[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1703.22]

[Page 32-39]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1703--RURAL DEVELOPMENT--Table of Contents
 
      Subpart B--Rural Economic Development Loan and Grant Program
 
Sec. 1703.22  Revolving loan program.

    Grant funds under this section will be provided only to RUS 
Borrowers on a non pass-through basis. RUS Borrowers will, in turn, 
provide loans to foster rural economic development in accordance with 
this subpart and the specific requirements of this section.
    (a) General. Grant funds disbursed to RUS Borrowers to establish 
revolving loan programs under this section are subject to the following 
requirements:
    (1) The uses, restrictions and limitations for zero-interest loans 
set forth in Secs. 1703.17, 1703.20 and 1703.21 respectively;
    (2) Loans made by RUS Borrowers initially lending grant funds 
disbursed by RUS are limited to types of projects specified in 
Sec. 1703.18 (d), (e), (f), (g) and

[[Page 33]]

(h). Loans may also be made for feasibility studies and technical 
assistance in accordance with Sec. 1703.18 (b) and (c), respectively, 
but only for those types of projects specified in this paragraph (a)(2). 
Loans made from repayments of the initial loans made by RUS Borrowers 
may be used for any rural economic development purpose in accordance 
with a prior agreement between the Borrower and RUS;
    (3) All other requirements relevant to zero-interest pass-through 
loans and grants outlined in this subpart, except the minimum size of a 
zero-interest loan as specified in Sec. 1703.28(f);
    (4) The initial loans made from the revolving loan fund using the 
grant funds must carry an interest rate of zero percent; however, loans 
made from repayments of the initial loan may carry an interest rate in 
accordance with prior agreement with RUS. In either case, the Borrower 
may charge reasonable loan servicing fees;
    (5) The Borrower will provide a board resolution certifying a 
commitment to provide and maintain additional funding to the revolving 
loan fund in an amount no less than 20 percent of the RUS grant 
approved. The Borrower will provide documentation that the additional 
funding has been deposited in the appropriate account in 
Sec. 1703.22(h)(1) prior to grant disbursement. This requirement does 
not pertain to supplemental funding requirements for individual projects 
as set forth in Sec. 1703.23. Additional funding required in this 
paragraph pertains only to borrowers establishing revolving loan funds, 
with the following provisions:
    (i) Use of additional funding is subject to requirements set forth 
in paragraph (b) of this section and with RUS concurrence;
    (ii) Individual projects funded under this section are subject to 
supplemental funds requirements set forth in Sec. 1703.23;
    (iii) At the Borrower's option with RUS concurrence, all or a 
portion of the additional funding may be used to assist project owners 
receiving funding from Federal grant funds under this section to meet 
their supplemental funding requirements set forth in Sec. 1703.23 of 
this subpart. Such additional funding will be deemed as Federal funds 
and accounted for in accordance with paragraph (h)(1)(i)(A) of this 
section for electric borrowers or paragraph (h)(1)(ii)(A) of this 
section for telephone borrowers, as appropriate;
    (iv) At the Borrower's option, all or a portion of the additional 
funding may be retained as non-Federal funds, for any rural economic 
development project(s), subject to paragraph (g) of this section and RUS 
concurrence. Additional funding committed as non-Federal will be 
accounted for in accordance with paragraph (h)(1)(i)(E) of this section 
for electric borrowers or paragraph (h)(1)(ii)(E) of this section for 
telephone borrowers, as appropriate;
    (6) Grant funds will only be provided to an RUS Borrower for a 
revolving loan program when a proposed budget submitted to RUS 
demonstrates and the Borrower agrees in writing that no more than 10 
percent of grant funds received are used to cover operating expenses of 
the revolving loan program. Operating expenses include the costs of 
administering the revolving loan fund and the provision of technical 
assistance to project owners. All proceeds in excess of those needed to 
cover authorized expenses, as described above, must revert to the 
revolving fund and be available for re-lending for eligible projects. 
Budgets which reflect expenses incurred in operating the fund must be 
submitted to RUS annually;
    (7) The Borrower may charge reasonable loan servicing charges. For 
purposes of this section, loan servicing charges must not exceed an 
amount equal to the sum of one percent per year of the outstanding 
principal on the first day of each year on each project owner's zero-
interest loan which is made from the RUS grant proceeds;
    (8) The Borrower will submit documentation indicating that potential 
projects which are eligible for funding have sufficiently progressed in 
the planning stage to allow grant funding approved for a revolving loan 
program to be requisitioned by the Borrower, disbursed by RUS, and 
loaned to recipients within 3 years of the date of grant approval by 
RUS. Grant funds that have not been requisitioned within 3

