necessary.
    Response: The commenter is referring to an earlier version of the 
proposed rule. The Agency is using the term ``Agency'' and that is 
sufficient to address the commenter's concern.
    Comment: One commenter suggested replacing ``processing officer'' 
with ``Agency Official'' in proposed Sec.  4280.311(h)(4) for 
consistency.
    Response: The Agency agrees with the suggestion to replace 
``processing officer'' with ``Agency'' and has made the change 
accordingly.
    Comment: One commenter asked why tax considerations were included 
in proposed Sec.  4280.311(h)(4) as a reason for not approving changes 
(``Changes in legal entities or where tax considerations are the reason 
for the change will not be approved'').
    Response: The Agency does not believe it is necessary to refer to 
``tax considerations'' as questioned by the commenter. The Agency has 
recast the sentence to state: ``Changes in legal entities prior to loan 
closing will not be approved.'' (See Sec.  4280.312(b).) Such a change 
would be considered a material change since the issuance of the letter 
of conditions, so the loan would not be closed.
    Comment: One commenter referred to the phrase ``provide sufficient 
evidence'' in proposed Sec.  4280.311(h)(5) and asked what this meant. 
According to the commenter, this is inconsistent with other Rural 
Development programs.
    Response: The Agency agrees that the phrase ``provide sufficient 
evidence'' needs clarification and has revised the rule accordingly 
(see Sec.  4280.312(c)(3)). The Agency has determined that sufficient 
evidence is best demonstrated through the provision of mechanics' lien 
waivers. In some cases, the Agency recognizes that such waivers may not 
be available or applicable. In such instance, the provision of receipts 
of payment would suffice.
    Comment: One commenter recommended that the program require a 
standard closing opinion, as required under the Intermediary Relending 
Program via OGC standard format in order to be consistent with existing 
programs.
    Response: The Agency has determined that an attorney's opinion 
regarding the entity's legal status and its ability to enter into 
program transactions at the time of initial entry into the program will 
be required (see Sec.  4280.310(a)(4)(ii)). Subsequent to an entity's 
acceptance into the program, an attorney's opinion will not be required 
unless the Agency determines significant changes to the entity have 
occurred. The rule has been revised accordingly.
Report/Records/Oversight (Proposed Sec.  4280.311(i))
    Comment: One commenter stated that the program appears to be 
heavily bureaucratic in terms of data collection and reporting 
requirements compared to the SBA Microloan program. The reporting 
requirements need to be streamlined and reduced so administrative costs 
of the MDOs can be kept lower with more focus on serving the microloan 
clients.
    Response: The Agency makes every attempt to streamline 
requirements. The portfolio reporting system for this program will be 
fully electronic. The grant reporting requirements are in line with 
Standard Federal reports. Therefore, no changes have been made in 
response to the comment.
Reporting Frequency
    Comment: One commenter requested that reporting be semi-annual, and 
not quarterly, for both loans and grants. According to the commenter, 
only qualified and experienced MDOs will be selected, via the scoring 
criteria, as lenders in the program and that, in the ``spirit of non-
micromanagement'', reporting should start out as semi-annual. The 
commenter also suggested quarterly reports until loan funds are spent 
by MDO and then convert to semi-annual reporting unless there are 
servicing or delinquency issues and then they may be reverted to 
quarterly reports until operations are found to be

[[Page 30133]]

satisfactory. Lastly, the commenter recommended that, for grants, 
reports be required quarterly during drawdown of the grant, and then 
semi-annually thereafter.
    Response: The Agency does not disagree that selected applicants 
will be qualified and experienced MDOs will be selected to participate. 
However, the level of experience may vary widely. The Agency proposed 
that reporting be quarterly because microloans will be short- to 
intermediate-term loans. With short- and intermediate-term lending, 
more frequent reporting (quarterly versus semi-annual) should help the 
microlender better manage the loan.
    Comment: One commenter was concerned with the phrase ``such 
information as the Agency may require'' (proposed Sec.  
4280.311(i)(1)(i)) and suggested that the rule needs to be specific in 
what information will be asked for in order to ensure consistency 
across the States.
    Response: The list of required reporting forms is provided in Sec.  
4280.311(h)(1) and any other requirements will be determined by the 
Agency as necessary based on the activities of the particular MDO.
    Comment: In reference to proposed Sec.  4280.311(i)(4), one 
commenter stated that there is no ``RD Form 1951-4, Report of RMAP/RMRF 
Lending Activity'' but that there is a ``Form 1951-04, Report of IRP/
RDLF Lending Activity''. The commenter then asked if there is a plan to 
make a new form or use the existing form.
    Response: The Agency has determined that Form RD 1951-4 is no 
longer needed because the relevant part of that form will be moved into 
the Guaranteed Loan System (GLS). Thus, reference to the form has been 
removed from the rule and the Agency will use the GLS.
Grant Provisions (Sec.  4280.313)
Grant Amounts (Proposed Sec.  4280.312(a)(1))
    Comment: Many commenters expressed concern that the proposed rule 
would limit technical assistance grants to $100,000 despite ``clear 
legislative language allowing such grants up to 25 percent of 
outstanding loans.'' Three of the commenters referred to Section 
6022(b)(4)(B), stating that this section clearly states that the 
maximum amount of grant is ``an amount equal to not more than 25 
percent of the total balance of microloans made by the MDO * * * as of 
the date the grant is awarded.'' One commenter stated that the statute 
does not place any limit on the amount of the grants to support rural 
microenterprise development. According to this commenter, the purpose 
statement in the law could be read to suggest that these grants should 
generally represent 50 percent of the program, with technical 
assistance and financial assistance the other 50 percent. This 
commenter, therefore, recommended that, at a minimum, rural 
microenterprise development grants to an individual MDO be capped no 
lower than $250,000 annually.
    These commenters believe that such a cap will make it difficult for 
organizations to fund the staff needed to work with borrowers and other 
clients, noting that good business planning, skills in marketing, 
management, and accounting are essential to business success. Several 
stated that the rule should be ``revised to reflect the language of the 
law.''
    Two commenters believe that by capping technical assistance funds, 
the proposed rule will make it difficult for organizations to provide 
the services microenterprises need to succeed. Often, borrowers from 
this program have been deemed not creditworthy by commercial lenders. 
Microenterprise programs work exclusively with such borrowers and help 
microenterprises succeed by committing significant staff resources to 
training and technical assistance. A cap in technical assistance will 
likely result in more defaults.
    Another commenter stated that this limitation ignores the 
possibility of high performing, successful organizations that may not 
be able to meet market demand for loans simply because of the 
limitation on technical assistance funds available. In the commenter's 
view, the reason for this provision was to ensure that micro-lenders 
had adequate financial capacity to support their loan volume. The 
$100,000 cap undermines this provision.
    In sum, commenters requested (1) no cap, (2) using the 25 percent 
cap across the board, or (3) raising the limit from $100,000 to 
$250,000 (to be consistent with the $1 million annual RMRF limit for 
the MDO).
    Finally, some commenters requested clarification as to whether the 
maximum amount of the TA grant accompany every borrowed loan; that is, 
if there is a separate TA grant of up to $100,000 for every loan to a 
microlender (in proposed Sec.  4280.311(e)), and the proposed rule 
provides a maximum loan of $500,000, with an aggregate debt owed the 
program by any single microlender of $2,500,000, the implication is a 
possibility of up to five separate loans to a single microlender and 
the potential of up to an aggregate of $500,000 in TA grants to a 
single microlender). The commenters suggested that the final rule be 
clarified to allow the TA grant accompanying the loan to an MDO to be 
the maximum amount allowed by law.
    Response: The Agency has determined that the $100,000 proposed 
maximum could be more limiting than intended in order to provide 
sufficient technical assistance to microenterprises and 
microentrepreneurs. However, the Agency has also determined that, 
considering the economies of scale, funding technical assistance grants 
at 25 percent for all outstanding loans up to the $2.5 million maximum 
is unnecessary and could divert too much of the program's funds away 
from loan purposes. Therefore, the Agency has revised the rule to allow 
technical assistance grants at a rate of 25 percent for the first 
$400,000 of aggregate outstanding microloans owed to the microlender 
under this program and then 5 percent on all additional outstanding 
microloans owed to the microlender under this program above $400,000 up 
to the $2.5 million total debt cap (see Sec.  4280.313(a)(1)(i)). As a 
result, the maximum TA grant to any one MDO in any given year would now 
be $205,000. The Agency has also clarified that the TA grant amount is 
an annual amount, as specified in the statutory language.
Cost Share (Proposed Sec.  4280.312(a)(2))
    Comment: One commenter was concerned with the cost share provision 
limiting the ``Federal share'' to 75 percent as it would be applied to 
the Freely Associated States (Republic of Palau, Republic of the 
Marshall Islands, and the Federated States of Micronesia). The 
commenter pointed out that the Freely Associated States get much of 
their financial support from the Compact of Free Association with the 
United States, which is funneled through the Department of Interior, 
Office of Insular Affairs. This Compact funding could be a potential 
source of match for the RMAP program and the commenter would hate to 
see it excluded. The commenter, therefore, suggested this provision be 
revised to reflect ``Rural Development'' funding.
    The commenter suggested combining proposed Sec.  4280.312(a)(2) and 
(a)(3) to simply say that the Agency portion cannot exceed 75 percent 
of the grant amount.
    Lastly, one commenter stated that the math in proposed Sec.  
4280.312(a)(2) and (a)(3) does not ``add up''. The commenter provided 
the following example: Paragraph (a)(2) states the maximum TA or 
enhancement grant cannot exceed 75

[[Page 30134]]

percent and paragraph (a)(3) states that the total matching requirement 
is 25 percent of the grant. If the cost of the grant project is $10,000 
and the grant portion is 75 percent or ($7,500) and the match is 25 
percent of the grant amount ($1,875), there is a shortage of $625 of 
complete funding for the project.
    Response: Federal funding may not be used as the non-Federal share 
or match for the RMAP program unless specifically permitted by laws 
other than the statute authorizing RMAP. Instead, language has been 
provided that clarifies the statutory language regarding cost share 
(see Sec.  4280.311(d)) and matching funds (see Sec.  4280.313(a)(2)). 
The Agency has revised the cost share and matching requirements, which 
address the commenters' concerns (see Sec. Sec.  4280.311(d) and 
4280.313(a)(2)).
Matching Requirements (Proposed Sec.  4280.312(a)(3))
    Comment: One commenter suggested recasting the text to refer to the 
``non-Agency cash''.
    Response: With regard to the suggested text edit, the Agency has 
retained ``non-Federal'' because, with the exception of certain laws 
that allow the use of specific funding, other Federal funding may not 
be used.
    Comment: Two commenters expressed concern about an apparent 
inconsistency between the law and the proposed rule with respect to 
matching funds for the grant provisions in the RMAP.
    One of the commenters referred to section 379E(c)(1)(B) of the 2008 
Farm Bill, which indicates that an MDO must provide a match of 15 
percent the grant amount in the form of matching funds, indirect costs, 
or in-kind goods or services. For both enhancement grants and for 
technical assistance grants, proposed Sec.  4280.312(a)(3) states that 
microlenders must provide a 10 percent match against any grant and a 15 
percent cash or in-kind contribution against any grant for a total 
matching requirement of 25 percent. The proposed rule indicates that 
the loan loss reserve fund does not count for this requirement. The 
law, however, only requires either a cash match or an in-kind 
contribution. According to this commenter, there seems to be an 
inconsistency between the law and the proposed rule. For an MDO, the 
difference could have serious ramifications. Rural MDOs are challenged 
by the relative lack of local foundations, the fact that fewer 
corporations are headquartered in rural areas, and continually strained 
state budgets. The commenter, therefore, recommended that the Agency 
clarify the matching requirement, which the commenter understands--
based on the law--to be a 15 percent match in the form of cash or in-
kind funds.
    The other commenter also noted that for both enhancement grants and 
for TA grants, the proposed rule states that microlenders must provide 
a 10 percent match against any grant and a 15 percent cash or in-kind 
contribution against any grant for a total matching requirement of 25 
percent. The LLRF does not count for this requirement (proposed Sec.  
4280.312(a)(3)). The law, however, only requires either a cash match or 
an in-kind contribution; not both (section 379E(c)(1)(C)).
    Lastly, one commenter noted that the law authorizes the use of 
CDBGs for use as a non-federal match. The commenter thus recommended 
that the Agency should include this in the final rule.
    Response: The Agency has revised the non-Federal share and matching 
requirements, which address the commenters' concerns.
    With regard to the CDBG comment, when permitted by laws other than 
the statute authorizing RMAP, Federal funding may be used as the non-
Federal share or match for the RMAP program.
Oversight (Proposed Sec.  4280.312(a)(4))
    Comment: One commenter noted that the proposed rule already has 
provisions for oversight at proposed Sec.  4280.311(i) and suggested 
combining the two provisions.
    Response: The oversight provisions the commenter is referring to in 
proposed Sec.  4280.311(i) apply to loans. The oversight provisions in 
proposed Sec.  4280.312(a)(4) apply to grants. Because the provisions 
are different and apply to two different types of financial assistance, 
the Agency has not combined the two paragraphs as suggested by the 
commenter. However, the Agency has determined that there is no need for 
two grant oversight paragraphs found in proposed Sec. Sec.  
4280.312(a)(4) and 4280.320(a). Therefore, the Agency has deleted the 
first occurrence so that all grant oversight provisions are found in 
Sec.  4280.320(a).
    Comment: In reference to proposed Sec.  4280.312(a)(4)(i), one 
commenter asked if the reporting will be with SF-269, ``Financial 
Status Report,'' (Long Form) or (Short Form). The commenter also asked 
if this was in addition to the narrative and to Form RD 1951-4.
    Response: The SF-269 has been replaced with SF-PPR, ``Performance 
Progress Report.'' The new form will be submitted in conjunction with 
the narrative. As noted in a previous response, the Agency has 
determined that Form 1951-4 is no longer needed because the relevant 
part of that form will be moved into GLS.
    Comment: In reference to proposed Sec.  4280.312(a)(4)(iii), one 
commenter suggested adding ``as revised'' after the reference to ``OMB 
Circulars A-102 and A-110.''
    Response: The Agency has replaced reference to these specific 
circulars with a more general reference to OMB circulars and 
regulations, eliminating the need to add the language suggested by the 
commenter.
    Comment: One commenter suggested that all reporting requirements 
should be listed in one section and not spread out.
    Response: While the Agency agrees with the commenter, the Agency 
will address this in regulatory instructions.
Administrative Expenses (Proposed Sec.  4280.312(a)(5))
    Comment: One commenter stated that there is a need for additional 
clarity about what the technical assistance grant may be used for. 
According to the commenter, the limitation at proposed Sec.  
4280.312(a)(5) that not more than 10 percent of the technical 
assistance grant be used for administrative costs is confusing and 
problematic. The commenter stated that an MDO should be able to use its 
technical assistance grant to pay for all of the costs associated with 
providing a functional staff to provide technical assistance to 
microentrepreneurs. Such costs should be expressly allowed and not be 
governed by the 10 percent figure.
    Response: The Agency acknowledges that intensive technical 
assistance is widely recognized in the microlending community as a 
critical component to the success of potential and existing 
microborrowers. The 10 percent limitation is statutory (section 
379E(b)(4)(C)). With regard to the commenter's request for additional 
clarity, the Agency disagrees that the rule is not sufficiently clear 
as to what the technical assistance grant may be used for and no 
changes have been made to the rule in response to this comment.
Enhancement Grants (Proposed Sec.  4280.312(b))
    Comment: One commenter stated that the enhancement grant is an 
unnecessary diversion of scarce RMAP funds. Enhancement grants as 
proposed are small ($25,000) and limited to the purpose of building MDO 
capacity. There are other USDA Rural Development programs available to 
do this--RBEG, RBOG, Rural Community

[[Page 30135]]

Development Initiative (RCDI)--as well as other sources from other 
funders and federal programs. There is no expressed requirement in the 
statute to create an Enhancement Grant program, and it would be a much 
better approach to direct all of the scarce RMAP grants to supporting 
the MDO's who are actually making microloans instead.
    One commenter suggested an optional approach to provide enhancement 
grants, recommending that the rule allow the Agency to make larger 
enhancement grants to microlenders that, on a competitive basis, will 
select a group of rural microlenders to provide a platform for group, 
individual, and peer-to-peer enhancement services. The commenter 
referred to the U.S. Small Business Administration's Program for 
Investment in Microentrepreneurs (PRIME) as an example of such an 
approach.
    Response: The Agency disagrees with the commenter concerning the 
statutory basis for the ``enhancement grant'' program. The statute 
states at section 379E(b)(4)(A)(i)(II): ``Carry out such other projects 
and activities as the Secretary determines appropriate to further the 
purpose of the program.'' However, because opinions differ widely on 
how best to approach an enhancement grant category to this program, the 
Agency is requesting comments on this subject (see Section V of this 
preamble). Comments will be considered prior to publication of the 
final rule.
Technical Assistance Grants (Proposed Sec.  4280.312(c))
    Comment: One commenter noted that this section states that TA 
grants will be based on the loan amount made to an MDO ``in accordance 
with the statute.'' The statute does not at any time state that TA 
grants should be calculated in this manner; however, the report 
language does allow for this mechanism.
    Response: The statute states at section 379E(b)(4)(B)(ii): 
``Maximum amount of grant. A microenterprise development organization 
shall be eligible to receive an annual grant under this subparagraph in 
an amount equal to not more than 25 percent of the total outstanding 
balance of microloans made by the microenterprise development 
organization under paragraph (3), as of the date the grant is 
awarded.'' While the text in the preamble to which the commenter is 
referring may not reflect this statutory provision clearly, this is the 
statutory language on which the statement in question was made. The 
Agency will ensure clarity in the interim rule.
    Comment: Several commenters noted that this section does not 
address borrowers who are ``seeking a loan from an MDO''; that it 
addresses only people who have received one or more microloans and that 
this is in contradiction to the statute authorizing the program. As one 
of the commenters stated: This section of the proposed rule states that 
TA grants can only be used for people that have ``received one or more 
microloans'' from the MDO. However, the law also allows these TA grant 
funds to be used for services to microentrepreneurs that ``are seeking 
a loan from the'' MDO (Section 6022(b)(4)(B)(i)(II)). The law clearly 
intends to support microentrepreneurs who are owners and operators of 
rural businesses or prospective owners and operators of rural 
businesses. The definition of ``microentrepreneur'' in both the law and 
Proposed Rule include both types of microentrepreneurs. This section 
would ignore the need for technical assistance for prospective 
microborrowers as contemplated by the law. The commenters suggested 
that the final rule be modified to conform to the law.
    One commenter also stated that, in practical terms, most 
microentrepreneurs seeking a loan need technical assistance to complete 
the loan process, and it is often difficult for MDO lenders to 
determine in advance whether an applicant will successfully complete 
the borrowing process. In fact, in some cases, well-crafted pre-loan 
assistance will enable a microentrepreneur to determine a means to grow 
or stabilize their business without taking on the risk of a loan, and 
as a result they will choose not to borrow.
    Response: The Agency agrees with the commenters that the rule 
should include these entities and has so modified the rule (see Sec.  
4280.313(b)(1)).
Disbursement of TA Grant (Proposed Sec.  4280.312(c)(2))
    Comment: Several commenters discussed the manner proposed for 
disbursing TA grants. Four suggested that the TA grant be a full year 
grant and not based on the microloans made for the first year. Another 
similarly recommended that, during the first year of an intermediary's 
participation in RMAP, the TA grant should be a full year grant based 
on the amount of the loan to the intermediary.
    Commenters noted that this section of the proposed rule states that 
during the first year of operation the disbursement of TA grants to 
MDOs shall be a percentage based on the amount of the loan to the 
microlender, but will be disbursed on a quarterly basis based on the 
amount of microloans made. This limitation of TA grant disbursement 
will limit the amount of technical assistance an MDO can offer to 
borrowers or potential borrowers. In the long-run it could affect the 
pipeline of microloan borrowers, something about which the proposed 
rule is concerned in other sections.
    One commenter stated that the manner for disbursement of funds 
needs to be clearer. This commenter states that it appears that the 
proposed rule envisions awarding TA grants only in conjunction with the 
award of RMAP loan funds. Initially this certainly makes sense, but in 
years after an RMAP fund is established, it is still desirable to 
provide TA grant support. In fact, it would be ideal if an RMAP MDO, 
once funded, could depend upon rather than compete for TA grants. A 
possible structure might be to award a TA grant equal to 25 percent of 
the RMAP loan award in Year 1, with a commitment that provided the MDO 
makes satisfactory progress, it will be noncompetitively awarded a 
subsequent TA grant in Years 2, 3, and 4 equal to 20 percent, 15 
percent, and 10 percent respectively of their RMAP microloan portfolio. 
This will have the effect of creating incentives for the MDO to get 
their RMAP funds loaned out quickly (since the size of subsequent TA 
grants will be pegged to their portfolio size) and will provide a 
reliable funding stream with the understanding that the RMAP MDO will 
need to get established internally and gradually come to rely less on 
RMAP TA grant. (It should be noted that there is a precedent for Rural 
Development awarding grants for multi-year terms--e.g., the Section 523 
Self-Help TA program. A similar approach would make sense for the RMAP 
TA grant.)
    A sixth commenter recommended that the TA grant structure allow for 
the training and technical assistance of prospective microentrepreneurs 
as well as existing microentrepreneurs by awarding TA grants quarterly 
or annually, based on statutory allowances, program performance, and 
demonstrated need.
    Response: With regard to the initial (first year) grant, the amount 
will be calculated against the initial loan amount. With regard to the 
manner of disbursement, these will coincide with loan disbursements to 
ensure that funds are available for microlending for loan ready 
clients, that these clients can receive post loan technical assistance, 
and that incoming clients can also receive technical assistance. This 
will allow the initial disbursement of grant

