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The Oregon Administrative Rules contain OARs filed through June 15, 2014
 
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OREGON BUSINESS DEVELOPMENT DEPARTMENT

 

DIVISION 21

OPERATION OF OREGON CREDIT ENHANCEMENT FUND

123-021-0000

Purpose

The purpose of these rules is to provide procedures, standards, and criteria for providing loan insurance from the Oregon Credit Enhancement Fund.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12

123-021-0010

Definitions

For the purposes of these rules, additional definitions may be found in OAR chapter 123, division 1. The following terms shall have the following definitions, unless the context clearly indicates otherwise:

(1) "Authorized loan amount" means the amount of a loan authorized by the Department to be under the CEF Program pursuant to a loan insurance authorization issued by the Department to the financial institution making the loan.

(2) "Brownfield" means any real property where expansion or redevelopment is complicated by actual or perceived environmental contamination.

(3) "CEF Program" means the Credit Enhancement Fund Insurance Program established under ORS 285B.200 to 285B.218.

(4) The "deficiency" of a loan means the amount of principal outstanding upon default, accrued interest and the financial institution's reasonable costs of collection, exclusive of costs attributable to environmental problems, remaining unpaid after liquidation of collateral and collection of guarantees.

(5) "Destination facilities other than retail or food service" means a qualified business which has a significant impact on the regional recreational or tourism economy. Incidental food service or retail facilities necessary to the operation of a destination facility are eligible. Sleeping accommodations without unique attraction capabilities are not qualified businesses.

(6) "Financial institution" has the meaning set forth in ORS 706.008.

(7) "Fund" means the Credit Enhancement Fund created by ORS 285B.215.

(8) "Loan insurance authorization" means a letter from the director or deputy director or designee to a financial institution agreeing to insure a loan to a borrower on the terms and conditions and subject to the requirements stated therein.

(9) "Loan insurance agreement" means the agreement between the financial institution and the Department required by OAR 123-021-0100.

(10) "Working capital loan" means any loan, the proceeds of which are to be used for operating, maintenance and other costs and expenses, or for purposes other than acquiring real property, production equipment, or other capital assets.

(11) "Principal" in regards to a borrower is defined as:

(a) If a sole proprietorship, the proprietor;

(b) If a partnership, each managing partner and each partner who is a natural person and holds a twenty percent (20%) or more ownership interest in the partnership; and,

(c) If a corporation, limited liability company, association or a development company, each director, each of the five most highly compensated executives or officers of the entity, and each natural person who is a direct or indirect holder of twenty percent (20%) or more of the ownership stock or stock equivalent of the entity. "Principal" in regards to a financial institution is defined as:

(A) If a sole proprietorship, the proprietor;

(B) If a partnership, each partner; and

(C) If a corporation, limited liability company, association or a development company, each director, each of the five most highly compensated executives, officers or employees of the entity, and each direct or indirect holder of twenty percent (20%) or more of the ownership stock or stock equivalent of the entity.

(12) "SSBCI Funds" means U.S. Treasury funds allocated to the Department under the State Small Business Credit Initiative Act of 2010 (title III of the Small Business Jobs Act of 2010, P.L. 111-240, 124 Stat. 2568, 2582).

Stat. Auth.: ORS 285A.075
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 12-1997(Temp), f. & cert. ef. 10-7-97; EDD 11-1998, f. & cert. ef. 5-22-98; EDD 8-1999, f. & cert. ef. 10-1-99; EDD 4-2007(Temp), f & cert. ef. 8-28-07 thru 2-22-08; EDD 5-2008(Temp), f. & cert. ef. 2-26-08 thru 8-1-08; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12; OBDD 18-2012(Temp), f. & cert. ef. 11-20-12 thru 5-17-13; OBDD 3-2013, f. & cert. ef. 5-23-13

123-021-0015

Qualified Business

In a distressed area, any existing or proposed business is a Qualified business. Any company that owns, occupies, operates, or has entered into an agreement to own, occupy or operate real property containing a brownfield is a Qualified business. Through June 30, 2015,outside of a distressed area, any existing or proposed businesses is a Qualified business. After June 30, 2015, outside of a distressed area, a Qualified business is defined as any existing or proposed business that sells goods or services in markets for which national or international competition exists, and such sales of goods or services will result in or will aid, promote or facilitate the development of one or more of the following activities:

