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Proposed Rule

Business and Industry Guaranteed Loan Program Annual Renewal Fee

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Information about this document as published in the Federal Register.

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Rural Business-Cooperative Service, USDA.


Proposed rule.


The Rural Business-Cooperative Service (RBS) proposes to amend its regulation for Business and Industry (B&I) Guaranteed Loans to remove all references to a one-time, specific loan guarantee fee and provide the authority for the charging of an annual renewal fee on all loans obligated after the publication of the final rule. The intended effect of this rule is to reduce the subsidy rate for guaranteed loans and its associated budget authority dollar level, which will result in a greater level of assistance to the public (i.e., higher supportable loan level). A notice will be published in the Federal Register each fiscal year that will establish the guarantee fee and any annual renewal fees for loans obligated during that fiscal year.


Written or e-mail comments must be received on or before April 29, 2005 to be assured of consideration.


Submit written comments via U.S. Postal Service, in duplicate, to the Regulations and Paperwork Management Branch, Attention: Cheryl Thompson, Rural Development, U.S. Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., Washington, DC 20250-0742. Submit written comments via Federal Express Mail, in duplicate, to the Regulations and Paperwork Management Branch, Attention: Cheryl Thompson, USDA-Rural Development, 7th Floor, 300 7th St., SW., Washington, DC 20546. Also, comments may be submitted via the Internet by addressing them to The comment must contain the word Fee in the subject line. All comments will be available for Start Printed Page 9547public inspection during regular work hours at the 300 7th St., SW., address listed above.

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Rick Bonnet, Special Projects/Programs Oversight Division, Rural Business-Cooperative Service, U.S. Department of Agriculture, STOP 3221, 1400 Independence Avenue, SW., Washington, DC 20250-3221, telephone (202) 720-1804, or by e-mail to

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This proposed rule has been determined to be significant and has been reviewed by the Office of Management and Budget (OMB) under Executive Order 12866.

Programs Affected

The Catalog of Federal Domestic Assistance number for the program impacted by this action is 10.768, Business and Industry Loans.

Intergovernmental Review

Business and Industry Guaranteed Loans are subject to the provisions of Executive Order 12372, which require intergovernmental consultation with state and local officials. RBS will conduct intergovernmental consultation in the manner delineated in RD Instruction 1940-J, “Intergovernmental Review of Rural Development Programs and Activities” and 7 CFR part 3015, subpart V.

Civil Justice Reform

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. In accordance with this rule, (1) all state and local laws and regulations that are in conflict with this rule will be preempted, (2) no retroactive effect will be given this rule, and (3) administrative proceedings of the National Appeals Division (7 CFR part 11) must be exhausted before bringing suit in court challenging action taken under this rule.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR part 1940, subpart G, “Environmental Program.” RBS has determined that this action does not constitute a major Federal action significantly affecting the quality of the human environment, and, in accordance with the National Environmental Policy Act of 1969, 42 U.S.C. 4321 et seq., an Environmental Impact Statement is not required.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995, the Agency will seek OMB approval of the reporting requirements contained in this regulation. These reporting and recordkeeping requirements have been previously approved under OMB control number 0570-0017. The estimate of burden is as follows:

Estimate of Burden: Burden per response is 30 minutes.

Respondents: Lenders and business owners.

Estimated Number of Respondents: 1,725.

Estimated Number of Responses per Respondent: 1.

Estimated Number of Responses: 1,725.

Estimated Total Annual Burden of Respondents: 863 hours.

Comments: Comments are invited on (a) whether the proposed collection of information is necessary for the proper performance of the functions of RBS, including whether the information will have a practical utility; (b) the accuracy of RBS's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology. Comments may be sent to Cheryl Thompson, Regulations and Paperwork Management Branch, Rural Development, U.S. Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., Washington, DC 20250-0742. All responses to this rule will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.

Unfunded Mandates

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. L 104-4 establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, RBS generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, or tribal governments, in the aggregate, or to the private sector of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of UMRA generally requires RBS to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective, or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local, and tribal governments or the private sector. Thus, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

Regulatory Flexibility Act

In compliance with the Regulatory Flexibility Act, RBS has determined that this action would not have a significant economic impact on a substantial number of small entities, because the action will not affect a significant number of small entities, as defined by the Regulatory Flexibility Act (5 U.S.C. 601). RBS made this determination based on the fact that this regulation only impacts those who choose to participate in the program. Small entity applicants will not be impacted to a greater extent than large entity applicants.

Executive Order 13132

It has been determined that, under Executive Order 13132, Federalism, this rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment. The provisions contained in this rule will not have a substantial direct effect on states or their political subdivisions or on the distribution of power and responsibilities among the various levels of government.

Executive Order 13175

Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, imposes requirements on USDA in the development of regulatory policies that have tribal implications or preempt tribal law. USDA has determined that the proposed regulation does not have a substantial direct effect on one or more Indian tribes or on either the relationship or the distribution of powers and responsibilities between the Federal Government and the Indian Tribes. Thus, the proposed rule is not subject to the requirements of Executive Order 13175.