[[Page 30136]]

dollars in advance with the remaining quarters to be funded in 
reimbursement. The Agency notes that quarterly disbursements do not 
imply that one-quarter of the grant will be disbursed each quarter. If 
an MDO needs, for example, 50 percent of the grant in the first 
quarter, the rule allows the Agency to provide that amount in the first 
quarter.
    Overall, the Agency is satisfied that the proposed distribution of 
money is sufficient for participating MDOs to implement technical 
assistance associated with loans made under this program. As the 
program matures, the Agency will evaluate this method of disbursement.
MDO Application and Submission Information (Sec.  4280.315)
    Comment: One commenter noted that the application content specified 
in USDA Rural Development's IRP regulation (7 CFR 4274.338, including 
the use of the IRP application--Form RD 4274-1) provides a detailed, 
well-understood, and complete set of all of the information needed for 
a revolving loan fund loan application. The commenter recommended using 
this form in lieu of the SF-424 as specified in Sec.  4280.315.
    Response: The Agency disagrees with the commenter's recommendation 
because this program is not meant to replicate the IRP program. The 
program information requested by the Agency will provide the data 
necessary to appropriately evaluate applicants for this program.
Submission Requirements (Proposed Sec.  4280.315(c))
    Comment: One commenter was concerned that the submission 
requirements did not include mention of a narrative, detailed budget, 
and submission of lending and servicing policies.
    Response: As proposed, there were several places within Sec.  
4280.316 that asked for a narrative. In addition, financial information 
was requested in proposed Sec.  4280.316(a)(5) and loan policies and 
procedures were requested in proposed Sec.  4280.316(a)(2). These 
provisions have been retained and appropriate reference to Sec.  
4280.316 has been added to Sec.  4280.315 for clarity.
    Comment: One commenter asked why the proposed rule did not ask for 
organizational documents and suggested that it be added to the list of 
documents to be submitted. According to the commenter, organization 
documents should be submitted to Agency personnel for analysis and 
eligibility determination. Another commenter suggested adding 
organizational documents as an additional documentation requirement.
    Response: As proposed, the rule requested organizational documents 
in Sec.  4280.316(a)(1) as part of the application. This has been 
retained and an appropriate reference has been added to Sec.  
4280.315(d)(1).
    Comment: One commenter suggested using the certification under 
1940-Q instead of Form SF LLL. According to the commenter, 1940-Q is 
used more frequently than SF LLL.
    Response: While the commenter is correct in that either the 
certification under 1940-Q or Form SF LLL can be used, the Agency 
prefers to use SF LLL because it is shorter, meets the needs of the 
Agency, and is consistent with the Agency's other grant programs. 
Therefore, the reference to SF LLL has been retained in the interim 
rule.
Additional Documentation (Proposed Sec.  4280.315(d))
    Comment: One commenter recommended adding the following requirement 
for additional documentation: ``Applicants are strongly encouraged to 
review the scoring criteria and provide documentation that will support 
the score.'' According to the commenter, this needs to be brought to 
the applicant's attention or they will look only at the application 
submission requirements and not provide sufficient information for 
scoring or a successful application. There is a disconnect in many of 
our programs between ``scope of work requirements'' and ``scoring 
criteria''. We need to do a better job of having applicants address 
burdensome scoring data--particularly with a program that is going to 
be administered at the National level initially.
    Response: The Agency agrees with the commenter that the proposed 
text would be useful to help ensure receipt of better applications and 
has modified the rule accordingly with reference to the additional 
application requirements in Sec.  4280.316.
    Comment: In reference to proposed Sec.  4280.315(d)(1)(i), one 
commenter expressed concern that the requirement for copies of an 
applicant's IRS designation as a non-profit would effectively block all 
non-profits in the Freely Associated States from being eligible. The 
commenter asked: Why not just get an OGC opinion similar to the 
Community Facilities program?
    Response: The Agency agrees with the commenter's concern. As noted 
previously in a response to a comment on the definition of ``nonprofit 
entity,'' the Agency has revised this requirement (found in Sec.  
4280.315(c)(8)(ii)) to, in part, remove reference to the IRS.
    Comment: In reference to proposed Sec.  4280.315(d)(1)(iv), one 
commenter suggested adding the words ``not more than 6 months old'' 
after ``A Certificate of Good Standing.''
    Response: The Agency agrees with the commenter's suggestion that 
the certificate of good standing not be more than 6 months old and has 
revised the rule accordingly.
    Comment: Another commenter expressed concern with the requirement 
that the Certificate of Good Standing come from the applicant's home 
state's Office of the Secretary of State. According to the commenter, 
the commenter's State does not provide these certificates to 
institutions of higher education and doubted that other States would do 
so for an Indian tribe within their borders.
    Response: The Agency understands the commenter's concern. As a 
result, the language has been altered to exclude the need of a 
Certificate of Good Standing for institutions of higher education and 
for Indian tribes.
Application Scoring (Sec.  4280.316)
    Comment: One commenter stated that a new application scoring 
process will be needed if the Agency includes in the rule grants to 
MDOs solely for the purpose of the provision of training, technical 
assistance, and other business development services to 
microentrepreneurs.
    Response: As noted in a response to previous comments, the Agency 
is including such grants in the rule and has provided a new application 
scoring system for these grants (see Sec.  4280.316(d)).
Past Experience Requirement
    Comment: Many commenters expressed concern over the proposed rule's 
emphasis on an MDO's past experience, especially in rural areas, when 
scoring applications.
    Commenters, in general, were concerned with the proposed scoring 
that would enable MDOs with past experience and those currently 
operating in rural areas to be awarded more points (and thus be able to 
score higher) than to those MDOs that do not. According to the 
commenters, such scoring would not only put urban MDOs at a 
disadvantage, but would also discourage their expansion into rural 
areas.
    Several commenters also stated that the proposed rule does not 
adequately account for MDOs creating and proposing an effective plan 
for providing services to rural areas. By

[[Page 30137]]

awarding points to MDOs with past experience, the proposed rule puts 
rural MDOs who want to add microenterprise services at a disadvantage. 
As one commenter stated, an MDO with a proven microenterprise track 
record that has a viable plan to now provide lending services may be 
prohibited from doing so by the scoring rules, thus potentially denying 
microlending services to an unserved or underserved rural area.
    In sum, these commenters stated that, if RMAP is to succeed, it 
must prompt both the development of new services by existing providers 
of a single service and the expansion of existing urban programs into 
rural areas. The commenters believe that the rule as proposed would 
discourage both and thereby undermine the success of RMAP in achieving 
the purposes for which it was created.
    On the other hand, another commenter urged the Agency to maintain a 
strong commitment to supporting microlenders who are located in and 
predominantly serve rural communities. While understanding the 
interests of some to incentivize urban-based microlenders to expand 
their lending territories into rural communities, this commenter 
believes that the best service providers are locally based, have strong 
ties to their rural communities, and are intimately connected with the 
rural economies they serve. The commenter further believes that the 
greatest benefit to rural entrepreneurs will be felt through building 
the capacity of rural-based microlenders, not through additional 
outreach from urban markets and asks that the Agency preserve priority 
for microlending organizations having a strong history with, and a 
clear commitment to, rural communities.
    Response: The Agency understands and recognizes the commenter's 
concern as it regards MDOs with more than 3 years experience, but 
without rural area experience. However, it is specifically the intent 
of RMAP to leverage as much as possible the existing rural development 
experience of MDOs and to serve, exclusively, rural areas.
    Further, if the MDO has 3 years or less experience, the scoring 
does not take into account past experience in making loans to rural 
areas or to rural microentrepreneurs. Thus, RMAP does not discourage 
the development of new providers as suggested by the commenter.
    Finally, each of the categories of prospective participants adds up 
to a total score of 100 points so that no category of applicants will 
have any advantage over another category of applicants.
Too Complex/Replace Scoring System
    Comment: One commenter stated that the proposed scoring system is 
overly elaborate and complex, and it will not really single out 
projects with the greatest merit. This commenter recommended replacing 
the proposed scoring system with a much simpler system that is based on 
only three factors: Leverage of USDA funds (Matching Funds); Prospect 
for Success (Experience and Track Record); and Targeted Groups 
(Outmigration/Minority Focus).
    Response: The commenter's suggested three factors are included in 
the scoring criteria. The Agency believes that some level of detail, in 
addition to those three factors, regarding applicant capabilities, 
legal status, historical performance, and other details are important 
in determining the applicant's abilities to make and service 
microloans, provide technical assistance, and facilitate access to 
capital. Therefore, the scoring criteria have been designed to provide 
the Agency with in-depth information regarding each applicant and help 
ensure the success of the program and its end user clients.
Subjective Scoring Criteria
    Comment: Two commenters stated that numerous criteria are 
subjective and may lead to inconsistent or unreliable scoring, 
particularly if reviewers were to lack familiarity with rural 
microlending management best practices. One of the commenters 
specifically stated that the criteria found in proposed Sec.  
4280.316(c)(1), (3), (5), (6), and (7) are highly subjective and 
scoring may vary greatly from individual reviewer to individual 
reviewer.
    Response: The Agency disagrees that these provisions are unduly 
subjective and will result in inconsistent scoring. Because the same 
staff within the National Office will score all applications as the 
program is implemented, the Agency can ensure consistent and reliable 
scoring. As the program matures, the Agency may have State office 
personnel score RMAP applications. At the time of publication of the 
final rule, the Agency will publish detailed regulatory instructions 
with guidance on scoring to help ensure consistency across the State 
offices.
Points for Partnering
    Comment: Two commenters suggested awarding points for partnering. 
The commenters noted that under proposed Sec.  4280.316(a) no points 
will be awarded based on the capacity of the applicant to partner with 
key local, regional, and statewide stakeholders that can help MDOs 
succeed in their mission. Most successful economic development efforts 
are due to key local, regional and statewide partnerships that bring 
together community stakeholders engaged in economic development 
efforts. These partnerships provide MDOs with additional sources of 
financing, technical assistance and buy-in from economic development 
agencies that are critical to program success. They also help to ensure 
that MDOs are not working in a vacuum or duplicating services that are 
already available to microentrepreneurs. The commenters recommended 
that USDA add an additional scoring component that requires MDOs to 
demonstrate their ability to partner with these key stakeholders. One 
of the commenters suggested up to 15 points be awarded and that this 
new criterion should also be included in enhancement grant scoring 
criteria (proposed Sec.  4280.316(d) and (e)).
    Response: The critical and essential scoring criteria have been 
included at this time. While we agree there is value in partnering, our 
primary need is to establish an understanding of the capacity of each 
applicant to provide microloans and technical assistance. As noted 
previously in this preamble, MDOs selected to participate in the 
program are encouraged to develop community-based partnerships. 
However, such partnerships and collaboratives will be developed outside 
of the relationship between the Agency and the participating MDOs. 
Thus, no further points are needed.
Fixed Versus Ranges in Scoring
    Comment: One commenter was concerned with scoring criteria that 
relied on ranges. According to the commenter, awarding points through 
the use of ranges is not objective; most states will award the 
applicant the full score just to be competitive. To be objective, the 
criteria must be based on whether the applicant has either addressed 
the criteria or not. In the commenter's experience with the RBOG 
program, the commenter has issues with the subjectivity of a range of 
score versus the objectivity of a set score. The commenter believes 
that the rule should be kept simple; that is, no ranges, just points. 
Either the applicant has documented the criteria or not with points 
being awarded if they have and no points if they have not.
    The commenter was also concerned that there is insufficient 
direction on how to score the criteria when scoring is shown as 0 to 5 
points, for example.

[[Page 30138]]

To illustrate, the commenter referred to proposed Sec.  4280.316(a)(1), 
which states ``an organizational chart [must be submitted] clearly 
showing the positions and naming the individuals in those positions. Of 
particular interest to the Agency are the management positions and 
those positions essential to the operation of microlending and TA 
programming; award 0-5 points.'' The commenter asked how the Agency 
would make a decision of 0 to 5 points, because there is no requirement 
for experience, until you get to paragraph (a)(4), which is another 
scoring criterion. The commenter was also concerned that the lack of 
direction would result in inconsistency in scoring across the states.
    Lastly, this commenter expressed several concerns with the proposed 
scoring found in proposed Sec.  4280.316(a). The commenter stated that 
there needs to be thresholds for scoring different categories; that is, 
the rule should clearly identify what information will result in a 
score of 1 point or 3 points or 5 points. In other words, there needs 
to be more detail on how to distinguish between, for example, scoring 
10 out of 10 on financial statements versus scoring 3 out of 10.
    Response: The Agency believes that ranges are appropriately 
identified for the scoring criteria identified by the commenter. For 
each criterion, it will be up to the applicant as to how much material 
to provide in addressing the criterion and the quality of that 
material. To help ensure consistency in scoring these criteria among 
National Office Agency staff, the Agency will be providing regulatory 
instructions on how to score each of these criteria.
Points for Smaller Loans
    Comment: One commenter stated that, to become an effective national 
program, the benefits must be spread across the widest range of rural 
entrepreneurs and rural communities. To accomplish this goal, 
consideration should be given to providing some application points for 
MDOs that will target the provision of smaller loans and provide 
complementary nanoloan programs (loans of less than $5,000) designed 
for helping to repair credit scores. In today's economic environment it 
is very easy for rural clients to see their credit scores plummet due 
to loss of a job, unplanned medical bills, housing crisis, or credit 
crisis. Small credit builder loan programs require more administration 
and technical assistance per dollar value of loan balances and the 
commenter suggested that they be given extra consideration weight in 
the application scoring system, since they are an increasingly 
necessary component in providing a comprehensive program and would 
provide greater marginal impacts.
    Response: Nanoloans fit well within program requirements and can be 
easily accommodated. The Agency also sees value in spreading risk via 
numerous loans at smaller amounts. Because these loans will fit well 
within program requirements, no additional scoring for that level of 
lending will be given. At this point in time, lending history 
information called for in the scoring criteria will provide the Agency 
with sufficient data to make appropriate decisions.
Narrative Length
    Comment: One commenter recommended setting a page limit (or number 
of words) whenever the proposed rule requests the applicant to provide 
a narrative. The commenter noted two spots where there are page limits 
(5 and 7) and suggested in both cases that is still too many pages for 
a narrative.
    Response: The Agency agrees and has set a uniform length (5 pages) 
for all narratives.
Fairness of <3 Years vs. >3 Years Experience
    Comment: One commenter stated that setting up different standards 
for inexperienced MDO's (``<3 years'' experience) and established MDO's 
(``3+ years'' experience), is not fair, nor is it good policy because 
it has the effect of slightly favoring inexperienced applicants for a 
high risk undertaking.
    Response: The statute requires that MDOs have ``a demonstrated 
record of delivering services to rural microentrepreneurs, or an 
effective plan to develop a program to deliver services to rural 
microentrepreneurs, as determined by the Secretary.'' As a result, it 
is necessary to consider experienced as well as new entities. The 
scoring system has been created so that all categories of applicants 
can score up to 100 points. Thus, no category of applicants will have 
an advantage.
Relative Points Awarded
    Comment: A number of commenters expressed concern with the relative 
weighting of points among the scoring criteria in proposed Sec.  
4280.316(a) and (b). Concerns expressed were:
    (1) Proposed Sec.  4280.316(a)(4) requires that resumes of all 
staff on the MDO's organizational chart be provided in the application, 
and up to 5 points are awarded for both the ``quality'' of staff 
resumes and for inclusion of the organizational chart. Meanwhile, the 
same number of points is awarded for the MDOs understanding of 
microlending. The allocation of points for the basic scoring of all 
applicants fails to recognize what is important for MDOs to properly 
serve rural microentrepreneurs. The ability of staff to administer the 
program can be determined through other required application items and 
through MDO history, and the points awarded for resumes and an 
organizational chart could be focused elsewhere.
    (2) It seems superfluous to award up to 5 points for an 
organizational chart and another 5 points for adequate resumes for a 
combined 10 points. These two categories can be combined for fewer 
points and demonstrating an understanding of microlending with equal 
emphasis on loan making and providing technical assistance should earn 
more than the current up to 5 points.
    (3) Under proposed Sec.  4280.316(b)(1), History of Provision of 
microloans, paragraphs (b)(ii) through (b)(iv), award up to 8 points 
for the percentage of the number and amount of loans made in rural 
areas, but only up to 4 points for the number and amount of microloans 
made in rural areas. The commenter recommended that, if the goal of 
RMAP is to maximize the number and value of loans made to rural 
microenterprises, the scoring system should provide relatively more 
points to lenders with a history of making larger numbers (and a larger 
dollar value) of microloans in rural areas, regardless of the 
percentage of their total microloan portfolio those loans represent. In 
other words, a lender that has made 40 microloans in rural areas that 
represent 10 percent of its total portfolio should receive a relatively 
higher score than a lender that has made 4 loans in rural areas that 
represent 100 percent of its total portfolio.
    (4) Proposed Sec.  4280.316(b)(3)(v) provides seven points for 
providing loan and TA services to 75 percent or more socially-
disadvantaged microentrepreneurs, but cuts the points nearly in half 
(to four points) for 50 to 74 percent. According to the commenters, it 
could be very hard in many places, like the Great Plains, to reach 75 
percent, particularly with other rules requiring services to match the 
service area demographics. The commenters suggested increasing the 
points awarded in this section to six points for loans and technical 
assistance to at least 67 percent but less than 75 socially-
disadvantaged microentrepreneurs, and four points for at least 50 
percent but not more than 67 percent. That way MDOs in less racially

