CHAPTER VIII: ILLINOIS FINANCE AUTHORITY
PART 1100 ILLINOIS FINANCE AUTHORITY
SECTION 1100.735 RULES AND GUIDELINES APPLICABLE TO THE STATE GUARANTEE PROGRAM FOR AGRI-INDUSTRIES
Section 1100.735 Rules and Guidelines Applicable to the State Guarantee Program for Agri-Industries
a) General Description of Program. The State Guarantee Program for Agri-Industries (SGPAI) was created to encourage diversification and vertical integration of Illinois agriculture. The provisions of this Section are applicable only to the SGPAI, and the provisions of Sections 1100.705, 1100.710, 1100.725 and 1100.730 of this Part are inapplicable to the SGPAI and procedures provided for pursuant to this Section.
b) Definitions
Words defined in the Illinois Finance Authority Act and in Section 1100.50 have the same meaning when used in this Subpart unless a more specific definition is prescribed in this Section. This Section establishes additional definitions for use in this Subpart only.
"Agribusiness" means any sole proprietorship, limited partnership, co-partnership, joint venture, corporation or cooperative which operates or will operate a facility located within the State of Illinois that is related to the processing of agricultural commodities (including, without limitation, the products of agriculture, hydroponics and silviculture) or the manufacturing, production or construction of agricultural buildings, structures, equipment, implements, and supplies, or any other facilities or processes used in agricultural production. [20 ILCS 3501/801-10(z)]
"Applicant" means a farmer/agribusiness whose application for a State Guarantee has been submitted to the Authority by a lender.
"Farmer" means a resident of Illinois who is a principal operator of farm or land, at least 50% of whose annual gross income is derived from farming, whose annual total sales of agricultural products, commodities or livestock exceeds $20,000 and whose net worth does not exceed $500,000. [20 ILCS 3501/830-35]
"Fund" means the Illinois Farmer and Agribusiness Loan Guarantee Fund, which is the State's fund to cover losses resulting from defaults on SGPAI loans.
"Gross Annual Income" means income as defined in Section 61 of the Internal Revenue Code (26 USC 61).
"State Guarantee" means a note for which the State of Illinois shall be liable for 85% of the total principal and interest of the note as described by the Authority.
c) Applicant Eligibility Requirements
1) Farmer. To qualify for participation each farmer must:
A) be a resident of Illinois [20 ILCS 3501/830-35];
B) be at least 18 years of age at the time of application;
C) be the principal operator of a farm or land for which the funds guaranteed by the State Guarantee are to be used [20 ILCS 3501/830-35];
D) be able to show, based upon his/her most recent federal income tax return and/or current data, that at least 50% of his/her gross income is derived from farming [20 ILCS 3501/830-35];
E) be able to show, based upon his/her most recent federal income tax return and/or current data, that his/her total sales of agricultural products, commodities, or livestock exceeds $20,000 [20 ILCS 3501/830-35];
F) be able to show that his/her net worth does not exceed $500,000 [20 ILCS 3501/830-35].
2) Agribusiness. To qualify for participation each agribusiness must:
A) be located in Illinois;
B) use agricultural products which are now grown or raised in Illinois, or which will be grown or raised in Illinois.
3) Joint Requirements. To qualify for participation each applicant must:
A) Promote diversification of the farm economy of this State through the growth and development of new crops or livestock not customarily grown or produced in this State or that emphasize a vertical integration of grain or livestock produced or raised in this State into a finished agricultural product for consumption or use. "New crops or livestock not customarily grown or produced in this State" shall not include corn, soybeans, wheat, swine or beef or dairy cattle. "Vertical integration of grain or livestock produced or raised in this State" shall include any new or existing grain or livestock grown or produced in this State; [20 ILCS 3501/830-35];
B) provide sufficient collateral to secure the entire loan at the time of application and agree to keep the loan collateralized in the future;
C) agree to make all payments on the State Guarantee within 90 days of the stated payment date. If any payment is not made within said 90 day period, then the total outstanding principal and interest on the entire State Guarantee loan are due and payable immediately. The State Guarantee loan cannot be reinstated after the 90 day delinquency period.
