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

(a) Different rates on guaranteed and unguaranteed portion of the guaranteed loan. It is permissible to have different interest rates on the guaranteed and unguaranteed portions of the loan.

(b) Variable interest rates. A variable interest rate must be an interest rate that is tied to a published base rate, as published in a national or regional financial publication, and is agreed to by the Agency.

(1) The variable interest base rate must be specified in the promissory note along with any interest factors (e.g., National Prime plus 1.0 percent).

(2) The lender may adjust the variable interest rate at different intervals during the term of the loan, but not more often than quarterly.

(3) The lender must incorporate, within the variable rate promissory note, a provision for adjustment of payment installments to fully amortize the loan by its maturity date.

(c) Multi-rates. When multi-rates are used, the lender must provide the Agency with the overall effective interest rate for the entire loan.

(d) Interest rate changes. Any change in the base rate or fixed interest rate between issuance of the conditional commitment and loan closing must be approved by the Agency. Approval of such a change must be shown as an amendment to the conditional commitment and must be reflected on the guaranteed loan closing report form.

(a) Term length. The lender, with Agency concurrence, will establish and justify the guaranteed loan term based on the use of guaranteed loan funds, the useful economic life of the assets being financed and those used as collateral, and the borrower's repayment ability. The maximum term allowable for final guaranteed loan maturity is limited to the justified useful life of the project or assets used as collateral but may not exceed 40 years or limitations in the applicable State statute, whichever is less.

(b) Guaranteed loan schedule and repayment. The lender must structure repayment in consideration of the borrower's cash flow and in accordance with the provisions of this section and the loan agreement. Scheduled guaranteed loan payments shall be made no less frequently than annually. In addition:

(1) Both the guaranteed and unguaranteed portions of the loan must be amortized over the same term.

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

(3) If the promissory note provides for an interest-only period, interest must be paid at least annually starting on a date that is no more than one year from the date of the promissory note. Scheduling of the first payment of principal and interest will be subject to consideration of whether the facility is operational and generates adequate income. However, the scheduling of the first full principal and interest payment must commence not more than 3 years from the date of the promissory note and be paid at least annually thereafter.

(4) There must be no “due-on-demand” clauses without cause. Regardless of any “due-on-demand” with cause provision in a lender's promissory note, the Agency must concur in any acceleration of the guaranteed loan unless the basis for acceleration is monetary default.

(a) The lender may charge the borrower reasonable, routine, and customary charges and fees for the guaranteed loan provided they are similar to those charges the lender assesses other borrowers for the same type of loan not subject to a loan guarantee. The lender must document such fees in the application. The lender may also charge routine and customary prepayment penalties and late payment fees for the guaranteed loan, which must be stated in the guaranteed loan documents.

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

Applicable guaranteed loan amounts depend on the type of project and the source of its funding.

(a) CF projects. The maximum amount of a CF guaranteed loan that may be made to a borrower, including the guaranteed and unguaranteed portions of any CF guaranteed loans, the outstanding principal and interest balance of any existing CF guaranteed loans, and any new CF guaranteed loan that is the subject of an application must not exceed $100 million.

(b) WWD projects. The maximum amount of a WWD guaranteed loan that may be made to a borrower, including the guaranteed and unguaranteed portions of any WWD guaranteed loans, the outstanding principal and interest balance of any existing WWD guaranteed loans, and any new WWD guaranteed loan that is the subject of an application must not exceed $50 million.

(c) B&I projects. The maximum total amount of B&I guaranteed loans (including the guaranteed and unguaranteed portions of any B&I guaranteed loans, the outstanding principal and interest balance of any existing B&I guaranteed loans, and any new B&I guaranteed loan that is the subject of an application) that may be made to a borrower is limited to a maximum amount of $25 million. The Secretary, whose authority may not be redelegated, may approve, at the Secretary's discretion, guaranteed loans in excess of $25 million and up to $40 million for rural cooperatives that process value-added agricultural commodities in accordance with § 5001.105(b)(18)(i). In addition to the borrower loan limit, there is a guarantor loan limit of $100 million.

(d) REAP projects. The amount of a guaranteed loan that will be made available to an eligible project and borrower under this part will be at least $5,000, not to exceed 75 percent of eligible project costs. Borrowers must demonstrate evidence of a financial contribution in the project of not less than 25 percent of total eligible project costs.

(1) The maximum total amount of REAP guaranteed loans made to a borrower, including the guaranteed and unguaranteed portions of all REAP guaranteed loans, the outstanding principal and interest balance of any existing REAP guaranteed loans and the new REAP guaranteed loan that is the subject of an application, must not exceed $25 million.

(2) The total amount of funds available to agricultural producers for energy efficient equipment and systems will not exceed 15 percent of annual funds available to the program.