Discussion of the Proposed Rule

The cost of the B&I Guaranteed Loan Program has gone up in recent years. This is due to higher defaults and lower interest rates. In the meantime, there is still an interest in funding this program Start Printed Page 9548in order to improve, develop, or finance business, industry, and employment and improve the economic and environmental climate in rural communities. To do that in a cost efficient manner for the taxpayer, RBS is proposing to implement an annual renewal fee. This will reduce the subsidy but will allow us to maintain the level of assistance that has been historically provided for this program at a level or even reduced cost to the taxpayers.

The proposed annual renewal fee is based on Small Business Administration (SBA) programs and is adopted for this program to provide additional funds to supplement the available funds appropriate to the program, thereby allowing the program to reach more potential applicants. Additionally, this type of fee is consistent with the recently authorized Renewable Energy Systems and Energy Efficiency Improvements Guaranteed Loan Program within RBS. The borrower pool for the B&I Guaranteed Loan is even more likely to be able to afford this type of fee than the other programs mentioned because they are not required to lack the ability to get credit elsewhere.

The SBA 7(a) Loan Guarantee Program and the B&I program are similar in that they both require an initial one-time fee; and 7(a) loans have an annual fee similar to the one being proposed for the B&I program. In fiscal year 1996, SBA made major changes in its 7(a) program by lowering the maximum percentage of the loan which could be guaranteed and increasing both the initial fee and the annual fee, which made the program more expensive and less valuable for borrowers and lenders. We examined changes in loan volume and loss levels associated with these changes, and found no convincing evidence that the FY96 changes decreased demand for the 7(a) program.

Subsidy rates are established using historic loss data from the program and other assumptions. In recent years the subsidy rate has increased significantly, resulting in a reduction in the amount of loans that could be guaranteed with the same budget authority. In the absence of additional budgetary authority, the proposed annual fee is necessary to cover expected losses from the program. The effect of the fee on the loan demand and program activity over the long term will depend on the size of the fee and other factors not related to the fee, including interest rates and general economic growth. This proposed change is prudent and cost efficient and will allow us to maintain the level of assistance going to rural America at a reasonable cost to the taxpayer.

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List of Subjects in 7 CFR Part 4279

  • Loan programs— Business and industry—Rural development assistance
  • Rural areas
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Therefore, chapter XLII, title 7, Code of Federal Regulations, is proposed to be amended as follows:

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1. The authority citation for part 4279 is revised to read as follows:

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Authority: 5 U.S.C 301, 7 U.S.C 1989.

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Subpart B—Business and Industry Loans

2. Section 4279.107 is revised to read as follows:

Guarantee fee.

(a) For all new loans there are two types of non-refundable guarantee fees to be paid by the borrower to the lender and forwarded to the Agency. The fees may be forwarded to the Agency by a check payable to USDA/Rural Development, using Agency Form “Annual Renewal Fee Transmittal” or an USDA-approved electronic funds transfer system. The fee rate will be published annually by a notice in the Federal Register.

(1) The initial fee is paid at the time the Loan Note Guarantee is issued. The fee may be included as an eligible loan purpose in the guaranteed loan. The fee will be the rate (a specified percentage) multiplied by the principal loan amount, multiplied by the percent of guarantee.

(2) The annual renewal fee is paid once a year and is required to maintain the enforceability of the guarantee as to the lender.

(i) The annual renewal fee is the rate established by Rural Development in the annual notice in the Federal Register, multiplied by the outstanding principal loan amount, as of December 31 of each year. The rate of the fee is the rate in effect at the time of original issuance of the Conditional Commitment for the loan and will remain in effect for the life of the loan.

(ii) Annual renewal fees are due on March 1. Payments not received by April 1 are delinquent and will result in cancellation of the guarantee to the lender. Holders' rights will continue in effect as specified in the Loan Note Guarantee. For loans where the Loan Note Guarantee is issued between October 1 and December 31, the first annual guarantee fee payment is due March 1 of the second year following the date the Loan Note Guarantee was issued.

(b) Subject to specified annual limits set by the Agency, the initial guarantee fee may be reduced to 1 percent if the borrower's business supports value-added agriculture and results in farmers benefiting financially, or

(1) Is a high impact business development investment in accordance with § 4279.155(b)(5), and

(2) Is located in a rural community that is:

(i) Experiencing long-term population decline and job deterioration, or

(ii) Has remained persistently poor over the last 60 years, or

(iii) Experiencing trauma as a result of natural disaster, or

(iv) That is experiencing fundamental structural changes in its economic base.

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Dated: February 16, 2005.

Gilbert Gonzalez,

Acting Under Secretary, Rural Development.

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[FR Doc. 05-3775 Filed 2-25-05; 8:45 am]