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broader objectives of arresting tendencies toward dependency, chronic unemployment, and community deterioration in rural areas. To this end, the Program seeks to attract additional private capital into rural communities, build and expand the ability of rural institutions to better serve the economic needs of local residents, and provide new employment and ownership opportunities for low-income persons through group ventures and community development financing techniques.

§ 1076.50-3 Organizations eligible for financial assistance under this program. (a) CSA will provide financial assistance in the form of loans or guaranties under this Program to carry out eligible activities directly or indirectly through relending or guarantying to the following types of organizations.

(1) Community development corporations;

(2) Community action agencies; (3) Supportive organizations of cooperatives;

(4) Local cooperatives;

(5) Public agencies;

(6) Private non-profit groups;

(7) Community-based organizations eligible for financial assistance under Title II of the EOA;

(8) Community development credit unions;

(9) Indian groups;

(b) Recipients who have received financial assistance for the purpose of re-lending or guaranteeing loans, may make loans and guaranties to:

(1) The type of organizations listed in (a) above;

(2) Low-income families; or

(3) Businesses organized for-profit which are 50% owned or controlled by low-income rural residents; or businesses organized for-profit which provide for significant increased income, or ownership, and/or employment opportunities for low-income rural residents and would not be retained, expanded, or moved into the rural areas without such assistance.

§ 1076.50-4 Eligible activities.

(a) Loans and guaranties from CSA to a recipient under this program may be used only for business facilities and

community development projects in rural areas. These also are the only acceptable activities for use of the monies which recipients have received for re-lending or guarantying purposes.

(b) Guaranties may be made for the purpose of (1) guarantying principal only, interest only, or both principal and interest; or (2) guarantying up to 90 per centum of any loan in either an exposed or subordinated position. Deposits in financial institutions to collateralize guaranties also may be made.

(c) Loans and guaranties under this program generally will not be made for refinancing existing debts of borrowers. Relenders must obtain prior CSA approval for any such exceptional refinancing activities.

(d) CSA encourages the use of flexible financing techniques. Thus, loans may be subordinated, or "wrapped around"; relenders may participate with banks and other financial institutions in extending credit or in purchasing existing loans. Loan or guaranty proceeds also may be used to invest in corporate stocks or debentures provided, of course, that such investment furthers the purposes of the Rural Development Loan Fund.

§ 1076.50-5 Priorities.

In making assistance available to eligible organizations for business facilities and community development projects, CSA will give priority to those applications which can best demonstrate one or more of the following:

(a) Program Priorities. (1) A program emphasis which is likely to provide increased income, ownership and employment opportunities for lowincome rural residents;

(2) A national, regional, or local approach to community economic development which enables institutions to become more sensitive and responsive to the economic needs of low-income rural residents.

(3) A strategy which will leverage other sources of financial and technical assistance so as to appreciably affect the creation of increased ownership and provide employment and income opportunities for low-income rural residents.

(4) The creation of a model-type of non-profit community economic development finance corporation which would be controlled by a governing body which meets the organizational priorities in (b)(2) below, independent and professionally operated, and provide long-term financial support for eligible economic development organizations.

(b) Organizational priorities. (1) A history of rural community economic development efforts or concern for the problems of low-income residents.

(2) A governing body representative of the organizations or persons to be served by the program.

(3) The ability to get low-income rural residents to cooperate and pool their talents and resources and to create or expand economic enterprise of a significant scale.

§ 1076.50-6 Loans, interest on; allowable costs.

(a) Loans made under this subpart shall bear interest at a rate not less than a rate determined by the Secretary of the Treasury taking into consideration the average market yield of outstanding Treasury obligations of comparable maturity, plus such additional charge if any toward covering other costs of the program as the Director may determine to be consistent with its purposes, except that, for the five years following the date on which funds are initially available to the borrower, the rate of interest shall be set at a rate considered appropriate by the Director in light of the particular needs of the borrower which rate shall not be lower than 1 per centum.

(b) Interest repaid on loans, premiums earned on guaranties, investment or interest income, service fees or other authorized financing charges collected may be retained by those recipients re-lending or guarantying funds with written CSA approval, and may be used to cover the costs of administering the loan and guaranty program authorized hereunder.