The percent of loan guaranteed may vary from program to program. The maximum guarantee is 90 percent of eligible guaranteed loan loss The Agency will set annually a guarantee percentage by program that will apply to loans guaranteed within each program. The annual guarantee percentage will take current Federal credit policy into consideration and may be set at or below the maximum allowed authorized by statute. The Agency will announce annual guarantee percentages each fiscal year by publishing a document in the Federal Register in accordance with § 5001.10.

(a) General. The lender may obtain participation in the loan or assign all or part of the guaranteed portion of the guaranteed loan on the secondary market subject to the conditions specified in paragraphs (a)(1) through (5) of this section or retain the entire guaranteed loan.

(1) Participation. The lender may obtain participation in the loan under its normal operating procedures; however, the lender must retain title to and possession of the promissory note(s) and retain the lender's interest in the collateral.

(2) Assignment. Any assignment by the lender of the guaranteed portion of the loan must be accomplished in accordance with the conditions in the lender's agreement and the provisions of this section. The holders and the borrower have no rights or obligations to one another. The holders and the borrower have no rights or obligations to one another.

(3) Minimum retention by the lender. Minimum retention at all times must be from the unguaranteed portion of the loan and cannot be participated to another person.

(i) The lender must hold a minimum of 7.5 percent of the total loan amount.

(ii) The lender must retain its security interest in the collateral and retain the servicing responsibilities for the guaranteed loan.

(iii) The Agency can approve a reduction of the minimum retention requirement below the applicable percentage on a case-by-case basis when the lender establishes to the Agency's satisfaction that reduction of the minimum retention percentage is necessary to meet compliance with the lender's regulatory authority.

(4) Prohibition. The lender must not assign or participate any amount of the guaranteed or non-guaranteed portion of the loan to the borrower, borrower's officers, directors, stockholders, other owners, or to members of their immediate families, or to a parent company, an affiliate, or a subsidiary of the borrower.

(5) Secondary market. The lender must properly close their loan and fully disburse loan funds of a promissory note for the purposes intended prior to assignment of the guaranteed portion of the promissory note(s) on the secondary market. The lender can assign all or part of the guaranteed portion of the loan only if the loan is not in default. Default includes a borrower default in payments or a lender default by unpaid periodic guarantee retention fees. A lender using the multi-note system may sell the guarantee on the secondary market for a specific note once that note is fully disbursed, even if other guaranteed notes for the project have not been fully disbursed.

(b) Lender's servicing fee to holder. The assignment guarantee agreement must clearly state the guarantee portion of loan as a percentage and corresponding dollar amount of the guaranteed portion of the guaranteed loan it represents and the lender's servicing fee. The lender cannot charge the Agency a servicing fee and servicing fees are not eligible expenses for loss claim.

(c) Distribution of proceeds. The lender must apply all loan payments and collateral proceeds received, after payment of liquidation expenses, to the guaranteed and unguaranteed portions of the loan on a pro rata basis.

(d) Promissory note(s). A loan note guarantee is issued to the lender for a specific promissory note(s) executed between the lender and the borrower. The lender must retain title to and possession of the guaranteed promissory note(s), retain the lender's interest in the collateral, and retain the servicing responsibilities for the guaranteed loan. The lender is prohibited from issuing any additional promissory notes at a later date for the same guaranteed loan.

(1) The lender may assign all or part of the guaranteed portion of the loan, including interest strips, to one or more holders by using an assignment guarantee agreement for each holder. The lender must complete and execute the assignment guarantee agreement and return it to the Agency for execution prior to holder execution.

(2) The lender or holder may request a certificate of incumbency and signature from the Agency.

(3) A holder, upon written notice to the lender and the Agency, may reassign the unpaid guaranteed portion of the loan, in full, assigned under the assignment guarantee agreement. Holders can only reassign the complete block they have received and cannot subdivide or further split their interest in the guaranteed portion of a loan or retain an interest strip.

(4) Upon notification and completion of the assignment through the use of the assignment guarantee agreement, the assignee succeeds to all rights and obligations of the holder thereunder. Subsequent assignments require notice to the lender and Agency using any format, including that used by the Securities Industry and Financial Markets Association (formerly known as the Bond Market Association), together with the transfer of the original assignment guarantee agreement.

(5) The Agency will not execute a new assignment guarantee agreement to affect a subsequent reassignment.

(6) The Agency will not reissue a duplicate assignment guarantee agreement unless:

(i) The original was lost, stolen, destroyed, mutilated, or defaced; and

(ii) The reissue is made in accordance with § 5001.459.

(e) Rights and liabilities. When a guaranteed portion of a loan is assigned to a holder using an assignment guarantee agreement, the holder succeeds to all rights of the lender under the loan note guarantee to the extent of the portion purchased. The full, legal interest in the promissory note must remain with the lender, and the lender remains bound to all obligations under the loan note guarantee, lender's agreement, and Agency regulations applicable to the guarantee.

