[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: 13CFR307.17]

[Page 629-630]
 
                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.  307.17  Uses of capital.

    (a) General. RLF Capital shall be used for the purpose of making RLF 
loans that are consistent with an RLF Plan or such other purposes 
approved by EDA. To ensure that RLF funds are used as intended, each 
loan agreement must clearly state the purpose of each loan.
    (b) Restrictions on use of RLF Capital. RLF Capital shall not be 
used to:

[[Page 630]]

    (1) Acquire an equity position in a private business;
    (2) Subsidize interest payments on an existing RLF loan;
    (3) Provide for borrowers' required equity contributions under other 
Federal Agencies' loan programs;
    (4) Enable borrowers to acquire an interest in a business either 
through the purchase of stock or through the acquisition of assets, 
unless sufficient justification is provided in the loan documentation. 
Sufficient justification may include acquiring a business to save it 
from imminent closure or to acquire a business to facilitate a 
significant expansion or increase in investment with a significant 
increase in jobs. The potential economic benefits must be clearly 
consistent with the strategic objectives of the RLF;
    (5) Provide RLF loans to a borrower for the purpose of investing in 
interest-bearing accounts, certificates of deposit or any investment 
unrelated to the RLF; or
    (6) Refinance existing debt, unless:
    (i) The RLF Recipient sufficiently demonstrates in the loan 
documentation a ``sound economic justification'' for the refinancing 
(e.g., the refinancing will support additional capital investment 
intended to increase business activities). For this purpose, reducing 
the risk of loss to an existing lender(s) or lowering the cost of 
financing to a borrower shall not, without other indicia, constitute a 
sound economic justification; or
    (ii) RLF Capital will finance the purchase of the rights of a prior 
lien holder during a foreclosure action which is necessary to preclude a 
significant loss on an RLF loan. RLF Capital may be used for this 
purpose only if there is a high probability of receiving compensation 
from the sale of assets sufficient to cover an RLF's costs plus a 
reasonable portion of the outstanding RLF loan within eighteen (18) 
months following the date of refinancing;
    (c) Credit not otherwise available. RLF Recipients must determine 
and clearly demonstrate in the loan documentation for each RLF loan that 
credit is not otherwise available on terms and conditions that permit 
the completion or successful operation of the activity to be financed.
    (d) Use of In-Kind Contributions. In-Kind Contributions may satisfy 
Matching Share requirements when specifically authorized in the terms 
and provisions of the RLF Grant and may be used to provide technical 
assistance to borrowers or for eligible RLF administrative costs.
    (e) Loan guaranty agreements. Prior to the full disbursement of 
Grant funds, the RLF Recipient shall not use RLF Capital to guarantee 
loans made by other lending institutions. After the full disbursement of 
Grant funds, RLF Capital may be used to guarantee loans of private 
lenders, provided the RLF Recipient has obtained prior written approval 
from EDA of its proposed loan guaranty activities and submitted to EDA:
    (1) The maximum guaranty percentage offered by the RLF Recipient and 
accepted by the lender;
    (2) The loan guaranty agreement which must (at a minimum) document:
    (i) The RLF Recipient's maximum liability;
    (ii) The respective rights, representations and obligations of the 
RLF Recipient and lender with regard to collection procedures, servicing 
requirements, borrower delinquency, events of defaults and termination 
of the loan guaranty agreement;
    (iii) The responsible party's obligations in the event of any 
foreclosure, bankruptcy or insolvency proceeding;
    (iv) The responsible party's obligations with respect to collateral 
disposition and the call provisions for the Guaranteed Loan; and
    (v) The distribution of interest income and loan fees, if any, to 
the RLF; and
    (3) Certification from the RLF Recipient's legal counsel that the 
loan guaranty agreement is valid and enforceable under applicable State 
law; and
    (4) An amended RLF Plan accommodating the loan guaranty activities 
approved by EDA (as necessary).