[[Page 30139]]

diverse rural areas like the Great Plains will not have to sacrifice 
points while still having a diverse portfolio.
    (5) The scoring structure for microlenders with more than three 
years of experience should be changed to value that experience by 
awarding lenders that have made larger numbers (and lent more dollars) 
to microentrepreneurs.
    (6) More points should be awarded for an MDOs successful training 
history because successful MDOs train many more microentrepreneurs than 
they provide loans. According to the commenter, if the MDOs are good at 
the work, some of the microentrepreneurs find they do not need credit 
or gain the knowledge to allow them to receive loans in the commercial 
credit market. The proposed scoring metric awards too many points for 
having made loans and disadvantages organizations whose emphasis is on 
training. The long-term positive effect of the program will depend on 
how successful it is at building community economic capacity, which 
depends at least as much on effective training as on lending.
    (7) Require an organizational chart and staff resumes together and 
awarding a maximum of less than 5 points combined for the two items, 
and reallocating the remaining points (5 plus whatever is remaining 
from the organizational chart/resume combination) to other items, such 
as location in an outmigration area and information regarding 
understanding of technical assistance to microentrepreneurs. The 
commenters also recommended that staff information and resumes, if 
required, be required only for organizational employees dealing 
directly with microentrepreneurs, microlending, and/or the providing of 
technical assistance services.
    (8) Amend these criteria in the final rule to emphasize that 
applicants will be judged on the governance structure of the MDO. In 
particular, the board of directors or governing body of the MDO should 
include a diverse representation of various sectors of the community 
including local elected officials. In supporting this recommendation, 
the commenter states that USDA emphasizes the management positions as a 
critical component of the scoring for this section and notes that this 
is an important factor in a MDO applicant's success. However, the most 
critical organizational component that should be evaluated for an MDO 
is the composition of its governing body or board. This body will be 
responsible for compliance with the funding award regardless of staff 
changes and its composition demonstrates the diversity of local 
stakeholders that are involved in the governance of the MDO.
    Response: The Agency accepts that the proposed scoring system was 
complicated and sometimes unclear. As a result, categories have been 
clarified and reorganized, specific items have been moved to specific 
loan and grant type categories, subjective and objective items have 
been assigned points more appropriate to their actual value, and other 
such changes have been applied. The new scoring criteria are located in 
Sec.  4280.316.
    The Agency disagrees that the quality of resumes and organizational 
structure are not important. Without such quality and structure, the 
MDO may not have the right level of management and understanding to 
make microloans. Lastly, as indicated in Sec.  4280.316(a)(2), resumes 
are requested for the individuals shown on the organizational chart 
which would be, as indicated in Sec.  4280.316(a)(1), management 
positions and those positions essential to the operation of the subject 
program.
Understanding of Microlending (Proposed Sec.  4280.316(a)(2))
    Comment: One commenter recommended that an MDO's understanding of 
technical assistance play a stronger role in the scoring of 
applications because, according to the commenter, the TA portions of 
RMAP are essential and the consensus view is that technical assistance 
is crucial for the success of rural microentrepreneurs. The commenter 
pointed out that up to 5 points would be awarded for the applicant's 
understanding of microlending. Included in proposed Sec.  
4280.316(a)(2) also is the term ``provision of technical assistance.'' 
This seems to indicate that applicant MDOs must also provide evidence 
of their understanding of technical assistance.
    Response: The Agency agrees with the commenter that this provision 
needs to address the MDO's experience with providing technical 
assistance and has revised the rule accordingly (see Sec.  
4280.316(a)(4)) to request provision of the MDO's policy and procedures 
manual addressing technical assistance.
Resumes (Proposed Sec.  4280.316(a)(4))
    Comment: One commenter noted that proposed Sec.  4280.316(a)(4) 
requires that resumes of all staff on the MDO's organizational chart be 
provided in the application, and up to 5 points are awarded for both 
the ``quality'' of staff resumes and for inclusion of the 
organizational chart. Meanwhile, the same number of points is awarded 
for the MDOs understanding of microlending. The allocation of points 
for the basic scoring of all applicants fails to recognize what is 
important for MDOs to properly serve rural microentrepreneurs. The 
ability of staff to administer the program can be determined through 
other required application items and through MDO history, and the 
points awarded for resumes and an organizational chart could be focused 
elsewhere.
    Response: The organizational chart is requested of all applicant 
entities (see Sec.  4280.316(a)(1)) for several reasons. It is 
important to know which personnel are in program-pertinent position on 
the chart. It is also important to know whether or not there is a 
larger organization beyond the microenterprise specific offices. This 
provides the Agency with a sense of whether applicants are stand-alone 
entities or have a greater support structure behind them. When used in 
concert with the resumes, the Agency will have a more complete picture 
of the capacity and capability of the applicant. The organizational 
structure and resumes of key people provide insight into the 
understanding of microlending and the ability of the applicant entity 
to serve rural microentrepreneurs that is in addition to information 
found in the policies and procedures manuals as requested in Sec.  
4280.316(a)(4). No change has been made in response to this comment.
Organization Mission Statement (Proposed Sec.  4280.316(a)(6))
    Comment: Two commenters stated that proposed Sec.  4280.316(a)(6) 
awards up to 5 points for the applicant's organizational mission 
statement. The commenters recommended that this scoring component be 
clarified to emphasize the importance of an applicant's connection to 
broader local and regional economic development plans and efforts. One 
of the commenters referenced the development strategies as outlined in 
the U.S. Economic Development Administration's Comprehensive Economic 
Development Strategy (CEDS) or other federally recognized plans. The 
other commenter recommended that this section provide up to 15 points 
and should also be included in proposed Sec.  4280.316(d) and (e).
    One commenter suggested that the scoring criteria in proposed Sec.  
4280.316(a)(1) through (a)(7) be enhanced to ensure that applicants are 
representative of their communities, working in partnership with other 
local and regional development entities and are linked to a broader 
local or regional economic development planning effort.

[[Page 30140]]

If the applicant does not currently possess these additional criteria, 
they should still be encouraged to develop a plan to enhance these 
connections in their application and be scored favorably for developing 
these plans.
    Response: As indicated previously, we agree that connections to 
broader local and regional CEDS are valuable. However, the focus at 
this time is to include entities that best deliver microloans and 
technical assistance.
Geographic Service Area (Proposed Sec.  4280.316(a)(7))
    Comment: Many commenters expressed concern on the outmigration 
provisions proposed. These comments fell into the following two main 
concerns:
    (1) Do not include outmigration criterion in the loan provisions 
because the statute is silent on this as it regards loans. These 
commenters noted that the only mention of outmigration is in connection 
with the proposed ``enhancement grants'' and not with loans or with 
technical assistance grants.
    (2) Reduce the emphasis on outmigration in scoring and rating of 
proposals. Three commenters stated that population dynamics look quite 
different throughout rural America, and outmigration, as the main 
criteria for assessing need, is not a good indicator. Each commenter 
referred to California, noting that California and other states that 
are not experiencing net outmigration are prejudiced by the emphasis on 
this as criteria for qualification for these RMAP funds. Poverty and 
economic decline exist in rural California despite the fact that 
population levels have stabilized or even increased. A fourth commenter 
suggested the Agency consider lowering the rating system for 
``outmigration''. By rewarding extremely high outmigration, associated 
infrastructure may not be available to support microentrepreneurs.
    One commenter stated that the law does not define outmigration as 
is done in the proposed rule and that the definition will significantly 
curtail the ability of MDOs to serve rural areas. The commenter stated 
that residents of distressed rural communities are more dependent on 
microenterprises for their livelihoods and often are unable to move to 
areas with more employment opportunities. The commenter recommended 
that the Agency align the proposed rule with the structure of the law 
by not including areas of outmigration as part of the loan program 
requirements.
    Response: With regard to the consideration of outmigration for 
making loans and TA grants, the commenters are correct in that the 
criterion does not apply to loan applications as written in the 
statute. The outmigration scoring criterion should have been applied to 
enhancement grants, which, as noted elsewhere in this preamble, are not 
included in the interim rule.
MDOs With More Than 3 Years Experience (Proposed Sec.  4280.316(b)(1))
    Comment: One commenter stated that the application scoring rules 
provide substantial points for MDOs with demonstrated track records of 
providing lending services to rural microentrepreneurs, but fail to 
provide points for effective plans to deliver such services. In the 
definition of MDO, the statute states an MDO is an organization that 
``has a demonstrated record of delivering services to rural 
microentrepreneurs, or an effective plan to develop a program to 
deliver services to rural microentrepreneurs'' (section 379E(a)(3)(D)). 
In the final rule, provision should be made to provide significant 
points to an MDO with a proven microenterprise track record that has a 
viable plan to now provide lending services. This change will be 
critical to reaching micro-businesses in underserved areas or among 
underserved populations.
    Response: The Agency agrees that there is value in having a proven 
track record as well as a plan. The initial information required of all 
applicants will provide the Agency with sufficient information to 
determine basic capacity. In addition, there is a scoring section for 
MDOs that have a demonstrated record (Sec.  4280.316(b)). There is a 
separate section (Sec.  4280.316(c)) for MDOs that have 3 years or less 
of experience; this section calls for written plans.
    Comment: Two commenters were concerned over the amount of 
recordkeeping that would be required to comply with proposed Sec.  
4280.316(b)(1)(v) and in scoring in general. These commenters stated 
that some application requirements are overly burdensome for the 
borrower compared to the dollars requested. Recordkeeping required for 
scoring criteria, such as those found in proposed Sec.  
4280.316(b)(1)(v), involves notable efforts of recordkeeping that does 
not have anything to do with the fundamental business of the MDOs and 
involves information that MDOs cannot require borrowers to provide.
    Response: The Agency disagrees. Keeping appropriate records is 
essential to the understanding, assessment, and evaluation of the MDO. 
However, to respond to the demographic questions, the Agency has named 
three demographic groups by which MDOs should be able to illustrate 
their activities. These are women, minorities, and the disabled.
Diversity (Proposed Sec.  4280.316(b)(1)(v))
    Comment: A number of commenters were concerned about how the 
scoring would affect MDOs that specialize in serving specific 
populations. Most submitted similar comments as captured by the 
following comment:
    Proposed Sec.  4280.316(b)(1)(v) provides points for how closely an 
MDOs microloan portfolio matches the demographics of the MDO's service 
area. Some MDOs will naturally serve certain segments of the service 
area (e.g., female or low-income entrepreneurs), generally for reasons 
that such demographic segments are historically underserved or 
unserved. For that reason, their portfolio may not match the 
demographics of the service area, thus potentially penalizing those 
MDOs in the scoring pursuant to this section. This paragraph also 
provides points when at least one loan made to each demographic group 
is within specified percentage points of the demographic makeup of the 
service area. This paragraph is confusing, as it is not clear what 
``each demographic group'' means (does it mean, for example, every 
racial or ethnic or socio-economic group that has at least one resident 
in the service area?); also MDOs that focus on certain segments of the 
population (female or low-income entrepreneurs, for instance) may be 
penalized. While we support using RMAP to support diverse clientele, we 
would suggest that the final rule recognize and not penalize MDOs that 
serve historically underserved or unserved populations in their rural 
service areas. We also suggest that language on ``each demographic 
group'' as outlined above be clarified in the final rule.
    One commenter recommended deleting this criterion or reducing the 
number of points associated with it. According to the commenter, many 
of the most successful MDOs concentrate on training, technical 
assistance, and lending to one or several disadvantaged demographic 
groups. They have the knowledge and credibility to serve these 
underserved populations best and should not be disadvantaged for 
concentrating their work. In order to ensure the program is reaching 
diverse groups, the commenter recommended that the Agency charge 
application reviewers to ensure proper lending coverage to all groups 
in a geographic

[[Page 30141]]

area when they consider which MDOs to fund.
    Response: The Agency disagrees that the proposed scoring criteria 
would penalize entities that serve certain segments of the population. 
The Agency offers no penalties regarding scoring on the provision of 
services. Organizations that have historically served a specific group 
of prospective microborrowers will be required, by Fair Credit Lending 
rules, to open their doors to all, whether or not they fit the 
particular demographics of the historic customers or the geographical 
area. Following the pattern of fairness, the Agency would anticipate 
that TA grant recipients will provide services to all groups as well.
    Comment: One commenter suggested that the scoring structure be 
altered so that the applications of MDOs that have stated missions to 
provide services to underserved populations are scored appropriately.
    Response: The Agency agrees with the commenter and does require 
mission statements as a part of the application process. As the mission 
statements are reviewed, they will be scored in accordance with how 
well the applicant's mission statement matches program requirements. 
The capacity to serve underserved populations is considered as a part 
of Sec.  4280.316.
    Comment: One commenter noted that proposed Sec.  4280.316(b)(1) 
requests data regarding the history of the MDO's provision of 
microloans for the three years prior to its application. Most of these 
data are readily available; however, some of the data points requested 
appear to reflect the more narrowly targeted goals of the Enhancement 
Grant program as opposed to the loan program. For example, proposed 
Sec.  4280.316(b)(1)(v) requests information on the diversity of the 
MDO's microloan portfolio. The proposed rule's scoring criteria appear 
to disadvantage MDOs whose rural markets have less diversity than 
others. For example, the racial diversity in the cities of Portland and 
Lewiston, Maine is much higher than the rural areas of Maine that the 
commenter also serves. Data on the diversity of the commenter's entire 
service area does not accurately reflect the diversity of its rural 
areas.
    Response: The Agency disagrees that the scoring criteria provide 
for rural markets with less diversity than others. The statute requires 
that training and technical assistance be provided via organizations of 
varying sizes and that serve racially and ethnically diverse 
populations. Therefore, these data are requested to ensure that the 
Agency meets this intent.
    Comment: One commenter recommended that the rule further define or 
list demographic groups being targeted.
    Response: The Agency has identified the specific demographic groups 
in response to the comment. Demographic groups shall include gender, 
racial or ethnic minority status, and disability as defined by The 
Americans with Disabilities Act. (See Sec.  4280.316(b)(1)(v))
Portfolio Management (Proposed Sec.  4280.316(b)(2))
    Comment: Two commenters expressed several similar concerns with 
this criterion. The issues cited by these commenters are:
    (1) This criterion proposes to use a set of measures of portfolio 
performance that are not commonly used in the microenterprise and 
community development field, and that would not provide full or 
sufficient information on the level of risk in the applicant's loan 
portfolio. Specifically, proposed Sec.  4280.316(b)(2)(i) requests that 
applicants ``enter the total number of your microloans paying on time 
for the three previous fiscal years.'' The term ``paying on time for 
the three previous fiscal years'' is not defined, and could be 
interpreted numerous ways, including: The number of outstanding loans 
that never experienced a late payment over the course of the year, the 
number of loans that were current at year-end, or the number of loans 
that paid off as scheduled during the course of the year. However, this 
term might be defined by the applicant, none of the above is a widely-
accepted measure of portfolio quality in the microenterprise or 
community development finance industry.
    (2) Proposed Sec.  4280.316(b)(2)(ii) requires applicants to 
``enter the total number of microloans 30 to 90 days in arrears or that 
have been written off at year end.'' There are several issues with this 
approach. First, it conflates delinquent loans with loan losses, which 
are typically reported and assessed separately (in part because the 
commonly accepted definitions of these measures require different 
denominators when calculating a percentage value). Second, the measures 
required in the Proposed Rule involve the number of late or written off 
loans, not the dollar value of those loans. In assessing the level of 
risk in a portfolio, it is the value of loans at risk rather than the 
number that is most significant--as a delinquent or bad loan of $40,000 
will necessarily pose more risk to a portfolio than a delinquent or bad 
loan of $4,000.
    (3) The approach in the proposed rule does not request information 
on loans that are greater than 90 days in arrears, but have not yet 
been written off. These are the delinquent loans that generally pose 
the greatest risk to the lender, particularly if the lender does not 
have or adhere to a strict policy and time frame for writing off loans 
that have become significantly delinquent.
    The commenters recommended that, in assessing portfolio quality, 
the rule require applicants provide information for the past three 
fiscal years on the following three measures:
    (a) Portfolio at risk: Defined as the outstanding principal balance 
of loans with payments greater than 30 days past due, divided by the 
total dollar amount of outstanding loans, as of the last day of the 
fiscal year.
    (b) Loan loss rate: Defined as the total dollar value of loans 
declared as written off or nonrecoverable, net of recoveries, divided 
by the average outstanding value of the portfolio over the course of 
the fiscal year.
    (c) Restructured loan rate: The dollar amount of all loans that 
have been restructured, divided by the total dollar amount of 
outstanding loans as of the last day of the fiscal year.
    Lastly, the commenters noted that they believe it is important to 
examine loans that have been restructured, as well as those that are 
delinquent and/or written off, because those loans do indicate risk to 
the portfolio.
    Response: The Agency understands that microlenders nationwide may 
differ in their portfolio management definitions. In response, the 
Agency attempted to provide scoring criteria that could be best 
addressed by all entities as opposed to numerous criteria that would 
meet regionally-specific benchmarks.
Technical Assistance History (Proposed Sec.  4280.316(b)(3))
    Comment: One commenter was concerned about the burden imposed by 
the scoring criteria in proposed Sec.  4280.316(b)(3)(i) through (iv). 
This commenter stated that the requirements to provide data on the 
total numbers and percentages of rural microentrepreneurs--including 
for minority, socially-disadvantaged, or disabled microentrepreneurs, 
and those in areas of outmigration--that received both microloans and 
technical assistance services for each of the previous three fiscal 
years are unduly burdensome. These requirements suggest that one of the 
primary measures of success for an MDO is the number of the 
microenterprises it serves that receives both technical assistance

