7 CFR part 1738

Rural Utilities Service, USDA

Pt. 1738

findings and the letter to the borrower
announcing the loan.
(b) If the loan is not approved, RUS
shall notify the borrower, in writing, of
the reasons.
§ 1737.92 Loan documents.
Following approval of the loan, RUS
shall forward the necessary loan documents to the borrower for execution,
delivery, recording, and filing, as directed by RUS. See 7 CFR part 1758 for
details (or RUS Bulletins 320–4, 320–22,
321–2, 322–2, 323–1, or 326–1).
§§ 1737.93–1737.99

(Approved by the Office of Management and
Budget under control number 0572–0085)

[Reserved]

Subpart K—Release of Funds
Procedure

§§ 1737.102–1737.109

§ 1737.100 Prerequisites to the release
and advance of funds.
(a) Standard prerequisites to the advance of funds, generally applied to all
loans, are set forth in Article II of the
form of loan contract attached as appendix A to 7 CFR part 1758. Additional
prerequisites may be added on a case
by case basis to the loan contract.
(b) Before any loan funds can be advanced, RUS must approve a release of
funds.
(c) RUS approves the release of funds
only after it determines that all prerequisites to the advance of loan funds
have been met or funds should be advanced even though certain loan contract prerequisites remain unsatisfied.
(d) Following release approval, loan
funds and related nonloan funds may
be advanced in accordance with 7 CFR
part 1744.
(e) The borrower may be required to
discharge indebtedness and/or to close
acquisitions before advances are made
for construction purposes. In such
cases, the borrower shall submit evidence that these actions have been
completed. If the evidence is satisfactory to RUS, RUS shall allow the remaining loan funds to be advanced in
accordance with 7 CFR part 1744.
(Approved by the Office of Management and
Budget under control number 0572–0085)
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against any equity or general funds required by the loan contract, it shall
submit an itemized statement of such
expenditures to the Area Office. These
expenditures will be accounted for on
RUS Form 503, ‘‘Release of Telephone
Loan Funds,’’ if RUS determines that
the amounts spent are reasonable
based on normal industry practice and
that the procedures set forth in 7 CFR
part 1737, subpart D, have been complied with. Statements of preloan expenditures will be verified as to accuracy by loan fund audits.

§ 1737.101 Amounts spent for preloan
activities.
If the borrower desires to credit
amounts spent for preloan activities

[Reserved]

PART 1738—RURAL
ACCESS LOANS
GUARANTEES

Subpart A—General
1738.1 Overview.
1738.2 Definitions.
1738.3 Substantially
underserved
areas.
1738.4–1738.50 [Reserved]

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Subpart B—Eligible and Ineligible Loan
Purposes
1738.51 Eligible loan purposes.
1738.52 Ineligible loan purposes.
1738.53–1738.100 [Reserved]

Subpart C—Eligibility Requirements
1738.101 Eligible applicants.
1738.102 Eligible service area.
1738.103 Eligible service area exceptions for
broadband facility upgrades.
1738.104 Preliminary assessment of service
area eligibility.
1738.105–1738.150 [Reserved]

Subpart D—Direct Loan Terms
1738.151 General.
1738.152 Interest rates.
1738.153 Loan terms and conditions.
1738.154 Loan security.
1738.155 Special terms and conditions.
1738.156 Other Federal requirements.
1738.157–1738.200 [Reserved]

Subpart E—Application Review and
Underwriting
1738.201
1738.202

Application submission.
Elements of a complete application.

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§ 1738.1

7 CFR Ch. XVII (1–1–16 Edition)

1738.203 Priority for processing loan applications.
1738.204 Public notice.
1738.205 Notification of completeness.
1738.206 Evaluation for feasibility.
1738.207 Equity requirement.
1738.208 Additional cash requirements.
1738.209 Market survey.
1738.210 Competitive analysis.
1738.211 Financial information.
1738.212 Network design.
1738.213 Loan determination.
1738.214–1738.250 [Reserved]

Subpart F—Closing, Servicing, and
Reporting
1738.251 Loan offer and loan closing.
1738.252 Construction.
1738.253 Servicing.
1738.254 Accounting, reporting, and monitoring requirements.
1738.255 Default and de-obligation.
1738.256–1738.300 [Reserved]

Subpart G—Loan Guarantee
1738.301 General.
1738.302 Eligible guaranteed lenders.
1738.303 Requirements for the loan guarantee.
1738.304 Terms for guarantee.
1738.305 Obligations of guaranteed lender.
1738.306 Agency rights and remedies.
1738.307 Additional policies.
1738.308 Full faith and credit of the United
States.
1738.309–1738.349 [Reserved]
1738.350 OMB control number.
AUTHORITY: 7 U.S.C. 901 et seq.
SOURCE: 80 FR 45402, July 30, 2015, unless
otherwise noted.

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Subpart A—General
§ 1738.1 Overview.
(a) The Rural Broadband Access Loan
and Loan Guarantee Program furnishes
loans and loan guarantees for the costs
of construction, improvement, or acquisition of facilities and equipment
needed to provide service at the
broadband lending speed in eligible
rural areas. This part sets forth the
general policies, eligibility requirements, types and terms of loans and
loan guarantees, and program requirements under 7 U.S.C. 901 et seq.
(b) Additional information and application materials regarding the Rural
Broadband Access Loan and Loan
Guarantee Program can be found on
the Rural Development Web site.

§ 1738.2 Definitions.
(a) The following definitions apply to
part 1738:
Acquisition means the purchase of assets by acquiring facilities, equipment,
operations, licenses, or majority stock
interest of one or more organizations.
Stock acquisitions must be arm’slength transactions.
Administrator means the Administrator of the Rural Utilities Service
(RUS), or the Administrator’s designee.
Advance means the transfer of loan
funds from the Agency to the borrower.
Affiliate or affiliated company of any
specified person or entity means any
other person or entity directly or indirectly controlling of, controlled by,
under direct or indirect common control with, or related to, such specified
entity, or which exists for the sole purpose of providing any service to one
company or exclusively to companies
which otherwise meet the definition of
affiliate. This definition includes Variable Interest Entities as described in
Financial Accounting Standards Board
Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities. For
the purpose of this definition, ‘‘control’’ means the possession directly or
indirectly, of the power to direct or
cause the direction of the management
and policies of a company, whether
such power is exercised through one or
more intermediary companies, or
alone, or in conjunction with or pursuant to an agreement with, one or more
other companies, and whether such
power is established through a majority or minority ownership voting of securities, common directors, officers, or
stockholders, voting trust, or holding
trusts (other than money exchanged)
for property or services.
Agency means the Rural Utilities
Service, which administers the United
States Department of Agriculture’s
(USDA’s) Rural Development Utilities
Programs,
including
the
Rural
Broadband Access Loan and Loan
Guarantee Program.
Applicant means an entity requesting
approval of a loan or loan guarantee
under this part.
Arm’s-length transaction means a
transaction between two related or affiliated parties that is conducted as if
they were unrelated, so that there is no

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Rural Utilities Service, USDA