[[Page 34]]

years will be cancelled, unless the Administrator has approved an 
extension in writing. Grant funds will be disbursed by RUS in accordance 
with paragraphs (d) and (g) of this section;
    (9) If the revolving loan program is terminated, further 
disbursement of grant funds will be cancelled. Repayments of loans made 
using grant funds which have been disbursed will be used in accordance 
with the Borrower's rural development plan;
    (10) Payment of creditors which provide interim or construction 
financing to a viable project for eligible purposes as set forth in 
Sec. 1703.18 of this subpart may be authorized. Refinancing for the sole 
purpose of replacing higher interest conventional financing with zero-
interest revolving loan funds is not authorized.
    (b) The Borrower's rural development plan. RUS requires that the 
revolving loan program be administered in accordance with a rural 
development plan, developed by the Borrower and approved by RUS. The 
plan must be of sufficient detail to provide RUS with a complete 
understanding of what the Borrower intends to accomplish by 
administering a revolving loan program. The rural development plan will 
provide the mechanics of how the revolving loan funds will be disbursed 
to the project owner. The rural development plan must outline the 
Borrower's plans for administering the revolving loan program, during 
the initial period when RUS grant funds are lent by the Borrower and 
after the revolving fund becomes non-Federal in accordance with 
paragraph (g) of this section. The plan must outline the following:
    (1) Specific objectives for the revolving loan program, revolving 
loan operating procedures, lending parameters, maximum and minimum loan 
amount, and types of projects to be funded;
    (2) Documentation of Borrower's coordination of lending activities 
with other local entities that provide financing for rural economic 
development projects. Such documentation will indicate that the Borrower 
will not compete with, but supplement other sources of legal financing;
    (3) Eligibility criteria if other than outlined in this subpart;
    (4) The application process and method of disposition of the funds 
to the project owner; and
    (5) A procedure for monitoring the project owner's accomplishments 
and reporting requirements by the project owner's management.
    (c) The Borrower's scope of work. Borrowers applying for grant 
funding under this section must submit a scope of work to RUS. 
Applications for grants under this section will be evaluated for funding 
based on the Borrower's rural development plan in paragraph (b) of this 
section and the scope of work. The scope of work must contain the 
following items:
    (1) Documented need for grant funds. The Borrower must identify a 
sufficient number of rural development projects of the type specified in 
Sec. 1703.18 (d), (e), (f), (g), and (h) which are currently being 
planned requiring zero-interest loans equal to the amount of grant 
assistance requested from RUS. These projects may be supported with a 
community facilities plan, or other development plan, prepared by local 
community leaders in cooperation with the Borrower. For each project, 
the Borrower will submit information required under Sec. 1703.34;
    (2) Documented authority and ability of the Borrower to administer a 
revolving rural development loan program in accordance with the 
provisions of this subpart. The Borrower must provide a complete listing 
of all personnel responsible for administering this program along with a 
statement of their qualifications and experience;
    (3) Documented ability of the Borrower to commit financial resources 
under the control of the Borrower to assist in the establishment of a 
rural development revolving loan program. This should include a 
statement of the sources of funding for the administration of the 
Borrower's operations, as well as financial and technical assistance for 
projects;
    (4) Documentation that the Borrower has secured commitments of 
significant financial support from public agencies and/or private 
organizations for supplemental funding to support a rural development 
loan program;

[[Page 35]]