[[Page 30142]]

and loans. The commenter believes that this assumption could be 
detrimental to the very microentrepreneurs that MDOs are serving.
    The commenter's technical assistance programs are functionally 
independent of their lending programs so that the commenter can 
maintain the confidentiality of clients and because each program 
provides distinct services that meet the needs of their clients. In 
practice, many TA clients pursue loan funding from the commenter; 
however, microentrepreneurs seek technical assistance from the 
commenter for a variety of reasons, and many may not ultimately apply 
for a loan. Both services are critical to the success of rural 
microentrepreneurs. As a result of this programmatic structure, 
technical assistance and lending data are tracked in separate 
databases.
    The commenter, therefore, recommended that the requirements of 
proposed Sec.  4280.316(b)(3)(i) through (iv) be minimized because of 
the burdensome nature of collecting these data, at least in the 
currently proposed combinations.
    Response: The Agency disagrees that the collection and maintenance 
of the proposed data is unduly burdensome and considers it to be an 
appropriate part of a soundly managed program. However, the criterion 
regarding data types were of concern to a number of commenters and have 
been revised in this document to clarify, and ease confusion, regarding 
what data to collect. The suggested data chart and scoring criteria 
have been revised as a part of the overall clarification of data and 
other application requirements. The revised requirements are located in 
Sec.  4280.316.
Technical Assistance to Rural Microentrepreneurs (Proposed Sec.  
4280.316(b)(3)(i) and (ii))
    Comment: Two commenters were concerned that the scoring criteria in 
proposed Sec.  4280.316(b)(1)(i) and (ii) demonstrate the bias 
expressed in the proposed rule toward MDOs that engage only in lending 
and against MDOs that provide both lending and technical assistance or 
training technical assistance only. According to the commenters, this 
proposed scoring section will significantly penalize MDOs that provide 
both technical assistance and lending and will virtually exclude 
programs that in the past provided TA services only or even training to 
nonborrowers. Full service MDOs typically train far more 
microentrepreneurs than the number that receive loans, because the 
demand is greatest for training. Such MDOs would be penalized by the 
criteria for not providing loans to most of their trainees, because 
most trainees do not need loans or in other cases, use the training to 
develop skills to gain access to commercial credit.
    According to the commenters, this ``backward looking'' scoring 
system fails to recognize the law's emphasis on MDOs having an 
``effective plan to develop a program to deliver services to rural 
microentrepreneurs.'' By failing to recognize this portion of the law, 
these sections will result in curtailing microenterprise development 
services in unserved and underserved rural areas by new rural MDOs, by 
rural MDOs which seek to expand their services, and by MDOs which may 
seek to expand their services into rural areas. The commenters 
recommended that the final rule develop a mechanism to recognize the 
eligibility of each of those types of MDOs by conforming to the law's 
prescription of allowing MDOs to develop an ``effective plan'' to 
deliver services to rural microentrepreneurs.
    Response: The Agency disagrees that there is a bias toward entities 
that deliver microlending programs over entities that provide only 
technical assistance. However, to ensure like recognition of each 
applicant type, each set of scoring criterion allows for a maximum of 
100 points so that each type of applicant is able to equitably compete 
against each other. In balance, the Agency has revised the rule to 
address all types of MDOs and provide for funds to MDOs that wish to 
participate through loans and/or grants. The changes are included in 
the rule, thus, address the concerns expressed by these commenters.
Socially-Disadvantaged (Proposed Sec.  4280.316(b)(3)(iii))
    Comment: Several commenters were concerned about the reference to 
``socially disadvantaged'' in proposed Sec.  4280.316(b)(3)(iii), 
stating that ``socially disadvantaged'' was not defined or not defined 
well enough. For example, one commenter noted that it is not stated 
whether ``socially disadvantaged'' includes gender (presumably female 
microentrepreneurs). According to the commenter, this appears 
inconsistent from proposed Sec.  4280.316(b)(v), where gender is a 
specifically mentioned demographic group. The commenter, therefore, 
suggested that these provisions be made consistent and that the final 
rule clarify that female microentrepreneurs are specifically included 
in any definition of ``socially disadvantaged.''
    Another commenter recommended either including a definition for 
``socially disadvantaged'' under Sec.  4280.302 that includes women and 
other disadvantaged groups, or expanding Sec.  4280.316(b)(1)(v) to 
include an explanation of the term ``socially disadvantaged.'' 
Ultimately, the commenter believes that female microentrepreneurs 
should be considered ``socially disadvantaged'' for the purposes of any 
provision under the proposed rule.
    Response: As noted in response to a comment on the definition of 
``socially disadvantaged,'' the Agency agrees with the commenters that, 
as proposed, the rule did not adequately address whether gender was 
included in ``socially disadvantaged.'' The Agency, however, has 
determined that it is unnecessary to include socially disadvantaged in 
the scoring criteria cited by the commenters and has removed that term 
from the rule. The Agency made this determination in consideration of 
Civil Rights reporting, which is based on demographic data and 
``socially disadvantaged'' is not one of those data.
Administrative Expenses (Proposed Sec.  4280.316(b)(5))
    Comment: A number of commenters recommended removing this scoring 
criterion, all expressing similar reasons including:
    <bullet> The Proposed Rule arbitrarily provides points on an 
application according to how much below 10 percent an MDO proposes 
using for administrative expenses, providing 0 points for 8 to 10 
percent of the TA grant used for administrative expenses. An MDO could 
be penalized for doing precisely what the law allows. This section of 
the rule also has the potential to penalize non-profits (a focused 
eligible organization throughout the proposed rule) that may have no 
other access to funds for administrative expenses.
    <bullet> This is a punitive measure for rural MDOs who have few 
resources for administration and operations. Corporate and foundation 
grants that contribute to administrative operations are largely 
unavailable to support nonprofit, community based MDOs in rural areas. 
This criterion would put such agencies at disadvantage, despite their 
track record of producing positive economic outcomes.
    <bullet> It is punitive measure for rural MDOs who have few 
resources for administration and operations. Small, nonprofit 
community-based MDOs have few sources of discretionary funds for 
overhead. These criteria would put such

[[Page 30143]]

agencies at disadvantage to larger institutions.
    <bullet> Depending on the definition of administration expenses, it 
could be that this provision would penalize organizations that are 
seeking to build the organizational capacity to expand their lending 
and training activities in accordance with and support of the intent of 
this program.
    <bullet> The law states in section 379E(b)(4)(C) that not more than 
10 percent of a grant received by an MDO can be used to pay 
administrative expenses. The proposed rule proposes a tiered scoring 
system that favors MDOs who use fewer grant funds for administrative 
expenses. The commenter understands the Agency's desire to maximize the 
use of RMAP funds for the benefit of rural microentrepreneurs; however, 
the commenter believes the proposed scoring system will 
disproportionately favor MDOs with the ability to fund administrative 
expenses with other funding streams so that they can benefit from these 
criteria. Administrative funds are critical to the success of any 
microenterprise program and 10 percent is a very reasonable, even 
modest, amount to budget for these purposes. The commenter recommended 
that the Agency align the proposed rule with the law and remove the 
tiered system proposed in the rule.
    <bullet> Scrimping on administration is not a good way to run an 
effective program. MDOs should not receive points for reporting 
administrative costs that are either artificial or so low that the 
organization will be badly run. The statute provides for up to 10 
percent for administrative costs.
    Four commenters suggested replacing this criterion with a statement 
on administrative expenses that conforms to the law. One commenter also 
noted that these comments apply equally to proposed Sec.  
4280.316(c)(8).
    Response: It is not the Agency's intent to force entities into 
scrimping. Rather, the intent is to score in favor of an applicant's 
ability to provide services in a cost effective and efficient manner.
MDOs With 3 Years or Less Experience (Proposed Sec.  4280.316(c))
    Comment: Two commenters were concerned that the scoring system did 
not request any historic information on the organization's 
microenterprise activities beyond the date on which it opened its doors 
for business as an MDO or similar entity. While it is understandable 
that the proposed rule would not request or substantially weigh 
historic data for an organization that is less than a year old, for an 
organization between 1 and 3 years old, certainly information on the 
organization's loan volume, diversity, history of TA provision, and 
portfolio management and quality is relevant, and in fact, essential to 
the application and scoring process. According to the commenters, if 
such data are not submitted and evaluated, the Agency runs the risk of 
selecting organizations for funding that may have developed strong 
plans, but failed to execute them well during their initial years of 
operation.
    The commenters, therefore, recommended that all applicants with 
more than one year of operations as an MDO be required to submit 
information on their loan volume, diversity, history of TA provision 
and portfolio quality, and that this information be evaluated in the 
scoring process.
    Response: The Agency disagrees. The Agency chose to examine new 
entities as those entities with 3 years of experience or less and based 
on their ability to meet certain criteria designed for this specific 
group of applicants. It was determined that such new entities, 
including those with 3 years of experience or less, will have little or 
unreliable data by which to compare or score historical activity and 
borrower success. Rather, the Agency anticipated looking more 
prospectively for this group.
Scoring Range (Proposed Sec.  4280.316(c)(3) and (c)(4))
    Comment: One commenter suggested that the scoring of the criteria 
in proposed Sec.  4280.316(c)(3) and (c)(4) not be based on a range, 
but instead be a scoring scheme in which the applicant receives a 
certain amount of points or not depending on whether they have provided 
the appropriate documentation. The commenter believes that allowing for 
ranges is not objective and raises issues with subjectivity. The 
commenter believes that providing for specific points to be awarded 
will be simpler than using ranges.
    Response: As noted in a response to another comment concerning the 
provision of a range for scoring, the Agency believes that ranges are 
appropriately identified for these scoring criteria identified by the 
commenter. For this and the other criteria in which scoring ranges are 
provided, it will be up to the applicant as to how much material to 
provide in addressing each criterion and the quality of that material. 
To help ensure consistency in scoring these criteria among Agency 
staff, the Agency will be providing guidelines to Agency staff on how 
to score each of these criteria. Finally, for those criteria that 
require a standard set of points per item, a specific number of points 
will be awarded for a specific set of benchmarks. Thus, the scoring 
system provides for a combination of objective and more subjective 
scoring.
Enhancement Grants (Proposed Sec.  4280.316(d))
    Comment: Two commenters pointed out the statutory provisions 
related to significant outward migration were not proposed for scoring 
enhancement grants, as required in section 379E(b)(4)(A)(ii) of the 
statute, which states that an emphasis will be placed on MDOs that are 
located in areas that have suffered ``significant outward migration.'' 
The commenters noted that in the proposed rule scoring description 
nothing is said about MDOs located in such areas, only the ``number of 
counties or other jurisdictions of the service area'' that suffer from 
significant outmigration (as defined). The scoring matrix in the 
proposed rule allows only up to 10 points (of the 45 basic points for 
all applicants) for service to outmigration areas, an issue of emphasis 
in the law. The commenters suggested that the final rule place an 
emphasis on MDOs located in areas of ``significant outward migration'' 
as stated in the law, and that greater emphasis through the point 
system be placed on MDO service to an outmigration area for those MDOs 
seeking grants. The commenters believe it is important to focus on 
location of MDOs because it is crucial to provide incentives and 
funding to create more MDOs in rural areas suffering from significant 
outmigration and because, if MDOs are located in such areas, they will 
be more attuned to the services necessary for the entrepreneurs in that 
area.
    Response: The Agency agrees that the proposed rule did not 
appropriately address outmigration as a scoring criterion for 
enhancement grants, as required by the statute. While the Agency 
appreciates the commenter's suggestion, opinions differ widely on how 
best to approach and enhancement grant category to this program. 
Therefore, the Agency is requesting comments on this subject (see 
Section V of this preamble). Comments will be considered prior to 
publication of the final rule.
MDOs With More Than 5 Years Experience Under This Program (Proposed 
Sec.  4280.316(e))
    Comment: One commenter recommended revising the application 
requirements in proposed Sec.  4280.316(e)

[[Page 30144]]

to ensure that applicants are representative of their communities, 
working in partnership with other local and regional development 
entities and are linked to a broader local or regional economic 
development planning effort. If the applicant does not currently 
possess these additional criteria, then they should still be encouraged 
to develop a plan to enhance these connections in their application and 
be scored favorably for developing these plans.
    Response: The Agency disagrees that applicants should be required 
to work in partnership with other entities. The goal of the program is 
to enhance the network of MDOs and increase services in that sector. 
While we do not discourage partnerships and participation in regional 
planning, the Agency will not require partnering.
Selection of Applications for Funding (Sec.  4280.317)
    Comment: In reference to proposed Sec.  4280.317(d), one commenter 
suggested removing the wording ``If your application is unsuccessful'' 
and change the end of this sentence to read ``non-selected 
applications.''
    Response: As noted earlier in this preamble, this proposed 
paragraph was removed from the rule because it is considered internal 
procedures and does not need to be in the rule.
Loans From Microlenders to Microentrepreneurs and Microenterprises 
(Sec.  4280.322)
    Comment: Three commenters expressed concern with the requirements 
specified in proposed Sec.  4280.322(b)(1), (b)(3), and (d), noting 
that these requirements are not in the authorizing statute. According 
to one of the commenters, these loan terms may have merit, but could 
also constrain the ability of MDOs to provide credit to 
microentrepreneurs in rural areas. The other commenter stated that, 
taken as a whole, these requirements limit the ability of local 
organizations to craft a lending program that can address the specific 
needs of its local market. One of the commenters, therefore, 
recommended that these requirements be removed.
    One of the commenters noted that the MDO is responsible for 
operating a successful microloan program in the context of the 
communities they serve and, therefore, it is not appropriate for RMAP 
at proposed Sec.  4280.322(b)(1) to place a cap (i.e., the 7.5 percent 
spread) on the interest rate charged to the microborrower. According to 
the commenter, the MDO should have the flexibility to price their 
microloans as they see fit for the sustainability of their fund and 
based on the risk and the cost of its operation.
    One of the commenters recommended that Sec.  4280.322(b)(3) be 
revised to limit the microloan term to no longer than the term of the 
loan with the Agency rather than the proposed limit of no more than 10 
years. A third commenter also stated that the MDO should have the 
expressed permission to establish terms of repayment (fees, late fees 
and penalties, amortizations and deferrals, etc.) as they deem 
appropriate and workable.
    One of the commenters noted that proposed Sec.  4280.322(d) 
includes a statement that borrowers will be subject to a ``credit 
elsewhere'' test, but indicates that bank rejection letters will not be 
required. The commenter was unclear as to the purpose of this 
requirement and how an MDO should meet it. The commenter, therefore, 
recommended that this requirement be dropped.
    Response: The Agency agrees with the commenters that microlenders 
know their market and should be able to design programs to meet those 
markets. Section 4280.322(b) recognizes this in allowing the terms and 
conditions for microloans to be negotiated by the microborrower and the 
microlender. The Agency agrees that the rule does not need to implement 
a maximum margin that a lender can charge the microborrower, but is 
still concerned that the rate must be ``reasonable.'' The Agency has 
removed the specified margin requirement and in its place added the 
provision (see Sec.  4280.322(b)(3)) that the microlender may establish 
its margin of earnings, but may not adjust the margin so as to violate 
Fair Credit Lending laws. Further, margins must be reasonable so as to 
ensure that microloans are affordable to the microborrowers.
    With regard to the suggestion concerning adjusting the term of loan 
from ``no more than 10 years'' to ``no longer than the term of the loan 
with the Agency,'' the Agency has not revised the rule because such a 
revision would put the microlender and the agency at increased risk in 
the latter years of the term and would diminish the capacity of the 
microlender to revolve its funds into and out of the RMRF.
    Finally, with regard to the credit elsewhere test, the Agency is 
including this provision to ensure that only those in the most need of 
program resources receive assistance under this program. Thus, the 
Agency has not revised this provision.
Credit Elsewhere (Proposed Sec.  4280.322(d))
    Comment: One commenter suggested that the last two sentences of 
proposed Sec.  4280.322(d) be removed.
    Response: The Agency disagrees with the suggestion to delete the 
last two sentences of this paragraph. The Agency specifically does not 
want to require denial letters from other lenders to be part of this 
documentation because the Agency does not want such denial letters to 
negatively affect the microborrower's credit report as it works to 
build credit.
    Comment: One commenter suggested that the rule should allow the 
microborrower to determine what goes in his file to document credit 
elsewhere.
    Response: The Agency disagrees with the commenter's suggestion to 
allow the microborrower to determine what goes into the file to 
document credit elsewhere. The microlender determines whether or not 
this test is met and as such it is the microlender's responsibility to 
clearly identify what it needs to make this determination. Furthermore, 
this will provide consistency in the microlender's determination across 
microborrowers. The Agency reserves the right to examine microlender 
files to ensure that program requirements are met (Sec.  
4280.311(h)(6)).
Eligible Purposes (Proposed Sec.  4280.322(f))
    Comment: One commenter suggested that the list of authorized 
microloan purposes be prefaced with a statement that the MDO is ``not 
limited to'' these uses.
    Response: While the use of ``including'' means that the list is not 
exhaustive, the Agency has included the text suggested by the commenter 
to ensure clarity.
    Comment: One commenter stated that the prohibition at proposed 
Sec.  4280.322(f) on any construction or demolition was too inflexible; 
the remodeling of a suitable business space often requires this.
    Response: The Agency included construction and demolition as an 
ineligible loan purpose in order to expedite loan processing by 
mitigating the need to conduct environmental evaluations. The Agency 
notes that other Rural Development programs can provide construction 
financing. Thus, the Agency has not revised the rule as suggested by 
the commenter.
Ineligible Loan Purposes (Sec.  4280.323)
    Comment: One commenter asked if lines of credit would be an 
eligible or

[[Page 30145]]

ineligible purpose. The commenter pointed out that lines of credit are 
not listed under either eligible purposes or ineligible purposes and 
recommended that the rule needs to be clear whether lines of credit are 
eligible or not because, in part, the IRP allows lines of credit under 
certain circumstances.
    Response: Lines of credit are not an eligible loan purpose for 
microloans under RMAP. The Agency agrees with the commenter that this 
was not indicated in the proposed rule and, therefore, has added a 
provision to Sec.  4280.323 that specifically identifies lines of 
credit as an ineligible loan purpose for RMAP loans.
    Comment: One commenter suggested that tenant improvements, debt 
refinancing, and business acquisition should be expressly permitted.
    Response: The Agency has determined that indication of eligible and 
ineligible activities is sufficient, but has added debt refinancing and 
business acquisition to the list of eligible activities for clarity. 
Tenant improvements are already sufficiently covered by Sec.  
4280.322(f)(2) and (f)(3). Any legal business purpose not identified as 
ineligible in Sec.  4280.323 is acceptable.
    Comment: One commenter stated that the ineligible purposes at 
proposed Sec.  4280.323(c) should simply disallow relending to Agency 
or MDO personnel. Such lending simply has the appearance of a conflict 
of interest and should never be allowed. On the other hand, there is no 
conflict of interest in lending to military, National Guard members, or 
government employees aside from Rural Development employees, and this 
should simply be permitted.
    Response: Microloans to Agency personnel and MDO personnel are 
prohibited. Regarding military personnel, based on Agency experience, a 
pattern of difficulty in obtaining financial assistance has begun to 
emerge. The language proposed regarding this issue was initially 
confusing as it was posted in the ineligibility section as an 
exception. As a result, the language has been moved to Sec.  
4280.322(g) as an eligible purpose. In clarifying the language, the 
Agency hopes to encourage a greater level of lending to military 
personnel. Regarding Tribal government employees, language regarding 
loans to Tribal employees has been eliminated to ensure that Tribal 
microlenders are treated as all other microlenders in regards to 
conflicts of interest.
    Comment: In reference to proposed Sec.  4280.323(d), one commenter 
recommended that a definition for ``Agency employee family member'' be 
included. The commenter also raised questions concerning how the 
definition would be crafted. For example, how would domestic partners 
and same-sex married parties be treated? The commenter then asked, how 
would this be monitored? How would an Agency employee possibly know all 
Agency employee family members?
    Response: The Agency agrees with the commenter that a definition 
for ``family member'' is needed. The Agency has replaced ``family 
member'' with ``close relative.'' Close relative is being defined as: 
Individuals who are closely related by blood, marriage, or adoption, or 
live within the same household, such as a spouse, domestic partner, 
parent, child, brother, sister, aunt, uncle, grandparent, grandchild, 
niece, or nephew.
    Comment: One commenter asked why RMAP discriminated against 
military personnel and Tribal members under proposed Sec.  4280.323(i) 
and (j).
    Response: The Agency disagrees with the commenter's 
characterization of the proposed rule as discriminating against active 
military personnel and Tribal employees. Language specific to military 
personnel is included to ensure specific attention to the needs of 
veterans. Language regarding loans to Tribal employees has been 
eliminated to ensure that Tribal microlenders are treated as all other 
microlenders in regards to conflicts of interest.