§ 1738.2

question of conflict of interest, or a
transaction between two otherwise unrelated or unaffiliated parties.
Borrower means any organization
that has an outstanding broadband or
telecommunications loan made or
guaranteed by the Agency.
Broadband borrower means any organization that has an outstanding
broadband loan made or guaranteed by
the Agency.
Broadband grant means a Community
Connect or Broadband Initiatives Program grant approved by the Agency.
Broadband lending speed means the
minimum bandwidth requirement, as
published by the Agency in its latest
notice in the FEDERAL REGISTER that
an applicant must propose to deliver to
every customer in the proposed funded
service area in order for the Agency to
approve a broadband loan and may be
different
for
fixed
and
mobile
broadband service. Broadband lending
speed may be faster than the minimum
transmission capacity required to determine the availability of broadband
service when qualifying a service area.
If a new broadband lending speed is
published in the FEDERAL REGISTER
while an application is pending, the
pending application will be processed
based on the broadband lending speed
that was in effect when the application
was submitted.
Broadband loan means any loan approved under Title VI of the Rural
Electrification Act of 1936, as amended
(RE Act).
Broadband service means any technology identified by the Administrator
as having the capacity to provide
transmission facilities that enable the
subscriber to receive a minimum level
of service equal to at least a downstream transmission capacity of 4
megabits per second (Mbps) and an upstream transmission capacity of 1
Mbps. The Agency will publish the
minimum transmission capacity that
will qualify as broadband service in a
notice in the FEDERAL REGISTER and
this rate may be different for fixed and
mobile broadband service. The minimum transmission capacity may be
higher than 4 Mbps downstream and 1
Mbps upstream but cannot be lower.
The minimum transmission capacity
that defines broadband service may be

different than the broadband lending
speed. If a new minimum transmission
capacity is published in the FEDERAL
REGISTER while an application is pending, broadband service for the purpose
of reviewing the application will be defined by the minimum transmission capacity that was required at the time
the application was received by the
Agency.
Build-out means the construction,
improvement, or acquisition of facilities and equipment.
Competitive analysis means a study
that identifies service providers and
products in the service area that will
compete with the applicant’s operations.
Composite economic life means the
weighted (by dollar amount of each
class of facility in the loan) average
economic life as determined by the
Agency of all classes of facilities financed by the loan.
Cost share means equity, as defined
by generally accepted accounting principles (GAAP).
Customer premises equipment (CPE), in
the context of network services, means
any network-related equipment used
by a customer to connect to a service
provider’s network.
Economic life means the estimated
useful service life of an asset financed
by the loan, as determined by the
Agency.
Equity means total assets minus total
liabilities, as determined by GAAP and
as classified according to the Agency’s
system of accounts, and as used in this
Part for purposes of section 306F of the
RE Act (7 U.S.C. 936f) includes the requirements of credit support and cost
share in Title VI of the RE Act.
Feasibility study means the evaluation
of the pro forma financial analysis prepared by the Agency, based on the financial projections supplied by the applicant and as found acceptable by the
Agency, to determine the financial feasibility of a loan request.
Financial feasibility means the applicant’s ability to generate sufficient
revenues to cover its expenses, sufficient cash flow to service its debts and
obligations as they come due, and meet
the minimum Times Interest Earned
Ratio (TIER) requirement of 1.25 (see
§ 1738.211(b)(2)(ii)) by the end of the

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§ 1738.2

7 CFR Ch. XVII (1–1–16 Edition)

forecast period, as evaluated by the
Agency. Financial feasibility of a loan
application is based on five-year projections, and will be based on the entire operation of the applicant and not
limited to the funded project.
Fiscal year refers to the applicant or
borrower’s fiscal year, unless otherwise
indicated.
Forecast period means the time period
used in the feasibility study to determine if an application is financially
feasible.
GAAP means generally accepted accounting principles.
Grantee means any organization that
has an outstanding broadband grant
made by the Agency, with outstanding
obligations under the grant.
Guaranteed loan amount means the
amount of the loan which is guaranteed by the Agency.
Guaranteed loan note means, collectively, the note or notes executed and
delivered by the borrower to evidence
the guaranteed loan.
Guaranteed loan portion means any
portion of the guaranteed loan.
Guaranteed loan portion amount means
that amount of payment on account of
any guaranteed loan portion which is
guaranteed under the terms of the
guarantee.
Guaranteed loan portion note means
any note executed and delivered by the
borrower to evidence a guaranteed loan
portion.
Incumbent service provider means a
service provider that: Offers terrestrial
broadband service in the proposed funded service area and has not less than
five percent of the households in an applicant’s proposed funded service area
subscribing to their broadband service
at the time of application submission.
Resellers are not considered incumbent
service providers. If an applicant proposes an acquisition, the applicant will
be considered a service provider for
that area.
Indefeasible right to use agreement
(IRU) means the effective long-term
lease of the capacity, or a portion
thereof, of a cable, specified in terms of
a certain amount of bandwidth or a
certain number of dark fibers.
Interim financing means funds used
for eligible loan purposes after a loan
offer has been extended to the appli-

cant by the Agency. Such funds may be
eligible for reimbursement from loan
funds if a loan is made.
Loan means any loan made or guaranteed under this part by the Agency,
unless otherwise noted.
Loan contract means the loan agreement between the Agency and the borrower, including all amendments thereto.
Loan documents mean the loan agreement, note(s), and security instrument(s) between the borrower and the
Agency and any associated documents
pertaining to the broadband loan.
Loan guarantee means a guarantee of
a loan, or a portion of a loan, made by
another lender
Loan guarantee documents means the
guarantee agreement between RUS and
the lender, the loan and security agreement(s) between the guaranteed lender
and the borrower, the loan note guarantee made by RUS, the guaranteed
loan note, and other security documents.
Loan funds means funds provided pursuant to a broadband loan made or
guaranteed under this part by the
Agency.
Market survey means the collection of
information on the supply, demand,
usage, and rates for proposed services
to be offered by an applicant within
each service area. It supports the applicant’s financial projections.
Pre-loan expense means any expense
associated with the preparation of a
loan application. Pre-loan expenses
may be reimbursed with loan funds, as
approved by RUS.
Proposed Funded Service Area means
the geographic service territory within
which the applicant is proposing to
offer service at the broadband lending
speed.
RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C.
901 et seq.).
Reject means that the Agency returns
the application to the applicant and
discontinues processing of the loan application because the application failed
to meet the requirements of this part.
Reseller means, in the context of network services, a company that purchases network services from network
service providers in bulk and resells
them to commercial businesses and

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Rural Utilities Service, USDA

§ 1738.51

residential households. Resellers are
not considered incumbent service providers.
Rural area(s) means any area, as confirmed by the latest decennial census
of the Bureau of the Census, which is
not located within:
(i) A city, town, or incorporated area
that has a population of greater than
20,000 inhabitants; or
(ii) An urbanized area contiguous and
adjacent to a city or town that has a
population of greater than 50,000 inhabitants. For purposes of the definition of
rural area, an urbanized area means a
densely populated territory as defined
in the latest decennial census of the
U.S. Census Bureau.
Security documents means any mortgage, deed of trust, security agreement, financing statement, or other
document which grants to the Agency
or perfects a security interest, including any amendments and supplements
thereto.
Service area means the geographic
area within which a service provider offers telecommunications service.
Service provider means an entity providing telecommunications service.
Service territory means ‘‘service area.’’
Start-up means a new business venture without operations or service delivery available.
System of accounts means the Agency’s system of accounts for maintaining financial records as described in
RUS Bulletin 1770B–1, found on the
agency’s Web site.
Telecommunications means electronic
transmission and reception of voice,
data, video, and graphical information
using wireline and wireless transmission media.
Telecommunications loan means any
telecommunication loan made or guaranteed under Title II, III, or IV of the
RE Act.
TIER means times interest earned
ratio. TIER is the ratio of an applicant’s net income (after taxes) plus
(adding back) interest expense, all divided by interest expense (existing and
that required in the proposed loan),
and with all financial terms defined by
GAAP.
Unguaranteed loan amount means all
amounts of payment on account of the

guaranteed loan other than the guaranteed amount.
Unguaranteed loan portion amount
means all amounts of payment on account of any guaranteed loan portion
other than the respective guaranteed
loan portion amount.
Unserved household or Unserved area
means a household or an area that is
not offered broadband service.
(b) Accounting terms not otherwise
defined in this part shall have the definition ascribed to them under GAAP
and shall be recorded using the Agency’s system of accounts.
§ 1738.3 Substantially
trust areas.

(a) If the Administrator determines
that a community within ‘‘trust land’’
(as defined in 38 U.S.C. 3765) has a high
need for the benefits of the Broadband
Loan Program, he/she may designate
the community as a ‘‘substantially underserved trust area’’ (as defined in
section 306F of the RE Act).
(b) To receive consideration as a substantially underserved trust area, the
applicant must submit to the Agency a
completed application that includes all
of the information requested in 7 CFR
part 1700, subpart D. In addition, the
applicant must notify the Agency in
writing that it seeks consideration as a
substantially underserved trust area
and identify the discretionary authorities of 7 CFR part 1700, subpart D, it
seeks to have applied to its application. Note, however, that given the
prohibition on funding operating expenses in the Broadband Program, requests for waiver of the equity or the
additional cash requirements cannot be
considered.
§§ 1738.4–1738.50

[Reserved]

Subpart B—Eligible and Ineligible
Loan Purposes
§ 1738.51

Eligible loan purposes.