    (5) A list of proposed fees and other charges the Borrower will 
assess the projects it funds; and
    (6) The Borrower's rural development policy for non-Federal funds in 
accordance with paragraphs (b) and (g) of this section.
    (d) Grant processing and approval. Applications for grants to 
establish revolving loan funds will be reviewed in accordance with 
Secs. 1703.45 and 1703.46, and with the Borrower's rural development 
plan and scope of work outlined in paragraphs (b) and (c) of this 
section. Grants will be processed in accordance with Secs. 1703.58 and 
1703.59.
    (e) Disbursement of grant funds. Borrowers are not authorized to 
commence projects to be funded under this section until those projects 
have been submitted for authorization in accordance with paragraph 
(c)(1) of this section, or the projects have been submitted for 
authorization subsequent to grant approval in accordance with paragraph 
(e)(2) of this section. RUS grant funds will be disbursed on a 
reimbursement basis. However, upon written justification by borrowers 
and approval by the Administrator, borrowers unable to fund projects 
under reimbursement provisions, for financial or other extraordinary 
reasons, may receive grant funds under the special disbursement method 
by submitting unpaid invoices from project owners, and grant funds will 
be disbursed to borrowers and passed directly to project owners. In 
either case, RUS grant funds will be disbursed in accordance with the 
provisions of 7 CFR Part 3015, Uniform Federal Assistance Regulations, 
the applicable requirements of this subpart, the administrative 
provisions outlined in paragraph (g) of this section, and the following 
requirements:
    (1) Only projects authorized by RUS in accordance with paragraphs 
(c)(1) and (e)(2) of this section, for which adequate documentation is 
submitted, including receipts for expenditures under the reimbursement 
method or unpaid invoices under the special disbursement method, as 
applicable, and certification of approved purposes, will be considered 
for disbursement;
    (2) A project which was not submitted prior to grant approval in 
accordance with paragraph (c)(1) of this section, may be authorized for 
funding subsequent to grant approval. A project which is authorized for 
funding under this paragraph will be considered for disbursement at the 
first allowable time period after project authorization in accordance 
with paragraphs (e)(3) and (e)(4) of this section. Project authorization 
after grant approval is subject to the following requirements:
    (i) The project meets the specific objectives for the Borrower's 
revolving loan program as outlined in paragraph (b)(1) of this section;
    (ii) The Borrower presents evidence that the project requested for 
authorization can be funded prior to projects which were authorized 
prior to grant approval in accordance with paragraph (b)(1) of this 
section; and
    (iii) RUS approves the project for funding in accordance with 
Sec. 1703.34;
    (3) Under the reimbursement method, grant funds requisitioned for 
individual projects in increments of less than $100,000, or less than 25 
percent of the amount approved for the revolving loan fund, whichever is 
less, may be disbursed semi-annually. Submission periods for 
requisitioning grant funds on a semi-annual disbursement basis will be 
14 days commencing from the 6-month anniversary date of grant approval. 
Grant funds under the special disbursement method will be requisitioned 
in accordance with the applicable provision in paragraph (e)(4) of this 
section;
    (4) For the reimbursement method, grant funds requisitioned for 
individual projects in increments of $100,000 or greater, or at least 25 
percent of the amount approved for the revolving loan fund, whichever is 
less, may be submitted for disbursement at any time. Under the special 
disbursement method, grant funds of less than $100,000 may be 
requisitioned for disbursement at any time. However, the minimum 
requisition will be $50,000, or the total grant award, whichever is 
less.
    (f) Reporting requirements. (1) The Borrower must maintain financial 
management systems and retain financial records in accordance with 7 CFR 
part 3015, Uniform Federal Assistance Regulations.
    (2) Borrower records must include an accurate accounting and source 
documentation to support each transaction