(1) A guarantee and right to require purchase in accordance with § 5001.511 will be directly enforceable by a holder notwithstanding any fraud or misrepresentation by the lender or any unenforceability of the loan guarantee by the lender, except for fraud or misrepresentation of which the holder had actual knowledge at the time it became the holder or in which the holder participates or condones.

(2) The lender must not represent a conditional commitment of guarantee as a loan guarantee.

(3) The lender must reimburse the Agency for any payments the Agency makes to a holder on the lender's behalf under the loan note guarantee, given the lender would not be entitled to the payments had they retained the entire interest in the loan.

(a) Full faith and credit. A loan note guarantee issued under this part constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which a lender or holder has actual knowledge at the time it becomes such lender or holder, or which a lender or holder participates in or condones.

(b) Conditions of guarantee. A guaranteed loan under this part will be evidenced by a loan note guarantee issued by the Agency.

(1) The entire loan must be secured by the same collateral with equal lien priority for the guaranteed and unguaranteed portions of the loan. The unguaranteed portion of the guaranteed loan will neither be paid first nor given any preference or priority over the guaranteed portion. A parity or junior lien position in the guaranteed loan collateral may be considered on a case-by-case basis and must be approved by the Agency during the loan approval process. Requirements for guaranteed loans to purchase cooperative stock are found in § 5001.140.

(2) The lender must remain mortgagee and secured party of record notwithstanding the fact that another party may hold a portion of the guaranteed loan.

(3) The lender will receive all payments of principal and interest on account of the entire guaranteed loan and must promptly remit to each holder and participant, if any, its pro rata share of any payment within 30 days of the lender's receipt thereof from the borrower. Holder or participant payments are determined according to their respective interest in the guaranteed loan, less only the lender's servicing fee.

(4) Any claim against a loan note guarantee or assignment guarantee agreement that is attached to, or relating to, a promissory note that provides for payment of interest-on-interest, default charges, penalty interest, or late payment fees will be reduced to remove such interest, fees and charges.

(5) The loan note guarantee is unenforceable by the lender to the extent that any loss is occasioned by:

(i) The violation of usury laws;

(ii) Use of guaranteed loan funds for unauthorized loan purposes in accordance with § 5001.122 or to the extent that those funds are used for purposes other than those specifically approved by the Agency in its conditional commitment or amendment thereof;

(iii) Failure to obtain, perfect, document, and or maintain the required collateral or security position regardless of the time at which the Agency acquires knowledge thereof; and

(iv) Negligent loan origination or negligent loan servicing as determined and documented by the Agency.

(6) The Agency will guarantee payment as follows:

(i) To any holder, 100 percent of any loss sustained by the holder on the guaranteed portion of the guaranteed loan it owns and on interest due (as determined under paragraph (g) of this section) on such portion less any outstanding servicing fee.

(ii) To the lender: Any loss sustained by the lender on the guaranteed portion of the guaranteed loan, including principal and interest (as determined under paragraph (c) of this section) evidenced by the promissory note(s) or assumption agreements entered into in connection with an Agency approved transfer and assumption, and secured advances for protection and preservation of collateral made with the Agency's authorization if applicable.

(c) Accrued interest payments. If a loan has been guaranteed by the Agency prior to October 1, 2020, the Agency will guarantee the lender and any holders accrued interest in accordance with the applicable regulations in effect for the respective program at the time the loan was guaranteed. For all guaranteed loans closed on or after October 1, 2020, the Agency will guarantee accrued interest in accordance with paragraph (c)(1) or (2), as applicable, of this section.

(1) If the lender owns all or a portion of the guaranteed portion of the guaranteed loan or makes a protective advance, the Agency, in its sole discretion, may cover interest on the guaranteed portion for the 90 days from the most recent delinquency effective date. Per paragraph (c)(2) of this section, if applicable, the lender should issue an interest termination letter to any holder(s) and provide the Agency with a copy. The Agency will entertain the payment of interest up to 180 days past the most recent delinquency effective date only if:

(i) The lender, and not the Agency, has repurchased all holder interests in the guaranteed loan in accordance with § 5001.511;

(ii) The lender is actively engaged in a credit resolution with the borrower to bring the account current or fully liquidate the collateral under the terms of a liquidation plan approved by the Agency; and

(iii) Concurrence for inclusion of the extended period of interest to the lender is received from the Agency. The lender must request an extension of accrued interest in writing and document their collection efforts and timeframe for full resolution, which must be within 180 days from the most recent delinquency. Approved collection efforts that will extend longer than 180 days from the most recent delinquency date will be limited to 90 days of accrued interest payment from the Agency.