(c) Costs of administering the loan and guaranty program authorized hereunder shall include, but not be limited to, costs of program administration and management: i.e., monitoring and evaluation; costs of collection,

other charges and provision of technical assistance and training; legal and accounting services; preparation of financial, planning, management, feasibility, technical, product development and marketing reports and studies, and development of additional grant, loan or guaranty applications and proposals.

§ 1076.50-7 Terms of loans and guaranties.

No loan or guaranty can be extended hereunder by CSA to a recipient for a term exceeding 30 years.

§ 1076.50-8 Application process.

(a) Dates of submission. Annually or more often, CSA will publish in the FEDERAL REGISTER the dates for submission of applications for assistance.

(b) Processing procedures. Applications to CSA for loans or guaranties under the Rural Development Loan Fund may be made at any time by written submission to: Rural Development Loan Fund Program, Office of Economic Development, Community Services Administration, 1200-19th Street, NW., Washington, D.C. 20506.

§ 1076.50-9 Contents of applications.

All applications to CSA for assistance shall contain:

(a) Eligibility documents. (1) Standard Form 424, Financial Assistance.

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(2) Articles of Incorporation (or Association), Bylaws, and where applicable, IRC section 501(c)(3) determination letter. If applicant is a non-profit corporation without such an letter, it must include a certification by an attorney that it is so organized and operated that it would be eligible for a section 501(c)(3) determination. Cooperatives should submit their Articles or Certificate of Incorporation (Charter or Agreement of Association) and Bylaws.

(3) Description of its governing board and its representational nature, if applicable.

(4) Characteristics of the rural area where the project is to be located.

(5) Resumes of management team. (6) Record of concern for and experience with community economic devel

opment on behalf of low-income rural residents.

(b) Financial proposals. (1) A full description of the proposed use of the requested financial assistance, whether it is a business facility or community development project, and how increased income, ownership or employment opportunities for low-income area residents will be provided. In order to assure CSA that there is reasonable assurance of repayment of the loan and that the amount of the loan, together with other funds available, is adequate to assure completion of the project or achievement of the purposes for which the loan is being made, this description also should be accompanied by:

(i) A summary statement detailing the total cost of the project, delineating fixed assets and working capital, and explaining what other funds may be available or committed;

(ii) Detailed and realistic feasibility studies and cost analyses;

(iii) Audited financial statements for the immediately preceding three years or from the commencement of its operation, whichever period is shorter, and if funds will be used for the acquisition, preservation or expansion of an existing business, similar audited financial statements for such venture;

(iv) Cash-flow projections and pro forma financial statements and balance sheets estimated for three years, with the cash flow projections on a monthly basis and (pro forma) financial statement on a yearly basis;

(v) Estimated purchase price for any proposed purchase of real property, accompanied by an independent appraisal of the property establishing that the proposed purchase price is reasonable;

(vi) A statement detailing what other conventional private sources or Federal, state or local programs have resources available, and why those resources are not being utilized for the proposed project.

(c) Additional requirements for relending or guarantying. If the assistance being requested is for relending or guarantying funds to other eligible recipients, applicants must also submit the information required by the next section.

$1076.50-10 Loans and guaranties made by recipients to other eligible organizations.

(a) Where the purpose of the financial assistance awarded by CSA to an organization is for relending or guarantying, the recipient, in addition to submitting the eligibility documents for itself, must submit its work program for such relending and guarantying activities. The work program must contain:

(1) Standards and criteria for relending and guarantying, including determinations of rates of interest, fees, terms, repayment schedules, collateral security, default and collection procedures and how the same may be adjusted.

(2) Basis for determining any priorities or preferences in awarding assist

ance.

(3) A plan for providing loan servicing including technical assistance, evaluation, and monitoring.

(b) When an applicant plans to relend or guaranty to low-income families or profit-making businesses, it must also show how such activity will contribute to community economic development and directly benefit rural residents.

(c) Applications to recipients with approved work programs for relending or guarantying under this subpart may be made at any time. CSA's Office of Economic Development will periodically publish in the FEDERAL REGISTER the names and addresses and amounts available from those organizations which CSA already has funded.

(d) Notice of availability of loans and guaranties from recipients with approved work programs shall be given the widest possible publicity among potential eligible applicants. Such recipients, however, may utilize RFPs to limit the number and diversity of applications by subject matter areas and amounts with the express written consent of CSA. RFPs, where used, generally should state total funds to be made available thereunder and approximate number or size of the expected awards.

