[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR308.18]

[Page 572-573]
 
                TITLE 13--BUSINESS CREDIT AND ASSISTANCE
 
CHAPTER III--ECONOMIC DEVELOPMENT ADMINISTRATION, DEPARTMENT OF COMMERCE
 
PART 308--REQUIREMENTS FOR ECONOMIC ADJUSTMENT GRANTS--Table of Contents
 
  Subpart B--Special Requirements for Revolving Loan Fund Projects and 
                           Uses of Grant Funds
 
Sec. 308.18  Uses of capital.

    Generally, eligible loans to borrowers include loans for fixed 
assets, the acquisition of equipment, working capital, or other 
authorized uses. The EDA grant and the local cash matching funds will be 
used only for the purpose of making loans under an RLF. To preclude 
borrowers from using RLF funds inappropriately, the purpose of each RLF 
loan should be clearly stated in the loan agreement. RLFs established 
for business lending must conform to the following:
    (a) Loan guarantees. Prior to full disbursement of grant funds, the 
RLF recipient may not use the RLF to guarantee loans made by other 
lenders. In the revolving phase, after the full disbursement of grant 
funds, the RLF may be used to guarantee loans of private lenders 
provided the RLF recipient has obtained EDA's prior written approval of 
its proposed loan guarantee activities. The Plan for any loan guarantee 
activities should include the following information:
    (1) The maximum guarantee percentage that will be offered;
    (2) A certification from the RLF attorney that the guarantee 
agreement is valid under state law. At a minimum, the guarantee 
agreement must address the following:
    (i) The maximum reserve requirement;
    (ii) The rights and duties of each party in regard to loan 
collections, servicing, delinquencies and defaults;
    (iii) Foreclosures;
    (iv) Bankruptcies;
    (v) Collateral disposition and the call provisions of the guarantee; 
and
    (vi) Interest income and loan fees, if any, which will accrue to the 
RLF.
    (b) Restrictions on RLF capital. RLF capital may not be used to:
    (1) Acquire an equity position in a private business;
    (2) Subsidize interest payments on an existing loan;
    (3) Provide the equity contribution required of borrowers under 
other Federal loan programs;
    (4) Enable an RLF borrower to acquire an interest in a business, 
either through the purchase of stock or through the acquisition of 
assets, unless the need for RLF financing is sufficiently justified and 
documented in the loan write-up. Acceptable justification could include 
acquiring a business to substantially save it from imminent foreclosure, 
or acquiring it to facilitate a significant expansion or increased 
investment. In any case, the resulting economic benefits should be 
clearly consistent with the strategic objectives of the RLF;
    (5) Provide loans to a borrower for the purpose of investing in 
interest bearing accounts, certificates of deposit, or other investments 
not related to the objectives of the RLF;
    (6) Refinance existing debt unless:
    (i) There is sound economic justification and the RLF recipient 
sufficiently documents in the loan write-up that

[[Page 573]]

the RLF is not replacing private capital solely for the purpose of 
reducing the risk of loss to an existing lender(s) or to lower the cost 
of financing to a borrower, or
    (ii) An RLF uses RLF income sources and/or recycled RLF funds to 
purchase the rights of a prior lien holder during an in-process 
foreclosure action in order to preclude a significant loss on an RLF 
loan. This action may be undertaken only if there is a high probability 
of receiving compensation within 18 months from the sale of assets 
sufficient to cover an RLF's expenses plus a reasonable portion of the 
outstanding loan obligation; or
    (7) Finance any activity that serves to relocate jobs from one 
commuting area to another. (Commuting area is that area defined by the 
distance people travel to work in the locality of the project receiving 
RLF financial assistance.) An RLF's standard loan agreement must include 
a provision for calling the loan if it is determined that:
    (i) The business used the RLF loan to relocate jobs from another 
commuting area. or
    (ii) The activity financed was subsequently moved to a different 
commuting area to the detriment of local workers.
    (c) Credit otherwise available. Unless otherwise provided for in the 
grant agreement or modified in writing by EDA, a borrower is not 
eligible for RLF financing if credit is otherwise available on terms and 
conditions that permit the completion or successful operation of the 
project activity to be financed. The RLF recipient is responsible for 
determining that each borrower meets this requirement and for 
documenting the basis for its determination in the loan write-up.