Loan funds may be used to pay for
any of the following expenses:
(a) To fund the construction, improvement, or acquisition of all facilities required to provide service at the
broadband lending speed to rural areas,

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§ 1738.52

7 CFR Ch. XVII (1–1–16 Edition)

including facilities required for providing other services over the same facilities.
(b) To fund the cost of leasing facilities required to provide service at the
broadband lending speed if such lease
qualifies as a capital lease under
GAAP. Notwithstanding, loan funds
can only be used to fund the cost of the
capital lease for no more than the first
three years of the loan amortization
period. If an IRU qualifies as a capital
lease, the entire cost of the lease will
be amortized over the life of the lease
and only the first three years of the
amortized cost can be funded.
(c) To fund an acquisition, provided
that:
(1) The acquisition is necessary for
furnishing or improving service at the
broadband lending speed;
(2) The acquired service area, if any,
meets the eligibility requirements set
forth in § 1738.102;
(3) The acquisition cost does not exceed 50 percent of the broadband loan
amount; and
(4) For the acquisition of another entity, the purchase provides the applicant with a controlling majority interest in the entity acquired.
(d) To refinance an outstanding telecommunications loan made under the
RE Act if refinancing the loan supports
the construction, improvement, or acquisition of facilities and equipment
for the provision of service at the
broadband lending speed in rural areas
provided that:
(1) No more than 40 percent of the
broadband loan amount is used to refinance the outstanding telecommunications loan;
(2) The applicant is current with its
payments on the telecommunication
loan(s) to be refinanced; and
(3) The amortization period for that
portion of the broadband loan that will
be needed for refinancing will not exceed the remaining amortization period
for
the
telecommunications
loan(s) to be refinanced. If multiple
notes are being refinanced, an average
remaining amortization period will be
calculated based on the weighted dollar
average of the notes being refinanced.
(e) To fund pre-loan expenses in an
amount not to exceed five percent of
the broadband loan excluding amounts

requested to refinance outstanding
telecommunication loans. Pre-loan expenses may be reimbursed only if they
are incurred prior to the date on which
notification of a complete application
is issued (see § 1738.205), they meet the
requirements for reimbursement (found
on the agency’s Web site) and a loan
contract is entered into with RUS.
§ 1738.52

Ineligible loan purposes.

Loan funds must not be used for any
of the following purposes:
(a) To fund operating expenses of the
applicant;
(b) To fund any costs associated with
the project incurred prior to the date
on which notification of a complete application is issued (see § 1738.205), except for eligible pre-loan expenses (see
§ 1738.51(e)).
(c) To fund the acquisition of the
stock of an affiliate.
(d) To fund the purchase or acquisition of any facilities or equipment of
an affiliate, unless approved by the
Agency in writing. The Agency may
approve such a purchase or acquisition
if the applicant demonstrates that the
purchase or acquisition will involve an
arms-length transaction and that the
cost is advantageous for the applicant.
(e) To fund the purchase of CPE and
the installation of associated inside
wiring, unless the CPE will be owned
by the applicant throughout its economic life: or
(1) The applicant pledges additional
collateral that is not currently owned
by the applicant, acceptable to the
Agency. Such collateral must have a
value at least equal to the purchase
price of the CPE and cannot be purchased with loan funds; or
(2) The applicant establishes a revolving fund for the initial purchase of
CPE to be sold, and as CPE is sold to
the customer, at least the applicant’s
cost of such equipment is returned to
the revolving fund and used to purchase additional CPE units.
(f) To fund the purchase or lease of
any vehicle unless it is used primarily
in construction or system improvements.
(g) To fund the cost of systems or facilities that have not been designed
and constructed in accordance with the

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Rural Utilities Service, USDA

§ 1738.102

loan contract and other applicable requirements.
(h) To fund broadband facilities
leased under the terms of an operating
lease.
(i) To fund merger or consolidation of
entities.
§§ 1738.53—1738.100

[Reserved]

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Subpart C—Eligibility
Requirements
§ 1738.101 Eligible applicants.
(a) To be eligible for a broadband
loan, an applicant may be either a nonprofit or for-profit organization, and
must take one of the following forms:
(1) Corporation;
(2) Limited liability company (LLC);
(3) Cooperative or mutual organization;
(4) Indian tribe or tribal organization
as defined in 25 U.S.C. 450b; or
(5) State or local government, including any agency, subdivision, or instrumentality thereof.
(b) To be eligible for a broadband
loan, the applicant must:
(1) Submit a loan application which
meets the requirements set forth in
this part as well as any additional requirements published in the FEDERAL
REGISTER;
(2) Agree to complete the build-out of
the broadband system described in the
loan application within three years
from the day the applicant is notified
that loan funds are available. Under
the terms of the loan documents, this
three-year period will commence 120
days after the date of the loan contract. The loan application must demonstrate that all proposed construction
can be completed within this threeyear period with the exception of CPE.
CPE can be funded throughout the
forecast period;
(3) Demonstrate an ability to furnish,
improve, or extend broadband facilities
to provide service at the broadband
lending speed in the proposed funded
service area;
(4) Demonstrate an equity position
equal to at least 10 percent of the
amount of the loan requested in the application (see § 1738.207); and
(5) Provide additional security if it is
necessary to ensure financial feasi-

bility (see § 1738.208) as determined by
the Administrator.
§ 1738.102 Eligible service area.
(a) A service area may be eligible for
a broadband loan if all of the following
are true:
(1) The proposed funded service area
is completely contained within a rural
area;
(2) At least 15 percent of the households in the proposed funded service
area are unserved households;
(3) No part of the proposed funded
service area has three or more incumbent service providers; and
(4) No part of the proposed funded
service area overlaps with the service
area of current RUS borrowers, nor the
services areas of grantees that were
funded by RUS.
(b) Multiple service areas may be included in a single broadband loan application. Non-contiguous areas are
considered separate service areas and
must be treated separately for the purpose of determining service area eligibility. If non-contiguous areas within
an application are determined to be ineligible, the Agency may consider the
remaining areas in the application for
eligibility. If an applicant fails to respond to Agency requests for additional information or modifications to
remove ineligible areas, the application will be rejected.
(c) If no existing broadband service
provider responds to the Public Notice
as described in § 1738.204(b), then the
number of incumbent service providers
for § 1738.102(a)(3) will be determined by
using:
(1) The most current National
Broadband Map; or
(2) Any other data regarding the
availability of broadband service that
the Secretary may collect or obtain
through reasonable efforts.
(d) If a service provider is identified
by methods described in paragraphs
(c)(1) or (2) of this section, and the
Agency is unable to determine whether
such provider is an incumbent service
provider, as defined herein, then the
Agency will request the service provider to provide information responding to the Public Notice for the loan
application, demonstrating that they
meet the definition for an incumbent

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§ 1738.103

7 CFR Ch. XVII (1–1–16 Edition)

service provider. If the service provider
does not respond to the Agency’s request within 30 calendar days providing
the necessary information to make a
determination, the provider will not be
considered an incumbent service provider.
§ 1738.103 Eligible service area exceptions for broadband facility upgrades.
(a) Broadband borrowers that apply
to upgrade existing broadband facilities in their existing service area are
exempt from the requirement concerning the number of unserved households in § 1738.102(a)(2).
(b) Incumbent service providers, including borrowers and grantees, which
apply to upgrade existing broadband facilities in existing service territories
are exempt from the requirement concerning the number of incumbent service providers in § 1738.102(a)(3) unless
they are eligible for funding under Titles II and III of the RE Act. Eligibility
requirements for entities that would be
eligible under Titles II and III can be
found in 7 CFR part 1735.
(c) An applicant which is a borrower,
grantee or incumbent service provider
may submit one application to upgrade
existing broadband facilities in existing service areas, which qualify for the
exemptions specified in paragraphs (a)
and (b) of this section, and to expand
services at the broadband lending speed
into new service areas, provided the upgrade area and the expansion area are
proposed as two separate service areas
even if the upgrade and expansion
areas are contiguous.
(d) The applicant will be asked to remove areas determined to be ineligible
from their funding request or provide
funds other than loan funds for these
areas. The application will then be
evaluated on the basis of what remains.
The applicant may be requested to provide additional information to the
Agency relating to the ineligible areas.
If the applicant fails to respond, the
application will be returned.