V. Request for Comments

    The Agency is interested in receiving comments on all aspects of 
the interim rule. Areas in which the Agency is seeking specific 
comments are identified below. All comments should be submitted as 
indicated in the ADDRESSES section of this preamble.
    1. Enhancement grants. The Agency is seeking comments regarding how 
to incorporate a network enhancement grant program for microenterprise 
development organizations in their support of rural microentrepreneurs 
in accordance with Section 379E(b)(4)(A)(i)(I) of the 2008 Farm Bill. 
Please be sure to include your rationale for your suggestions.
    2. The Agency is seeking comment on whether the 2-year deferral 
period allowing microlenders not to make any payments on a loan to the 
Agency (see Sec.  4280.311(e)(4)) under this program should be 
automatic (i.e., the default) or whether the Agency should establish 
specific criteria for determining whether or not payments would be 
deferred. Please be sure to include your rationale for your 
suggestions.

List of Subjects in 7 CFR 4280

    Business programs, Grant programs, Loan programs, Microenterprise 
development organization, Microentrepreneur, Rural areas, Rural 
development, Small business.

0
For the reasons set forth in the preamble, chapter XLII of title 7 of 
the Code of Federal Regulations is amended as follows:

CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL 
UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE

0
1. Part 4280 is amended by adding a subpart D to read as follows:

PART 4280--LOANS AND GRANTS

Subpart D--Rural Microentrepreneur Assistance Program
Sec.
4280.301 Purpose and scope.
4280.302 Definitions and abbreviations.
4280.303 Exception authority.
4280.304 Review or appeal rights and administrative concerns.
4280.305 Nondiscrimination and compliance with other Federal laws.
4280.306 Forms, regulations, and instructions.
4280.307 4280.309 [Reserved]
4280.310 Program requirements for MDOs.
4280.311 Loan provisions for Agency loans to microlenders.
4280.312 Loan approval and closing.
4280.313 Grant provisions.
4280.314 [Reserved]
4280.315 MDO application and submission information.
4280.316 Application scoring.
4280.317 Selection of applications for funding.
4280.318 4280.319 [Reserved]
4280.320 Grant administration.
4280.321 Grant and loan servicing.
4280.322 Loans from the microlenders to the microentrepreneurs.
4280.323 Ineligible microloan purposes and uses.
4280.324 4280.399 [Reserved]
4280.400 OMB control number.

    Authority:  7 U.S.C. 1989(a), 7 U.S.C. 2009s.

Subpart D--Rural Microentrepreneur Assistance Program


Sec.  4280.301  Purpose and scope.

    (a) This subpart contains the provisions and procedures by which 
the Agency will administer the Rural Microenterprise Assistance Program 
(RMAP). The purpose of the program is to support the development and 
ongoing success of rural microentrepreneurs and microenterprises. To 
accomplish this purpose, the program will make direct loans, and 
provide grants to selected Microenterprise Development

[[Page 30146]]

Organizations (MDOs). Selected MDOs will use the funds to:
    (1) Provide microloans to rural microentrepreneurs and 
microenterprises;
    (2) Provide business based training and technical assistance to 
rural microborrowers and potential microborrowers; and
    (3) Perform other such activities as deemed appropriate by the 
Secretary to ensure the development and ongoing success of rural 
microenterprises.
    (b) The Agency will make direct loans to microlenders, as defined 
in Sec.  4280.302, for the purpose of providing fixed interest rate 
microloans to rural microentrepreneurs for startup and growing 
microenterprises. Eligible microlenders will also be automatically 
eligible to receive microlender technical assistance grants to provide 
technical assistance and training to microentrepreneurs that have 
received or are seeking a microloan under this program.
    (c) To allow for extended opportunities for technical assistance 
and training, the Agency will make technical assistance-only grants to 
MDOs that have sources of funding other than program funds for making 
or facilitating microloans.


Sec.  4280.302  Definitions and abbreviations.

    (a) General definitions. The following definitions apply to the 
terms used in this subpart.
    Administrative expenses. Those expenses incurred by an MDO for the 
operation of services under this program. Not more than 10 percent of 
TA grant funding may be used for such expenses.
    Agency. USDA Rural Development, Rural Business-Cooperative Service 
or its successor organization.
    Agency personnel. Individuals employed by the Agency.
    Applicant. The legal entity, also referred to as a microenterprise 
development organization or MDO, submitting an application to 
participate in the program.
    Application. The forms and documentation submitted by an MDO for 
acceptance into the program.
    Award. The written documentation, executed by the Agency after the 
application is approved, containing the terms and conditions for 
provision of financial assistance to the applicant. Financial 
assistance may constitute a loan or a grant or both.
    Business incubator. An organization that provides temporary 
premises at below market rates, technical assistance, advice, use of 
equipment, and may provide access to capital, or other facilities or 
services to rural microentrepreneurs and microenterprises starting or 
growing a business.
    Close relative. Individuals who are closely related by blood, 
marriage, or adoption, or live within the same household: a spouse, 
domestic partner, parent, child, brother, sister, aunt, uncle, 
grandparent, grandchild, niece, or nephew.
    Default. The condition that exists when a borrower is not in 
compliance with the promissory note, the loan and/or grant agreement, 
or other related documents evidencing the loan.
    Delinquency. Failure by an MDO to make a scheduled loan payment by 
the due date or within any grace period as stipulated in the promissory 
note and loan agreement.
    Eligible project cost. The total cost of a microborrower's project 
for which a microloan is being sought from a microlender less any costs 
identified as ineligible in Sec.  4280.323.
    Facilitation of access to capital. For purposes of this program, 
facilitation of access to capital means assisting a technical 
assistance client of the TA-only grantee in obtaining a microloan 
whether or not the microloan is wholly or partially capitalized by 
funds provided under this program.
    Federal Fiscal year (FY). The 12-month period beginning October 1 
of any given year and ending on September 30 of the following year.
    Full-time equivalent employee (FTE). The Agency uses the Bureau of 
Labor Statistics definition of full-time jobs as its standard 
definition. For purposes of this program, a full-time job is a job that 
has at least 35 hours in a work week. As such, one full-time job with 
at least 35 hours in a work week equals one FTE; two part-time jobs 
with combined hours of at least 35 hours in a work week equals one FTE, 
and three seasonal jobs equals one FTE. If an FTE calculation results 
in a fraction, it should be rounded up to the next whole number.
    Indian tribe. As defined in section 4 of the Indian Self-
Determination and Education Assistance Act (25 U.S.C. 450b), ``any 
Indian tribe, band, nation, or other organized group or community, 
including any Alaska Native village, or regional or village corporation 
as defined in or established pursuant to the Alaska Native Claims 
Settlement Act (85 Stat. 688) [43 U.S.C. 1601 et seq.], which is 
recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians.''
    Loan loss reserve fund (LLRF). An interest-bearing deposit account 
that each microlender must establish and maintain in an amount equal to 
not less than 5 percent of the total amount owed by the microlender 
under this program to the Agency to pay any shortage in the RMRF caused 
by delinquencies or losses on microloans.
    Microborrower. A microentrepreneur or microenterprise that has 
received financial assistance from a microlender under this program in 
an amount of $50,000 or less.
    Microenterprise. Microenterprise means:
    (i) A sole proprietorship located in a rural area; or
    (ii) A business entity, located in a rural area, with not more than 
10 full-time-equivalent employees. Rural microenterprises are 
businesses employing 10 people or fewer that are in need of $50,000 or 
less in business capital and/or in need of business based technical 
assistance and training. Such businesses may include any type of legal 
business that meets local standards of decency. Business types may also 
include agricultural producers provided they meet the stipulations in 
this definition.
    (iii) All microenterprises assisted under this regulation must be 
located in rural areas.
    Microenterprise development organization (MDO). An organization 
that is a non-profit entity; an Indian tribe (the government of which 
tribe certifies that no MDO serves the tribe and no RMAP exists under 
the jurisdiction of the Indian tribe); or a public institution of 
higher education; and that, for the benefit of rural microentrepreneurs 
and microenterprises:
    (i) Provides training and technical assistance and/or;
    (ii) Makes microloans or facilitates access to capital or another 
related service; and/or
    (iii) Has a demonstrated record of delivering, or an effective plan 
to develop a program to deliver, such services.
    Microentrepreneur. An owner and operator, or prospective owner and 
operator, of a microenterprise who is unable to obtain sufficient 
training, technical assistance, or credit other than under this 
section, as determined by the Secretary. All microentrepreneurs 
assisted under this regulation must be located in rural areas.
    Microlender. An MDO that has been approved by the Agency for 
participation under this subpart to make microloans and provide an 
integrated program of training and technical assistance to its 
microborrowers and prospective microborrowers.

[[Page 30147]]

    Microloan. A business loan of not more than $50,000 with a fixed 
interest rate and a term not to exceed 10 years.
    Military personnel. Individuals, regardless of rank or grade, 
currently in active United States military service with less than 6 
months remaining in their active duty service requirement.
    Nonprofit entity. A private entity chartered as a nonprofit entity 
under State Law.
    Program. The Rural Microentrepreneur Assistance Program (RMAP).
    Rural microloan revolving fund (RMRF). An exclusive interest-
bearing account on which the Agency will hold a first lien and from 
which microloans will be made; into which payments from microborrowers 
and reimbursements from the LLRF will be deposited; and from which 
payments will be made by the microlender to the Agency.
    Rural or rural area. For the purposes of this program, the terms 
``rural'' and ``rural area'' are synonymous and are defined as any area 
of a State not in a city or town that has a population of more than 
50,000 inhabitants, according to the latest applicable decennial census 
for the State; and the contiguous and adjacent urbanized area.
    (i) For purposes of this definition, cities and towns are 
incorporated population centers with definite boundaries, local self-
government, and legal powers set forth in a charter granted by the 
State.
    (ii) Notwithstanding any other provision of this paragraph, within 
the areas of the County of Honolulu, Hawaii, and the Commonwealth of 
Puerto Rico, the Secretary may designate any part of the areas as a 
rural area if the Secretary determines that the part is not urban in 
character, other than any area included in the Honolulu census 
designated place (CDP) or the San Juan CDP.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the District of Columbia, the U.S. Virgin Islands, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
the Republic of Palau, the Federated States of Micronesia, and the 
Republic of the Marshall Islands.
    Technical assistance and training. The provision of education, 
guidance, or instruction to one or more rural microentrepreneurs to 
prepare them for self-employment; to improve the state of their 
existing rural microenterprises; to increase their capacity in a 
specific technical aspect of the subject business; and, to assist the 
rural microentrepreneurs in achieving a degree of business preparedness 
and/or functioning that will allow them to obtain, or have the ability 
to obtain, one or more business loans of $50,000 or less, whether or 
not from program funds.
    Technical assistance grant. A grant, the funds of which are used to 
provide technical assistance and training, as defined in this section.
    (b) Abbreviations. The following abbreviations apply to the terms 
used in this subpart:

FTE--Full-time employee
LLRF--Loan loss reserve fund.
MDO--Microenterprise development organization.
RMAP--Rural microentrepreneur assistance program.
RMRF--Rural microloan revolving fund.
TA--Technical assistance.


Sec.  4280.303  Exception authority.

    The Administrator may make limited exceptions to the requirements 
or provisions of this subpart. Such exceptions must be in the best 
financial interest of the Federal government and may not conflict with 
applicable law. No exceptions may be made regarding applicant 
eligibility, project eligibility, or the rural area definition. In 
addition, exceptions may not be made:
    (a) To accept an applicant into the program that would not normally 
be accepted under the eligibility or scoring criteria; or
    (b) To fund an interested party that has not successfully competed 
for funding in accordance with the regulations.


Sec.  4280.304  Review or appeal rights and administrative concerns.

    (a) Review or appeal rights. An applicant MDO, a microlender, or 
grantee MDO may seek a review of an adverse Agency decision under this 
subpart from the appropriate Agency official that oversees the program 
in question, and/or appeal the Agency decision to the National Appeals 
Division in accordance with 7 CFR part 11.
    (b) Administrative concerns. Any questions or concerns regarding 
the administration of the program, including any action of the 
microlender, may be addressed to: USDA Rural Development, Rural 
Business-Cooperative Service, Specialty Programs Division or its 
successor agency, or the local USDA Rural Development office.


Sec.  4280.305  Nondiscrimination and compliance with other Federal 
laws.

    (a) Any entity receiving funds under this subpart must comply with 
other applicable Federal laws, including the Equal Employment 
Opportunities Act of 1972, the Americans with Disabilities Act, the 
Equal Credit Opportunity Act, the Civil Rights Act of 1964, Section 504 
of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
and 7 CFR part 1901, subpart E.
    (b) The U.S. Department of Agriculture (USDA) prohibits 
discrimination in all its programs and activities on the basis of race, 
color, national origin, age, disability, and where applicable, sex, 
marital status, familial status, parental status, religion, sexual 
orientation, genetic information, political beliefs, reprisal, or 
because all or part of an individual's income is derived from any 
public assistance program. (Not all prohibited bases apply to all 
programs.) Persons with disabilities who require alternative means for 
communication of program information (Braille, large print, audiotape, 
etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and 
TDD). Any applicant that believes it has been discriminated against as 
a result of applying for funds under this program should contact: USDA, 
Director, Office of Adjudication, 1400 Independence Avenue, S.W., 
Washington, DC 20250-9410, or call (866) 632-9992 (toll free) or (202) 
401-0216 (TDD) for information and instructions regarding the filing of 
a Civil Rights complaint. USDA is an equal opportunity provider, 
employer, and lender.
    (c) A pre-award compliance review will take place at the time of 
application when the applicant completes Form RD 400-8, ``Compliance 
Review''. Post- award compliance reviews will take place once every 
three years after the beginning of participation in the program and 
until such time as a microlender leaves the program.


Sec.  4280.306  Forms, regulations, and instructions.

    Copies of all forms, regulations, and instructions referenced in 
this subpart are available in any Agency office, the Agency's Web site 
at http://www.rurdev.usda.gov/regs/, and for grants on the Internet at 
http://www.grants.gov.


Sec. Sec.  4280.307-4280.309  [Reserved]


Sec.  4280.310  Program requirements for MDOs.

    (a) Eligibility requirements for applicant MDOs. To be eligible for 
a direct loan or grant award under this subpart, an applicant must meet 
each of the criteria set forth in paragraphs (a)(1) through (4) of this 
section, as applicable.
    (1) Type of applicant. The applicant must meet the definition of an 
MDO under this program.

[[Page 30148]]

    (2) Citizenship. For non-profit entities only, to be eligible to 
apply for status as an MDO, the applicant must be at least 51 percent 
controlled by persons who are either:
    (i) Citizens of the United States, the Republic of Palau, the 
Federated States of Micronesia, the Republic of the Marshall Islands, 
American Samoa, or the Commonwealth of Puerto Rico; or
    (ii) Legally admitted permanent residents residing in the U.S.
    (3) Legal authority and responsibility. The applicant must have the 
legal authority necessary to carry out the purpose of the award.
    (4) Other eligibility requirements. For potential microlenders 
only,
    (i) The applicant must also provide evidence that it:
    (A) Has demonstrated experience in the management of a revolving 
loan fund; or
    (B) Certifies that it, or its employees, have received education 
and training from a qualified microenterprise development training 
entity so that the applicant has the capacity to manage such a 
revolving loan fund; or
    (C) Is actively and successfully participating as an intermediary 
lender in good standing under the U.S. Small Business Administration 
(SBA) Microloan Program or other similar loan programs as determined by 
the Administrator.
    (ii) An attorney's opinion regarding the potential microlender's 
legal status and its ability to enter into program transactions is 
required at the time of initial entry into the program. Subsequent to 
acceptance into the program, an attorney's opinion will not be required 
unless the Agency determines significant changes to the microlender 
have occurred.
    (b) Minimum score. Once deemed eligible, an entity will be 
evaluated based on the scoring criteria in Sec.  4280.316 for adequate 
qualification to participate in the program. Eligible MDOs must score a 
minimum of seventy points (70 points) in order to be considered to 
receive an award under this subpart.
    (c) Ineligible applicants. An applicant will be considered 
ineligible if it:
    (1) Does not meet the definition of an MDO as provided in Sec.  
4280.302;
    (2) Is debarred, suspended or otherwise excluded from, or 
ineligible for, participation in Federal assistance programs; and
    (3) Has an outstanding judgment against it, obtained by the United 
States in a Federal Court (other than U.S. Tax Court).
    (d) Delinquencies. No applicant will be eligible to receive a loan 
if it is delinquent on a Federal debt.
    (e) Application eligibility and qualification. An application will 
be considered eligible for funding if it is submitted by an eligible 
MDO. The applicant will qualify for funding based on the results of 
review, scoring, and other procedures as indicated in this subpart, and 
will further:
    (1) Establish an RMRF, or add capital to an RMRF originally 
capitalized under this program and establish or continue a training and 
TA program for its microborrowers and prospective microborrowers; or
    (2) Fund a TA-only grant program to provide services to rural 
microentrepreneurs and microenterprises.
    (f) Business incubators. Because the purpose of a business 
incubator is to provide business-based technical assistance and an 
environment in which micro-level, very small, and small businesses may 
thrive, a microlender that meets all other eligibility requirements and 
owns and operates a small business incubator will be considered 
eligible to apply. In addition, a business incubator selected to 
participate as a microlender may use RMAP funding to lend to an 
eligible microenterprise tenant, without creating a conflict of 
interest under Sec.  4280.323(c).


Sec.  4280.311  Loan provisions for Agency loans to microlenders.