[[Page 36]]

involving the revolving loan fund. Records are subject to a rural 
economic loan review as set forth in Sec. 1703.66(g).
    (3) SF-269, ``Financial Status Report,'' and a revolving loan 
program activity report will be required of all Borrowers on an annual 
basis. Reports will be submitted no later than 90 days after December 31 
of each year. The program activity report will contain an aggregate list 
of projects funded, the amount funded for each project, the project 
repayment schedule, a brief description of each project, the project 
objectives, whether or not the project has been completed, and the 
projected number of jobs created or saved by each project. Reports under 
this paragraph will be required until all grant funds have been 
disbursed and projects completed.
    (4) A performance report will be required for each project funded on 
an annual basis. Performance reports will be due no later than 90 days 
after December 31 of each year. Performance reports will be submitted 
until one year after project completion. Project performance reports 
will contain the following:
    (i) A comparison of actual accomplishments during the reporting 
period to the objectives established for the project and, if not 
attained, reasons why established objectives were not met;
    (ii) Problems, delays, or adverse conditions which will materially 
affect attainment of planned project objectives, prevent the meeting of 
time schedules or objectives, or preclude the attainment of project work 
elements during established time periods. This disclosure shall be 
accompanied by a statement of the action taken or contemplated to 
resolve the situation;
    (iii) Projected accomplishments for the next reporting period, if 
applicable; and
    (iv) Status of compliance with any special conditions for project 
funding, if applicable.
    (5) Borrowers must report and remit interest earned on advances of 
grant funds deposited in interest accounts to RUS on a quarterly basis 
in accordance with 7 CFR part 3015, Uniform Federal Assistance 
Regulations.
    (g) Non-Federal funds. Once all RUS-derived grant funds have been 
utilized by the Borrower to fund rural development projects according to 
the provisions of this section and the applicable provisions of this 
subpart, loans made by the Borrower thereafter from repayments to the 
revolving loan fund shall not be considered as being derived from 
Federal funds and the requirements of these regulations will not be 
imposed on the Borrower or project owners. However, the Borrower will, 
as a condition for receiving a grant under this section, agree to the 
following conditions:
    (1) To maintain a revolving loan account to promote rural economic 
development in accordance with the Borrower's rural development plan for 
non-Federal funds submitted in accordance with paragraph (b) of this 
section;
    (2) To maintain the additional funding supplied by the Borrower in 
accordance with paragraph (a)(5) of this section and interest earnings 
within the revolving loan fund;
    (3) Approval may be granted by the Administrator to terminate the 
revolving loan program, or modify the requirements set forth in 
paragraphs (g)(1) and (g)(2) of this section, upon written request and 
justification by the Borrower. Should the Borrower terminate the 
revolving loan program without obtaining approval by the RUS 
Administrator, the Borrower will return the amount of the original grant 
to RUS.
    (h) Administrative provisions. The requirements of this paragraph 
set forth the procedures for accounting, requisitioning and disbursement 
of Federal funds, those funds initially disbursed for projects which may 
be funded in accordance with an approved rural development plan and 
scope of work submitted by the Borrower. Disbursement of grant funds 
will be approved on a reimbursement basis after the grant agreement is 
executed by RUS and the Borrower, the applicable provisions of this 
subpart are met, subject to disbursement restrictions in paragraph (e) 
of this section, and the requirements in paragraphs (h) (1) through (3) 
of this section.
    (1) Accounting requirements. Accounting will be performed in 
accordance

[[Page 37]]

