You are using an unsupported browser. This web site is designed for the current versions of Microsoft Edge, Google Chrome, Mozilla Firefox, or Safari.
The Office of the Federal Register publishes documents on behalf of Federal agencies but does not have any authority over their programs. We recommend you directly contact the agency associated with the content in question.
If you have comments or suggestions on how to improve the www.ecfr.gov website or have questions about using www.ecfr.gov, please choose the 'Website Feedback' button below.
If you would like to comment on the current content, please use the 'Content Feedback' button below for instructions on contacting the issuing agency
Enhanced content is provided to the user to provide additional context.
This content is from the eCFR and is authoritative but unofficial.
Navigate by entering citations or phrases (eg: 1 CFR 1.1 49 CFR 172.101 Organization and Purpose 1/1.1 Regulation Y FAR).
Choosing an item from citations and headings will bring you directly to the content. Choosing an item from full text search results will bring you to those results. Pressing enter in the search box will also bring you to search results.
Background and more details are available in the Search & Navigation guide.
| Loan Provisions | 5001.401 – 5001.449 | |||||||||||||||||||||||||
| ||||||||||||||||||||||||||
5 U.S.C. 301; 7 U.S.C. 1926(a); 7 U.S.C. 1932(a); and 7 U.S.C. 8107.
85 FR 42518, July 14, 2020, unless otherwise noted.
This content is from the eCFR and may include recent changes applied to the CFR. The official, published CFR, is updated annually and available below under "Published Edition". You can learn more about the process here.
Subscribe to: 7 CFR Part 5001 Subpart E - Loan Provisions
View the most recent official publication:
These links go to the official, published CFR, which is updated annually. As a result, it may not include the most recent changes applied to the CFR. Learn more.
Information and documentation can be found in our developer resources.
The Code of Federal Regulations (CFR) is the official legal print publication containing the codification of the general and permanent rules published in the Federal Register by the departments and agencies of the Federal Government. The Electronic Code of Federal Regulations (eCFR) is a continuously updated online version of the CFR. It is not an official legal edition of the CFR.
Learn more about the eCFR, its status, and the editorial process.
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.
[85 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021; 89 FR 79725, Sept. 30, 2024]
(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.
[86 FR 42518, July 14, 2020, as amended at 86 FR 70357, Dec. 10, 2021; 89 FR 79725, Sept. 30, 2024]
(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.
[85 FR 42518, July 14, 2020, as amended at 89 FR 79725, Sept. 30, 2024]
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.
[85 FR 42518, July 14, 2020, as amended at 89 FR 79726, Sept. 30, 2024]
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.
[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70358, Dec. 10, 2021; 89 FR 79726, Sept. 30, 2024]