(1) Manufacturing or other industrial production;

(2) Food processing;

(3) Aquaculture development or seafood processing;

(4) Convention facilities or trade centers;

(5) Destination facilities other than retail or food service;

(6) Transportation or freight facilities;

(7) Distribution facilities; or

(8) Other activities, as approved by the Department that represent new technology or diversifying activity but not including:

(a) Construction of office buildings;

(b) Retail businesses, shopping centers or food service facilities;

(c) Motels or bed and breakfast hotels;

(d) Professional services for medicine, law, dentistry or finance;

(e) Athletic, racquetball, handball, or private membership clubs, or golf courses;

(f) Sand and gravel facilities;

(g) Newspapers;

(h) Lobbying activities (as defined in Section 3(7) of the Lobbying Disclosure Act of 1995, P.L. 104-65, as amended); or,

(i) Acquiring or holding passive investments such as commercial real estate ownership or the purchase of securities; this does not include acquisitions of businesses through 100% stock transfer.

(9) For the Evergreen Entrants Insurance, a Qualified business includes an existing or proposed business without, or about to be without, an existing line of credit. For the Evergreen Plus Insurance, a Qualified business includes an existing or proposed business with an existing line of credit.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12; OBDD 18-2012(Temp), f. & cert. ef. 11-20-12 thru 5-17-13; OBDD 3-2013, f. & cert. ef. 5-23-13

123-021-0020

Eligibility

(1) In order for a Qualified business to be eligible, its project must meet one of the following purposes. Eligible purposes mean the acquisition, improvement, or rehabilitation of real or personal property, working capital for operations, export transactions, maintenance and other business costs and expenses which are used for purposes other than acquiring real or personal property. Eligible purposes do not include:

(a) An insured loan used for any personal, family, or household expenses of the Qualified business or any owner or guarantor;

(b) An insured loan used for construction financing; however, permanent financing after completion of construction may be insured;

(c) An insured loan for the purchase or construction of residential housing;

(d) An insured loan made primarily to pay off or refinance an existing debt to a creditor whose loan is inadequately secured or who is in danger of sustaining a loss;

(e) Repayment of delinquent federal or state income taxes unless the Qualified Business has a payment plan in place with the relevant taxing authority;

(f) Repayment of taxes held in trust or escrow;

(g) Reimbursement of funds owed to any owner, including any equity injection or injection of business capital for the business' continuance;

(h) (For loans insured by SSBCI Funds) Purchase of any portion of the ownership interest of any owner of the business;

(i) An insured loan used to purchase an existing Qualified business, except for:

(A) Expansions where the majority of loan proceeds are used to support expansion improvements;

(B) Purchase of all or substantially all of the assets of a Qualified business,

(C) (For loans not insured by SSBCI Funds) Purchase of 100% of the stock of a Qualified business, including stock held by employee stock ownership plans, where jobs will be created or retained; provided that the Department's liability for any loss resulting from a loan made for such purchase shall not exceed $500,000.

(2) The Department will consider refinancing requests on a case by case basis. In evaluating such requests, the Department will consider the financial benefits to the borrower, the prospects for success, public benefits such as jobs created or retained, the extent to which financial institutions agree to extend terms or provide other favorable financing to a borrower, and the extent to which collateral securing an insured loan is improved. The Department's maximum liability for any loss resulting from a refinance that is insured under the CEF Program will be limited to no more than $500,000 and no more than 75% of the authorized loan amount, whichever is less. Unless specifically waived by the Department, all business and personal assets securing a refinance may require an appraisal or other third party valuation to determine liquidation values at the time of application. The Department reserves the right to set the enrollment terms at the time of approval for loan insurance, including but not limited to the Department's maximum liability or the insured percentage and in its sole discretion may, when setting the Department's maximum liability or the insured percentage or both, consider whether a loan is less than fully secured, as determined by the estimated liquidation value of the collateral.

