§2345 Conditions for Financial Assistance

Summary

Money under this program can only be given if the company cannot pay from its own funds and there is a good chance the loan will be paid back. The loan interest rate is set using two parts: a base set by the Treasury Secretary using similar U.S. bond yields (rounded to the nearest one-eighth of 1 percent) and an extra amount the Commerce Secretary adds to cover program costs and likely losses. The government will not guarantee a loan if the rate is judged too high compared with other federal-guaranteed loans or if the loan’s interest is tax-exempt under section 103 of the tax code. Loans guaranteed or made directly cannot have terms longer than 25 years or the useful life of the fixed assets (whichever is shorter) for one group of loans, and not more than 10 years for another group, though there are exceptions for bankruptcy claims and one extra extension of up to 10 years if needed to wind up the loan. Priority is given to small firms. The government can arrange loan servicing and foreclosure. Guarantees can cover at most 90% of the unpaid principal and interest, can be split into guaranteed and nonguaranteed parts, and are final except for fraud or misrepresentation. The Secretary must keep reserves for expected guarantee claims and may charge lenders a fee to cover guarantee administration. A firm may have up to $3,000,000 in guaranteed loans outstanding and up to $1,000,000 in direct loans outstanding at any time. When a certified corporation seeks a direct loan or a guarantee, it gets preference if it agrees that 25% of the loan principal will go to a qualified trust under an employee stock ownership plan (ESOP) that buys company stock. The ESOP must use that money to buy employer stock, repay the lender from employer contributions, and give stock to employee accounts as repayments are made. The loan agreement must be fully enforceable, limit the trust’s repayment liability to amounts actually contributed, make sure funds received by the company are used properly, stop the company from cutting its equity capital for one year after the trust buys stock, and require the company to contribute enough to let the trust repay the loan. At year end, stock is allocated to employees based on the share of loan payments made that year and each employee’s pay. Defined terms: “employee stock ownership plan” (an ESOP plan), “qualified trust” (the ESOP trust meeting ERISA and tax rules), “qualified employer securities” (the company stock to be bought), and “equity capital” (the company’s net money and property minus debt).