    (a) Purpose of the loan. Loans will be made to eligible and 
qualified microlenders to capitalize RMRFs that it will administer by 
making and servicing microloans in one or more rural areas.
    (b) Eligible activities. Microlenders may make microloans for 
qualified business activities and use Agency loan funds only as 
provided in Sec.  4280.322.
    (c) Ineligible activities. Microlenders may not use RMRF funds for 
administrative costs or expenses and may not make microloans under this 
program for ineligible purposes as specified in Sec.  4280.323.
    (d) Cost share. The Federal share of the eligible project cost of a 
microborrower's project funded under this section shall not exceed 75 
percent. The cost share requirement shall be met by the microlender 
using either of the options identified in paragraphs (d)(1) and (2) of 
this section in establishing an RMRF. A microlender may establish 
multiple RMRFs utilizing either option. Whichever option is selected 
for an RMRF, it must apply to the entire RMRF and all microloans made 
with funds from that RMRF.
    (1) Microborrower project level option. The loan covenants between 
the Agency and the microlender and the microlender's lending policies 
and procedures shall limit the microlender's loan to the microborrower 
to no more than 75 percent of the eligible project cost of the 
microborrower's project and require that the microborrower obtain the 
remaining 25 percent of the eligible project cost from non-Federal 
sources. The non-Federal share of the eligible project cost of the 
microborrower's project may be provided in cash (including through 
fees, grants (including community development block grants), and gifts) 
or in the form of in-kind contributions.
    (2) RMRF level option. The microlender shall capitalize the RMRF at 
no more than 75 percent Agency loan funds and not less than 25 percent 
non-Federal funds, thereby allowing the microlender to finance 100 
percent of the microborrower's eligible project costs. All contributed 
funds shall be maintained in the RMRF.
    (e) Loan terms and conditions for microlenders. Loans will be made 
to microlenders under the following terms and conditions:
    (1) Funds received from the Agency and any non-Federal share will 
be deposited into an interest-bearing account that will be the RMRF 
account.
    (2) The RMRF account, including any interest earned on the account 
and the microloans made from the account, will be used to make fixed-
rate microloans, to accept repayments from microborrowers and 
reimbursements from the LLRF, to repay the Agency and, with the advance 
written approval of the Agency, to supplement the LLRF with interest 
earnings (from payments received or from account earnings) from the 
RMRF.
    (3) The term of a loan made to a microlender will not exceed 20 
years. If requested by the applicant MDO, a shorter term may be agreed 
upon by the microlender and the Agency.
    (4) Each loan made to a microlender will automatically receive a 2-
year deferral during which time no repayment to the Agency will be 
required. Voluntary payments will be accepted.
    (i) Interest will accrue during the deferral period only on funds 
disbursed by the Agency.
    (ii) The deferral period will begin on the day the Agency loan to 
the microlender is closed.
    (iii) Loan repayments will be made in equal monthly installments to 
the Agency beginning on the last day of the 24th month of the life of 
the loan.

[[Page 30149]]

    (5) Partial or full repayment of debt to the Agency under this 
program may be made at any time, including during the deferral period, 
without any pre-payment penalties being assessed.
    (6) The microlender is responsible for full repayment of its loan 
to the Agency regardless of the performance of its microloan portfolio.
    (7) The Agency may call the entire loan due and payable prior to 
the end of the full term, due to any non-performance, delinquency, or 
default on the loan.
    (8) Loan closing between the microlender and the Agency must take 
place within 90 days of loan approval or funds will be forfeited and 
the loan will be deobligated.
    (9) Microlenders will be eligible to receive a disbursement of up 
to 25 percent of the total loan amount at the time of loan closing. 
Interest will accrue on all funds disbursed to the microlender 
beginning on the date of disbursement.
    (10) A microlender must make one or more microloans within 60 days 
of any disbursement it receives from the Agency. Failure to make a 
microloan within this time period may result in the microlender not 
receiving any additional funds from the Agency and may result in the 
Agency demanding return of any funds already disbursed to the 
microlender.
    (11) Microlenders may request in writing, and receive additional 
disbursements not more than quarterly, until the full amount of the 
loan to the microlender is disbursed, or until the end of the 36th 
month of the loan, whichever occurs first. Letters of request for 
disbursement must be accompanied by a description of the microlender's 
anticipated need. Such description will indicate the amount and number 
of microloans anticipated to be made with the funding.
    (12) Each loan made to a microlender during its first five years of 
participation in this program will bear an interest rate of 2 percent. 
After the fifth year of an MDO's continuous and satisfactory 
participation in this program, each new loan made to the microlender 
will bear an interest rate of 1 percent. Satisfactory participation 
requires a default rate of 5 percent or less and a pattern of 
delinquencies of 10 percent or less. Except in the case of liquidation 
or early repayment, loans to microlenders must fully amortize over the 
life of the loan.
    (13) During the initial deferral period, each loan to a microlender 
will accrue interest at a rate of 1 or 2 percent based on the ultimate 
interest rate on the loan. Interest accrued during the 2-year deferral 
period will be capitalized so that, during the 24th month of the 
initial deferral period, the microlender's debt to the Agency will be 
calculated and amortized over the remaining life of the loan. The first 
payment will be due to the Agency on the last day of the 24th month of 
the life of the loan.
    (14) Funds not disbursed to the microlender by the end of the 36th 
month of the loan from the Agency will be de-obligated.
    (15) The Agency will hold first lien position on the RMRF account, 
the LLRF, and all notes receivable from microloans.
    (16) If a microlender makes a withdrawal from the RMRF for any 
purpose other than to make a microloan, repay the Agency, or, with 
advance written approval, transfer an appropriate amount of non-Federal 
funds to the LLRF, the Agency may restrict further access to 
withdrawals from the account by the microlender.
    (17) In the event a microlender fails to meet its obligations to 
the Agency, the Agency may pursue any combination of the following:
    (i) Take possession of the RMRF and/or any microloans outstanding, 
and/or the LLRF;
    (ii) Call the loan due and payable in full; and/or
    (iii) Enter into a workout agreement acceptable to the Agency, 
which may or may not include transfer or sale of the portfolio to 
another microlender (whether or not funded under this program) deemed 
acceptable to the Agency.
    (f) Loan funding limitations.
    (1) Minimum and maximum loan amounts. The minimum loan amount a 
microlender may borrow under this program will be $50,000. The maximum 
any microlender may borrow on a single loan under this program, or in 
any given Federal fiscal year, will be $500,000. In no case will the 
aggregate outstanding balance owed to the program by any single 
microlender exceed $2,500,000.
    (2) Use of funds. Loans must be used only to establish or 
recapitalize an existing Agency funded RMRF out of which microloans 
will be made, into which microloan payments will be deposited, and from 
which repayments to the Agency will be made. In some instances, as 
described in Sec.  4280.311(e)(2), interest earned by these funds may 
be used to fund and recapitalize both RMRF and the LLRF.
    (g) Loan loss reserve fund (LLRF). Each microlender that receives 
one or more loans under this program will be required to establish an 
interest-bearing LLRF.
    (1) Purpose. The purpose of the LLRF is to protect the microlender 
and the Agency against losses that may occur as the result of the 
failure of one or more microborrowers to repay their loans on a timely 
basis.
    (2) Capitalization and maintenance. The LLRF is subject to each of 
the following conditions:
    (i) The microlender must maintain the LLRF at a minimum of 5 
percent of the total amount owed by the microlender under this program 
to the Agency. If the LLRF falls below the required amount, the 
microlender will have 30 days to replenish the LLRF. The Agency will 
hold a security interest in the account and all funds therein until the 
MDO has repaid its debt to the Agency under this program.
    (ii) No Agency loan funds may be used to capitalize the LLRF.
    (iii) The LLRF must be held in an interest-bearing, Federally-
insured deposit account separate and distinct from any other fund owned 
by the microlender.
    (iv) The LLRF must remain open, appropriately capitalized, and 
active until such time as:
    (A) All obligations owed to the Agency by the microlender under 
this program are paid in full; or
    (B) The LLRF is used to assist with full repayment or prepayment of 
the microlender's program debt.
    (v) Earnings on the LLRF account must remain a part of the account 
except as stipulated in Sec.  4280.311(e)(2).
    (3) Use of LLRF. The LLRF must be used only to:
    (i) Recapitalize the RMRF in the event of the loss and write-off of 
a microloan; that is, when a loss has been paid to the RMRF, from the 
LLRF, the microlender must, within 30 days, replenish the LLRF, with 
non-federal funds, to the required level;
    (ii) Accept non-Federal deposits as required for maintenance of the 
fund at a level equal to 5 percent or more of the amount owed to the 
Agency by the microlender under this program;
    (iii) Accrue interest (interest earnings accrued by the LLRF will 
become part of the LLRF and may be used only for eligible purposes); 
and
    (iv) Prepay or repay the Agency program loan.
    (4) LLRF funded at time of closing. The LLRF account must be 
established by the microlender prior to the closing of the loan from 
the Agency. At the time of initial loan closing, sources of funding for 
the LLRF must be identified by the microlender so that as microloans 
are made, the amount in the LLRF can be built over time to an amount 
greater than or equal to 5 percent of the amount owed to the Agency by 
the microlender under this program. After the first

[[Page 30150]]

disbursement is made to a microlender, further disbursements will only 
be made if the LLRF is funded at the appropriate amount. After the 
initial loan is made to a microlender, subsequent loan closings will 
require the LLRF to be funded in an amount equal to 5 percent of the 
anticipated initial drawdown of funds for the RMRF. Federal funds, 
except where specifically permitted by other laws, may not be used to 
fund LLRF.
    (5) Additional LLRF funding. In the event of exhibited weaknesses, 
such as losses that are greater than 5 percent of the microloan 
portfolio, on the part of a microlender, the Agency may require 
additional funding be put into the LLRF; however, the Agency may never 
require an LLRF of more than 10 percent of the total amount owed by the 
microlender.
    (h) Recordkeeping, reporting, and oversight. Microlenders must 
maintain all records applicable to the program and make them available 
to the Agency upon request. Microlenders must submit quarterly reports 
as specified in paragraphs (h)(1) through (4) of this section. 
Portfolio reporting requirements must be met via the electronic 
reporting system. Other reports, such as narrative information, may be 
submitted as hard copy in the event the microlender, grantee, or Agency 
do not have the capability to submit or accept same electronically.
    (1) Periodic reports. On a quarterly basis, within 30 days of the 
end of the calendar quarter, each microlender that has an outstanding 
loan under this section must provide to the Agency:
    (i) Quarterly reports, using an Agency-approved form, containing 
such information as the Agency may require, and in accordance with OMB 
circulars and guidance, to ensure that funds provided are being used 
for the purposes for which the loan to the microlender was made. At a 
minimum, these reports must identify each microborrower under this 
program and should include a discussion reconciling the microlender's 
actual results for the period against its goals, milestones, and 
objectives as provided in the application package;
    (ii) SF-PPR, ``Performance Progress Report'' cover sheet, 
performance measures (SF-PPR-A), and activity based expenditures (SF-
PPR-E); and
    (iii) SF-270, ``Request for Advance or Reimbursement''.
    (2) Minimum retention. Microlenders must provide evidence in their 
quarterly reports that the sum of the unexpended amount in the RMRF, 
plus the amount in the LLRF, plus debt owed by the microborrowers is 
equal to a minimum of 105 percent of the amount owed by the microlender 
to the Agency unless the Agency has established a higher LLRF reserve 
requirement for a specific microlender.
    (3) Combining accounts and reports. If a microlender has more than 
one loan from the Agency, a separate report must be made for each 
except when RMRF accounts have been combined. A microlender may combine 
RMRF accounts only when:
    (i) The underlying loans have the same rates, terms and conditions;
    (ii) The combined report allows the Agency to effectively 
administer the program, including providing the same level of 
transparency and information for each loan as if separate RMRF reports 
had been prepared; and
    (iii) The accompanying LLRF fund reports also provide the same 
level of transparency and information for each loan as if separate LLRF 
reports had been prepared.
    (iv) The Agency must approve the combining of accounts and reports 
in writing before such accounts are combined and reports are submitted.
    (4) Delinquency. In the event that a microlender has delinquent 
loans in its RMAP portfolio, quarterly reports will include narrative 
explanation of the steps being taken to cure the delinquencies.
    (5) Other reports. Other reports may be required by the Agency from 
time to time in the event of poor performance, one or more work out 
agreements or other such occurrences that require more than the usual 
set of reporting information.
    (6) Site visits. The Agency may, at any time, choose to visit the 
microlender and inspect its files to ensure that program requirements 
are being met.
    (7) Access to microlender's records. Upon request by the Agency, 
the microlender will permit representatives of the Agency (or other 
agencies of the U.S. Department of Agriculture authorized by that 
Department or the U.S. Government) to inspect and make copies of any 
records pertaining to operation and administration of this program. 
Such inspection and copying may be made during regular office hours of 
the microlender or at any other time agreed upon between the 
microlender and the Agency.
    (8) Changes in key personnel. Before any additions are made to key 
personnel, the microlender must notify and the Agency must approve such 
changes.


Sec.  4280.312  Loan approval and closing.

    (a) Loan approval and obligating funds. The loan will be considered 
approved on the date the signed copy of Form RD 1940-1, ``Request for 
Obligation of Funds,'' is signed by the Agency. Form RD 1940-1 
authorizes funds to be obligated and may be executed by the Agency 
provided the microlender has the legal authority to contract for a 
loan, and to enter into required agreements, including an Agency-
approved loan agreement, and meets all program loan requirements and 
has signed Form RD 1940-1.
    (b) Letter of conditions. Upon reviewing the conditions and 
requirements in the letter of conditions, the applicant must complete, 
sign, and return Form RD 1942-46, ``Letter of Intent to Meet 
Conditions,'' to the Agency; or if certain conditions cannot be met, 
the applicant may propose alternate conditions. The Agency will review 
any requests for changes to the letter of conditions. The Agency may 
approve only minor changes that do not materially affect the 
microlender. Changes in legal entities prior to loan closing will not 
be approved.
    (c) Loan closing.
    (1) Prior to loan closing, microlenders must provide evidence that 
the RMRF and LLRF bank accounts have been set up and the LLRF has been, 
or will be, funded as described in Sec.  4280.311(g)(4). Such evidence 
shall consist of:
    (i) A pre-authorized debit form allowing the Agency to withdraw 
payments from the RMRF account, and in the event of a repayment 
workout, from the LLRF account;
    (ii) An Agency-approved automatic deposit authorization form from 
the depository institution providing the Agency with the RMRF account 
number into which funds may be deposited at time of disbursement to the 
microlender;
    (iii) A statement from the depository institution as to the amount 
of cash in the LLRF account;
    (iv) An Agency-approved promissory note must be executed at loan 
closing; and
    (v) An appropriate security agreement on the LLRF and RMRF 
accounts.
    (2) At loan closing, the microlender must certify that:
    (i) All requirements of the letter of conditions have been met and
    (ii) There has been no material adverse change in the microlender 
or its financial condition since the issuance of the letter of 
conditions. If one or more adverse changes have occurred, the 
microlender must explain the changes and the Agency must determine that 
the microlender remains eligible and qualified to participate as an 
MDO.
    (3) The microlender will provide sufficient evidence, which may 
include but is not limited to, mechanics' lien waivers or in their 
absence receipts of

[[Page 30151]]

payment, that no lawsuits are pending or threatened that would 
adversely affect the security of the microlender when Agency security 
instruments are filed.


Sec.  4280.313  Grant provisions.

    (a) General. The following provisions apply to each type of grant 
offered under this program unless otherwise specified annually in a 
Federal Register notice. Competition for these funds will occur as a 
part of the application and qualification process of becoming a 
microlender. Failure to meet scoring benchmarks will preclude an 
applicant from receiving loan and/or grant dollars. Once an MDO is 
participating as a microlender, grant funds will be made available 
automatically based on lending and the availability of funds.
    (1) Grant amounts.
    (i) The maximum TA grant amount for a microlender is 25 percent of 
the first $400,000 of outstanding microloans owed to the microlender 
under this program, plus an additional 5 percent of the outstanding 
loan amount owed by the microborrowers to the lender under this program 
over $400,000 up to and including $2.5 million. This calculation leads 
to a maximum grant of $205,000 annually for any microlender to provide 
technical assistance to its clients. These grants will be awarded 
annually.
    (ii) The maximum amount of a TA-only grant under this program will 
not exceed 10 percent of the amount of funding available for TA-only 
grants. The amount of funding available for TA funding will be 
announced annually and will be based on the availability of funds. In 
no case will funding for the TA-only grants exceed 10 percent of the 
amount appropriated for the program each Federal fiscal year.
    (2) Matching requirement. The MDO is required to provide a match of 
not less than 15 percent of the total amount of the grant in the form 
of matching funds, indirect costs, or in-kind goods or services. Unless 
specifically permitted by laws other than the statute authorizing RMAP, 
matching contributions must be made up of non-Federal funding.
    (3) Administrative expenses. Not more than 10 percent of a grant 
received by a MDO for a Federal fiscal year (FY) may be used to pay 
administrative expenses. MDOs must submit an annual budget of proposed 
administrative expenses for Agency approval. The Agency has the right 
to deny the 10 percent and to fund administration expenses at a lower 
level.
    (4) Ineligible grant purposes. Grant funds, matching funds, 
indirect costs, and in-kind goods and services may not be used for:
    (i) Grant application preparation costs;
    (ii) Costs incurred prior to the obligation date of the grant;
    (iii) Capital improvements;
    (iv) Political or lobbying activities;
    (v) Assistance to any ineligible entity;
    (vi) Payment of any judgment or debt owed; and
    (vii) Payment of any costs other than those allowed in paragraphs 
(b)(1) and (c) of this section.
    (5) Changes in key personnel. Before any additions are made to key 
personnel, the microlender must notify and the Agency must approve such 
changes.
    (b) Grants to assist microentrepreneurs (Microlender Technical 
Assistance (TA) Grants). The capacity of a microlender to provide an 
integrated program of microlending and technical assistance will be 
evaluated during the scoring process. An eligible MDO selected to be a 
microlender will be eligible to receive a microlending TA grant if it 
receives funding to provide microloans under this program.
    (1) Purpose. The Agency shall make microlender TA grants to 
microlenders to assist them in providing marketing, management, and 
other technical assistance to rural microentrepreneurs and 
microenterprises that have received or are seeking one or more 
microloans from the microlender.
    (2) Grant amounts. Microlender TA grants will be limited to an 
amount equal to not more than 25 percent of the total outstanding 
balance of microloans made under this program and active by the 
microlender as of the date the grant is awarded for the first $400,000 
plus an additional 5 percent of the loan amount owed by the 
microborrowers to the lender under this program over $400,000 up to and 
including $2.5 million. Funds cannot be used to pay off the loans. 
During the first year of operation, the percentage will be determined 
based on the amount of the loan to the microlender, but will be 
disbursed on a quarterly basis based on the amount of microloans made. 
Any grant dollars obligated, but not spent, from the initial grant, 
will be subtracted from the subsequent year grant to ensure that 
obligations cover only microloans made and active.
    (3) TA grant fund uses and limitations. The microlender will agree 
to use TA grant funding exclusively for providing technical assistance 
and training to eligible microentrepreneurs and microenterprises, with 
the exception that up to 10 percent of the grant funds may be used to 
cover the microlender's administrative expenses, except as may be 
reduced as provided under Sec.  4280.313(a)(4). The following 
limitations will apply to TA grant funding:
    (i) Administrative expenses should be kept to a minimum. As such, 
the applicant MDO is required, in the application materials, to provide 
an administrative budget plan indicating the amount of funding it will 
need for administrative purposes. Applicants will be scored 
accordingly, with those using less than 10 percent of the funding for 
administrative purposes being scored higher than those using 10 percent 
of the funding for administrative purposes.
    (ii) While operating the program, the selected microlender will be 
expected to adhere to the estimates it provides in the application. If 
for any reason, the microlender cannot meet the expectations of the 
application, it must contact the Agency in writing to request a budget 
adjustment.
    (iii) At no time will it be appropriate for the microlender to 
expend more than 10 percent of its grant funding on administrative 
expenses. Microlenders that go over 10 percent will be considered in 
performance default and may be subject to forfeiting funding.
    (iv) Budget adjustments will be considered within the 10 percent 
limitation and approved or denied on a case-by-case basis.
    (c) TA-only grants. Grants will be competitively made to MDOs for 
the purpose of providing technical assistance and training to 
prospective microborrowers. Technical assistance-only grants will be 
provided to eligible MDOs that seek to provide business-based technical 
assistance and training to eligible microentrepreneurs and 
microenterprises, but do not seek funding for an RMRF. Entities 
receiving microlending TA grants will not be eligible to apply for TA-
only grants.
    (1) Grant term. TA-only grants will have a grant term not to exceed 
12 months from the date the grant agreement is signed.
    (2) Funding level. The maximum amount of a TA-only grant under this 
program will not exceed 10 percent of the amount of funding available 
for TA-only grants. In no case will funding for the TA-only grants 
exceed 10 percent of the amount appropriated for the program each 
Federal fiscal year.
    (3) Loan referencing. TA-only grantees will be required to:
    (i) Refer clients to internal or external non-program funded 
lenders for loans of $50,000 or less and
    (ii) Collect data regarding such clients. TA-only grantees will be