(3) The maximum term for an eligible loan insurance per borrower project is the lesser of fifteen (15) years or the useful life of the assets being financed, or one year plus four annual renewals for the Evergreen Entrants Insurance or Evergreen Plus Insurance.

(4) Eligible borrowers are Qualified businesses as defined in OAR 123-021-0015.

(5) Eligible financial institutions are financial institutions as defined by ORS 706.008.

(6) Any loans insured by SSBCI Funds will be required to meet additional U.S. Treasury requirements including, but not limited to:

(a) The loan has not been made in order to place under the protection of the CEF Program prior debt that is not covered by the CEF Program and that is or was owed by the borrower to the financial institution or to an affiliate of the financial institution.

(b) The loan is not a refinancing of a loan previously made to that borrower by the financial institution or an affiliate of the financial institution.

(c) No Principal of the borrower or the financial institution has been convicted of a sex offense against a minor as such terms are defined in section 111 of the Sex Offender Registration and Notification Act (42 U.S.C. 16911).

(d) The borrower, or any principal of the borrower, is not:

(A) an executive officer, director, or principal shareholder of the financial institution, or

(B) a member of the immediate family of an executive officer, director or principal shareholder of the financial institution; or

(C) a related interest of any such executive officer, director, principal shareholder or member of the immediate family. For the purposes of this OAR 123-021-0002(6)(d), the terms "executive officer", "director", "principal shareholder", "immediate family", and "related interest" refer to the same relationship to the financial institution as the relationship described in 12 C.F.R. Part 215.2 (1990), whether or not the financial institution is a member bank of the Federal Reserve System.

(e) The activities of the borrower are not activities currently prohibited by U.S. Treasury, such as but not limited to:

(A) The borrower is not a business engaged in speculative activities that develop profits from fluctuations in price rather than through normal course of trade unless those activities are incidental to the regular activities of the business and are part of a legitimate risk management strategy to guard against price fluctuations related to the regular activities of the business;

(B) The borrower is not a business that earns more than half of its annual net revenue from lending activities unless the business is a non-bank or non-bank holding company community development financial institution;

(C) The borrower is not a business engaged in pyramid sales, or engaged in activities that are prohibited by federal law or applicable law in the jurisdiction where the business is located or conducted; or,

(D) The borrower is not a business engaged in gambling enterprises, unless the business earns less than 33% of its annual net revenue from lottery sales.

(f) The financial institution is in compliance with requirements of 31 C.F.R. § 103.121.

(g) At the time of approval the borrower does not employ more than 750 employees in the United States.

(h) Total financing for the project is $20,000,000 or less.

(i) No Principal of the borrower is a current member or delegate to the United States Congress or resident U.S. Commissioner.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 8-1999, f. & cert. ef. 10-1-99; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 14-2010, f. 4-30-10, cert. ef. 5-1-10; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12

123-021-0040

Application Contents

(1) Required Contents. Unless waived by the Department, the financial institution shall submit to the Department an application containing the following:

(a) A completed General Information Sheet provided by the Department;

(b) A written narrative by the financial institution analyzing the borrower's application (i.e. credit analysis), including an identification of the proposed amount of the loan, the requested percentage of insurance and Department insurance program, the purpose, terms and conditions of the loan, a description of the collateral and basis for its valuation, a summary of the borrower's credit standing, and a description of other sources of financing;

(c) Complete resumes of the borrower, all partners, owners, officers and guarantors, as applicable;

(d) Historical business financial statements for the prior three years, including income statements and balance sheets (income tax returns may also be required), as applicable, if an existing borrower. Income tax returns may be sufficient if accountant prepared statements are unavailable. Interim financial statements must also be included if the most recent statements are beyond 90 days;

(e) Signed current personal financial statement(s) of owners with a minimum 20% ownership interest in the borrower. Federal tax returns may be required. This information may also be required of guarantors;

(f) Pro forma balance sheet and income statement with supporting assumptions. In some instances, monthly cash flow statements may also be required. Cash flow statements are required in cases where loan repayment is dependent on projections, and for borrowers seeking working capital financing;

(g) Completion of the Department's environmental questionnaire or a comparable one provided by the financial institution and approved by the Department for loans secured in whole or part by real property and for other insured loans, if requested by the Department;

(h) Other information as the Department may require including, but not limited to, projected jobs created or jobs retained by a borrower.