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§ 1738.104 Preliminary assessment of
service area eligibility.
(a) Upon request, the Agency will
make information available to prospective applicants to allow a preliminary

assessment of a proposed service area’s
eligibility. At a minimum, the prospective applicant will be able to determine:
(1) Whether the proposed service area
is located in a rural area;
(2) Whether the proposed service area
overlaps with any part of a borrower’s
or grantee’s service area; and
(3) Whether the proposed service area
overlaps with any part of a proposed
service area in a pending application
for a loan.
(b) A preliminary assessment of service area eligibility does not account for
all eligibility factors, and the situation
within a proposed service area may
change between the preliminary assessment and application submission. A
preliminary assessment indicating that
a proposed service area may be eligible
does not guarantee that the area will
remain eligible at the time of application.
§§ 1738.105—1738.150

[Reserved]

Subpart D—Direct Loan Terms
§ 1738.151 General.
(a) Direct loans shall be in the form
of a cost-of-money loan, a 4 percent
loan, or a combination of the two.
(b) The amount of funds available for
each type of loan, as well as maximum
and minimum loan amounts will be
published in the FEDERAL REGISTER.
(c) An applicant that provides telecommunications or broadband service
to at least 20 percent of the households
in the United States is limited to a
loan amount that is no more than 15
percent of the funds available to the
Broadband Loan Program for the Federal fiscal year.
§ 1738.152 Interest rates.
(a) Direct cost-of-money loans shall
bear interest at a rate equal to the cost
of borrowing to the Department of
Treasury for obligations of comparable
maturity. The applicable interest rate
will be set at the time of each advance.
(b) [Reserved]
§ 1738.153 Loan terms and conditions.
Terms and conditions of loans are set
forth in a mortgage, note, and loan
contract. Samples of the mortgage,

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§ 1738.156

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note, and loan contract can be found on
the Agency’s Web site.
(a) Unless requested to be shorter by
the applicant, broadband loans must be
repaid with interest within a period
that, rounded to the nearest whole
year, is equal to the expected composite economic life of the assets to be
financed, as determined by the Agency
based upon acceptable depreciation
rates. Expected composite economic
life means the depreciated life plus
three years.
(b) Loan advances are made at the request of the borrower. Principal payments for each advance are amortized
over the remaining term of the loan
and are due monthly. Principal payments will be deferred until two years
after the date of the first advance of
loan funds. Interest begins accruing
when the advance is made and interest
payments are due monthly, with no deferral period.
(c) Borrowers are required to carry fidelity bond coverage. Generally this
amount will be 15 percent of the loan
amount, not to exceed $5 million. The
Agency may reduce the percentage required if it determines that the amount
is not commensurate with the risk involved.
§ 1738.154 Loan security.
(a) The broadband loan must be secured by the assets purchased with the
loan funds, as well as all other assets of
the applicant and any other signer of
the loan documents except as provided
in § 1738.155.
(b) The Agency must be given an exclusive first lien, in form and substance
satisfactory to the Agency, on all of
the applicant’s property and revenues
and such additional security as the
Agency may require. The Agency may
share its first lien position with another lender on a pari passu, prorated
basis if security arrangements are acceptable to the Agency.
(c) Unless otherwise designated by
the Agency, all property purchased
with loan funds must be owned by the
applicant.
(d) In the case of loans that include
financing of facilities that do not constitute self-contained operating systems, the applicant shall furnish assurance, satisfactory to the Agency, that

continuous and efficient service at the
broadband lending speed will be rendered.
(e) The Agency will require adequate
financial, investment, operational, reporting, and managerial controls in the
loan documents.
§ 1738.155 Special terms and conditions.
(a) When necessary to achieve financial feasibility and long-term sustainability of a project proposing to serve
an area(s) that includes at least 50 percent unserved households, the Agency
may consider applications in which the
applicant has requested any of the following:
(1) A principal deferral period longer
than the 2 year principal deferral period established in accordance with
§ 1738.153(b), but in no event longer than
4 years nor more than 40 percent of the
maturity period of the loan as set forth
in § 1738.153(a);
(2) An extension of the loan term by
25 percent of the maturity period established
in
accordance
with
§ 1738.153(a), but in no event longer than
35 years; and
(3) A modification to the security requirements, as long as the modifications are necessary to sustain the operation and do not prejudice the government’s security for the loan. The modification must ensure that the proposed
security arrangements are commensurate with the risk of the project.
(b) [Reserved]
§ 1738.156 Other Federal requirements.
(a) To receive a broadband loan, the
applicant must certify or agree in writing to comply with all applicable Federal regulations including, but not limited to:
(1) The nondiscrimination and equal
employment opportunity requirements
of Title VI of the Civil Rights Act of
1964, as amended (7 CFR part 15);
(2) Section 504 of the Rehabilitation
Act of 1973, as amended (29 U.S.C. 794 et
seq.; 7 CFR part 15b);
(3) The Age Discrimination Act of
1975, as amended (42 U.S.C. 6101 et seq.;
45 CFR part 90);
(4) Executive Order 11375, amending
Executive Order (E.O.) 11246, Relating
to Equal Employment Opportunity (3

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§§ 1738.157—1739.200

7 CFR Ch. XVII (1–1–16 Edition)

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CFR, 1966–1970). See 7 CFR parts 15 and
15b and 45 CFR part 90, RUS Bulletin
1790–1
(‘‘Nondiscrimination
Among
Beneficiaries of RUS Programs’’), and
RUS Bulletin 20–15:320–15 (‘‘Equal Employment Opportunity in Construction
Financed with RUS Loans’’), found on
the agency’s Web site;
(5) The Architectural Barriers Act of
1968, as amended (42 U.S.C. 4151 et seq.);
(6) The Uniform Federal Accessibility
Standards (UFAS) (Appendix A to 41
CFR subpart 101–19.6);
(7) The requirements of the National
Environmental Policy Act of 1969
(NEPA), as amended;
(8) The Council on Environmental
Quality Regulations for Implementing
the Procedural Provisions of NEPA and
certain related Federal environmental
laws, statutes, regulations, and Executive Orders found in 7 CFR part 1794,
and any successor regulation;
(9) The Uniform Relocation Assistance and Real Property Acquisition
Policies Act of 1970, as amended, 42
U.S.C. 4601 et seq., and with implementing Federal regulations in 49 CFR
part 24 and 7 CFR part 21;
(10) The regulations implementing
E.O. 12549, Debarment and Suspension,
2 CFR parts 180 and 417;
(11) The requirements regarding Lobbying for Contracts, Grants, Loans, and
Cooperative Agreements in 31 U.S.C.
1352;
(12) Certification regarding Flood
Hazard Area Precautions;
(13) Certification regarding Debarment, Suspension, and Other Responsibility
Matters—Primary
Covered
Transactions; and
(14) Certification that the borrower is
not delinquent on any Federal debt and
has been informed of the collection options the Federal Government may use
to collect delinquent debt.
(b) Applicants must agree in writing
to comply with all Federal, State and
local laws, rules, regulations, ordinances, codes, and orders applicable to
the project.

