[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR307.15]

[Page 628]
 
                TITLE 13--BUSINESS CREDIT AND ASSISTANCE
 
CHAPTER III--ECONOMIC DEVELOPMENT ADMINISTRATION, DEPARTMENT OF COMMERCE
 
PART 307_ECONOMIC ADJUSTMENT ASSISTANCE INVESTMENTS--Table of Contents
 
Subpart B_Special Requirements for Revolving Loan Funds and Use of Grant 
                                  Funds
 
Sec.  307.15  Prudent management of Revolving Loan Funds.

    (a) Accounting principles. (1) RLFs shall operate in accordance with 
generally accepted accounting principles (``GAAP'') as in effect from 
time to time in the United States and the provisions outlined in OMB 
Circular A-133 and the Compliance Supplement, as applicable.
    (2) In accordance with GAAP, a loan loss reserve may be recorded in 
the RLF Recipient's financial statements to show the fair market value 
of an RLF's loan portfolio, provided this loan loss reserve is non-
funded and represents non-cash entries.
    (b) Loan and accounting system documents. (1) Within sixty (60) days 
prior to the initial disbursement of EDA funds, an independent 
accountant familiar with the RLF Recipient's accounting system shall 
certify to EDA and the RLF Recipient that such system is adequate to 
identify, safeguard and account for all RLF Capital, outstanding RLF 
loans and other RLF operations.
    (2) Prior to the disbursement of any EDA funds, the RLF Recipient 
shall certify that standard RLF loan documents reasonably necessary or 
advisable for lending are in place and that these documents have been 
reviewed by its legal counsel for adequacy and compliance with the terms 
and conditions of the Grant and applicable State and local law. The 
standard loan documents must include, at a minimum, the following:
    (i) Loan application;
    (ii) Loan agreement;
    (iii) Promissory note;
    (iv) Security agreement(s);
    (v) Deed of trust or mortgage (as applicable);
    (vi) Agreement of prior lien holder (as applicable); and
    (vii) Guaranty agreement (as applicable).
    (c) Interest rates. An RLF Recipient may make loans and may 
guarantee loans to eligible borrowers at interest rates and under 
conditions determined by the RLF Recipient to be appropriate in 
achieving the goals of the RLF. However, the minimum interest rate an 
RLF can charge is four (4) percentage points below the lesser of the 
current money center prime interest rate quoted in the Wall Street 
Journal, or the maximum interest rate allowed under State law. In no 
event shall the interest rate be less than four (4) percent. However, 
should the prime interest rate listed in the Wall Street Journal exceed 
fourteen (14) percent, the minimum RLF interest rate is not required to 
be raised above ten (10) percent if doing so compromises the ability of 
the RLF Recipient to implement its financing strategy.
    (d) Private leveraging. (1) RLF loans must leverage private 
investment of at least two dollars for every one dollar of such RLF 
loans. This leveraging requirement applies to the RLF portfolio as a 
whole rather than to individual loans and is effective for the duration 
of the RLF's operation. To be classified as leveraged, private 
investment must be made within twelve (12) months prior to approval of 
an RLF loan, as part of the same business development Project, and may 
include:
    (i) Capital invested by the borrower or others;
    (ii) Financing from private entities; or
    (iii) The non-guaranteed portions and ninety (90) percent of the 
guaranteed portions of the U.S. Small Business Administration's 7(A) 
loans and 504 debenture loans.
    (2) Private investments shall not include accrued equity in a 
borrower's assets.