(2) Supplemental Information. The Department may require, at its discretion:

(a) Appraisals of collateral or the financial institution's basis for determining collateral value;

(b) A business or marketing plan, including an analysis of competition;

(c) Certificates from the Oregon Department of Environmental Quality or any other governmental or regulatory agencies with jurisdiction, if applicable;

(d) Copies of leases or purchase agreements, as applicable;

(e) Any other information or certifications from the borrower or the financial institution deemed by the Department to be necessary or desirable in connection with an insured loan application.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12

123-021-0050

Application Procedure

(1) The Department shall determine when an application is complete.

(2) It shall be the responsibility of the financial institution to submit a complete application.

(3) The Department will review an application based on the following criteria and considerations:

(a) An application will not be approved unless the Department determines that there is a reasonable prospect that the borrower will repay a loan according to its terms.

(b) An application will only be approved to the extent, in terms of amount, percentage and period of insurance, that is necessary and prudent for the Department to provide to complete the financing.

(c) No application will be approved unless the Department determines that the insured loan will be serviced by a financial institution as required by the Department.

(d) No application will be approved unless the Department determines that the borrower is eligible and the insured loan proceeds will be used for an eligible purpose.

(e) No application will be approved unless the Department determines that the application is complete and that information sufficient to make an informed decision on the application has been received.

(f) In reviewing applications, the Department will consider the following, as applicable:

(A) The extent to which the borrower demonstrates a need for an insured loan.

(B) The economic feasibility of the business endeavor as evidenced by the borrower's present and past financial situation and business experience and the general reasonableness of the business proposal and financial projections for the future.

(C) Whether the borrower and any guarantors have satisfactory credit histories.

(D) Whether the borrower has sufficient capital and other resources to conduct the business as planned, and the amount and source of equity contributed.

(E) The adequacy of the security offered for the loan.

(F) The extent to which the risk of financial loss is shared by others.

(G) The viability of the industry of which the borrower is a part and the contribution of the borrower to that industry.

(H) The extent to which the borrower contributes to local economic development, market development and employment opportunities.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 12-1997(Temp), f. & cert. ef. 10-7-97; EDD 11-1998, f. & cert. ef. 5-22-98; EDD 4-2007(Temp), f & cert. ef. 8-28-07 thru 2-22-08; EDD 5-2008(Temp), f. & cert. ef. 2-26-08 thru 8-1-08; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09

123-021-0060

Application Approval or Rejection

(1) Upon approval of an application by the director, deputy director or their designees or members of the commission, a loan insurance authorization will be issued setting forth the terms and conditions upon which the loan will be insured.

(2) No loan insurance authorization shall become effective until the financial institution has paid the initial loan insurance premium required by OAR 123-021-0110. Such payment, along with an executed loan insurance authorization, shall indicate the financial institution's acceptance of the terms of the loan insurance authorization.

(3) No loan insurance authorization shall be effective unless a loan insurance agreement has been executed by the financial institution and the Department and remains in effect.

(4) In the event the director or deputy director or their designees reject an application, upon written request, the Department will promptly send the financial institution a notice, including reasons for the rejection. The notice shall include a statement of the borrower's right to appeal the director's or deputy director's or their designees' decision to the commission.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09

123-021-0070

Appeal to the Commission

In the event that an application is rejected, the borrower or the financial Institution shall have the right to appeal the decision to the commission. Notice of the appeal must be submitted in writing within twenty days of receiving notification of rejection to the Department. The notice of appeal must include the departmental rejection statement(s) together with a statement of why the decision should be reversed or modified. The Department shall inform the applicants of the time and location of the appeal hearing, and the financial institution and the borrower may be present to support the appeal through public comment.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 12-1997(Temp), f. & cert. ef. 10-7-97; EDD 11-1998, f. & cert. ef. 5-22-98; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09

123-021-0080

Loan and Insurance Terms and Conditions

(1) Interest rate and term. The rate of interest on the insured loan and the term of the loan shall be agreed between the financial institution and a borrower provided that no insurance term may exceed the lesser of fifteen years or the useful life of the assets being financed or one year plus four annual renewals for the Evergreen Entrants or Evergreen Plus Programs.