with 7 CFR part 1767, Accounting Requirements for RUS Electric 
Borrowers, or 7 CFR part 1770, Accounting Requirements for RUS Telephone 
Borrowers, as appropriate. The Borrower will maintain accounts for the 
revolving funds as follows:
    (i) RUS electric Borrowers. (A) A general ledger Account 131.13, 
``Cash-General--Economic Development Grant Funds.'' The Borrower will 
debit this account in an amount equal to the amount of the grant 
received from RUS, any additional funds deemed Federal from the Borrower 
as required by paragraph (a)(5)(iii) of this section, and all other 
funds advanced for the project, regardless of the source, if controlled 
by the Borrower. The Borrower will credit this account for all 
expenditures made with Federal funds on behalf of the rural development 
project.
    (B) A general ledger Account 124.1, ``Other Investments--Federal 
Economic Development Loans.'' The Borrower will debit this account in 
the amount of Federal funds the Borrower advances to non-associated 
organizations for authorized rural economic development projects. For 
each debit in this account, a corresponding credit will be made in 
Account 131.13 in paragraph (h)(1)(i)(A) of this section. This account 
will be credited with repayments of loans made with Federal economic 
development grant funds.
    (C) A general ledger Account 123.3, ``Investment in Associated 
Companies--Federal Economic Development Loans.'' The Borrower will debit 
this account in the amount of Federal funds the Borrower advances to 
associated organizations for authorized rural economic development 
projects. For each debit in this account, a corresponding credit will be 
made in Account 131.13 in paragraph (h)(1)(i)(A) of this section. This 
account will be credited with repayments of loans made with Federal 
economic development grant funds.
    (D) Account 421, ``Miscellaneous Non-operating Income.'' The 
Borrower will credit this account in the amount of grant funds disbursed 
by RUS resulting from an approved requisition request in accordance with 
paragraph (h)(2) of this section.
    (E) A general ledger Account 131.14, ``Cash-General--Economic 
Development Non-Federal Revolving Funds.'' The Borrower will debit this 
account with any additional funds deemed non-Federal from the borrower 
as required by paragraph (a)(5)(iv) of this section, cash received from 
the repayment of loans made from accounts in paragraphs (h)(1)(i)(B), 
(h)(1)(i)(C), (h)(1)(i)(F), and (h)(1)(i)(G) of this section. The 
Borrower will credit this account to reflect loans made for rural 
economic development projects from non-Federal funds from accounts 
specified in paragraphs (h)(1)(i)(F) and (h)(1)(i)(G) of this section.
    (F) A general ledger Account 124.2, ``Other Investments--Non-Federal 
Economic Development Loans.'' The Borrower will debit this account in 
the amount of non-Federal funds the Borrower advances to non-associated 
organizations for authorized rural economic development projects. For 
each debit in this account, a corresponding credit will be made in 
Account 131.14, in paragraph (h)(1)(i)(E) of this section. This account 
will be credited with repayments of loans made from non-Federal economic 
development funds.
    (G) A general ledger Account 123.4, ``Investment in Associated 
Companies--Non-Federal Economic Development Loans.'' The Borrower will 
debit this account in the amount of non-Federal funds the Borrower 
advances to associated organizations for authorized rural economic 
development projects. For each debit in this account, a corresponding 
credit will be made in Account 131.14, in paragraph (h)(1)(i)(E) of this 
section. This account will be credited with repayments of loans made 
from non-Federal economic development funds.
    (H) A general ledger Account 171 ``Interest and Dividends 
Receivable.'' The Borrower will debit this account with the amount of 
interest earned on the revolving loan fund. The Borrower will credit 
this account and debit the appropriate cash account when the cash is 
received.
    (I) A general ledger Account 419, ``Interest and Dividend Income.'' 
The Borrower will credit this account with the amount of interest earned 
on the revolving loan fund.
    (ii) RUS telephone Borrowers. (A) A general ledger Account 1130.4, 
``Cash--

[[Page 38]]

