[Code of Federal Regulations]
[Title 7, Volume 15]
[Revised as of January 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR4279.125]

[Page 576-577]
 
                          TITLE 7--AGRICULTURE
 
  CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES 
                   SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 4279_GUARANTEED LOANMAKING--Table of Contents
 
                  Subpart B_Business and Industry Loans
 
Sec. 4279.125  Interest rates.

    The interest rate for the guaranteed loan will be negotiated between 
the lender and the applicant and may be either fixed or variable as long 
as it is a legal rate. Interest rates will not be more than those rates 
customarily charged borrowers in similar circumstances in the ordinary 
course of business and are subject to Agency review and approval. 
Lenders are encouraged to utilize the secondary market and pass 
interest-rate savings on to the borrower.
    (a) A variable interest rate agreed to by the lender and borrower 
must be a rate that is tied to a base rate agreed to by the lender and 
the Agency. The variable interest rate may be adjusted at different 
intervals during the term of the loan, but the adjustments may not be 
more often than quarterly and must be specified in the Loan Agreement. 
The lender must incorporate, within the variable rate Promissory Note at 
loan closing, the provision for adjustment of payment installments 
coincident with an interest-rate adjustment. The lender will ensure that 
the outstanding principal balance is properly amortized within the 
prescribed loan maturity to eliminate the possibility of a balloon 
payment at the end of the loan.
    (b) Any change in the interest rate between the date of issuance of 
the Conditional Commitment and before the issuance of the Loan Note 
Guarantee must be approved in writing by the Agency approval official. 
Approval of such a change will be shown as an amendment to the 
Conditional Commitment.
    (c) It is permissible to have one interest rate on the guaranteed 
portion of the loan and another rate on the unguaranteed portion of the 
loan provided that the rate on the guaranteed

[[Page 577]]

portion does not exceed the rate on the unguaranteed portion.
    (d) A combination of fixed and variable rates will be allowed.