(2) Collateral. Repayment of an insured loan shall be secured by such collateral as the Department deems prudent.

(a) Insured loans may, at the discretion of the Department, be secured by collateral valued for collateral purposes at less than the amount of the insured loan, provided the borrower, its principals, and the guarantors, to the satisfaction of the Department, are of good character, have good credit histories, and exhibit the ability to service the proposed and existing debt;

(b) Real estate or unmovable machinery or equipment constituting a significant portion of collateral for repayment of an insured loan shall be located within the state. Mobile machinery or equipment, including vessels, constituting a significant portion of collateral for repayment of an insured loan shall be registered with and taxed by the state or municipal authorities, if the State or municipal authorities register or tax machinery or equipment of a type similar to the collateral, and shall be stored or berthed in the state when not in use.

(c) The Department may, at its sole discretion, require independent collateral valuation and appraisal of the real property assets securing the loan.

(3) Covenants. The covenants and requirements of the loan shall be established by the financial institution in accordance with prudent lending practices. The Department may require such additional covenants and requirements as may be necessary, prudent or desirable. At a minimum, the loan documents should require the borrower to:

(a) Make periodic payments of principal and interest, with the exception of short term working capital loans or evergreen working capital loans or lines of credit where periodic interest payments with a balloon principal payment and/or term options may be acceptable, as determined by the Department;

(b) Make any lease payments;

(c) Maintain adequate insurance on collateral, and maintain books and records on the business;

(d) Pay any taxes or governmental charges assessed against the collateral and comply with all applicable laws and regulations;

(e) Keep the collateral free of liens and encumbrances except for as may be expressly accepted by the financial institution and Department;

(f) Provide for periodic financial reports to the financial institution;

(g) Pay advances necessary to protect the collateral and all expenses of protecting or enforcing the rights of the financial institution and Department.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12; OBDD 18-2012(Temp), f. & cert. ef. 11-20-12 thru 5-17-13; OBDD 3-2013, f. & cert. ef. 5-23-13

123-021-0090

Loan Insurance Programs

The Department shall offer the following insurance programs:

(1) Conventional Insurance, under which the Department may insure

(a) Up to 80 percent of a loan in which case the Department's maximum liability for any loss under the Conventional Insurance is the lesser of $2,000,000 or an amount equal to the insured percentage times the authorized loan amount, or

(b) Up to 90 percent of a loan in which case the Department’s maximum liability for any loss under the Conventional Insurance is the lesser of $500,000 or an amount equal to the insured percentage times the authorized loan amount. Should a borrower which receives an insured loan default or otherwise be unable to make loan payments, the Department will pay the financial institution the deficiency of a loan times the insured percentage, subject to the limitation set forth above. The balance of any loss is absorbed by the financial institution. Loan payments, the proceeds of collateral (including collection of guarantees), and any recovery after payment of a deficiency are applied pro rata to the portion of a loan insured through Conventional Insurance and the uninsured portion of the loan.

(2)(a) Evergreen Entrants Insurance, under which the Department may insure up to 75 percent of a line of credit working capital loan. Should a borrower which receives an insured loan default or otherwise be unable to make loan payments, the Department will pay the financial institution the deficiency of the line of credit working capital loan times the insured percentage; provided that the Department's maximum liability for any deficiency under the Evergreen Entrants Insurance is the lesser of $1,500,000 or an amount equal to the insured percentage of the authorized loan amount. The balance of any loss is absorbed by the financial institution. Loan payments, the proceeds of collateral (including collection of guarantees), and any recovery after payment of a deficiency are applied pro rata to the portion of a loan insured through Evergreen Entrants Insurance and the uninsured portion of the loan.