General Fund--Economic Development Grant Funds (Class A Companies)'', or 
Account 1120.14, ``Cash-General Fund--Economic Development Grant Funds 
(Class B Companies).'' The Borrower will debit the appropriate account 
in an amount equal to the amount of the grant received from RUS, any 
additional funds deemed Federal from the Borrower required by paragraph 
(a)(5)(iii) of this section, and all other funds advanced for the 
project, regardless of the source, if controlled by the Borrower. The 
Borrower will credit the appropriate account for all expenditures made 
with Federal funds on behalf of the rural development project.
    (B) A general ledger Account 1402.4, ``Other Investments in 
Nonaffiliated Companies--Federal Economic Development Grant Loans.'' The 
Borrower will debit this account in the amount of Federal funds the 
Borrower advances to nonaffiliated organizations for authorized rural 
economic development projects. For each debit in this account, a 
corresponding credit will be made in the appropriate account in 
paragraph (h)(1)(ii)(A) of this section. This account will be credited 
with repayments of loans made from Federal economic development grant 
funds.
    (C) A general ledger Account 1401.1, ``Other Investments in 
Affiliated Companies--Federal Economic Development Grant Loans.'' The 
Borrower will debit this account in the amount of Federal funds the 
Borrower advances to affiliated organizations for authorized rural 
economic development projects. For each debit in this account, a 
corresponding credit will be made in the appropriate account in 
paragraph (h)(1)(ii)(A) of this section. This account will be credited 
with repayments of loans made from Federal economic development grant 
funds.
    (D) Account 7360, ``Other Non-operating Income (Class A 
Companies)'', or Account 7300, Non-operating Income and Expense (Class B 
Companies), as appropriate. The Borrower will credit these accounts, as 
appropriate, in the amount of grant funds disbursed by RUS resulting 
from an approved requisition request in accordance with paragraph (h)(2) 
of this section.
    (E) A general ledger Account 1130.5, ``Cash--General Fund--Economic 
Development Non-Federal Revolving Funds (Class A Companies)'', or 
Account 1120.15, ``Cash--General Fund--Economic Development Non-Federal 
Revolving Funds (Class B Companies)'', as appropriate. The Borrower will 
debit the appropriate account with any additional funds deemed non-
Federal from the Borrower as required by paragraph (a)(5) of this 
section, cash received from the repayment of loans made from accounts in 
paragraphs (h)(1)(ii)(B), (h)(1)(ii)(C), (h)(1)(ii)(F), and 
(h)(1)(ii)(G) of this section. The Borrower will credit the appropriate 
account to reflect loans made for rural economic development projects 
from non-Federal funds from accounts specified in paragraphs 
(h)(1)(ii)(F) and (h)(1)(ii)(G) of this section.
    (F) A general ledger Account 1402.5, ``Other Investments in 
Nonaffiliated Companies-Non-Federal Economic Development Grant Loans.'' 
The Borrower will debit this account in the amount of non-Federal funds 
the Borrower advances to nonaffiliated organizations for authorized 
rural economic development projects. For each debit in this account, a 
corresponding credit will be made in the appropriate account in 
paragraph (h)(1)(ii)(E) of this section. This account will be credited 
with repayments of loans made from non-Federal economic development 
funds.
    (G) A general ledger Account 1401.2, ``Other Investments in 
Affiliated Companies--Non-Federal Economic Development Grant Loans.'' 
The Borrower will debit this account in the amount of non-Federal funds 
the Borrower advances to affiliated organizations for authorized rural 
economic development projects. For each debit in this account, a 
corresponding credit will be made in the appropriate account in 
paragraph (h)(1)(ii)(E) of this section. This account will be credited 
with repayments of loans made from non-Federal economic development 
funds.
    (H) A general ledger Account 1210, ``Interest and Dividends 
Receivable.'' The Borrower will debit this account with the amount of 
interest earned on the revolving fund loan. The borrower will credit 
this account and debit the appropriate cash account when the cash is 
received.

[[Page 39]]

    (I) A general ledger Account 7320, ``Interest Income (Class A 
Companies)'', or Account 7300.2, ``Interest Income (Class B 
Companies)'', as appropriate. The Borrower will credit this account with 
the amount of interest earned on the revolving fund loans.
    (2) Requisition requirements. Grant funds may be requisitioned by 
RUS Borrowers in accordance with disbursement requirements in paragraph 
(e) of this section. Borrowers will be fully reimbursed for funds 
expended for approved projects funded. For each completed project, the 
Borrower will submit the following for reimbursement:
    (i) Standard Form 270, ``Request for Advance of Reimbursement'';
    (ii) Copies of cancelled checks and other verifiable source records 
supporting the transactions; and
    (iii) Certification and evidence that the project costs to be 
reimbursed are for a project which has been authorized by RUS and are 
authorized costs for that project.
    (3) RUS review. Requisition requests will be evaluated for 
compliance with loan purposes previously submitted by the Borrower for 
project authorization in accordance with paragraphs (c)(1) or (e)(2) of 
this section, compliance with the Borrower's rural development plan, 
accounting documentation submitted in paragraph (h)(1) of this section, 
and the cancelled checks and source records submitted.

[59 FR 11708, Mar. 14, 1994, as amended at 59 FR 38341, July 28, 1994; 
59 FR 53931, Oct. 27, 1994]