Appendix I to Subpart E of Part 1980 - Instructions for Loan Guarantees for Drought and Disaster Relief
7:14.1.1.1.9.2.12.55.24 : Appendix I
Appendix I to Subpart E of Part 1980 - Instructions for Loan
Guarantees for Drought and Disaster Relief
A. In general. Drought and Disaster (D&D) guaranteed
loans are authorized by section 331 (“Disaster Assistance for Rural
Business Enterprises”) of the Disaster Assistance Act of 1988,
which provides for guarantees of up to 90 percent of the unpaid
principal amount of qualifying loans. Interest and protective
advances are not covered by the guarantee. Drought and Disaster
Guaranteed Loans may be either to assist in alleviating financial
distress caused to rural business entities, directly or indirectly,
by drought, hail, excessive moisture, or related conditions
occurring in 1988, or to assist such entities that refinance or
restructure debt as a result of losses incurred, directly or
indirectly, because of such natural disasters. Where used in this
appendix, the term “natural disaster(s)” refers only to drought,
hail, excessive moisture, and related conditions occurring in 1988.
All provisions of Subparts A and E of Part 1980 of this chapter
apply to D&D loans, except as provided in this appendix. All
forms used in connection with a D&D loan will be those used in
connection with a B&I guaranteed loan, except for the following
three forms that are incorporated in this Appendix I of this
Subpart E, made a part hereof:
(1) Form FmHA or its successor agency under Public Law 103-354
1980-68, “Lender's Agreement - Drought and Disaster Guaranteed
Loans,” or successor form will be used instead of Form FmHA or its
successor agency under Public Law 103-354 449-35, “Lender's
Agreement.”
(2) Form FmHA or its successor agency under Public Law 103-354
1980-69, “Loan Note Guarantee - Drought and Disaster Guaranteed
Loans,” or successor form will be used instead of Form FmHA or its
successor agency under Public Law 103-354 449-34, “Loan Note
Guarantee.”
(3) Form FmHA or its successor agency under Public Law 103-354
1980-70, “Assignment Guarantee Agreement - Drought and Disaster
Guaranteed Loans,” or successor form will be used instead of Form
FmHA or its successor agency under Public Law 103-354 449-36,
“Assignment Guarantee Agreement.”
B. Loan purpose. Except for §§ 1980.411(a)(11), 1980.412,
and section C., below, loan procees may be used for purposes
described in § 1980.411(a) if such use of loan proceeds will assist
in alleviating financial distress caused, directly or indirectly,
by drought, hail, excessive moisture, or related conditions which
occurred in 1988. In lieu of the debt refinancing requirements in §
1980.411(a)(11), the following refinancing requirements apply to
D&D loans. Loan proceeds to be used for refinancing must be
used solely for refinancing or restructuring of debts as a result
of losses incurred, directly or indirectly, as a result of drought,
hail, excessive moisture, or related condition occurring in 1988,
and such refinancing or restructuring of debt(s) must be essential
for the borrower to meet its financial obligations in a timely
fashion. In addition, D&D loan proceeds may be used for hotels,
motels, tourist or recreation facilities which meet the eligibility
requirements for D&D guaranteed loans.
C. Ineligible loan purposes. See § 1980.412. Except for
hotels, motels, tourist and recreation facilities mentioned in
section B of this appendix, purposes listed as ineligible B&I
loan purposes are ineligible D&D loan purposes. In addition,
D&D guaranteed loans may not be used for:
(1) Business expansion, acquisition of real estate, machinery,
equipment, inventory, other goods or services, or for any other
purpose unless related directly to the financial distress or loss
that is the basis for the D&D guaranteed loan.
(2) Any eligible agricultural production purpose if annual
tillage of the soil is involved.
(3) Refinancing or restructuring debt(s) which are or were in
payment default more than 60 consecutive days during the 12 months
preceding the date of the adverse financial effect of the natural
disaster of 1988 upon the borrower.
D. Transactions which will not be guaranteed. In addition
to transactions listed in § 1980.413, Rural Development will not
guarantee:
(1) D&D guaranteed loan(s) to any borrower if the total
cumulative principal amount of D&D guaranteed loan(s) to that
borrower would exceed $500,000, or
(2) Any D&D guaranteed loan if the completed application is
not received by Rural Developmenton or before September 30,
1991.
E. Borrower equity requirements. See § 1980.441. In lieu
of the borrower equity requirements in § 1980.441, paragraphs (a)
and (b), the following applies to D&D loans. Tangibles balance
sheet equity must be positive when the Loan Note Guarantee is
issued. Equity must be such that, when considered with other credit
factors, repayment of the loan and the continued success of the
business operation are reasonably assured. Requirements of §
1980.441(c) apply to D&D guaranteed loans.
F. Filing and processing preapplications and
applications. See § 1980.451. All requirements of § 1980.451
remain in effect. But, in addition to the information required as
part of a preapplication under § 1980.451(f), and unless previously
submitted, as a part of an application under § 1980.451(i) evidence
is required which demonstrates:
(1) The causal relationship between a 1988 natural disaster and
the financial distress or loss upon which the preapplication or
application is based; and,
(2) That the amount of the loan requested is not greater than
the amount necessary for curing the problems caused by the natural
disaster. Financial distress or loss shall be determined on the
basis of a comparison of financial data for comparable periods of
time and need not necessarily be based on data at the year's end.
Evidence submitted may include, but is not limited to, the
following:
(a) Evidence of financial loss or distress (including loss or
distress caused by business interruption) resulting from physical
damage caused by natural disaster, or
(b) Evidence that the financial loss and/or distress of the
business is the direct or indirect result of loss of sales,
business interruption, loss of markets, shortage of raw materials,
or decline in patronage or customers caused by a natural disaster.
It must be shown that business operations were damaged as a result
of such natural disaster.
G. Loan guarantee limit. See § 1980.20 of Subpart A. The
maximum loss covered by the Loan Note Guarantee, Form FmHA or its
successor agency under Public Law 103-354 1980-69, can never exceed
the percentage of guarantee multiplied by the unpaid principal
amount of the loan as evidenced by the note(s) or by assumption
agreement(s). Interest, capitalized interest, and protective
advances are not covered by the guarantee of a D&D loan.
H. Percentage of guarantee. See § 1980.420. The maximum
percentage of guarantee on a D&D loan is 90 percent of the
unpaid principal.
I. Lender's existing unguaranteed exposure. The
provisions of § 1980.452 Administrative C. 1(d) do not apply.
J. No direct or “insured” loans. Sections 1980.423(b),
1980.488(b), 1980.481, 1980.411(b), and other provisions of this
subpart dealing with “insured” or direct loans do not apply to
D&D loans. All D&D loans are Rural Development guaranteed
loans. Rural Development has no authority to make D&D loans
directly to borrowers.
[54 FR 5, Jan. 3, 1989, as amended at 54 FR 14792, Apr. 13, 1989;
54 FR 26946, June 27, 1989; 80 FR 9911, Feb. 24, 2015] Editor's
Note:At 80 FR 9911, Feb. 24, 2015, appendix I was amended by
removing “Form FmHA or its successor agency under Public Law
103-354” in paragraphs X.D and X.F and adding “Form RD” in its
place; however the amendment could not be incorporated because the
paragraphs did not exist. Additionally the appendix was amended by
removing “will be used” in paragraphs IV., and E.1 and 2, and
adding “or successor form will be used” in its place; however, the
amendments could not be incorporated because the paragraphs did not
exist.