§§ 1738.157—1739.200

[Reserved]

Subpart E—Application Review
and Underwriting
§ 1738.201 Application submission.
(a) Loan applications must be submitted directly to the Agency’s National Office. All applications must
contain two hard copies and an electronic copy of the entire application.
An application is considered received
upon receipt of the hard and electronic
copies by the National Office.
(b) The Agency is developing an online application system. Once the system becomes available, all applicants
will be required to submit applications
through the online system.
(c) The Agency may publish additional application submission requirements in the FEDERAL REGISTER.
§ 1738.202 Elements of a complete application.
Applications must be submitted in
the format required by the Rural
Broadband Access Loan and Loan
Guarantee Program Application Guide
(the Application Guide), available on
the agency’s Web site, so that applications can be uniformly evaluated and
compared. To be considered complete,
an application must contain at least
the following items, in form and substance acceptable to the Agency:
(a) A completed RUS Form 532, including any additional items required
by the form;
(b) Information required for the public notice to determine service area eligibility (see § 1738.204);
(c) Documentation demonstrating
how the applicant will meet the equity
requirement of § 1738.207;
(d) A market survey, unless not required by § 1738.209(b);
(e) A competitive analysis of the entire proposed service territory(ies) (see
§ 1738.210);
(f) The historical and projected financial information required in § 1738.211;
(g) A network design, which also
demonstrates the ability to provide
service at the broadband lending speed
(see § 1738.212);
(h) A legal opinion that addresses the
applicant’s ability to enter into a loan
as requested in the loan application, to

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Rural Utilities Service, USDA

§ 1738.204

pledge security as required by the
Agency, to describe all pending litigation matters, and such other requirements as are detailed in the Application Guide;
(i) Documentation proving that all
required licenses and regulatory approvals for the proposed operation have
been obtained, or the status of obtaining such licenses or approvals; and
(j) Additional items that may be required by the Administrator through a
notice in the FEDERAL REGISTER.

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§ 1738.203 Priority for approving loan
applications.
(a) The Agency will compare and
evaluate all applications that have
been submitted for funding and deemed
to be complete no less than twice a
year, and shall give priority to applications in the following order (Note that
for applications containing multiple
proposed funded service areas, the percentage will be calculated combining
all proposed funded service areas.):
(1)
Applications
in
which
no
broadband service, as defined herein is
available in the proposed funded service area;
(2) Applications in which at least 75
percent of households in the proposed
funded service area have no broadband
service;
(3) Applications in which at least 50
percent of households in the proposed
funded service area have no broadband
service;
(4) Applications in which at least 25
percent of households in the proposed
funded service area have no broadband
service; and
(5) Applications in which at least 25
percent of the customers in the proposed service area are commercial interests and predominately more households are proposed to be served than
businesses.
(b) Once applications have been determined to be complete, they will be
compared and prioritized according to
the criteria listed in paragraph (a)
above, and subject to available funding
levels.
(c) If two or more applications are
tied for a place in the processing queue,
the
application
that
promotes
broadband adoption will be given pri-

ority over applications that do not promote broadband adoption.
(d) The Agency shall establish the
National and State reserve levels in accordance with Title VI of the RE Act
when feasible given the level of funds
available for the program. In instances
when funds in a particular area are insufficient to cover a loan request, priority will be given to applications for
which funding is available.
§ 1738.204 Public notice.
(a) The Agency will publish a public
notice of each application. The application must provide a summary of the information required for such public notice including all of the following information:
(1) The identity of the applicant;
(2) A map of each service area showing the rural area boundaries and the
unserved areas using the Agency’s
Mapping Tool;
(3) The amount and type of support
requested;
(4) The status of the review of the application;
(5) The estimated number of unserved
households in each service area exclusive of satellite broadband service;
(6) A description of all the types of
services that the applicant proposes to
offer in each service area; and
(7) A list of the census block groups
proposed to be served.
(b) The Agency will publish the public notice on an Agency Web page after
the application has been received in
the Agency’s National Office and will
remain on the Web page for a period of
30 calendar days. The notice will ask
existing service providers to submit to
the Agency, within this notice period,
the following information:
(1) The number of residential and
business customers within the applicant’s service area that are currently
offered broadband service by the existing service provider;
(2) The number of residential and
business customers within the applicant’s service area currently purchasing the existing service provider’s
broadband service, the rates of data
transmission being offered, and the
cost of each level of broadband service
charged by the existing service provider;

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§ 1738.205

7 CFR Ch. XVII (1–1–16 Edition)

(3) The number of residential and
business customers within the applicant’s service area receiving the existing service provider’s non-broadband
services and the associated rates for
these other services;
(4) A map showing where the existing
service provider’s services coincide
with the applicant’s service area using
the Agency’s Mapping Tool; and
(5) Whether the existing service provider is an existing RUS borrower or
grantee.
(c) The Agency will use the information submitted to determine if the existing service provider will be classified
as an incumbent service provider. Notwithstanding non-responses by existing
providers, the Agency will use all information available to it in evaluating
the feasibility of the loan.
(d) The Agency will determine whether the service areas included in the application are eligible for funding based
on all available information. If part or
parts of the applicant’s proposed funded service area are ineligible, the Agency will contact the applicant and require that those ineligible areas be removed from the proposed funded service area or that other funding be provided. If the ineligible service areas are
not removed from the funding request
or additional funds are not provided,
the Agency will reject the application.
Given that applications may need to be
revised to reflect modified service
areas, applicants are encouraged to resubmit their applications as soon as
possible to avoid that their applications will not be considered for the current evaluation period.
(e) The information submitted by an
existing service provider will be treated as proprietary and confidential to
the extent permitted under applicable
law.
(f) If an application is approved, an
additional notice will be published on
the agency’s Web site that will include
the following information:
(1) The name of the entity receiving
the financial assistance;
(2) The type of assistance being received; and
(3) The purpose of the assistance;
(g) The semiannual reports submitted
under § 1738.254(e).

§ 1738.205 Notification of completeness.
If all proposed funded service areas
are eligible, the Agency will review the
application for completeness. The completeness review will include an assessment of whether all required documents and information have been submitted and whether the information
provided is of adequate quality to allow
further analysis.
(a) If the application contains all
documents and information required by
this part and is sufficient, in form and
substance acceptable to the Agency,
the Agency will notify the applicant, in
writing, that the application is complete. A notification of completeness is
not a commitment that the loan will
be approved. By submitting an application, the applicant acknowledges that
no obligation to enter into a loan exists until actual loan documents have
been executed.
(b) If the application is considered to
be incomplete or inadequate, the Agency will notify the applicant, in writing,
that the application has been rejected.
The rejection letter will include an explanation of the reasons for rejection.
§ 1738.206 Evaluation for feasibility.
After an applicant is notified that
the application is complete, the Agency will evaluate the application’s financial and technical feasibility. Only
applications that, as determined by the
Agency, are technically and financially
feasible will be considered for funding.
(a) The Agency will determine financial feasibility by evaluating the impact of the facilities financed with the
proceeds of the loan and the associated
debt, the applicant’s equity, market
survey (if required), competitive analysis, financial information, and other
relevant information in the application.
(b) The Agency will determine technical feasibility by evaluating the applicant’s network design and other relevant information in the application.
§ 1738.207 Equity requirement.
(a) To be eligible for a loan, an applicant must demonstrate a minimum equity contribution equal to 10 percent of
the requested loan amount at the time
of application which must remain

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§ 1738.208

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available at loan closing. In addition to
the 10 percent minimum equity requirement, § 1738.208 provides additional cash requirements that may be
required in support of the loan.
(b) If the applicant does not have the
required equity at the time the application is submitted, the applicant may
satisfy the equity requirement at the
time of application with an investor’s
unconditional legal commitment to
cover the shortfall by providing additional equity. The additional equity
must be transferred to the applicant
prior to loan closing. If this option is
elected, the applicant must provide
evidence in the application that clearly
identifies the investor’s commitment
to the applicant; the amount, terms,
and conditions of the investment; and
the investor’s bank or financial statements that demonstrate its ability to
fulfill its commitment. The terms and
conditions of the investment must be
acceptable to the Agency, but at a minimum cannot be secured by any assets
of the applicant nor provide that the
investment will be available when certain requirements or other thresholds
are met by the applicant. The Agency
will reject applications that do not provide evidence acceptable to the Agency
regarding the investor’s commitment.
(c) For State and local government
applicants, the equity requirement can
be satisfied with a general obligation
bond, as long as the additional equity
will be available to the applicant at
closing. If the equity requirement is
satisfied with a general obligation
bond, the broadband loan cannot be
subordinate to the bond. The applicant
must submit an opinion from its legal
counsel that the applicant has the authority to issue a general obligation
bond in an amount sufficient to meet
the minimum equity requirement. Revenue bonds supported by the operations
to be funded cannot be used to satisfy
the equity requirement.
§ 1738.208 Additional cash requirements.
(a) If the Agency’s financial analysis
indicates that the applicant’s entire
operation (existing operations and new
operations combined) will show an inadequate cash balance at the end of
any year during the five-year forecast

