The intermediary and the Agency must execute a loan agreement or a supplement to a previous loan agreement at loan closing for each Agency IRP loan. The Agency will prepare the loan agreement and the intermediary must review it prior to loan closing. The intermediary is responsible for compliance with the terms and conditions of the loan agreement.

(a) The loan agreement will, at a minimum, set out:

(1) The amount of the loan;

(2) The interest rate;

(3) The term and repayment schedule;

(4) The provisions for late charges. The intermediary must pay a late charge of four percent of the payment due if payment is not received within 15 calendar days following the due date. The Agency will consider the late charge as unpaid if it is not received within 30 calendar days of the missed due date for which it was imposed. The Agency will add any unpaid late charge to the loan's principal balance, and it will be due as an extra payment at the end of the term. Acceptance of a late charge by the Agency does not constitute a waiver of default.

(i) A per diem amount will be shown on the late notice sent to the intermediary. The Agency will continue sending notices to the intermediary on the late payments or any further payments until the account is in a current status.

(ii) Interest will be computed on a 365-day basis unless legal documents state otherwise.

(5) The disbursement procedure. The Agency will disburse the Agency IRP loan funds to the intermediary on an as-needed basis after the loan agreement and promissory note are executed, and after any other conditions precedent to disbursement of funds are fully satisfied. Fund disbursement requests must be submitted with an intermediary's request for Agency concurrence in accordance with the provisions of § 4274.352(a). Only the amount of Agency IRP loan funds necessary to fund the given ultimate recipient loan request(s) can be requested by the intermediary and disbursed by the Agency. The intermediary's equity contribution may not be used for administrative costs. When lending, the intermediary's equity contribution must be loaned out prior to or on a pro rata basis with Agency IRP loan funds. For purposes of computing interest, the date of each draw down of an Agency IRP loan constitutes the date the funds are advanced under the loan agreement.

(6) The provisions regarding default. On the occurrence of any event of default (monetary or nonmonetary), the Agency may declare all or any portion of the debt and interest to be immediately due and payable and may proceed to enforce its rights under the loan agreement or any other instruments securing or relating to the loan and in accordance with the applicable laws and regulations. Any of the following may be regarded as an “event of default” at the sole discretion of the Agency:

(i) Failure of the intermediary to carry out the specific activities in its loan application as approved by the Agency or failure to comply with the loan terms and conditions of the loan agreement, any applicable Federal or State laws, or with such USDA or Agency regulations as may be applicable; or

(ii) Failure of the intermediary to pay within 15 calendar days of its due date any installment of principal or interest on its promissory note to the Agency; or

(iii) The occurrence of:

(A) The intermediary becoming insolvent, or ceasing, being unable, or admitting in writing its inability to pay its debts as they mature, or making a general assignment for the benefit of, or entering into any composition or arrangement with creditors; or

(B) Proceedings for the appointment of a receiver, trustee, or liquidator of the intermediary, in whole or of a substantial part of its assets, being authorized or instituted by or against it; or

(iv) Submission or making of any report, statement, warranty, or representation by the intermediary or agent on its behalf to the Agency in connection with the financial assistance awarded hereunder which is false, incomplete, or incorrect in any material respect; or

(v) Failure of the intermediary to remedy any material adverse change in its financial or other condition (such as the representational character of its board of directors, loan making or policymaking body) arising since the date of the Agency's award of assistance hereunder, which condition was an inducement to the Agency's original award.

(7) Insurance requirements.

(i) Hazard insurance with a standard mortgage clause naming the intermediary as beneficiary will be required by the intermediary on every ultimate recipient's project funded from the IRP revolving loan fund in an amount that is at least the lesser of the depreciated replacement value of the property being insured or the amount of the loan. Hazard insurance includes fire, windstorm, lightning, hail, business interruption, explosion, riot, civil commotion, aircraft, vehicle, marine, smoke, builder's risk, public liability, property damage, flood or mudslide, or any other hazard insurance that may be required to protect the security. The intermediary's interest in the insurance will be assigned to the Agency, upon the Agency's request, in the event of default by the intermediary.

(ii) Workmen's compensation insurance on ultimate recipients is required in accordance with State law.

(iii) The intermediary is responsible for determining if an ultimate recipient funded from the IRP revolving loan fund is located in a special flood or mudslide hazard area. If the ultimate recipient is in a flood or mudslide area, then flood or mudslide insurance must be provided in accordance with 7 CFR part 1806, subpart B.

(iv) Intermediaries must provide fidelity bond coverage, or employee dishonesty insurance, for all persons who have access to intermediary funds. Coverage may be provided either for all individual positions or persons, or through “blanket” coverage providing protection for all appropriate employees and officials.

(A) The minimum amount of fidelity bond/employee dishonesty coverage required by the Agency will equal the total, cumulative annual debt service requirements for all Agency IRP loans. Intermediaries with fidelity bond/employee dishonesty coverage requirements through other Agency programs (e.g., the Rural Microentrepreneur Assistance Program) must add the coverage requirements of those programs to the coverage requirements of this section in calculating the minimum coverage amount.