d) Any State Guarantees provided under this Section:
1) shall not exceed $500,000 per farmer or an amount as determined by the Authority on a case-by-case basis for an agribusiness;
2) shall not exceed a term of 15 years;
3) shall be subject to an annual review and renewal by the lender and the Authority. [20 ILCS 3501/830-35]
e) Application Procedures and Review
1) Lenders shall apply for the State Guarantees on forms provided by the Authority, certify that the application and any other documents submitted, such as balance sheets, security analyses, cash flow projections and feasibility studies are true and correct, and shall be liable to the Authority for any damages suffered because of an incorrect or untrue statement contained in any certified application. The application shall at a minimum contain the farmer's or agribusiness' name, address, present credit and financial information, including cash flow statements, financial statements, balance sheets and any other information pertinent to the application and the collateral to be used to secure the State Guarantee, such as feasibility studies, purchase contracts or sales contracts. [20 ILCS 3501/830-35]
2) After approval of the application and receipt of the documentation necessary prior to closing the loan, the Authority shall send a State Guarantee Closing Documents package to the lender containing all the appropriate forms and documents to execute; upon completion of all such forms and documents by the applicant, lender and Authority, the State Guarantee loan will be considered closed.
3) The application period for the SGPAI shall commence immediately upon the determination that these Rules are properly filed with the Office of the Secretary of State and end when the Authority has issued State Guarantees equal to $50,000,000 through this SGPAI program and the YFG and SLP programs, or at any later time as may be set from time to time by legislative extension.
4) Following submission of the Guarantee application by the lender, the Authority shall review the application. The Authority's review will include whether the applicant is an eligible farmer or agribusiness and whether the lender has complied with the requirements of subsection (f) of this Section. The Authority's review will also include evaluation of such factors as collateral, percentage of loan, debt to asset ratio, cash flow, and other information submitted by the applicant.
5) When a State Guarantee application is submitted to the Authority, the Executive Director shall review the application to determine whether it is complete pursuant to subsection (e)(1), and whether it meets the criteria established by the Act and this Subpart:
A) If the Executive Director determines that the loan application is incomplete, he/she shall within 14 days of such determination inform the lender and the applicant of such determination and detail the information or material that is necessary to complete the application. For the purpose of subsection (j) of this Section no application shall be deemed complete until the lender or applicants have provided the additional information or material requested by the Executive Director.
B) When the Executive Director has completed his/her review of the Guarantee application, he/she shall present the application with a statement of recommended action to the Board at its next regularly scheduled meeting. The Executive Director will base the review on such factors as collateral, percentage of loan, debt to asset ratio, cash flow and other information submitted by the applicant.
8) The Board shall review each loan application presented by the Executive Director using the criteria in subsection (e)(6), and the Board shall:
A) approve the application and provide the Guarantee pursuant to the Act and this Part; or
B) deny the application and serve upon the lender and applicant a written statement of the grounds of the denial.
9) Each applicant shall pay a $300 application fee which will be submitted to the Authority at the time of the application. At the time the loan is made, the applicant may be required to pay a closing fee not greater than ¾ of 1% of the State Guarantee loan amount. Of this ¾ of 1% closing fee, the Authority shall receive ½% to cover administrative and legal expenses and the lender shall receive ¼% to cover administrative expenses incurred in completing the application packet and closing documents. The ¾ of 1% closing fee may be included in the State Guarantee loan amount. The Authority shall credit the $300 application fee against the closing fee. The lender shall charge no fees or points in addition to those outlined herein. The applicant shall be responsible for paying any fees or charges involved in recording mortgages, releases, financing statements, insurance for secondary market issues and any other similar fees or charges necessary for closing and maintaining the State Guarantee or selling it into the secondary market. [20 ILCS 3501/830-35]
10) If the application is denied, the applicant and the lender may file a Request for Reconsideration stating reasons why the Board should withdraw its denial of the application. This Request for Reconsideration must be filed with the Authority not later than 21 days after denial and should be accompanied by supporting documents and/or information not previously considered by the Board. The Board shall review the Request at its next scheduled meeting. The review will be based on the criteria established in subsection (e)(4). Based on the review, the Board shall approve or deny the Request for Reconsideration. A denial of a Request for Reconsideration shall be final. While a Request for Reconsideration is pending, the application that is the subject of the Request shall be deemed complete for the purposes of the subsection (j) of this Section.
