§1845 Requirements Applicable to Loan Guarantees

Summary

Before the government guarantees a company’s loan, the Board requires several rules to protect the United States. While any principal or interest on a guaranteed loan is unpaid, the company may not pay dividends on common stock or make payments on other debt to the guaranteed lender unless the Board waives those limits because it still protects U.S. interests. If the Board finds the company only needs a guarantee because of poor management, it must make the company change managers before guaranteeing a loan. The Board must get an audited financial statement and have the same access to the company’s books and records as it would under section 1846. The lender must try all its own remedies before the government pays under a guarantee. Loan agreements must include the usual covenants and protections and cannot be changed without the Board’s consent. For each advance, the lender must give the Board at least 10 days’ written notice, certify the borrower was not in default when it gave notice (or report any default), and the borrower must give a spending plan and later report how funds were used. The Board must have priority over the lender’s interest in collateral, including pledged assets and, if appropriate, deposits subject to offset under section 68 of the Bankruptcy Act.