Appendix K to Subpart E of Part 1980 - Regulations for Loan Guarantees for Disaster Assistance For Rural Business Enterprises
7:14.1.1.1.9.2.12.55.26 : Appendix K
Appendix K to Subpart E of Part 1980 - Regulations for Loan
Guarantees for Disaster Assistance For Rural Business Enterprises
A. In general
Disaster Assistance for Rural Business Enterprises (DARBE)
guaranteed loans are authorized by Section 401 of the Disaster
Assistance Act of 1989, which provides for guarantees of up to 90
percent of the unpaid principal and interest amount of qualifying
loans, or $2,500,000 whichever is less, to any one borrower. DARBE
guaranteed loans may be either to assist in alleviating financial
distress caused to rural business entities, directly or indirectly,
by drought, freeze, storm, excessive moisture, earthquake, or
related conditions occurring in 1988 or 1989, 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, freeze, storm, excessive
moisture, earthquake, and related conditions occurring in 1988 or
1989. All provisions of subparts A and E of part 1980 of this
chapter apply to DARBE loans, except as provided in this appendix.
All forms used in connection with a DARBE loan will be those used
in connection with a Business and Industrial (B&I) guaranteed
loan, except for the following three forms that are incorporated in
this appendix K of this subpart E, made a part hereof:
(1) Form RD 1980-71, “Lender's Agreement - Disaster Assistance
for Rural Business Enterprise Guaranteed Loans,” or successor form
will be used instead of Form RD 449-35, “Lender's Agreement.”
(2) Form RD 1980-72, “Loan Note Guarantee - Disaster Assistance
for Rural Business Enterprise Guaranteed Loans,” or successor form
will be used instead of Form RD 449-34, “Loan Note Guarantee.”
(3) Form RD 1980-73, “Assignment Guarantee Agreement - Disaster
Assistance for Rural Business Enterprise Guaranteed Loans,” or
successor form will be used instead of Form RD 449-36, “Assignment
Guarantee Agreement.”
B. Loan purposes
Loan proceeds may be used for purposes described in §
1980.411(a), except in lieu of the debt refinancing requirements in
§ 1980.411(a)(11), the following refinancing requirements apply to
DARBE 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,
freeze, storm, excessive moisture, earthquake, or related
conditions occurring in 1988 or 1989, and such refinancing or
restructuring of debt(s) must be essential for the borrower to meet
its financial obligations in a timely fashion. DARBE loan proceeds
may be used for hotels, motels, tourist, or recreation facilities
which meet the eligibility requirements of DARBE guaranteed loans
in addition to the eligible loan purposes as stated in RD
Instruction 1980-E. In addition, DARBE loan proceeds may be used
for business enterprises engaged in agricultural production
(production agriculture) which means the cultivation, production
(growing), and harvesting, either directly or through integrated
operations, of agricultural products (crops, animals, birds, and
marine life, either for fibers or food for human consumption), and
disposal or marketing thereof, the raising, housing, feeding
(including commercial custom feedlots), breeding, hatching, control
and/or management of farm and domestic animals. Other eligible uses
of loan proceeds under agricultural production include:
(1) Commercial nurseries primarily engaged in the production of
ornamental plants and trees and other nursery products such as
bulbs, florists' greens, flowers, shrubbery, flower and vegetable
seeds, sod, and the growing of vegetables from seed to the
transplant stage.
(2) Forestry which includes establishments primarily engaged in
the operation of timber tracts, tree farms, forest nurseries, and
related activities such as reforestation.
(3) Loans for livestock and poultry processing as identified
under eligible purposes.
(4) The growing of mushrooms or hydroponics.
In addition, those business enterprises which qualify for
assistance as agricultural production must be ineligible entities
for FmHA or its successor agency under Public Law 103-354 farmer
program loans because the entity exceeds the definition of a
family-size farm as defined by RD Instruction 1941-A, §
1941.4(d).
C. Ineligible loan purposes
RD Instruction 1980-E, § 1980.412 are ineligible purposes for
DARBE guaranteed loans except for hotels, motels, tourist,
recreation facilities and agricultural production (production
agriculture) as defined in § 1980.412(e), DARBE 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 DARBE guaranteed loan.
(2) Alleviating financial distress of entities engaged in
agricultural production that are eligible for other Rural
Development -type farm loan programs.
D. Transactions which will not be guaranteed
In addition to transactions listed in RD Instruction 1980-E, §
1980.413, except for § 1980.413(a)(3), Rural Development will not
make DARBE guaranteed loans if the completed application is not
received by Rural Development on or before September 30, 1991, nor
will Rural Development make subsequent DARBE guarantee loans.
E. Borrower equity requirements
See RD Instruction 1980-E, § 1980.441. In lieu of the borrower
equity requirements in § 1980.441, paragraphs (a) and (b), the
following applies to DARBE loans. Tangible 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 DARBE guaranteed loans.
F. Filing and processing preapplications and applications
See RD Instruction 1980-E, § 1980.451. All requirements of §
1980.451 remain in effect. 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 to Rural
Development 's satisfaction:
(1) The causal relationship between a 1988 or 1989 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 nautral disaster.
It must be shown that business operations were damaged as a result
of such natural disaster.
(3) Evidence of compliance with Sodbuster and Swampbuster
requirements as referenced in paragraph K below.
G. Loan guarantee limit. The total principal amount of
DARBE guaranteed loans to any one borrower cannot exceed
$10,000,000. The maximum loss covered by Form RD 1980-72, “Loan
Note Guarantee DARBE,” (or successor form) issued on any one
borrower can never exceed the percentage of guarantee multiplied by
the unpaid principal and accrued interest on the loan as evidenced
by the note(s) or by assumption agreement(s), and protective
advances, or $2,500,000, whichever is the lesser amount.
H. Percentage of guarantee. The provisions of RD
instruction 1980-E, § 1980.420 will not apply to DARBE. For loans
in excess of $2,000,000, the percentage of guarantee will be
calculated so that the guaranteed portion of the principal amount
of the loan cannot exceed $2,000,000. For loans of $2,000,000 or
less the maximum percentage of guarantee will be 90 percent. For
example, a loan of $10,000,000 would not exceed a 20 percent
guarantee; a $5,000,000 loan would not exceed a 40 percent
guarantee.
I. Lender's existing unguaranteed exposure
The provisions of § 1980.452 ADMINISTRATIVE C. 1(d) do not
apply.
J. No direct or insured loans
RD Instruction 1980-E, §§ 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 DARBE loans. All DARBE
loans are Rural Development guaranteed loans. Rural Development has
no authority to make DARBE loans directly to borrowers.
K. Sodbuster and Swampbuster requirements
The provisions of 7 CFR part 1970 will apply to loans made to
rural business enterprises engaged in agricultural production.
[54 FR 42483, Oct. 17, 1989, as amended at 55 FR 137, Jan. 3, 1990;
55 FR 19245, May 8, 1990; 80 FR 9911, Feb. 24, 2015; 81 FR 11048,
Mar. 2, 2016]