(2) If the guaranteed loan has one or more holders, the lender will issue an interest termination letter to each holder establishing the termination date for interest accrual and provide the Agency with a copy. The loan note guarantee will not cover interest to any holder accruing after 90 days from the date of the interest termination letter. The Agency at its sole discretion may notify each holder of the interest termination provisions if it is determined that lender correspondence to holders is inadequate.

(a) Issuance. Upon selection of an application in accordance with § 5001.315 in subpart D, the Agency will issue a conditional commitment to the lender, to be accepted by the lender and the borrower, containing conditions under which the Agency will issue a loan note guarantee.

(1) Upon acceptance of the conditional commitment, the lender agrees not to modify the scope of the project, overall facility concept, project purpose, use of guaranteed loan funds, or other terms and conditions without Agency written concurrence in accordance with paragraph (c) of this section.

(2) If the lender decides at any time after receiving a conditional commitment that it no longer wants a loan guarantee, the lender must immediately advise the Agency of the cancellation in writing. Upon written notification from the lender, the Agency will de-obligate the funds associated with the conditional commitment.

(b) Content. The conditional commitment will address information required for issuing a loan note guarantee, including but not limited to:

(1) Approved use of guaranteed loan funds (source and use of funds);

(2) Rates and terms of the loan;

(3) Loan agreement requirements to include:

(i) Repayment terms and amortization provisions of the guaranteed loan;

(ii) Description of real property collateral, list of other collateral and identification of the lender's lien priority in the collateral;

(iii) A list of persons and entities guaranteeing payment of the guaranteed loan and their percentage of guarantee;

(iv) Requirement as to the type and frequency of the financial statements to be required for the duration of the guaranteed loan (guarantor statements must be updated at least annually);

(v) Prohibition against borrower assuming liabilities or obligations of others;

(vi) Limitations on borrower dividend payments and compensation of officers, owners and members of borrower;

(vii) Limitations on the purchase and sale of equipment other fixed assets and real estate;

(viii) Restrictions on mergers, consolidations, or sales of the business, project, or guarantee loan collateral without the concurrence of the lender;

(ix) Limitations on significant management changes without the concurrence of the lender;

(x) Maximum debt-to-net worth ratio, when required by the lender or by this part;

(xi) Minimum debt service coverage ratio, when required by the lender or by this part;

(xii) Requirements imposed by the Agency in its conditional commitment;

(xiii) Agency environmental requirements; and

(xiv) Requirement for the lender and the Agency to have reasonable access to the project and financial records including access for periodic inspections of the project and financial records by a representative of the lender or the Agency; and

(xv) Requirement for the borrower to provide the lender and the Agency performance information during the term of the guaranteed loan.

(4) Loan closing requirements;

(5) Lender and borrower certifications;

(6) Collateral and lien position requirements; and

(7) Other requirements necessary to protect the Agency.

(c) Change requests. The lender can request, in writing, changes to the conditional commitment with justification. The Agency can deny, solely at its discretion, changes to the conditional commitment even if the changes are otherwise in compliance with this part. All changes to the conditional commitment must be documented by written amendment to the conditional commitment executed by all parties.

(d) Acceptance or withdrawal of conditional commitment. The lender and borrower must complete and sign the conditional commitment and return a copy to the Agency within 60 days. If the conditional commitment is not accepted by both the lender and borrower within 60 days, the conditional commitment becomes null and void and the Agency will withdraw the conditional commitment and de-obligate the associated funds.

(e) Modification, and expiration of conditional commitment. The conditional commitment issued by the Agency will be effective for a period of one year or sufficient time to complete the guaranteed loan project prior to loan closing. The lender must submit a written request to the Agency to extend the conditional commitment at least 30 days prior to its expiration date and obtain Agency approval for the extension. The Agency will consider this request only if no material adverse changes in the borrower or the borrower's financial condition have occurred since issuance of the conditional commitment. If a conditional commitment expires, the Agency will notify the lender in writing and may de-obligate the funds. Any additions or modifications to conditions stated in the original conditional commitment must be agreed upon between the lender, the borrower, and the Agency.

(a) The lender must not close the guaranteed loan until all conditions of the conditional commitment are met. If, at a later date, it is discovered that all conditions were not met, the lender will be advised in writing that full enforceability of the guarantee by the lender may be compromised if the deficiencies are not corrected.

