(d) Rural Development will not guarantee any loan in which the promissory note or any other document provides for the payment of interest upon interest. Administrative
It is permissible for lenders to structure the borrower's financial proposal under the multi-note option as provided for in paragraph III A.2. of Form RD 449-35, "Lender's Agreement," in the following ways:
A. To treat the entire financial package of the borrower as one loan (i.e., loan purposes may include one or any combination of working capital, machinery and equipment or real estate) provided:1. The loan is amortized to provide repayment of the working capital portion within the 7 years, the machinery and equipment portion within useful life or 15 years, whichever is less, and real estate portion within 30 years.2. One note represents the unguaranteed portion of the loan. It is permissible to issue as many as 10 notes or the guaranteed portion of the loan.3. A Form RD 449-34, "Loan Note Guarantee," is attached to all notes, including the unguaranteed note.4. One interest rate (either variable or fixed) is used for the entire loan or one interest rate is used on the guaranteed portion and a different interest rate is used on the unguaranteed portion, subject to the requirements and conditions found in § 1980.423 of this subpart.5. One of each of the following Forms: RD 449-14, RD 1940-3, "Request for Obligation of Funds-Guaranteed Loans," RD 449-35, and RD 1980-19, "Guaranteed Loan Closing Report," is used.B. To treat the financial package of the borrower as separate loans that are processed as a single application provided: 1. A separate loan is made for each purpose (i.e., working capital, machinery and equipment or real estate). As an example, a working capital loan could be structured as follows:One note for $XXXX at X% interest due in 7 years representing the unguaranteed portion of the loan, and
Up to 10 notes for $XXXX at X% interest due in 7 years representing the guaranteed portions of the loan.
2. A Form RD 449-34 is attached to all notes, including the unguaranteed note. 3. A different interest rate may be used on the guaranteed and unguaranteed portions of the loan, subject to the requirements and conditions found in § 1980.423 of this subpart.4. Separate Forms RD 449-14, 1940-3, 449-35, and 1980-19 are required for each loan. If you have two loans, one for working capital and another for real estate, then a set of these forms will be required for each loan.C. Form RD 449-36, "Assignment Guarantee Agreement," will never be used when the multi-note option is utilized.D. Par. (b). The State Director will assure that the loan officer reviewing the application fully evaluates the useful life of the collateral offered for the loan when determining maturities for the loan. Loan requests for the maximum maturities could result in collateral obsolescence prior to full repayment of the indebtedness. The loan file must be documented to support the maturity granted for the loan.