period, the Agency will require the applicant to obtain additional cash infusions necessary to maintain an appropriate cash balance throughout the
five-year forecast period. This cash infusion would be in conjunction with
the required 10 percent minimum equity position.
(1) The Agency will require the applicant and its investors to:
(i) Infuse additional cash to cover
projected deficits for the first two
years of operations at loan closing; and
(ii) Enter into legal arrangements
that commit them to making additional cash infusions to ensure that the
operation will sustain a positive cash
position on a quarterly basis throughout the five-year forecast period.
(2) For purposes of identifying the additional cash requirement for a startup operation or an operation that has
not demonstrated positive cash flow for
the two years prior to the submission
date of the application, 50 percent of
projected revenues for each year of the
five-year forecast period will be considered to determine if an operation can
sustain a positive cash position. In addition to the initial financial projections required to demonstrate financial
feasibility, such applicants must complete adjusted financial projections
using the reduced revenue projections
in order to identify the amount of additional cash that will be required. Projections must be fully supported with
assumptions acceptable to the Agency.
The applicant may present evidence in
its loan application that projected revenues or a portion of projected revenues are based on binding commitments and request that more than 50
percent of the projected revenues be
considered for the purpose of identifying the additional cash requirement.
(3) For purposes of satisfying the additional cash requirements for an existing operation that has demonstrated a
positive cash flow for the two fiscal
years prior to the submission date of
the application, 100 percent of the projected revenues for each year of the
five-year forecast period will be used to
determine if an operation can sustain a
positive cash position, as long as these
projections are fully supported with assumptions acceptable to the Agency.

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§ 1738.209

7 CFR Ch. XVII (1–1–16 Edition)

(4) If debt is incurred to satisfy the
additional cash requirement, this debt
must take a subordinate lien position
to the Agency debt and must be at
terms acceptable to the Agency.
(b) An applicant may satisfy the additional cash requirement with an unconditional, irrevocable letter of credit
(LOC) satisfactory to the Agency. The
LOC must be issued from a financial institution acceptable to the Agency and
must remain in effect throughout the
forecast period. The applicant and the
Agency must both be payees under the
LOC. The LOC must have payment conditions acceptable to the Agency, and
it must be in place prior to loan closing. The applicant cannot secure the
LOC with its assets and cannot pay for
any LOC charges or fees with its funds.
(c) If the Agency offers a loan to the
applicant, the applicant must ensure
that the additional cash infusion required in the first two years is deposited into its bank account within 120
days from the date the applicant signs
the loan offer letter (see § 1738.251) and
must enter into any other legal arrangements necessary to cover further
projected operating deficits (or in the
case of the LOC, to provide an acceptable LOC to the Agency) prior to closing. If these requirements are not completed within this timeframe, the loan
offer will be terminated, unless the applicant requests and the Agency approves an extension based on extenuating circumstances that the Agency
was not aware of at the time the offer
was made.

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§ 1738.209

Market survey.

(a) Except as provided in paragraph
(b) of this section, the applicant must
complete a separate market survey for
each service area where the applicant
proposes to provide service at the
broadband lending speed. Each market
survey must demonstrate the need for
the service at the broadband lending
speed, support the projected penetration rates and price points for the services to be offered, and support the feasibility analysis. The market survey
must also address all other services
that will be provided in connection
with the broadband loan. Additional information on the requirements of the

market survey can be found in the Application Guide.
(b) The applicant is not required to
complete a market survey for any service offering for which the applicant is
projecting less than a 20 percent penetration rate in each service area by the
end of the five-year forecast period.
For example, if the applicant is projecting a penetration rate of 30 percent
for data services and 15 percent for
video services, a market survey must
be completed for the data services. The
proposed prices for those services with
a projected penetration rate less than
20 percent must be affordable, as determined by the Agency.
(c) For a market survey to be acceptable to the Agency, it must have been
completed within six months of the application submission date. The Agency
may reject any application in which
the financial projections are not supported by the market survey. If the demographics of the proposed service
area have significantly changed since
the survey was completed, the Agency
may require an updated market survey.
§ 1738.210

Competitive analysis.

The applicant must submit a competitive market analysis for each service area regardless of projected penetration rates. Each analysis must identify all existing service providers and
all resellers in each service area regardless of the provider’s market
share, for each type of service the applicant proposes to provide. This analysis must include each competitor’s
rate packages for all services offered,
the area that is being covered, and to
the extent possible, the quality of service being provided.
§ 1738.211

Financial information.

(a) The applicant must submit financial information acceptable to the
Agency that demonstrates that the applicant has the financial capacity to
fulfill the loan requirements and to
successfully complete the proposed
project.
(1) If the applicant is an existing
company, it must provide complete
copies of audited financial statements
(opinion letter, balance sheet, income

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Rural Utilities Service, USDA

§ 1738.212

statement, statement of changes in financial position, and notes to the financial statement) for the three fiscal
years preceding the application submission. If audited statements are not
available, the applicant must submit
unaudited financial statements and tax
returns for those fiscal years. Applications from start-up entities must, at a
minimum, provide an opening balance
sheet dated within 30 days of the final
submission of all application material.
(2) If the applicant is a subsidiary operation, it must also provide complete
copies of audited financial statements
for the parent operation for the fiscal
year preceding the application submission. If audited statements are not
available, unaudited financial statements and tax returns for the previous
year must be submitted.
(3) If the applicant relies on services
provided by an affiliated operation, it
must also provide complete copies of
audited financial statements for any
affiliate for the fiscal year preceding
the application submission. If audited
statements
are
not
available,
unaudited statements and tax returns
for the previous year must be submitted.
(4) Applicants must provide a list of
all its outstanding obligations. Copies
of existing notes and loan and security
agreements must be included in the application.
(5) Applicants must provide a detailed description of working capital
requirements and the source of these
funds.
(b) Applicants must submit the following documents that demonstrate
the proposed project’s financial viability and ability to repay the requested
loan.
(1) Customer projections for the fiveyear forecast period that substantiate
the projected revenues for each service
that is to be provided. The projections
must be provided on at least an annual
basis and must be developed separately
for each service area. These projections
must be clearly supported by the information contained in the market survey, unless no market survey is required (see § 1738.209(b)).
(2) Annual financial projections in
the form of balance sheets, income
statements, and cash flow statements

for the five-year forecast period. Prior
to the submission of an application, an
applicant may request that alternative
information related to financial viability be considered when the applicant
can for good cause demonstrate why a
full five year forecast cannot be provided. If this request is approved by the
Agency, then the applicant can submit
the application using the alternative
information that was approved.
(i) These projections must use a system of accounts acceptable to the
Agency and be supported by a detailed
narrative that fully explains the methodology and assumptions used to develop the projections.
(ii) The financial projections submitted by the applicant must demonstrate that their entire operation
will be able to meet a minimum TIER
requirement equal to 1.25 by the end of
the five-year forecast period. Demonstrating that the operation can
achieve a projected TIER of 1.25 does
not ensure that the Agency will approve the loan.
(iii) If the financial analysis suggests
that the operation will not be able to
achieve the required TIER ratio, the
Agency will not approve the loan without additional capital, additional cash,
additional security, and/or a change in
the loan terms.
(c) Based on the financial evaluation,
the loan documents will specify TIER
requirements that must be met
throughout the amortization period.
§ 1738.212

Network design.