(b) Simultaneously with or immediately after the guaranteed loan closing, the lender must provide to the Agency the guarantee fee, and the following forms and documents:

(1) An Agency-approved, “Guaranteed Loan Closing Report”;

(2) A copy of each executed promissory note and collateral security documents;

(3) A copy of the executed final loan agreement, which must include any additional requirements imposed by the Agency in the conditional commitment;

(4) The original, executed Agency-approved guarantee form(s) for any required personal, partnership or corporate guarantees;

(5) The borrower's loan closing balance sheet, if required;

(6) For loans to public bodies, an opinion from recognized bond counsel regarding the adequacy of the preparation, issuance, and enforceability of the debt instruments;

(7) Any other documents required to comply with applicable law or required by this part, the conditional commitment or the Agency; and

(8) When requesting issuance of a loan note guarantee, the lender must certify to each condition identified in paragraphs (b)(8)(iii)(A) through (V) of this section, as applicable.

(i) In making its certification, the lender can rely on certain written materials (e.g., certifications, evaluations, appraisals, financial statements, and other reports) provided by the borrower or other qualified third parties (e.g., independent engineers, appraisers, accountants, attorneys, consultants, or other experts).

(ii) If the lender is unable to provide any of the certifications required under this section, the lender must provide an explanation satisfactory to the Agency.

(iii) The lender may request the loan note guarantee prior to construction in accordance with this part; however, the lender must still certify to all applicable conditions of this paragraph (b)(8)(iii).

(A) All requirements of the conditional commitment have been met.

(B) The financial criteria specified in § 5001.303(b)(4) of this part and any financial criteria contained in the conditional commitment were:

(1) Determined in accordance with any applicable requirements in § 5001.9 of this part, and

(2) Have been maintained through the issuance of the loan note guarantee. Failure to maintain or attain the minimum financial criteria will result in the Agency not issuing a loan note guarantee.

(C) No major changes have been made in the applicant, project or lender's loan conditions and requirements since the issuance of the conditional commitment, unless such changes have been approved by the Agency.

(D) There has been neither any material adverse change in the borrower's financial condition nor any other material adverse change in the borrower during the period of time from the Agency's issuance of the conditional commitment to issuance of the loan note guarantee regardless of the cause or causes of the change and whether or not the change or causes of the change were within the lender's or borrower's control.

(1) The borrower is a legal entity in good standing with its regulator (as applicable) and operating in accordance with the laws of the State(s) or Tribe where the borrower was organized or has a place of business.

(2) The borrower meets the eligibility requirements as outlined in § 5001.126(a) and (b) through (e), as applicable.

(E) There is a reasonable prospect that the guaranteed loan and other project debt will be repaid on time and in full (including interest) from project cash flow according to the terms proposed in the application.

(F) The guaranteed loan has been properly closed, and the required security instruments have been properly executed and all security interests obtained by the lender have been or will be properly perfected in accordance with applicable law.

(G) All planned property acquisition has been or will be completed; all development has been or will be substantially completed in accordance with plans and specifications and conforms to applicable Federal, State, and local codes; all equipment required for the project is available, can be procured and delivered within the project development schedule, and will be installed in conformance with manufacturer's specifications and design requirements; and costs have not exceeded the amount approved by the lender and the Agency.

(H) The proposed project complies with all current Federal, State, and local laws and regulatory rules that affect the project, the borrower, and lender activities, including, but not limited to, equal opportunity and Fair Housing Act requirements and design and construction requirements.

(I) Lender-required insurances are in effect.

(J) All truth-in-lending and equal credit opportunity requirements have been met.

(K) The borrower has marketable title to the collateral then owned by the borrower, subject to the rights of the guaranteed loan and to any other exceptions approved in writing by the Agency.

(L) Where required, necessary or prudent, the borrower has obtained—

(1) A legal opinion relative to the title and accessibility to any rights-of-way and easements; and

(2) A title opinion or title insurance showing the borrower has good and marketable title to the real property and other collateral and fully addressing all existing mortgages or other lien defects, restrictions or encumbrances. In those cases where there is adequate gap coverage, a title commitment may be acceptable.

(M) All project funds have been or will be disbursed for purposes and in amounts consistent with the conditional commitment (or Agency-approved amendment thereof) and the application submitted to the Agency. Appropriate lender controls were used to ensure that all funds were properly disbursed, including funds for working capital. A copy of a settlement statement by the lender detailing the use of loan and matching/equity funds must be attached to support this certification.

(N) When applicable, the entire amount of the loan for working capital or initial operating expenses have been disbursed to the borrower, except in cases where the Agency has approved disbursement over an extended period of time and funds are escrowed so that the settlement statement reflects the full amount to be disbursed.

(O) When required, personal and/or corporate guarantees have been obtained in accordance with § 5001.204 of this part.

(P) Lien priorities are consistent with the requirements of the conditional commitment. No claims or liens of laborers, subcontractors, suppliers of machinery and equipment, materialmen, or other parties have been filed against the collateral and no suits are pending or threatened that would adversely affect the collateral.

(Q) Neither the lender nor any of the lender's officers has an ownership interest in the borrower or is an officer or director of the borrower, and neither the borrower nor its officers, directors, stockholders, or other owners have more than a 5 percent ownership interest in the lender.