f) Provision or Renewal of State Guarantees. The Authority shall provide or renew a State Guarantee to a lender if, in addition to meeting the other criteria described in the Act and this Section:
1) a fee equal to 25 basis points on the loan is paid to the Authority on an annual basis by the lender, along with any other necessary expenses for maintaining the State Guarantee [20 ILCS 3501/830-35];
2) the application provides collateral acceptable to the Authority that is at least equal to the State's portion of the Guarantee to be provided [20 ILCS 3501/830-35];
3) the lender assumes all responsibility and costs for pursuing legal action on collecting any loan that is delinquent or in default subject to consulting with the Authority [20 ILCS 3501/830-35];
4) the lender agrees that it is responsible for the first 15% of the outstanding principal of the note for which the State Guarantee has been applied [20 ILCS 3501/830-35];
5) the lender assumes responsibility for proceeding with the collecting and disposing of collateral on the State Guarantee within 14 months of the date the State Guarantee is declared delinquent; provided, however, that the lender shall not collect or dispose of collateral on the State Guarantee without the express written prior approval of the Authority. Approval will be granted if the collateral is disposed of in a reasonably commercial manner based on the manner, time and place of the sale, the purchase price and the purchaser. In the event the lender does not dispose of the collateral within 14 months, the lender shall be liable to repay to the State interest on the State Guarantee equal to the same rate that the lender charges on the State Guarantee; provided that the Authority shall have the authority to extend the 14 month period for a lender in the case of bankruptcy or extenuating circumstances that prevent the lender from liquidating the collateral. [20 ILCS 3501/830-35] The lender shall repay this interest to the State until the collateral for the State Guarantee has been liquidated and the State has been reimbursed. If the lender fails to repay the State the interest as outlined herein, the Authority shall turn the matter over to the Attorney General's office for appropriate legal action;
6) agrees that after the sale of collateral, the State shall be reimbursed 85% of the remaining principal amount of the State Guarantee loan. If funds from the sale of the collateral remain after this payment, the lender shall be reimbursed 15% of the remaining principal amount of the loan. If excess funds remain after paying the remaining principal to the State and lender, then the State and lender shall be repaid interest on a pro-rated basis; 85% of such excess funds shall be allocated to the State's portion and 15% to the lender's portion. If excess funds exist after repaying both the State and the lender, these funds shall be paid to the borrower.
g) Review and Revocation
1) The SGPAI loan shall be reviewed annually by the lender and the Authority for review of collateral value and performance by the borrower. If the Authority determines that the existing collateral is insufficient to cover the State's liability, additional collateral will be requested. If the borrower fails to pledge such additional collateral, the State Guarantee may be revoked. The determination of whether to revoke the State Guarantee will be based on the borrower's ability to service the debt. If the Authority calls the State Guarantee, the holder of the Guarantee will be paid 85% of the outstanding principal and interest balance and the borrower will be liable to reimburse the State.
2) A State Guarantee may be revoked by the lender or the Authority upon a 90-day written notice to all parties specifying the reasons for such revocation (e.g., submission of false documents, changing loan documents or change of State residency).
3) If an interest rate is variable, a lender may not withdraw from a SGPAI loan for any reason except for lack of performance on the borrower's part, insufficient collateral, or maturity. [20 ILCS 3501/830-35]
4) A lender may review and withdraw or continue with a State Guarantee on an annual basis after the first five years following closing of the loan application if the loan contract provides for an interest rate that shall not vary. [20 ILCS 3501/830-35] If a lender undertakes such a review, it must provide written notification of its decision whether to withdraw or continue. Such notification must be provided on or before the date on which payment is due.