(B) Evidence of this coverage must be provided at, or prior to, loan closing and must be maintained for the life of the IRP loan. During the term of the loan, the intermediary must provide evidence to the Agency, upon request, that adequate fidelity bond/employee dishonesty coverage is in place.

(v) The Agency may also require the intermediary to carry other appropriate insurance, such as coverage for public liability, leasehold, and property damage.

(b) The intermediary must agree in the loan documents to:

(1) Not make any changes in the intermediary's articles of incorporation, charter, or by-laws that would impact the intermediary's eligibility for the IRP program or would adversely affect their ability to operate the IRP program in accordance with the provisions of this instruction and any other applicable laws, regulations, and executive orders without the prior written concurrence of the Agency. This pertains to the Agency's original IRP loan funds and revolved funds.

(2) Not make a loan commitment to an ultimate recipient to be funded from Agency IRP loan funds without first receiving the Agency's written concurrence;

(3) Maintain a separate ledger and segregated accounting for the IRP revolving loan fund;

(4) Provide to the Agency:

(i) An annual audit as described in 2 CFR part 200, subpart F, or any successor regulation;

(A) The financial audit report period may be different than the IRP reporting periods. Intermediaries must promptly provide the auditor with the records and documentation necessary for the completion of the audit following the end of the audit period. The audit report must be submitted to the Agency within the earlier of 30 calendar days after receipt of the auditor's report, or nine months after the end of the audit period as described in 2 CFR 200.512. Audits must cover all the intermediary's activities. Audits will be performed by an independent certified public accountant. An acceptable audit will be performed in accordance with Generally Accepted Government Auditing Standards (GAAP) and include such tests of the accounting records as the auditor considers necessary in order to express an opinion on the financial condition of the intermediary. Compilations or reviews do not satisfy the audit requirement.

(B) It is not intended that audits required by this subpart be separate and apart from audits performed in accordance with State and local laws or for other purposes. To the extent feasible, the audit work should be done in connection with these audits. Intermediaries covered by 2 CFR part 200, subpart F, as codified in 2 CFR 400.1, should submit audits conducted in accordance with that regulation.

(ii) Quarterly or semiannual reports (due 30 days after the end of the period);

(A) Reports will be required quarterly during the first year after loan closing and, if all loan funds are not utilized during the first year, quarterly reports will be continued until at least 90 percent of the Agency IRP loan funds have been loaned out to ultimate recipients. Thereafter, reports will be required semiannually. Also, the Agency may require quarterly reports if the intermediary becomes delinquent in repayment of its loan or otherwise fails to fully comply with the provisions of its work plan or loan agreement, or the Agency determines that the intermediary's IRP revolving loan fund is not adequately protected by the current sound worth and paying capacity of the ultimate recipients.

(B) These reports must contain information only on the IRP revolving loan fund. Information required to be included in these reports as well as detailed reporting instructions will be provided by the Agency through a revolving loan fund user manual (available on the USDA Rural Development Intermediary Relending Program website) or similar documentation, which may be amended from time to time;

(iii) Annual proposed budget for the following year that meets the requirements of § 4274.332(b)(2); and

(iv) Other reports as the Agency may require from time to time;

(5) Before the initial lending of Agency IRP loan funds to an ultimate recipient, to obtain written Agency approval of all forms to be used for relending purposes, including application forms, loan agreements, promissory notes, and security instruments. If the intermediary plans to sell participations in its loans made to ultimate recipients, the loan participation agreement and any planned interest rate spread or associated fees must be submitted to the Agency for review and concurrence;

(6) To obtain written approval of the Agency before making any significant changes in forms, security policy, or the work plan. The servicing officer may approve changes in forms, security policy, IRP revolving loan fund plan, or work plans at any time upon a written request from the intermediary and determination by the Agency that the change will not jeopardize repayment of the loan or violate any requirement of this subpart or other Agency regulations. The intermediary must comply with the work plan approved by the Agency so long as any portion of the intermediary's IRP loan is outstanding.

(7) To secure the indebtedness by pledging the IRP revolving loan fund, including all of its loans derived from the proceeds of the Agency loan award, and pledging its real and personal property and other rights and interests as the Agency may require;

(8) In the event the intermediary's financial condition deteriorates or the intermediary takes action detrimental to prudent fund operation or fails to take action required of a prudent lender, to provide additional security, execute any additional documents, and undertake any reasonable acts the Agency may request, to protect the agency's interest or to perfect a security interest in any assets, including physical delivery of assets and specific assignments; and

(9) Funds not disbursed to the intermediary by the end of the 36th month of the IRP loan from the Agency will be deobligated and not available for disbursement to the intermediary.

(10) For revolved funds, the intermediary is responsible for continuing compliance with the terms and conditions of the loan agreement until the Agency loan is fully satisfied and repaid.

[86 FR 72156, Dec. 21, 2021, as amended at 87 FR 18967, Apr. 1, 2022]