[[Page 30152]]

considered successful if a minimum of 1- in-5 TA clients are referred 
for a microloan and are operating a business within 18 months of 
receiving technical assistance.
    (4) Facilitation of access to capital. Technical assistance-only 
grantees will be expected to provide training and technical assistance 
services to the extent that access to capital for eligible 
microentrepreneurs and microenterprises is facilitated by referral to 
either an internal or external non-program loan fund so that these 
clients may take advantage of available financing programs.
    (5) Microlender funding. No entity will receive grant funding as 
both a microlender and a TA-only provider; that is, RMAP microlenders 
are not eligible for TA-only funding and an MDO receiving TA-only 
funding are not eligible for microlender funding.
    (d) Grant agreement. For any grant to an MDO or microlender, the 
Agency will notify the approved applicant in writing, using an Agency-
approved grant agreement setting out the conditions under which the 
grant will be made. The form will include those matters necessary to 
ensure that the proposed grant is completed in accordance with the 
proposed project, that grant funds are expended for authorized 
purposes, and that the applicable requirements prescribed in the 
relevant Department regulations are complied with.


Sec. Sec.  4280.314  [Reserved]


Sec.  4280.315  MDO application and submission information.

    (a) Initial and subsequent applications. Applications shall be 
submitted in accordance with the provisions of this subpart unless 
adjusted by the Agency in an annual Federal Register Notice for 
Solicitation of Applications (NOSA) or a Notice of Funding Availability 
(NOFA), depending on the availability of funds at the time of 
publication.
    (1) The information required in this section is necessary for an 
application to be considered complete.
    (2) When preparing applications, applicants are strongly encouraged 
to review the scoring criteria in Sec.  4280.316 and provide 
documentation that will support a competitive score.
    (3) Only those applicants that meet the basic eligibility 
requirements in Sec.  4280.310 will have their applications fully 
scored and considered for participation in the program under this 
section.
    (b) Content and form of submission. The content and form 
requirements will differ based on the nature of the application. All 
applicants must provide the information specified in paragraph (c) of 
this section. Additional application information is required in 
paragraph (d) of this section depending on the type of application 
being submitted.
    (c) Application information for all applicants. All applicants must 
provide the following information and forms fully completed and with 
all attachments:
    (1) Standard Form-424, ``Application for Federal Assistance.''
    (2) Standard Form-424A, ``Budget Information--Non-construction 
Programs.''
    (3) Standard Form-424B, ``Assurances--Non-construction Programs.''
    (4) For entities that are applying for more than $150,000 in loan 
funds and/or more than $100,000 in grant funds, only, SF LLL, 
``Disclosure of Lobbying Activities.''
    (5) AD 1047, ``Certification Regarding Debarment, Suspension, and 
other Responsibility Matters--Primary Covered Transaction.''
    (6) For entities applying for program loan funds to become an RMAP 
microlender only, Form RD 1910-11, ``Certification of No Federal 
Debt.''
    (7) Form RD 400-8, ``Compliance Review.''
    (8) Demonstration that the applicant is eligible to apply to 
participate in this program. To demonstrate eligibility, applicants 
must submit documentation that the applicant is an MDO as defined in 
Sec.  4280.302, as follows:
    (i) If a nonprofit entity, evidence that the applicant organization 
meets the citizenship requirements;
    (ii) If a nonprofit entity, a copy of the applicant's bylaws and 
articles of incorporation, which include evidence that the applicant is 
legally considered a non-profit organization;
    (iii) If an Indian tribe, evidence that the applicant is a 
Federally-recognized Indian tribe, and that the tribe neither operates 
nor is served by an existing MDO;
    (iv) If a public institution of higher education, evidence that the 
applicant is a public institution of higher education; and
    (v) For nonprofit applicants only, a Certificate of Good Standing, 
not more than 6 months old, from the Office of the Secretary of State 
in the State in which the applicant is located. If the applicant has 
offices in more than one state, then the state in which the applicant 
is organized and licensed will be considered the home location.
    (9) Certification by the applicant that it cannot obtain sufficient 
credit elsewhere to fund the activities called for under this program 
with similar rates and terms.
    (10) Form RD 400-4, ``Assurance Agreement.''
    (d) Type of application specific information. In addition to the 
information required under paragraph (c) of this section, the following 
information is also required, as applicable:
    (1) The information specified in Sec.  4280.316(a).
    (2) An applicant for status as a microlender with more than 3 years 
of experience as an MDO seeking to participate as a microlender must 
provide the additional information specified in Sec.  4280.316(b). Such 
an applicant will be applying for a loan to capitalize an RMRF, which, 
unless otherwise requested by the applicant, will be accompanied by a 
microlending TA grant.
    (3) An applicant for status as a microlender with 3 years or less 
experience as an MDO seeking to participate as a microlender must 
provide the additional information specified in Sec.  4280.316(c). Such 
an applicant will be applying for a loan to capitalize an RMRF, which, 
unless otherwise requested by the applicant, will be accompanied by a 
microlending TA grant.
    (4) All applicants seeking status as a microlender must identify in 
their application which cost share option(s) the applicant will 
utilize, as described in Sec.  4280.311(d), to meet the Federal cost 
share requirement. If the applicant will utilize the RMRF-level option, 
the applicant shall identify the amount(s) and source(s) of the non-
Federal share.
    (5) An applicant seeking TA-only grant funding must provide the 
additional information specified in Sec.  4280.316(e).
    (e) Application limits. Paragraph (d) of this section sets out 
three types of funding under which applications may be submitted. MDOs 
may only submit and have pending for consideration, at any given time, 
one application, regardless of funding category.
    (f) Completed applications. Applications that fulfill the 
requirements specified in paragraphs (a) through (e) of this section 
will be fully reviewed, scored, and ranked by the Agency in accordance 
with the provisions of Sec.  4280.316.


Sec.  4280.316  Application scoring.

    Applications will be scored based on the criteria specified in this 
section using only the information submitted in

[[Page 30153]]

the application. The total available points per application are 100. 
Points will be awarded as shown in paragraphs (a) through (e) of this 
section. Awards will be based on the ranking, with the highest ranking 
applications being funded first, subject to available funding.
    (a) Application requirements for all applicants. All applicants 
must submit the eligibility information described in Sec.  4280.315. 
Only those applicants deemed eligible will be scored for qualification. 
Qualification information provides the complete forms and information 
necessary to determine a baseline of capacity. Additional information 
is specified depending on the level of experience or type of funding 
being applied for. The maximum points available in this part of the 
application are 45. In addition to the eligibility information, all 
applicants will submit:
    (1) An organizational chart clearly showing the positions and 
naming the individuals in those positions. Of particular interest to 
the Agency are management positions and those positions essential to 
the operation of microlending and TA programming. Up to 5 points will 
be awarded.
    (2) Resumes for each of the individuals shown on the organizational 
chart and indicated as key to the operation of the activities to be 
funded under this program. There should be a corresponding resume for 
each of the key individuals noted and named on the organizational 
chart. Points will be awarded based on the quality of the resumes and 
on the ability (based on the resumes) of the key personnel to 
administer the program. Up to 5 points will be awarded.
    (3) A succession plan to be followed in the event of the departure 
of personnel key to the operation of the applicant's RMAP activities. 
Up to 5 points will be awarded.
    (4) Information indicating an understanding of microenterprise 
development concepts. Provide those parts of your policy and procedures 
manual that deal with the provision of loans, management of loan funds, 
and provision of technical assistance. Up to 5 points will be awarded.
    (5) Copies of the applicant's most recent, and two years previous, 
financial statements. Points will be awarded based on the demonstrated 
ability of the applicant to maintain or grow its bottom line fund 
balance, its ability to manage one or more federal programs, and its 
capacity to manage multiple funding sources, restricted and non-
restricted funding sources, income, earnings, and expenditures. Up to 
10 points will be awarded.
    (6) A copy of the applicant's organizational mission statement. The 
mission statement will be rated based on its relative connectivity to 
microenterprise development and general economic development. The 
mission statement may or may not be a part of a larger statement. For 
example, if the mission statement is included in the by-laws or other 
organizational documents, please so note, direct the reviewer to the 
proper document, and do not submit these documents twice. Up to 5 
points will be awarded.
    (7) Information regarding the geographic service area to be served. 
Describe the service area, which must be rural as defined. State the 
number of counties or other jurisdictions to be served. Describe the 
demographics of the service area and whether or not the population is a 
diverse population. Note that the applicant will not be scored on the 
size of the service area, but on its ability to fully cover the service 
area as described. Up to 10 points will be awarded.
    (b) Program loan application requirements for MDOs seeking to 
participate as RMAP microlenders with more than 3 years of experience. 
In addition to the information required under paragraph (a) of this 
section, applicants with more than 3 years of experience as a 
microlender also must provide the information specified in paragraphs 
(b)(1) through (5) of this section. The total number of points 
available under this paragraph, in addition to the up to 45 points 
available in paragraph (a) of this section, is 55, for a total of 100.
    (1) History of provision of microloans. The applicant must provide 
data regarding its history of making microloans for the three years 
previous to this application by answering the questions in paragraphs 
(b)(1)(i) through (vi) of this section. This information should be 
provided clearly and concisely in numerical format as the data will be 
used to calculate points as noted. Figure 1 presents an example of the 
format and data required. The maximum number of points under this 
criterion is 20.

Figure 1. Example of Format and Data Requirements

----------------------------------------------------------------------------------------------------------------
                                                                            Federal FY
                                                 ---------------------------------------------------------------
                    Data item                                       Year before      2nd year
                                                    Last fiscal     last fiscal     before last        Total
                                                       year            year         fiscal year
----------------------------------------------------------------------------------------------------------------
Total <greek-i> of Microloans Made..............  ..............  ..............  ..............  ..............
Total $ Amount of Microloans Made...............  ..............  ..............  ..............  ..............
<greek-i> of Microloans Made in Rural Areas.....  ..............  ..............  ..............  ..............
Total $ Amount of Microloans Made in Rural Areas  ..............  ..............  ..............  ..............
<greek-i> of Microloans Made to Racial and        ..............  ..............  ..............  ..............
 Ethnic Minorities..............................
<greek-i> of Microloans Made to women...........  ..............  ..............  ..............  ..............
<greek-i> of Microloans Made to the Disabled....  ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    (i) Number and amount of microloans made during each of the three 
previous Federal FYs. Do not include current year information. A 
narrative may be included as a separate attachment, not in the body of 
the suggested table.
    (ii) Number and amount of microloans made in rural areas in each of 
the three years prior to the year in which the application is 
submitted. If the history of providing microloans in rural areas shows:
    (A) More than the three consecutive years immediately prior to this 
application, 5 points will be awarded;
    (B) At least two of the years but not more than the three 
consecutive years immediately prior to this application, 3 points will 
be awarded;
    (C) At least 6 months, but not more than one year immediately prior 
to this application, 1 point will be awarded.
    (iii) Percentage of number of loans made in rural areas. Calculate 
and enter the total number of microloans made in rural areas as a 
percentage of the total number of all microloans made for each of the 
past three Federal FYs. If the

[[Page 30154]]

percentage of the total number of microloans made in rural areas is:
    (A) 75 percent or more, 5 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 but less than 50 percent, 1 point will be awarded.
    (iv) The percentage of dollar amount of loans made in rural areas. 
Enter the dollar amount of microloans made in rural areas as a 
percentage of the dollar amount of the total portfolio (rural and non-
rural) of microloans made for each of the previous three Federal FYs. 
If percentage of the dollar amount of the microloans made in rural 
areas is:
    (A) 75 percent or more of the total amount, 5 points will be 
awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (v) Each applicant shall compare the diversity of its entire 
microloan portfolio to the demographic makeup of its service area (as 
determined by the latest applicable decennial census for the State) 
based on the number of microloans made during the three years preceding 
the subject application. Demographic groups shall include gender, 
racial and ethnic minority status, and disability (as defined in The 
Americans with Disabilities Act). Points will be awarded on the basis 
of how close the MDO's microloan portfolio matches the demographic 
makeup of its service area. A maximum of 5 points will be awarded.
    (A) If at least one loan has been made to each demographic group 
and if the percentage of loans made to each demographic group is each 
within 5 or less percent of the demographic makeup, 5 points will be 
awarded.
    (B) If at least one loan has been made to each demographic group 
and if the percentage of loans made to each demographic group is each 
within 10 or less percent of the demographic makeup, 3 points will be 
awarded.
    (C) If at least one loan has been made to each demographic group 
and if the percentage of loans made to one or more of the demographic 
groups is greater than 10 percent of the demographic makeup or if no 
loans have been made to one of the demographic groups and if the 
percentage of loans made to each of the other demographic groups is 
each within 10 or less percent of the demographic makeup, 1 point will 
be awarded.
    (D) If no loans have been made to two or more demographic groups, 
no points will be awarded.
    (2) Portfolio management. Each applicant's ability to manage its 
portfolio will be determined based on the data provided in response to 
paragraphs (b)(2)(i) and (ii) of this section and scored accordingly. 
The maximum number of points under this criterion is 10.
    (i) Enter the total number of your microloans paying on time for 
the three previous Federal FYs. If the total number of microloans 
paying on time at the end of each year over the prior three Federal FYs 
is:
    (A) 95 percent or more, 5 points will be awarded;
    (B) At least 85 percent but less than 95 percent, 3 points will be 
awarded;
    (C) Less than 85 percent, 0 points will be awarded.
    (ii) Enter the total number of microloans 30 to 90 days in arrears 
or that have been written off at year end for the three previous 
Federal FYs. If the total number of these microloans is:
    (A) 5 percent or less of the total portfolio, 5 points will be 
awarded;
    (B) More than 5 percent, 0 points will be awarded.
    (3) History of provision of technical assistance. Each applicant's 
history of provision of technical assistance to microentrepreneurs and 
microenterprises, and their ability to reach diverse communities, will 
be scored based on the data specified in paragraphs (b)(3)(i) through 
(iv) of this section. Applicants may use a chart such as that suggested 
in Figure 1 as they deem appropriate. The maximum number of points 
under this criterion is 15.
    (i) Provide the total number of rural and non-rural 
microentrepreneurs and microenterprises that received both microloans 
and TA services for each of the previous three Federal FYs.
    (ii) Provide the percentage of the total number of only rural 
microentrepreneurs and rural microenterprises that received both 
microloans and TA services for each of the previous three Federal FYs 
(calculate this as the total number of rural microloans made each year 
divided by the total number of loans made during the past three Federal 
FYs). If provision of both microloans and technical assistance to rural 
microentrepreneurs and rural microenterprises is demonstrated at a rate 
of:
    (A) 75 percent or more, 5 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (iii) Provide the percentage of the total number of rural 
microentrepreneurs and rural microenterprises by racial and ethnic 
minority, disabled, and/or gender that received both microloans and TA 
services for each of the previous three Federal FYs. If the 
demonstrated provision of microloans and technical assistance to these 
rural microentrepreneurs and rural microenterprises is at a rate of:
    (A) 75 percent or more, 5 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (iv) Provide the ratio of TA clients that also received microloans 
during each of the previous three Federal FYs. If the ratio of clients 
receiving technical assistance to clients receiving microloans is:
    (A) Between 1:1 and 1:5, 5 points will be awarded.
    (B) Between 1:6 and 1:8, 3 points will be awarded.
    (C) Either 1:9 or 1:10, 1 point will be awarded.
    (4) Ability to provide technical assistance. In addition to 
providing a statistical history of their provision of technical 
assistance to microentrepreneurs, microenterprises, and microborrowers, 
applicants must provide a narrative of not more than five pages 
describing the teaching and training methods used by the applicant 
organization to provide such technical assistance and discussing the 
outcomes of their endeavors. Technical assistance is defined in Sec.  
4280.302. The narrative will be scored as specified in paragraphs 
(b)(4)(i) through (iv) of this section. The maximum number of points 
under this criterion is 5.
    (i) Applicants that have used more than one method of training and 
technical assistance (e.g., classroom training, peer-to-peer discussion 
groups, individual assistance, distance learning) will be awarded 2 
points.
    (ii) Applicants that provide success stories to demonstrate the 
effects of technical assistance on their clients will be awarded 1 
point.
    (iii) Applicants that provide evidence that they require 
evaluations by the clients of their training programs and indicate that 
the average level of evaluation scores is ``good'' or higher will be 
awarded 1 point.
    (iv) Applicants that present their narrative information clearly 
and concisely (five pages or less) and at a level expected by trainers 
and teachers will be awarded 1 point.
    (5) Proposed administrative expenses to be spent from TA grant 
funds. The maximum number of points under this criterion is 5. If the 
percentage of grant