(R) The loan agreement includes all borrower compliance measures identified in the Agency's environmental review for avoiding or reducing adverse environmental impacts of the project's construction or operation.

(S) The lender will comply with the requirements of the Debt Collection Improvement Act.

(T) The lender has executed and delivered the lender's agreement, completed registration in the Agency's electronic reporting system, and electronically submitted the closing report for the guaranteed loan along with the appropriate guarantee fee.

(U) For all RES and EEI projects, the lender must provide certification that the project has been performing or will perform at a steady state operating level in accordance with the technical requirements, plans, and specifications. Any modification to the 30-day steady state operating level requirement will be based on the Agency's review of the technical report or vendor certification and will be incorporated into the conditional commitment.

(V) For CF and WWD projects, the lender must also certify that the lender would not make the loan without an Agency loan guarantee.

(W) For WWD projects, if applicable, the lender must certify that the project complied with American Iron and Steel requirements.

(X) For B&I, the capital/equity requirement set forth in the Conditional Commitment was met, as evidenced by a balance sheet as of the date the guaranteed loan was closed, giving effect to the entirety of the loan in the calculation whether or not the loan itself is fully advanced. A copy of the borrower's loan closing balance sheet must be included with the lender's certification.

(c) For RES projects where applicable, the lender must provide to the Agency a copy of the executed power purchase agreement and/or a permission to operate letter from the energy off-taker.

(d)(1) For all CF projects before the Agency will issue a loan note guarantee on a guaranteed loan to a borrower other than a public body, the articles of incorporation or other organizing documents of the borrower or the loan agreement must include a condition similar to the following:

(2) If the corporation dissolves or ceases to perform the community facility objectives and functions, the board of directors shall distribute all business property and assets to one or more nonprofit corporations or public bodies. This distribution must be approved by 75 percent of the users or members and must serve the public welfare of the community. The assets may not be distributed to any members, directors, stockholders, or others having a financial or managerial interest in the corporation. Nothing herein shall prohibit the corporation from paying its debts.

(e) For all B&I projects a borrower whose project involves locally or regionally produced agricultural food products and is not located in a rural area must include in an appropriate agreement with retail and institutional facilities to which the borrower sells locally or regionally produced agricultural food products a requirement to inform consumers of the retail or institutional facilities that the consumers are purchasing or consuming locally or regionally produced agricultural food products.

The Agency, at its sole discretion, will determine if the conditions specified in the conditional commitment have been met and whether to issue the loan note guarantee.

(a) Issuance. When the Agency is satisfied that all of the conditions specified in the conditional commitment have been met and it receives all the required fees plus the executed lender's agreement from the lender, the Agency will issue the documents identified in paragraphs (a)(1) through (3) of this section, as appropriate.

(1) Loan note guarantee. The Agency will provide the lender the original loan note guarantee document which the lender must attach to the promissory note. If the lender elected to use the multi-note system, the Agency will issue one loan note guarantee for the set of promissory notes.

(2) Assignment guarantee agreement. If the lender assigns any guaranteed portion of a guaranteed loan to a holder, the lender, holder, and the Agency will execute an assignment guarantee agreement for each assignment.

(3) Certificate of incumbency and signature. The Agency will provide the holder an executed certificate of incumbency form to verify the signature and title of the Agency official who signed the assignment guarantee agreement.

(b) Agency review of closing. The Agency will review the closing documents submitted by the lender for completeness and if all conditions have been met and all documents have been provided, the Agency will issue the loan note guarantee. If the Agency determines that it cannot issue the loan note guarantee, the Agency will notify the lender, in writing, of the reasons and give the lender a reasonable period within which to satisfy the objections. If the lender satisfies the objections within the time allowed, the Agency will issue the loan note guarantee.

(c) Cancellation of obligation. A lender can submit a written request to the Agency for a partial cancellation. The lender must include in this request the reason for the partial cancellation, the effective date, and the portion to be canceled. If the Agency conditions for issuance of the loan note guarantee are rejected, cannot be met or funds are, in whole or in part, no longer needed, the Agency will cancel the obligation.

The guarantee fee is a one-time, non-refundable fee paid by the lender to the Agency at or before loan closing and is required to be paid before the Agency will issue the loan note guarantee. The guarantee fee rate applied will be the rate as established in the Federal Register for the fiscal year in which a guaranteed loan is obligated. The lender may pass the guarantee fee on to the borrower.

(a) Guarantee fee calculation. The one-time guarantee fee is calculated by multiplying the total loan amount by the percentage of guarantee by the guarantee fee rate, which may vary by program.