(b) Eligible borrowers include persons or enterprises without or about to be without existing line of credit working capital loans.

(c) To obtain Evergreen Entrants Insurance, a financial institution must have the capacity to service the loan effectively, including monitoring compliance with any audit and control procedures prescribed by the Department or comparable procedures of the financial institution approved by the Department and must have in place and operating a lending program specializing in line of credit loans secured by or with advances based upon eligible accounts receivable and inventory or other assets. The Department must be satisfied that the financial institution is sufficiently experienced and capable of operating such a lending program effectively.

(3) First Loss Insurance, under which the Department will pay 100 percent of the deficiency of a loan, but the Department's maximum liability under the First Loss Insurance shall be the lesser of (a) the insured percentage (which shall not exceed 25 percent) times the authorized loan amount, (b) the insured percentage (which shall not exceed 25 percent) times the outstanding balance of the loan, including accrued interest and reasonable costs and expenses of collection and liquidation of collateral exclusive of costs attributable to environmental problems, but not taking into account the proceeds of collateral liquidation and payments by guarantors, or (c) $500,000. Any recovery after payment of a deficiency is applied first to the uninsured portion of the loan and then to the portion of a loan insured through First Loss Insurance.

(4)(a) Evergreen Plus Insurance, under which the Department may insure up to 90 percent of a new increment of a line of credit; provided that the Department's maximum liability under the Evergreen Plus Insurance is $1,500,000 and the aggregate amount of the line of credit insured under any program does not exceed 80% of the total line of credit. If a financial institution makes a payment request for any deficiency, the Department will pay to the financial institution the lesser of:

(A) A ratable share of the total default charges; or

(B) the deficiency times the insured percentage. The balance of any loss is absorbed by the financial institution. Loan payments, the proceeds of collateral (including collection of guarantees), and any recovery after payment of a deficiency are applied pro rata to the portion of a loan insured through Evergreen Plus Insurance and the uninsured portion of the loan.

(b) The formula for calculating the Department's ratable share of total default charges is:

R = (G÷T)*P

R represents the ratable share of total default charges.

G represents the amount of the new increment of the line of credit.

T represents the total credit facility made available.

P represents the principal outstanding upon default plus accrued unpaid interest and costs of collateral liquidation and collection of guarantees exclusive of costs attributable to environmental problems.

(c) To obtain the Evergreen Plus Insurance, a financial institution must have in place and operating a lending program specializing in line of credit loans secured by or with advances based upon eligible accounts receivable and inventory or other assets. The Department must be satisfied that the financial institution is sufficiently experienced and capable of operating such a lending program effectively.

(5) First Loss Collateral Support Insurance (aka Collateral Support Insurance), under which the Department will pay up to a maximum of 100 percent of the deficiency of a loan as follows. The Department's maximum liability under the Collateral Support Insurance per enrolled loan shall be the lesser of:

(a) The insured percentage times the authorized and enrolled loan amount;

(b) The insured percentage times the outstanding balance of the enrolled loan, including accrued interest and reasonable costs and expenses of collection and liquidation of collateral exclusive of costs attributable to environmental problems, after taking into account payments by guarantors but not taking into account the proceeds of collateral liquidation; or,

(c) 25% of the enrolled loan or $1,000,000. Collateral Support Insurance may not exceed a term of 5 years. Loan payments, the proceeds of collection of guarantees, and recovery after payment of a deficiency from any source other than liquidation of collateral are applied pro rata to the portion of a loan insured through Collateral Support Insurance and the uninsured portion of the loan; the proceeds of collateral are applied first to the uninsured portion of the loan and then to the portion of a loan insured through Collateral Support Insurance. Loans covered by Collateral Support Insurance must meet a participating Lender’s credit underwriting criteria with the exception of loan collateral adequacy. Borrowers with loans covered by Collateral Support Insurance must:

(a) Demonstrate significant current and historical cash flow coverage,

(b) Demonstrate strong credit history,

(c) Provide personal guarantees of significant owners; and,

(d) Meet other criteria as determined by the Department.