(a) Applications must include a network design that demonstrates the
project’s technical feasibility. The network design must fully support the delivery of service at the broadband lending speed, together with any other
services to be provided. In measuring
speed, the Agency will take into account industry and regulatory standards. The design must demonstrate
that the project will be complete within three years from the day the Agency
notifies the applicant that loan funds
are available and must include the following items:
(1) A detailed description of the proposed technology that will be used to

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§ 1738.213

7 CFR Ch. XVII (1–1–16 Edition)

provide service at the broadband lending speed. This description must clearly demonstrate that all households in
the proposed funded service area will
be offered service at the broadband
lending speed;
(2) A detailed description of the existing network. This description should
provide a synopsis of the current network infrastructure;
(3) A detailed description of the proposed network. This description should
provide a synopsis of the proposed network infrastructure;
(4) A description of the approach and
methodology for monitoring ongoing
service delivery and service quality for
the services being deployed;
(5) Estimated project costs detailing
all facilities that are required to complete the project. These estimated
costs must be broken down to indicate
costs associated with each proposed
service area and must specify how
Agency and non-Agency funds will be
used to complete the project;
(6) A construction build-out schedule
of the proposed facilities by service
area on a quarterly basis. The buildout schedule must include:
(i) A description of the work force
that will be required to complete the
proposed construction;
(ii) A timeline demonstrating project
completion within three years and four
months from the date of the loan contract;
(iii) Detailed information showing
that all households within the proposed
funded service area will be offered service at the broadband lending speed
when the system is complete; and
(iv) Detailed information showing
that construction of the proposed facilities will start within six months
from the date the Agency notifies the
borrower that loan funds are available.
(7) A depreciation schedule for all facilities financed with loan and nonloan funds;
(8) An environmental report prepared
in accordance with 7 CFR part 1794 or
successor environmental policies and
procedures; and
(9) Any other system requirements
required by the Administrator through
a notice published in the FEDERAL REGISTER.

(b) The network design must be prepared by a registered Professional Engineer with telecommunications experience or by qualified personnel on the
applicant’s staff. If the network design
is prepared by the applicant’s staff, the
application must clearly demonstrate
the staff’s qualifications, experience,
and ability to complete the network
design. To be considered qualified, staff
must have at least three years of experience in designing the type of
broadband system proposed in the application.
§ 1738.213 Loan determination.
(a) If the application meets all statutory and regulatory requirements and
the feasibility study demonstrates that
the TIER requirement can be satisfied
and the business plan is sustainable,
the application will be submitted to
the Agency’s credit committees for
consideration according to the priorities in § 1738.203. Such submission of an
application to the Agency’s credit committees does not guarantee that a loan
will be approved. In making a loan determination, the Administrator shall
consider the recommendations of the
credit committees.
(b) The applicant will be notified of
the Agency’s decision in writing. If the
Agency does not approve the loan, a rejection letter will be sent to the applicant, and the application will be returned with an explanation of the reasons for the rejection.
§§ 1738.214–1738.250

[Reserved]

Subpart F—Closing, Servicing, and
Reporting
§ 1738.251 Loan offer and loan closing.
The Agency will notify the applicant
of the loan offer, in writing, and the
date by which the applicant must accept the offer. If the applicant accepts
the terms of the loan offer, a loan contract executed by the Agency will be
sent to the applicant. The applicant
must execute the loan contract and
satisfy all conditions precedent to loan
closing within the timeframe specified
by the Agency. If the conditions are
not met within this timeframe, the
loan offer will be terminated, unless
the applicant requests, and the Agency

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Rural Utilities Service, USDA

§ 1738.254

approves, an extension. The Agency
may approve such a request if the applicant has diligently sought to meet
the conditions required for loan closing
and has been unable to do so for reasons outside its control.

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§ 1738.252 Construction.
(a) Construction paid for with
broadband loan funds must comply
with 7 CFR part 1788, 7 CFR part 1794,
RUS Bulletin 1738–2, and any successor
regulations found on the agency’s Web
site, and any other guidance from the
Agency.
(b) Once the Agency has extended a
loan offer, the applicant, at its own
risk, may start construction that is included in the loan application on an interim financing basis. For this construction to be eligible for reimbursement with loan funds, all construction
procedures contained in this part must
be followed. Note, however, that the
Agency’s extension of a loan offer is
not a guarantee that a loan will be
made, unless and until a loan contract
has been entered into between the applicant and RUS.
(c) The build-out must be complete
within three years and 4 months from
the date of the loan contract. Build-out
is considered complete when the network design has been fully implemented, the service operations and
management systems infrastructure is
operational, and the borrower is ready
to support the activation and commissioning of individual customers to the
new system.
§ 1738.253 Servicing.
(a) Borrowers must make payments
on the broadband loan as required in
the note.
(b) Borrowers must comply with all
terms, conditions, affirmative covenants, and negative covenants contained in the loan documents.
(c) In the event of default of any required payment or other term or condition:
(1) A late charge shall be charged on
any payment not made in accordance
with the terms of the note.
(2) The Agency may exercise the default remedies provided in the loan
documents and any remedy permitted
by law, but is not required to do so.

(3) If the Agency chooses to not exercise its default remedies, it does not
waive its right to do so in the future.
§ 1738.254 Accounting, reporting, and
monitoring requirements.
(a) Borrowers must adopt a system of
accounts for maintaining financial
records acceptable to the Agency, as
described in 7 CFR part 1770, subpart B.
(b) Borrowers must submit annual
audited financial statements along
with a report on compliance and on internal control over financial reporting,
and management letter in accordance
with the requirements of 7 CFR part
1773. The Certified Public Accountant
(CPA) conducting the annual audit is
selected by the borrower and must be
approved by RUS as set forth in 7 CFR
1773.4.
(c) Borrowers must comply with all
reasonable Agency requests to support
ongoing monitoring efforts. The Borrower shall afford RUS, through its
representatives,
reasonable
opportunity, at all times during business
hours and upon prior notice, to have
access to and the right to inspect the
Broadband System, and any other
property encumbered by the Mortgage,
and any or all books, records, accounts,
invoices, contracts, leases, payrolls,
timesheets, cancelled checks, statements, and other documents, electronic
or paper of every kind belonging to or
in the possession of the Borrower or in
any way pertaining to its property or
business, including its subsidiaries, if
any, and to make copies or extracts
therefore.
(d) Borrower records shall be retained
and preserved in accordance with the
provisions of 7 CFR part 1770, subpart
A.
(e) Borrowers must submit semiannual reports for 3 years after completion of the project. The reports must
include the following information:
(1) The purpose of the financing, including new equipment and capacity
enhancements that support high-speed
broadband access for educational institutions, health care providers, and public safety service providers (including
the estimated number of end users who
are currently using or forecasted to use
the new or upgraded infrastructure);

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§ 1738.255

7 CFR Ch. XVII (1–1–16 Edition)

(2) The progress towards fulfilling the
objectives for which the assistance was
granted, including:
(i) The number and location of residences and businesses that will receive
service at or greater than the
broadband lending speed;
(ii) The types of facilities constructed and installed;
(iii) The speed of the broadband services being delivered;
(iv) The average price of the
broadband services being delivered in
each proposed service area;
(v) The broadband adoption rate for
each proposed service territory, including the number of new subscribers generated from the facilities funded; and
(3) Any other reporting requirements
established by the Administrator by
notice in the FEDERAL REGISTER.
§ 1738.255 Default and de-obligation.
If a default under the loan documents
occurs and such default has not been
cured within the timeframes established in the loan documents, the Applicant acknowledges that the Agency
may, depending on the seriousness of
the default, take any of the following
actions:
(a) To the greatest extent possible recover the maximum amount of loan
funds.
(b) De-obligate all funds that have
not been advanced; and
(c) Reallocate recovered funds to the
extent possible as prescribed by the Office of Management and Budget.
§§ 1738.256–1738.300

[Reserved]

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Subpart G—Loan Guarantee
§ 1738.301 General.
(a) Applicants wishing to obtain a
loan guarantee for private financing
are subject to the same requirements
as direct loan borrowers with respect
to:
(1) Loan purposes as described in subpart B of this part;
(2) Eligible borrowers and eligible
areas as described in subpart C of this
part;
(3) The loan terms described in subpart D of this part, with the exception
of the interest rates described in
§ 1738.152;

(4) The application review and underwriting requirements in subpart E of
this part; and
(5) The accounting, reporting, and
monitoring requirements of subpart F
of this part.
(b) The Agency will publish a notice
in the FEDERAL REGISTER indicating
any additional requirements, as well as
the amount of funds available, if any,
for loan guarantees.
§ 1738.302

Eligible guaranteed lenders.