(b) Guarantee fee rates. The guarantee fee rate is established by the Agency in an annual document published in the Federal Register. While the fee rate may vary annually, they will not exceed the limits in table 1. Once the guarantee is obligated, the guarantee fee rate in effect at the time of obligation will remain in place even if the guarantee fee rate changes before the loan note guarantee is issued.

(c) Loan note guarantee prior to completion. If the loan note guarantee is issued prior to completion of the project's construction under § 5001.205(e)(2), an additional guarantee fee of 0.50 percent will be added.

(d) Reduced fee. Subject to annual limits set by the Agency and published in an annual Federal Register document, the Agency may charge a reduced guarantee fee if requested by the lender when the borrower's project meets any one of the following criteria:

(1) Is located in a rural community that—

(i) Is a distressed community in accordance with the Economic Innovation Group distressed community index. The list can be found on the Agency's website at: https://www.rd.usda.gov/onerdguarantee;

(ii) Is experiencing long-term population decline according to the last three decennial censuses;

(iii) Is in a persistent poverty county. A persistent poverty county is any county that has had 20 percent or more of its population living in poverty over the past 30 years, as measured by the 1990 and 2000 decennial census and 2007-2011 American Community Survey 5-year average, or any territory or possession of the United States;

(iv) Is in a presidentially declared disaster area, declared within the 24 months preceding the date of the application, and is experiencing trauma as a result of natural disaster;

(v) Is located in a city, county, or state with an unemployment rate, as determined by the Department of Labor, 125 percent or greater of the current national rate; or

(vi) Is located within the boundaries of a federally recognized Indian tribe's reservation or within Tribal trust lands or within land owned by an Alaska Native Regional or Village Corporation as defined by the Alaska Native Claims Settlement Act.

(2) Processes, distributes, aggregates, stores, and/or markets locally or regionally produced agricultural food products and promotes access to healthy foods;

(3) Is locally owned and managed, and either

(i) Supports value-added agriculture and provides a market for locally or regionally produced agricultural food product; or

(ii) Produces a natural resource value-added product/manufactures a product from a natural resource.

(4) Is part of a strategic economic development and community development plan on a multi-jurisdictional and multi-sectoral basis in accordance with Section 6401 of the Agriculture Improvement Act of 2018 (Pub. L. 115-334); or

(5) Provides an additional market for existing local businesses by purchasing substantial amounts of products or services from, selling product to, or providing services to existing local and regional businesses. The additional market for existing local businesses means that the borrower uses industry clusters in the same community as a substantial part of their product manufacturing or service delivery, or the borrower is part of a product chain where they are a substantial part of another local business' product manufacturing or service delivery. The use of local janitorial or maintenance firms, for example, does not meet this criteria.

The Agency will collect a periodic guarantee retention fee from the lender for as long as the loan note guarantee is outstanding in accordance with the annual notice published in the Federal Register in accordance with § 5001.10. Payment of the periodic guarantee retention fee is required to maintain the validity of the loan note guarantee. The lender may pass the fee on to the borrower but may not delay payment of the fee to the Agency while collecting the payment from the borrower. The fee rates may differ by program as published annually in a document in the Federal Register in accordance with § 5001.10. The annual Federal Register notification will include the frequency of payment for the fees.

(a) Calculation. The guarantee retention fee is calculated by multiplying the full outstanding principal guaranteed loan balance as of a date(s) as published in the annual Federal Register notification, by the percentage of guarantee, by the fee rate as noted in the guaranteed loan conditional commitment.

(b) Effective fee rate. The effective guarantee retention fee rate that is published in a Federal Register document in accordance with § 5001.10 at the time the guaranteed loan is obligated will be noted in the guarantee loan conditional commitment and the fee will remain in effect for the life of the loan note guarantee.

(c) Payments. The guarantee retention fee payment frequency and related due date provisions will be published in the annual Federal Register notification.

(1) Guarantee retention fee payments not received within 60 days after their due date are considered delinquent and, at the Agency's discretion, may result in cancellation of the loan note guarantee to the lender. The Agency will provide the lender 30 calendar days' written notice that the fee is delinquent before canceling the loan note guarantee. Holders' rights will continue in effect as specified in the loan note guarantee and assignment guarantee agreement, unless the holder took possession of an interest in the loan note guarantee knowing guarantee retention fees had not been paid.

(2) Until the loan note guarantee is canceled by the Agency, any delinquent periodic guarantee retention fee will bear interest at the promissory note rate.

(3) When the Agency repurchases 100 percent of the guaranteed portion of the guaranteed loan as prescribed in § 5001.511(c), the Agency will discontinue collection of the periodic guarantee retention fee.

(d) Secondary market prohibition. Lenders are prohibited from selling any portion of the guaranteed loan on the secondary market if there are unpaid periodic guarantee retention fees.