In contrast to First Loss Insurance, Collateral Support Insurance is only intended to mitigate a collateral shortfall and is not intended to mitigate other or additional credit deficiencies. Collateral Support Insurance will only be provided to the extent necessary to facilitate making a qualified loan, not on a maximum allowable basis for each loan. Loan proceeds may be used to pay off an existing loan where the collateral value is no longer adequate to secure the loan due to a decline in the value of the existing collateral (not due to the loan having been less than fully secured at inception). If any proceeds of the new insured loan are used to finance an existing loan of the lender making application for Collateral Support Insurance, to be eligible for Collateral Support Insurance the existing loan must have reached its maturity date and the new loan must also include new monies advanced to the borrower. Enrollment of the new loan in the Collateral Support Insurance will be limited to the amount of the collateral shortfall or the decline in the collateral value, from the date of the existing loan if proceeds are applied to an existing loan secured by the collateral, whichever is less. For the Collateral Support Insurance, the maximum insured percentage for insurance up to $500,000 shall be 25% of the loan. For insurance above $500,000 and up to $1,000,000 the maximum insured percentage shall be 20% of the loan.

(6) The Conventional Insurance, First Loss Insurance, and Collateral Support Insurance are available for all types of non-revolving loans with regular periodic payments of principal and interest no less often than annually for eligible purposes, including working capital loans that are secured by fixed assets or other collateral determined to be sufficient by the Department.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 13-2002(Temp), f. & cert. ef. 6-18-02 thru 12-13-02; Administrative correction 4-15-03; EDD 6-2005(Temp), f. & cert. ef. 8-5-05 thru 1-31-06; EDD 1-2006, f. & cert. ef. 2-10-06; EDD 5-2008(Temp), f. & cert. ef. 2-26-08 thru 8-1-08; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12; OBDD 18-2012(Temp), f. & cert. ef. 11-20-12 thru 5-17-13; OBDD 3-2013, f. & cert. ef. 5-23-13

123-021-0100

Loan Insurance Agreement

No loan authorization shall be effective unless the financial institution and the Department have executed a loan insurance agreement in a form acceptable to the Department setting forth the relative rights and responsibilities of the financial institution and the Department for all insured loans. The loan insurance agreement shall include without limitation the following:

(1) General conditions and provisions incorporating the requirements of this division of the rules and ORS 285.466 to 285.481.

(2) Provisions setting forth the responsibilities of the financial institution to prudently underwrite and service insured loans in such a manner as would be the normal and customary practice of a prudent lender making or servicing a loan without relying on loan insurance.

(3) A requirement that the financial institution notify the Department in writing within 5 business days after a borrower's payment is 30 days late and within fifteen business days of any other default or event or condition which indicates the loan may be difficult to collect in full. Upon default, the financial institution and/or Department shall take such action as may be prudent, including without limitation foreclosing on and liquidating collateral.

(4) A description of the Department's insurance programs and the method for paying insurance claims.

(5) The Department shall be entitled at its discretion to cancel or reduce its insurance obligation if the financial institution breaches its responsibilities under the loan insurance agreement.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09

123-021-0110

Insurance Premiums

(1) The Department shall charge a one-time (up-front) insurance premium. Premiums are due at the time financial institutions originate loans and execute loan authorizations with the Department. The Department's insurance is not effective until premiums are paid. It is expected that financial institutions will pass along the cost of premiums to borrowers. Premiums, expressed as a percentage of the Department’s maximum liability, shall be charged in accordance with the following schedule for the programs indicated: [Table not included. See ED. NOTE.]

(2) The fee for the Evergreen Entrants Insurance is 1.25 percent annually; the fee for the Evergreen Plus Insurance is 2.5 percent annually.