To be eligible for a loan guarantee, a
guaranteed lender must be:
(a) A financial institution in good
standing that has been a concurrent
lender with RUS; or
(b) A legally organized lending institution, such as commercial bank, trust
company, mortgage banking firm, insurance company, or any other institutional investor authorized by law to
loan money, which must be subject to
credit examination and supervision by
a Federal or State agency, unless the
Agency determines that alternative examination and supervisory mechanisms
are adequate.
§ 1738.303 Requirements for the loan
guarantee.
At the time of application, applicants
must provide in form and substance acceptable to the Agency:
(a) Evidence of the guaranteed lender’s eligibility under § 1738.302;
(b) Evidence that the guaranteed
lender has the demonstrated capacity
to adequately service the guaranteed
loan;
(c) Evidence that the guaranteed
lender is in good standing with its licensing authority and meets the loan
making, loan servicing, and other requirements of the jurisdiction in which
the lender makes loans;
(d) Evidence satisfactory to the
Agency of its qualification under this
part, along with the name of the authority that supervises it;
(e) A commitment letter from the
guaranteed lender that will be providing the funding, and the terms of
such funding, all of which may be conditioned on final approval of the
broadband loan guarantee by the Agency; and

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Rural Utilities Service, USDA

§ 1738.305

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(f) A description of any and all
charges and fees for the loan, along
with documentation that they are comparable to those normally charged
other applicants for the same type of
loan in the ordinary course of business.
Such charges and fees will not be included within the Agency’s loan guarantee.
§ 1738.304 Terms for guarantee.
Loan guarantees will only be given
on the conditions that:
(a) The loan guarantee is no more
than 80 percent of the principal
amount, which shall exclude any and
all charges and fees;
(b) The guarantee is limited to the
outstanding loan repayment obligation
of the borrower and does not extend to
guaranteeing that the guaranteed lender will remit to a holder, loan payments made by the borrower;
(c) The interest rate must be fixed
and must be the same or lesser for the
guaranteed loan amount or the respective guaranteed loan portion amount
or the respective guaranteed amount
equivalent, as the case may be, and
unguaranteed loan amount or the respective unguaranteed loan portion
amount
or
the
respective
unguaranteed-amount equivalent, as
the case may be;
(d) The entire loan will be secured by
the same security with equal lien priority for the guaranteed loan amount
or the respective guaranteed loan portion amount or the respective guaranteed-amount equivalent, as the case
may be, and unguaranteed loan amount
or the respective unguaranteed loan
portion amount or the respective
unguaranteed-amount equivalent, as
the case may be;
(e) The unguaranteed loan amount or
the respective unguaranteed loan portion
amount
or
the
respective
unguaranteed-amount equivalent, as
the case may be, will neither be paid
first nor given any preference or priority over the guaranteed loan amount
or the respective guaranteed loan portion amount or the respective guaranteed-amount equivalent, as the case
may be;
(f) Prior written approval is obtained
from the Agency for any assignment by
the guaranteed lender. Any assignment

shall entitle the holder to all of the
guaranteed lender’s rights but shall
maintain the guaranteed lender responsible for servicing the entire loan;
(g) The borrower, its principal officers, members of the borrower’s board
of directors and members of the immediate families of said officials shall not
be a holder of the guaranteed lender’s
loan;
(h) The Agency will not guarantee
any loan under this subpart that provides for a balloon payment of principal or interest at the final maturity
date of the loan or for the payment of
interest on interest;
(i) All loan guarantee documents between the Agency and the guaranteed
lender are prepared by the Agency; and
(j) The loan agreement between the
borrower and the lender shall be subject to Agency approval.
§ 1738.305 Obligations of guaranteed
lender.
Once a loan guarantee has been approved, the guaranteed lender will be
responsible for:
(a) Servicing the loan;
(b) Determining that all prerequisites
to each advance of loan funds by the
lender under the terms of the contract
of guarantee, all financing documents,
and all related security documents
have been fulfilled;
(c) Obtaining approval from the
Agency to advance funds prior to each
advance;
(d) Billing and collecting loan payments from the borrower;
(e) Notifying the Administrator
promptly of any default in the payment of principal and interest on the
loan and submit a report no later than
30 days thereafter, setting forth the
reasons for the default, how long it expects the borrower will be in default,
and what corrective actions the borrower states that it is taking to
achieve a current debt service position;
and
(f) Notifying the Administrator of
any known violations or defaults by
the borrower under the lending agreement, contract of guarantee, or related
security instruments or conditions of
which the lender is aware which might
lead to nonpayment, violation, or other
default.

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§ 1738.306

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§ 1738.306

7 CFR Ch. XVII (1–1–16 Edition)
Agency rights and remedies.

(a) The guarantee must provide that
upon notice to the lender, the Agency
may assume loan servicing responsibilities for the loan or the guaranteed
loan amount or the respective guaranteed loan portion amount or the respective guaranteed-amount equivalent, as the case may be, or require the
lender to assign such responsibilities to
a different entity, if the lender fails to
perform its loan servicing responsibilities under the loan guarantee agreement, or if the lender becomes insolvent, makes an admission in writing of
its inability to pay its debts generally
as they become due, or becomes the
subject of proceedings commenced
under the Bankruptcy Reform Act of
1978, as amended (11 U.S.C. 101 et seq.)
or any similar applicable Federal or
State law, or is no longer in good
standing with its licensing authority,
or ceases to meet the eligibility requirements of this subpart. Such negligent servicing is defined as the failure to perform those services which a
reasonable prudent lender would perform in servicing its own portfolio of
loans that are not guaranteed and includes not only a failure to act but also
not acting in a timely manner.
(b) The guarantee shall cease to be
effective with respect to any guaranteed loan amount or any guaranteed
loan portion amount or any guaranteed-amount equivalent to the extent
that:
(1) The guaranteed loan amount or
the respective guaranteed loan portion
amount or the respective guaranteed
amount equivalent, as the case may be,
is separated at any time from the
unguaranteed loan amount or the respective unguaranteed loan portion
amount
or
the
respective
unguaranteed-amount equivalent, as
the case may be, in any way.; or
(2) Any holder of the guaranteed loan
note or any guaranteed loan portion
note, as the case may be, having a
claim to payments on the guaranteed
loan receives more than its pro-rata
percentage of any payment due to such
holder from payments made under the
guarantee at any time during the term
of the guaranteed loan.

§ 1738.307

Additional policies.

The Agency shall provide additional
loan guarantee policies, consistent
with OMB Circular A–129, in order to
achieve its mission of promoting
broadband in rural areas, which shall
be published, as needed, in the FEDERAL
REGISTER.
§ 1738.308 Full faith and credit of the
United States.
Loan guarantees made under this
part are supported by the full faith and
credit of the United States and are incontestable except for fraud or misrepresentation of which the holder had
actual knowledge at the time it became a holder.
§§ 1738.309–1738.349
§ 1738.350

[Reserved]

OMB control number.

The information collection requirements in this part are approved by the
Office of Management and Budget
(OMB) and assigned OMB control number 0572–0130.

PART 1739—BROADBAND GRANT
PROGRAM
Subpart A—Community Connect Grant
Program
Secs.
1739.1 Purpose.
1739.2 Funding availability and application
dates and submission.
1739.3 Definitions.
1739.4–1739.8 [Reserved]
1739.9 USDA Rural Development State Director notification.
1739.10 Eligible applicant.
1739.11 Eligible
Community
Connect
Competetive Grant Project.
1739.12 Eligible grant purposes.
1739.13 Ineligible grant purposes
1739.14 Matching contributions.
1739.15 Completed application.
1739.16 Review of grant applications.
1739.17 Scoring of applications.
1739.18 Grant documents.
1739.19 Reporting and oversight requirements.
1739.20 Audit requirements.
1739.21 OMB control number.

Subpart B [Reserved]
AUTHORITY: Title III, Pub. L. 108–199, 118
Stat. 3.

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