13 C.F.R. § 307.18 Uses of capital.
Title 13 - Business Credit and Assistance
(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: (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).
Title 13: Business Credit and Assistance
PART 307—ECONOMIC ADJUSTMENT ASSISTANCE INVESTMENTS
Subpart B—Special Requirements for Revolving Loan Funds and Use of Grant Funds
§ 307.18 Uses of capital.