(3) For revolving lines of credit or evergreen facilities, the premium is based on the Department’s maximum liability in regard to the credit facility made available to a borrower, regardless of whether or not the line of credit is fully drawn down. Examples:

(a) The premium due on a $200,000, five year loan with 80% Conventional Insurance would be $3,200 ($200,000 x .80 x .02);

(b) The premium for a $200,000 loan with 75% Evergreen Entrants Insurance is $1,875 ($200,000 x .75 x .0125); this amount would be due every year thereafter for up to four additional years, assuming the loan and amount is renewed each year for the maximum term permitted under the Evergreen Entrants program (5 years);

(c) The premium for a $200,000, eight year loan with 25% First Loss Insurance is $2,500 ($200,000 x .25 x .05);

(d) The premium for a $700,000 increment to the line of credit with 25% Evergreen Plus Insurance is $4,375 ($700,000 x .25 x.025); this amount would be due every year thereafter for up to four additional years, assuming the loan and amount is renewed each year for the maximum term permitted under the program (5 years);

(e) The premium for a $1,000,000 five-year loan with a 15% Collateral Support Insurance is $5,250 ($1,000,000 x .15 x .035).

[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12; OBDD 18-2012(Temp), f. & cert. ef. 11-20-12 thru 5-17-13; OBDD 3-2013, f. & cert. ef. 5-23-13

123-021-0120

Administrative Costs of the Program

The Department may charge the fund actual and necessary administrative expenses in operating the fund and its programs.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285.476(2), 285.476(5) & 285.471(1)(b)
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09

123-021-0130

Delegation

With the exception of appeals, the Department may authorize and approve loan insurance authorizations and require execution of any document necessary or convenient to make effective such insurance.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 285B.200 - 285B.218
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09; OBDD 8-2011(Temp), f. & cert. ef. 12-8-11 thru 6-5-12; OBDD 7-2012, f. & cert. ef. 6-1-12

123-021-0140

Confidential Records

(1) The director or his designee shall provide nonexempt program records for inspection in accordance with ORS Chapter 192.

(2) The person requesting inspection of the records may be charged in advance the Department's cost for locating, compiling, copying, and mailing the records. Such costs shall include but not be limited to costs incurred in locating records, separating exempt and nonexempt records, having a custodian present during the inspection, preparing lists of data, making photocopies, and telefaxing materials. Fees to be collected shall be set forth in the Department's schedule of fees and may be amended from time to time as the Department in its sole discretion may determine.

(3) Except as otherwise provided in ORS Chapter 192, records exempt from disclosure include but are not limited to:

(a) Reports and analyses of reports obtained in confidence from creditors, employers, customers, suppliers, and others which bear on the borrower's character, finances, management ability, and reliability and which were obtained from persons or firms not required by law to submit them;

(b) Financial statements, tax returns, business records, employment history and other personal data submitted by or for borrowers, or analysis of such data;

(c) Interdepartmental advisory memoranda developed prior to a loan insurance decision;

(d) Formulas, plans, designs and related information which constitute trade secrets under ORS Chapter 192;

(e) Personal financial statements;

(f) Financial statements of borrower's;

(g) Customer lists;

(h) Information of a borrower pertaining to litigation to which the borrower is a party if the complaint has been filed, or if the complaint has not been filed, if the borrower shows that such litigation is reasonably likely to occur. This exemption does not apply to litigation which has been concluded and nothing is this section shall limit any right or opportunity granted by discovery or deposition statutes to a party to litigation or potential litigation;

(i) Production, sales or cost data; and

(j) Marketing strategy information that relates to a borrower's plan to address specific markets and borrower's strategy regarding specific competitors.

Stat. Auth.: ORS 285A.075 & 285B.200 - 285B.218
Stats. Implemented: ORS 192.430 & 285.035(5)
Hist.: EDD 5-1994(Temp), f. & cert. ef. 3-3-94; EDD 11-1994, f. & cert. ef. 7-29-94; EDD 24-2008, f. 7-31-08, cert. ef. 8-1-08; EDD 17-2009, f. 10-30-09, cert. ef. 11-1-09

The official copy of an Oregon Administrative Rule is contained in the Administrative Order filed at the Archives Division, 800 Summer St. NE, Salem, Oregon 97310. Any discrepancies with the published version are satisfied in favor of the Administrative Order. The Oregon Administrative Rules and the Oregon Bulletin are copyrighted by the Oregon Secretary of State. Terms and Conditions of Use

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