[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: 7CFR1735.32]

[Page 313-314]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1735--GENERAL POLICIES, TYPES OF LOANS, LOAN REQUIREMENTS--TELECOMMUNICATIONS PROGRAM--Table of Contents
 
                        Subpart C--Types of Loans
 
Sec. 1735.32  Guaranteed loans.

    (a) General. Loan guarantees under this section will be considered 
for only those borrowers specifically requesting a guarantee. Borrowers 
may also specify that the loan to be guaranteed shall be made by the 
Federal Financing Bank (FFB). RUS provides loan guarantees pursuant to 
section 306 of the RE Act. Guaranteed loans may be made simultaneously 
with hardship loans or concurrent RUS cost-of-money and RTB loans. No 
fees or charges are assessed for any guarantee of a loan provided by 
RUS. In view of the Government's guarantee, RUS generally obtains a 
first lien on all assets of the borrower (see Sec. 1735.46).
    (b) Requirements. To qualify for a guaranteed loan, a borrower must 
have a projected TIER (including the proposed loan or loans) of at least 
1.2 as determined by the feasibility study prepared in connection with 
the loan. In addition, a borrower must meet all requirements set forth 
in the regulations applicable to a loan made by RUS with the exception 
that it is not required to participate in a state telecommunications 
modernization plan and is not subject to a subscriber per mile 
eligibility requirement, as provided in Sec. 1735.31(a).
    (c) Net worth requirements. RUS generally requires that borrowers 
seeking guaranteed loans have a net worth in excess of 20 percent of 
assets. RUS will, however, consider loan guarantees for borrowers with a 
net worth less than 20 percent.
    (d) Full amount guaranteed. Loans are guaranteed in the full amount 
of principal and interest. Because of the Government's full faith and 
credit 100 percent guarantee of these loans, only RUS obtains a mortgage 
on the borrower's assets.
    (e) Federal Register notice. After RUS has reviewed an application 
and determined that it shall consider guaranteeing a loan for the 
proposed project and if the borrower has not specified that the loan be 
made from the FFB, RUS shall publish a notice in the Federal Register. 
The Notice will include a description of the proposed project, the 
estimated total cost, the estimated amount of the guaranteed loan, a 
statement that the Federal Financing Bank (FFB) has a standing loan 
commitment agreement with RUS, and the name and address of the borrower 
to which financing proposals may be submitted.
    (f) Qualified lenders. RUS considers loan guarantees on a case by 
case basis for loans made by the FFB and any other legally organized 
lending agency or by a combination of lenders that the Administrator 
determines to be qualified to make, hold and service the loan. ``Legally 
organized lending agency'' and ``lender'' include commercial banks, 
trust companies, mortgage banking firms, insurance companies, and any 
other institutional investor authorized by law to loan money. The 
borrower is responsible for evaluating all proposals received from 
lenders other than FFB. The borrower furnishes RUS with a report on the 
evaluations and its choice of proposals. However, at the request of the 
borrower, the guaranteed loan shall be made by the FFB.
    (g) Interest rate. Guaranteed loans shall bear interest at the rate 
agreed upon by the borrower and lender. Guaranteed FFB loans shall be at 
a rate of interest that is not more than the rate of interest applicable 
to other similar

[[Page 314]]

loans then being made or purchased by FFB.
    (h) Condition of guarantee. RUS will not guarantee a loan if the 
income from the loan or the income from obligations issued by the holder 
of the loan, when the obligations are created by the loan, is excluded 
from gross income for the purpose of chapter I of the Internal Revenue 
Code of 1954.
    (i) Contract of guarantee. If RUS is satisfied with the engineering 
and economic feasibility of the project and approves the borrower's 
choice of proposal, subject to the submission of satisfactory financing 
documents and to the satisfaction of other pertinent terms and 
conditions, RUS will prepare a contract of guarantee to be executed by 
the borrower, the lender, and RUS within a specified time. The lender, 
or its representative, shall have the right to examine the borrower's 
application and supporting data submitted to RUS in support of its 
request for financial assistance.
    (j) Loan servicing. The contract of guarantee will require that 
arrangements satisfactory to RUS be made to service the loan. Required 
servicing by the lender will include:
    (1) Determining that all prerequisites to each advance of loan funds 
by the lender under the terms of the contract of guarantee, all 
financing documents, and all related security instruments have been 
fulfilled. Such determinations may be met by obtaining RUS approval of 
each advance.
    (2) Billing and collecting loan payments from the borrower.
    (3) Notifying the Administrator promptly of any default in the 
payment of principal and interest on the loan and submitting a report, 
as soon as possible thereafter, setting forth its views as to the 
reasons for the default, how long it expects the borrower will be in 
default, and what corrective actions the borrower states it is taking to 
achieve a current debt service position.
    (4) Notifying the Administrator of any known violations or defaults 
by the borrower under the lending agreement, contract of guarantee, or 
related security instruments, or conditions of which the lender is aware 
which might lead to nonpayment, violation, or other default.
    (k) Payments under the contract of guarantee. Upon receipt of the 
notification required in Sec. 1735.32(j)(3) of this section, RUS will 
pay the lender the amount in default with interest to the date of 
payment. When RUS has made a payment under a contract of guarantee, it 
will establish in its accounts the amount of the payment as due and 
payable from the borrower, with interest at the rate of interest 
specified in the lending agreement. RUS will work with the borrower and 
the lender in an effort to eliminate the borrower's default as soon as 
possible. RUS may also proceed with other remedies available under its 
security instruments.
    (l) Pledging of contract of guarantee. Subject to applicable law, 
RUS will consider, on a case by case basis, permitting pledging of the 
contract of guarantee in order to facilitate the obtaining of funds by 
the lending agency to make the guaranteed loan.

[54 FR 13351, Apr. 3, 1989; 54 FR 16194, Apr. 21, 1989. Redesignated at 
55 FR 39395, Sept. 27, 1990, as amended at 56 FR 26597, June 10, 1991; 
58 FR 66255, Dec. 20, 1993; 62 FR 46870, Sept. 5, 1997]