5) The applicant must make all payments within 90 days after the stated payment date. Failure to make any payments on or before its due date shall render the loan delinquent. Notice of this delinquency shall immediately be sent to all parties. If the loan remains delinquent for a period of 90 days, the total outstanding principal and interest balances on the SGPAI loan shall become due and payable. The State Guarantee cannot be reinstated after the 90-day delinquency period.
h) Valuation of Collateral. All collateral shall be evaluated by IFA staff or appraised by a qualified appraiser. A qualified appraiser is one who is qualified by virtue of membership in the Illinois Society of Farm Managers and Appraisers or one whose qualifications have been reviewed by the Authority. The Authority will consider an appraiser qualified who has at least three years experience appraising farmland. The Authority shall have final authority to determine whether the collateral is sufficient to cover the State Guarantee loan and may appoint an independent appraiser to aid in its determination. The Authority will view real estate as the primary collateral on SGPAI loans. Machinery and equipment and breeding livestock will be used only as secondary collateral except where no real estate is available. Collateral value may be reviewed each year by the lender or an independent appraiser appointed by the Authority. The applicant shall be liable to pay for all appraisal fees which are incurred when the value of the collateral is established.
i) Fund. To implement and carry out the objectives of the SGPAI, there is created outside of the State's Treasury a special fund to be known as the Illinois Farmer and Agribusiness Loan Guarantee Fund. [20 ILCS 3501/830-35]
1) The Authority is authorized to transfer an amount not to exceed $15,000,000 to the fund during the SGPAI, Young Farmer Guarantee, and Specialized Livestock Guarantee.
2) The State will not be liable for more than $15,000,000 to secure State Guarantees issued under this Section, Young Farmer Guarantees under Section 1100.720, and Specialized Livestock Guarantees under Section 1100.730.
3) In the event of default by the farmer or agribusiness on State Guarantee Loans, the lender shall be entitled to, and the Authority shall direct payment on, the State Guarantee after 90 days of delinquency. [20 ILCS 3501/830-35] The Authority shall direct a single payment equal to 85% of the outstanding principal plus interest accrued since the date payment was due.
4) The fund shall be reimbursed for any amount paid under this subsection (i) upon liquidation of the collateral. [20 ILCS 3501/830-35]
j) Priority of Applications. Applications shall be processed by the Authority on a first-come, first-served basis, based upon the receipt of all completed documents.
k) Guarantors and Additional Collateral. An applicant for a State Guarantee loan may have a guarantor co-sign the note and/or pledge additional collateral for the State Guarantee loan if the lender and the Authority determine that the applicant alone cannot provide sufficient collateral.
l) The State Guarantee. In the event of default, the Authority shall make payment on the State Guarantee of 85% of the outstanding principal and interest owned on the State Guarantee to the holder of the State Guarantee within 30 days after receiving an appropriate request from the lender certifying that the 90-day delinquency period has elapsed.
m) Prepayment of Loan. The frequency of payments due on a SGPAI loan shall be determined on a case by case basis. Payment schedules will be tailored to match the operation's income. The loan may be prepaid in full or in part without penalty at any time during the term of the loan.
n) Assumption of Loans. State Guarantee loans may not be assumed except with the approval of the Board. Approval will be granted only in unusual circumstances such as death of the borrower with assumption by a family member.
o) Total Obligations Through the SGPAI. The Authority shall guarantee up to $50,000,000 in loans through the SGPAI, the Young Farmer Guarantee, and the Specialized Livestock Guarantee. The Illinois Farmer and Agribusiness Loan Guarantee Fund shall be funded with $15,000,000 to cover any losses.
(Source: Amended at 26 Ill. Reg. 7084, effective May 10, 2002; recodified from 8 Ill. Adm. Code 1400.149 at 31 Ill. Reg. 12104)