Instead of the provisions found in Sec. 4279.131, the provisions of this section apply to loans guaranteed under this subpart. For all applications for guarantee, the lender must prepare a credit evaluation. An acceptable credit evaluation must:
(a) Use credit documentation procedures and an underwriting process that are consistent with generally accepted commercial lending practices, and
(b) Include an analysis of the credit factors associated with each guarantee application, including consideration of each of the following five elements.
(1) Credit worthiness. Those financial qualities that generally make the borrower more likely to meet its obligations as demonstrated by its credit history.
(2) Cash flow. A borrower's ability to produce sufficient cash to repay the loan as agreed.
(3) Capital. The financial resources that the borrower currently has and those it is likely to have when payments are due. The borrower must be adequately capitalized.
(4) Collateral. The assets pledged by the borrower in support of the loan, including processing technology owned by the borrower and excluding assets acquired with other Federal funds. Collateral must have documented value sufficient to protect the interest of the lender and the Agency, and the discounted collateral value must be at least equal to the loan amount. Lenders will discount collateral consistent with sound loan-to-value policy. The Agency may consider the value of qualified intellectual property, as defined in Sec. 4279.2, arrived at in accordance with GAAP standards. The value of the intellectual property may not exceed 30 percent of the total value of all collateral.
(i) If there is an established market for the intellectual property, the value of the intellectual property will be valued according to the lender's standard discounting practice for intellectual property for determining adequacy of collateral.
(ii) If there is no established market for the intellectual property, the value of the intellectual property will be valued not greater than 25 percent, as determined by the Agency, for determining adequacy of collateral.
(5) Conditions. The general business environment and status of the borrower's industry.
(c) When determining the credit quality of the borrower, the lender must include the following in its analysis:
(1) The borrower shall demonstrate that it will be able to provide equity in the project of not less than 20 percent of eligible project costs at the time the loan is closed. For existing biorefineries, the fair market value of project equity (including the guaranteed loan being applied for) in real property and equipment and the value of qualified intellectual property based on the audited financial statements in accordance with Generally Accepted Accounting Principles may be substituted in whole or in part to meet the equity requirement. However, the appraisal completed to establish the fair market value of the real property and equipment must not be more than 1 year old. The Agency may require the lender to provide a more recent appraisal in order to reflect current market conditions. The appraisal used to establish fair market value of the real property and equipment must conform to the requirements of Sec. 4279.244. Otherwise, equity must be in the form of cash and cannot include other direct Federal funding (i.e., loans and grants).
(2) The credit analysis must also include spreadsheets of the balance sheets and income statements of the borrower for the 3 previous years (for existing businesses), pro forma balance sheets at startup, and projected yearend balance sheets and income statements for a period of not less than 3 years of stabilized operation, with appropriate ratios and comparisons with industrial standards (such as Dun & Bradstreet or Robert Morris Associates) to the extent industrial standards are available.
(3) All data must be shown in total dollars and also in common size form, obtained by expressing all balance sheet items as a percentage of assets and all income and expense items as a percentage of sales. Sec. Sec. 4279.235-4279.236 [Reserved]