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(a) As a Credit Factor. The availability of collateral security normally shall be considered as an important factor in making loans or guaranties. The types and amount of collateral security required should be governed by the relative strengths and weaknesses of other credit factors. However, the taking of collateral as security should be considered in each loan making or guaranty transaction. Collateral security should be sufficient to provide the lender reasonable protection from loss in the case of adversity, but such security or lack thereof should not be used

as

the primary basis for deciding whether to extend credit. Endorsements or guaranties by other organizations, directors, or persons should be used only in unusual cases.

(b) Security interests. Security interests which may be taken by the lender or guarantor include but are not limited to liens on real or personal property, including leasehold interests, assignments of income and accounts receivable, and liens on inventory of proceeds of inventory sales, as well as marketable securities and cash collateral accounts.

(c) Motor vehicles. Liens ordinarily should be taken on licenses motor vehicles or boats purchased hereunder in order to be able to transfer title easily should the lender need to declare a default or repossess the property.

(d) Additional security. The lender or guarantor may require collateral security or additional security at any time during the term of a loan or guaranty if after review and monitoring an assessment indicates the need for such security.

(e) Insurance on property secured. Ordinarily, hazard insurance up to the amount of the loan or the depreciated replacement value of the property secured (whichever is less) will be taken naming the lendor as beneficiary. Such insurance includes fire and extended coverage, public liability, property damage, and other appropriate types of hazard insurance.

(f) Appraisals. Property serving as collateral security will be appraised by a qualified appraiser.

§ 1076.50-12 Post award requirements.

(a) Applicability of CSA policies. Financial assistance to recipients with approved work programs for relending or guarantying is subject to the conditions established in the loan agreement with CSA.

(b) Deposits. (1) Unless other wise specifically agreed to in writing by CSA, loan proceeds and any interest thereon not immediately needed or disbursed by the borrower should be deposited in an interest bearing account or time deposit in a bank or other financial institution which can be fully covered by a form of federal deposit insurance.

(2) Deposits and accounts in financial institutions owned or controlled by minorities shall be encouraged provided they are adequately covered by a form of federal deposit insurance.

(3) Any interest or other income earned as a result of such accounts or deposits shall be used by the borrower only for the authorized purposes of the loan involved of its approved work program.

§ 1076.50-13 Liquidation; default.

Should the Director determine that it is necessary of desirable to take action to protect or further the interests of CSA in connection with any default or breach of conditions under any loan or guaranty made hereunder, the Director may:

(a) Declare that the loan is immediately due and payable.

(b) Assign or sell at public or private sale, or otherwise dispose of for cash or credit, in his/her discretion and upon such terms and conditions as he/ she shall determine to be reasonable, any evidence of debt, contract, claim, personal or real property, or security assigned to or held by the Director in connection with financial assistance extended hereunder.

(c) Adjust interest rates, use fixed or variable rates, grant moratoriums on repayment of principal and interest, collect or compromise any obligations held by him/her and take such other actions in respect to such loans and guaranties as are necessary or appropriate, consistent with the objections of the Program and this subpart.

(d) In taking the actions provided for in paragraph (c) above the Director shall take into account such factors as:

(1) The inherent difficulty of creating or expanding rural enterprises which can offer real and increased ownership, employment and income opportunities for low-income persons.

(2) The need for new and more responsive national, regional and local financial institutions to serve lowincome rural residents.

(3) The lead time, mobilization of resources, and leveraging required for rural residents to successfully pool their talents and abilities to engage in meaningful community economic development.

(4) The need for adequate technical assistance, training and skills develop ment to accompany financial assistance for community-based, economic development efforts.

(5) The experimental and demonstrational nature of the program balanced with the desire to operate the program on a sound business basis.

(6) Other particular needs of the borrower.

§ 1076.50-14 Conflict of interest.

No recipient shall relend or guaranty to or for the benefit of:

(a) Any person who is also a board member of such recipient without specific prior CSA written approval given with knowledge of the relationship involved; or

(b) Any organization which has on its governing board or as agent, consultant or employee, a person who is also a board member of the recipient without specific prior CSA written approval given with knowledge of the relationship involved.

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