[[Page 30155]]

funds to be used for administrative purposes is:
    (i) Less than 5 percent of the TA grant funding, 5 points will be 
awarded;
    (ii) Between 5 percent and 8 percent, but not including 8 percent, 
3 points will be awarded; and
    (iii) Between 8 percent up to and including 10 percent, 0 point 
will be awarded.
    (c) Application requirements for MDOs seeking to participate as 
RMAP microlenders with 3 years or less experience. In addition to the 
information required under paragraph (a) of this section, an applicant 
MDO with 3 years or less experience that is applying to be a 
microlender must submit the information specified in paragraphs (c)(1) 
through (8) of this section. The total number of points available under 
this paragraph, in addition to the up to 45 points available in 
paragraph (a) of this section, is 55, for a total of 100.
    (1) The applicant must provide a narrative work plan that clearly 
indicates its intention for the use of loan and grant funding. Provide 
goals and milestones for planned microlending and technical assistance 
activities. In relation to the information requested in paragraph (a) 
of this section, the applicant must describe how it will incorporate 
its mission statement, utilize its employees, and maximize its human 
and capital assets to meet the goals of this program. The applicant 
must provide its strategic plan and organizational development goals 
and clearly indicate its lending goals for the five years after the 
date of application. The narrative work plan should be not more than 
five pages in length. Up to 10 points will be awarded.
    (2) The applicant will provide the date that it began business as 
an MDO or other provider of business education and/or facilitator of 
capital. This date will reflect when the applicant became licensed to 
do business, in good standing with the Secretary of State in which it 
is registered to do business, and regularly paid staff to conduct 
business on a daily basis. If the applicant has been in business for:
    (i) More than 2 years but less than 3 years, 5 points will be 
awarded;
    (ii) At least 1 year, but not more than 2 years, 3 points will be 
awarded;
    (iii) At least 6 months, but not more than 1 year, 1 point will be 
awarded;
    (iv) Less than 6 months, or more than 3 full years, 0 points will 
be awarded. (If more than 3 full years, the applicant must apply under 
the provisions for MDOs with more than 3 years experience as specified 
in Sec.  4280.315.)
    (3) The applicant must describe in detail any microenterprise 
development training received by it as a whole, or its employees as 
individuals, to date. The narrative may refer reviewers to already 
submitted resumes to save space. The training received will be rated on 
its topical variety, the quality of the description, and its relevance 
to the organization's strategic plan. The applicant should not submit 
training brochures or conference announcements. Up to 10 points will be 
awarded.
    (4) The applicant must indicate its current number of employees, 
those that concentrate on rural microentrepreneurial development, and 
the current average caseload for each. Indicate how the caseload ratio 
does or does not optimize the applicant's ability to perform the 
services described in the work plan. Discuss how Agency grant funding 
will be used to assist with TA program delivery and how loan funding 
will affect the portfolio. Up to 5 points will be awarded.
    (5) The applicant must indicate any training organizations with 
which it has a working relationship. Provide contact information for 
references regarding the applicant's capacity to perform the work plan 
provided. If the recommendations received from references are:
    (i) Generally excellent, 5 points will be awarded;
    (ii) Generally above average, 3 points will be awarded;
    (iii) Generally average, 1 point will be awarded;
    (iv) Generally less than average, 0 points will be awarded.
    (6) Describe any plans for continuing training relationship(s), 
including ongoing or future training plans and goals, and the timeline 
for same. Up to 5 points will be awarded.
    (7) The applicant will describe its internal benchmarking system 
for determining client success, reporting on client success, and 
following client success for up to 5 years after completion of a 
training relationship. Up to 10 points will be awarded.
    (8) The applicant will identify its proposed administrative 
expenses to be spent from TA grant funds. The maximum total number of 
points under this criterion is 5. If the percentage of grant funds to 
be used for administrative purposes is:
    (i) Less than 5 percent of the TA grant funding, 5 points will be 
awarded;
    (ii) Between 5 percent and 8 percent, but not including 8 percent, 
3 points will be awarded; and
    (iii) Between 8 percent up to and including 10 percent, 0 points 
will be awarded.
    (d) Application requirements for MDOs seeking technical assistance-
only grants. TA-only grants may be provided to MDOs that are not RMAP 
microlenders seeking to provide training and technical assistance to 
rural microentrepreneurs and rural microenterprises. An applicant 
seeking a TA-only grant must submit the information specified in 
paragraphs (d)(1) through (4) of this section. The total number of 
points available under this section, in addition to the 45 points 
available in paragraph (a) of this section, is 55, for a total of 100 
points.
    (1) History of provision of technical assistance. Each applicant's 
history of provision of technical assistance to microentrepreneurs and 
microenterprises, and their ability to reach diverse communities, will 
be scored based on the data specified in paragraphs (d)(1)(i) through 
(iv) of this section. Applicants may use a chart such as that suggested 
in Figure 1 as they deem appropriate. The maximum number of points 
under this criterion is 20.
    (i) Provide the total number of rural and non-rural 
microentrepreneurs and microenterprises that received both microloans 
and TA services for each of the previous three Federal FYs.
    (ii) Provide the percentage of the total number of rural 
microentrepreneurs and rural microenterprises that received both 
microloans and TA services for each of the previous three Federal FYs 
(calculate this as the total number of rural microloans made each year 
divided by the total number of rural and non-rural microloans made 
during the past three Federal FYs). If provision of both technical 
assistance and resultant microloans to rural microentrepreneurs and 
rural microenterprises is demonstrated at a rate of:
    (A) 75 percent or more, 5 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 3 points will be 
awarded;
    (C) At least 25 percent but less than 50 percent, 1 point will be 
awarded.
    (iii) Provide the percentage of the total number of rural 
microentrepreneurs by racial and ethnic minority, disabled, and/or 
gender that received both microloans and TA services for each of the 
previous three Federal FYs. If the demonstrated provision of technical 
assistance and resultant microloans to these rural microentrepreneurs 
when compared to the total number of microentrepreneurs assisted, is at 
a rate of:
    (A) 75 percent or more, 10 points will be awarded;
    (B) At least 50 percent but less than 75 percent, 7 points will be 
awarded;

[[Page 30156]]

    (C) At least 25 percent but less than 50 percent, 5 point will be 
awarded.
    (iv) Provide the ratio of TA clients that also received microloans 
during each of the last three years. If the ratio of clients receiving 
technical assistance to clients receiving microloans is:
    (A) Between 1:1 and 1:5, 5 points will be awarded.
    (B) Between 1:6 and 1:8, 3 points will be awarded.
    (C) Either 1:9 or 1:10, 1 point will be awarded.
    (2) Ability to provide technical assistance. In addition to 
providing a statistical history of their provision of technical 
assistance to microentrepreneurs, microenterprises, and microborrowers, 
applicants must provide a narrative of not more than five pages 
describing the teaching and training method(s) used by the applicant 
organization to provide technical assistance and discussing the 
outcomes of their endeavors. The narrative will be scored as specified 
in paragraphs (d)(2)(i) through (iv) of this section. The maximum 
number of points under this criterion is 20.
    (i) Applicants that have used more than one method of training and 
technical assistance (e.g., classroom training, peer-to-peer discussion 
groups, individual assistance, distance learning) will be awarded 5 
points.
    (ii) Applicants that provide success stories to demonstrate the 
effects of technical assistance on their clients will be awarded points 
under either of the following paragraphs, but not both.
    (A) News stories that highlight businesses made successful as a 
result of technical assistance, 5 points will be awarded.
    (B) Internal stories that highlight businesses made successful as a 
result of technical assistance, 3 points.
    (iii) Applicants that provide evidence that they require 
evaluations by the clients of their training programs and indicate that 
the evaluation scores are generally:
    (A) Excellent, 5 points will be awarded.
    (B) Good, 3 points will be awarded.
    (C) Less than good, 0 points will be awarded.
    (iv) Applicants that present well-written narrative information 
that is clearly and concisely written and is five pages or less will be 
awarded 5 points.
    (3) Technical assistance plan. Submit a plan for the provision of 
technical assistance explaining how the funding will benefit the 
current program and how it will allow the applicant to expand its non-
program microlending activities. Up to 10 points will be awarded
    (4) Proposed administrative expenses to be spent from TA grant 
funds. The maximum number of points under this criterion is 5. If the 
percentage of grant funds to be used for administrative purposes is:
    (i) Less than 5 percent of the TA grant funding, 5 points will be 
awarded;
    (ii) Between 5 percent and 8 percent, but not including 8 percent, 
3 points will be awarded; and
    (iii) Between 8 percent up to and including 10 percent, 1 point 
will be awarded.
    (e) Re-application requirements for participating microlenders with 
more than 5 years experience as a microlender under this program.
    (1) Microlender applicants with more than 5 years of experience as 
an MDO under this program may choose to submit a shortened loan/grant 
application that includes the following:
    (i) A letter of request for funding stating the amount of loan and/
or grant funds being requested;
    (ii) An indication of the loan and/or grant amounts being requested 
accompanied by a completed SF 424 and any pertinent attachments;
    (iii) An indication of the number and percent of program 
microentrepreneurs and microenterprises remaining in business for two 
years or more after microloan disbursement; and
    (iv) A recent resolution of the applicant's Board of Directors 
approving the application for debt.
    (2) The Agency, using this request, and data available in the 
reports submitted under previous fundings, will review the overall 
program performance of the applicant over the life of its participation 
in the program to determine its continued qualification for subsequent 
funding. Requirements include:
    (i) A default rate of 5 percent or less;
    (ii) A pattern of delinquencies during the period of participation 
in this program of 10 percent or less;
    (iii) A pattern of use of TA dollars that indicates at least one in 
ten TA clients receive a microloan;
    (iv) A statement discussing the need for more funding, accompanied 
by account documentation showing the amounts in each of the RMRF and 
LLRF accounts established to date; and
    (v) A pattern of compliance with program reporting requirements.
    (3) Shortened applications under this section will be rated on a 
pass or fail basis. Passing applications will be assigned a score of 90 
points and will be ranked accordingly in the quarterly competitions. 
Failing applications will be scored 0.


Sec.  4280.317  Selection of applications for funding.

    All applications received will be scored using the scoring criteria 
specified in Sec.  4280.316. Because each set of applicants is scored 
on a 100 point scale, applications will be ranked together. Shortened 
applications can only receive 90 points. Within funding limitations, 
applications will be funded in descending order, from the highest 
ranking application down. If two or more applications score the same, 
the Administrator may prioritize such applications to help the program 
achieve overall geographic diversity.
    (a) Timing and submission of applications.
    (1) All applications must be submitted as a complete application, 
in one package. Packages must be bound in a three ring binder and 
evidence must be organized in the order of appearance in Sec.  4280.315 
of this document. Applications that are unbound, disorganized, or 
otherwise not ready for evaluation will be returned.
    (2) Applications will be accepted on a quarterly basis using 
Federal fiscal quarters. Deadlines and specific application 
instructions will be published annually in the Federal Register.
    (3) Applications received will be reviewed, scored, and ranked 
quarterly. Unless withdrawn by the applicant, the Agency will retain 
unsuccessful applications that score 70 points or more, for 
consideration in subsequent reviews, through a total of four quarterly 
reviews. Applications unsuccessful after 4 quarters will be returned.
    (b) Availability of funds. If an application is received, scored, 
and ranked, but insufficient funds remain to fully fund it, the Agency 
may elect to fund an application requesting a smaller amount that has a 
lower score. Before this occurs, the Agency, as applicable, will 
provide the higher scoring applicant the opportunity to reduce the 
amount of its request to the amount of funds available. If the 
applicant agrees to lower its request, it must certify that the 
purposes of the project can be met, and the Agency must determine that 
the project is financially feasible at the lower amount.
    (c) Applicant notification. The Agency will notify applicants 
regarding their selection or non-selection, provide appeal rights of 
unsuccessful applicants, and closing procedures for the loans and/or 
grants to awardees.
    (d) Closing. Awardees unable to complete closing for obligation 
within 90 days will forfeit their funding. Such funding will revert 
back to the Agency for later use.

[[Page 30157]]

Sec. Sec.  4280.318-4280.319  [Reserved]


Sec.  4280.320  Grant administration.

    (a) Oversight. Any MDO receiving a grant under this program is 
subject to Agency oversight, with site visits and inspection of records 
occurring at the discretion of the Agency. In addition, MDOs receiving 
a grant under this subpart must submit reports, as specified in 
paragraphs (a)(1) through (3) of this section.
    (1) On a quarterly basis, within 30 days after the end of each 
Federal fiscal quarter, the microlender will provide to the Agency an 
Agency-approved quarterly report containing such information as the 
Agency may require to ensure that funds provided are being used for the 
purposes for which the grant was made, including:
    (i) SF-PPR, ``Performance Progress Report,'' including narrative 
reporting information as required by Office of Management and Budget 
(OMB) circulars and successor regulations. This report will include 
information on the microlender's technical assistance, training, and/or 
enhancement activity, and grant expenses, milestones met, or unmet, 
explanation of difficulties, observations and other such information;
    (ii) As appropriate, SF-270; and
    (iii) If requesting grant funding at the time of reporting, SF-PPR-
E, ``Activity Based Expenditures.''
    (2) If a microlender has more than one grant from the Agency, a 
separate report must be made for each.
    (3) Other reports may be required by the Agency from time to time 
in the event of poor performance or other such occurrences that require 
more than the usual set of reporting information.
    (b) Payments. The Agency will make grant payments not more often 
than on a quarterly basis. The first payment may be made in advance and 
will equal no more than one fourth of the grant award. Payment requests 
must be submitted on Standard Form 270 and will only be paid if reports 
are up to date and approved.


Sec.  4280.321  Grant and loan servicing.

    In addition to the ongoing oversight of the participating MDOs:
    (a) Grants. Grants will be serviced in accordance with all 
applicable regulations:
    (1) Department of Agriculture regulations including, but not 
limited to 7 CFR part 1951, subparts E and O, parts 3015, 3016, 3017, 
3018, 3019, and 3052; and
    (2) Office of Management and Budget (OMB) regulations including, 
but not limited to, 2 CFR parts 215, 220, 230, and OMB Circulars A-110 
and A-133.
    (b) Loans. Loans to microlenders will be serviced in accordance 
with the following:
    (1) Department of Agriculture regulations 7 CFR part 1951, subparts 
E, O, and R;
    (2) Other Department of Agriculture regulations as may be 
applicable; and
    (3) OMB Circular A-129.


Sec.  4280.322  Loans from the microlenders to microentrepreneurs.

    The primary purpose of making a loan to a microlender is to enable 
that microlender to make microloans. It is the responsibility of each 
microborrower to repay the microlender in accordance with the terms and 
conditions agreed to with the microlender. It is the responsibility of 
each microlender to make microloans in such a fashion that the terms 
and conditions of the microloan will support microborrower success 
while enabling the microlender to repay the Federal Government.
    (a) Maximum microloan amount. The maximum amount of a microloan 
made under this program will be $50,000.
    (b) Microloan terms and conditions. The terms and conditions for 
microloans made by microlenders will be negotiated between the 
prospective microborrower and the microlender, with the following 
limitations:
    (1) No microloan may have a term of more than 10 years;
    (2) The interest rate charged to the microborrower will be 
established at, or before the closing of the microloan; and
    (3) The microlender may establish its margin of earnings but may 
not adjust the margin so as to violate Fair Credit Lending laws. 
Margins must be reasonable so as to ensure that microloans are 
affordable to the microborrowers.
    (c) Microloan insurance requirements. The requirement of reasonable 
hazard, key person, and other insurance will be at the discretion of 
the microlender.
    (d) Credit elsewhere test. Microborrowers will be subject to a 
``credit elsewhere'' test so that the microlender will make loans only 
to those borrowers that cannot obtain business funding of $50,000 or 
less at affordable rates and on acceptable terms. Each microborrower 
file must contain evidence that the microborrower has sought credit 
elsewhere or that the rates and terms available within the community at 
the time were outside the range of the microborrower's affordability. 
Evidence may include a comparison of rates, loan limitations, terms, 
etc. for other funding sources to those forth offered by the 
microlender). Denial letters from other lenders are not required.
    (e) Fair credit requirements. To ensure fairness, microlenders must 
publicize their rates and terms on a regular basis. Microlenders are 
also subject to Fair Credit lending laws as discussed in Sec.  
4280.305.
    (f) Eligible microloan purposes. Agency loan funds may be used to 
make microloans as defined in Sec.  4280.302 for any legal business 
purpose not identified in Sec.  4280.323 as an ineligible purpose. 
Microlenders may make microloans for qualified business activities and 
expenses including, but not limited to:
    (1) Working capital;
    (2) The purchase of furniture, fixtures, supplies, inventory or 
equipment;
    (3) Debt refinancing;
    (4) Business acquisitions; and
    (5) The purchase or lease of real estate that is already improved 
and will be used for the location of the subject business only, 
provided no demolition or construction will be accomplished with 
program funding. Neither interior decorating, nor the affixing of 
chattel to walls, floors, or ceilings are considered to be demolition 
or construction.
    (g) Military personnel. Military personnel who are or seek to be a 
microentrepreneur and are on active duty with six months or less 
remaining in their active duty status may receive a microloan and/or 
technical assistance and training if they are otherwise qualified to 
participate in the program.


Sec.  4280.323  Ineligible microloan purposes and uses.

    Agency loan funds will not be used for the payment of microlender 
administrative costs or expenses and microlenders may not make 
microloans under this program for any of purposes and uses identified 
as ineligible in paragraphs (a) through (p) of this section.
    (a) Construction costs.
    (b) Any amount in excess of that needed by a microborrower to 
accomplish the immediate business goal.
    (c) Assistance that will cause a conflict of interest or the 
appearance of a conflict of interest including but not limited to:
    (1) Financial assistance to principals, directors, officers, or 
employees of the microlender, or their close relatives as defined; and
    (2) Financial assistance to any entity the result of which would 
appear to benefit the microlender or its principals, directors, or 
employees, or their close relatives, as defined, in any way other than 
the normal repayment of debt.

[[Page 30158]]

    (d) Distribution or payment to a microborrower when such will use 
any portion of the microloan for other than the purpose for which it 
was intended.
    (e) Distribution or payment to a charitable institution not gaining 
revenue from sales or fees to support the operation and repay the 
microloan.
    (f) Microloans to a fraternal organization.
    (g) Any microloan to an applicant that has an RMAP funded microloan 
application pending with another microlender or that has an RMAP-funded 
microloan outstanding with another microlender that would cause the 
applicant to owe a combined amount of more than $50,000 to one or more 
microlenders under this program.
    (h) Assistance to USDA Rural Development (Agency) employees, or 
their close relatives, as defined.
    (i) Any illegal activity.
    (j) Any project that is in violation of either a Federal, State, or 
local environmental protection law, regulation, or enforceable land use 
restriction unless the microloan will result in curing or removing the 
violation.
    (k) Microloans to lending and investment institutions and insurance 
companies.
    (l) Golf courses, race tracks, or gambling facilities.
    (m) Any lobbying activities as described in 7 CFR part 3018.
    (n) Lines of credit.
    (o) Subordinated liens.
    (p) Use of an Agency funded loan to pay debt service on a previous 
Agency loan.


Sec. Sec.  4280.324-4280.399  [Reserved]


Sec.  4280.400  OMB control number.

    The information collection requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0570-XXXX. A person is 
not required to respond to this collection of information unless it 
displays a currently valid OMB control number.

    Dated: May 13, 2010.
Curtis A. Wiley,
Acting Administrator, Rural Business-Cooperative Service.
[FR Doc. 2010-11931 Filed 5-27-10; 8:45 am]
BILLING CODE 3410-XY-P


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