The Agency has the authority and may at its discretion charge additional fees in order to maintain adequate levels of program funding. Prior to the Agency charging any additional fees, the Agency will publish a notice of those fees in the Federal Register in accordance with § 5001.10. All fees will be disclosed in the conditional commitment specific to the project as issued to the lender at the time approval.

(a) Until the loan note guarantee is canceled by the Agency, any delinquent fees will bear interest at the promissory note rate.

(b) Lenders are prohibited from selling any portion of the guaranteed loan on the secondary market if there are unpaid fees.

(a) Change in borrower prior to closing. Any change in borrower ownership or organization prior to the issuance of the loan note guarantee must meet the applicable guaranteed program's eligibility requirements and must be approved by the Agency.

(b) Transfer to new lender prior to issuance of the loan note guarantee. Prior to issuance of the loan note guarantee, a lender can request a transfer of an outstanding conditional commitment to a new lender by providing the Agency with a letter from the lender, the borrower, and the proposed new lender. The request must include the reason(s) the current lender no longer desires to be the lender for the project.

(1) The Agency may approve the transfer from the current lender to the proposed new lender provided the new proposed lender is an eligible lender (see paragraph (b)(2) of this section) and no material adverse changes have occurred in the:

(i) Ownership, control or legal structure of the borrower; and

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

(2) The Agency will determine if the proposed new lender is eligible in accordance with § 5001.130 of this part prior to approving the transfer of lender. The new lender must execute a new application form and a lender's agreement (unless the new lender already has a valid lender's agreement with the Agency) and must complete a new credit evaluation in accordance with § 5001.202 of this part. The Agency may require the new lender to provide other updated application items as specified by the Agency.

(3) If the Agency approves the transfer to the new lender, the Agency will issue a letter of amendment to the original conditional commitment reflecting the new lender who must acknowledge acceptance of the amended conditional commitment in writing.

Beginning on the date of issuance of the loan note guarantee, lenders and borrowers must—

(a) Coordinate with all appropriate Federal, State, local and Tribal agencies that may have jurisdiction or involvement in each project; and

(b) Comply with all current Federal, State, local, and Tribal laws and rules, as well as applicable regulatory commission rules, that affect the project, the borrower, or lender. Compliance activities include, but are not limited to—

(1) Organization and borrower's authority to design, construct, develop, operate, and maintain the proposed facilities;

(2) Borrowing money, giving security, and raising revenues for repayment;

(3) Land use zoning;

(4) Health, safety, and sanitation standards as well as design and installation standards; and

(5) Protection of the environment and consumer affairs.

If a loan note guarantee or assignment guarantee agreement has been lost, stolen, destroyed, mutilated, or defaced while in the custody of the lender or holder, the Agency may issue a replacement to the lender or holder, as applicable under the conditions described in paragraphs (a) through (b) of this section. The lender is prohibited from altering or modifying or approving any alterations to or modifications of any loan documents without the prior written approval of the Agency.

(a) Replacement requirements. The lender must coordinate the activities of the party who seeks the replacement documents and must submit the required documents to the Agency for processing. The requirements for replacement are as follows:

(1) A written statement of loss which includes:

(i) Legal name and present address of either the lender or the holder who is requesting the replacement forms;

(ii) Legal name and address of the lender of record;

(iii) Capacity of person certifying;

(iv) Full identification of the loan note guarantee or assignment guarantee agreement including the name of the borrower, the Agency's case number, date of the loan note guarantee or assignment guarantee agreement, face amount of the promissory note in which an interest was purchased, date of the promissory note, present balance of the guaranteed loan, percentage of guarantee, and, if an assignment guarantee agreement, the original named holder and the percentage of the guaranteed portion of the guaranteed loan assigned to that holder. Any existing parts of the document to be replaced must be attached to the certificate;

(v) A full statement of circumstances of the loss, theft, destruction, defacement, or mutilation of the loan note guarantee or assignment guarantee agreement; and

(vi) For the holder, evidence demonstrating current ownership of the assignment guarantee agreement. If the present holder is not the same as the original holder, the lender must include a copy of the endorsement of each successive holder in the chain of transfer from the initial holder to present holder. If copies of the endorsement cannot be obtained, the lender must submit the best available records of transfer (e.g., order confirmation, canceled checks, etc.).

(b) Indemnity bond. An indemnity bond acceptable to the Agency must accompany the request for replacement except when the holder is the United States, a Federal Reserve Bank, a Federal Government corporation, a State or territory, the District of Columbia or a federally recognized tribal entity. The indemnity bond must:

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

(2) Be issued and payable to the United States of America acting through the Agency;

(3) Be in an amount not less than the unpaid principal and interest; and

(4) Hold the Agency harmless against any claim or demand that might arise or against any damage, loss, costs, or expenses that might be sustained or incurred by reason of the loss or replacement of the instruments.