Bond Guarantee Program

CDFI Bond Guarantee Program Secondary Loan Requirements
In order for an Eligible CDFI to make a Secondary Loan through the CDFI Bond Guarantee
Program, it must ensure that the Secondary Loan is made in compliance with the applicable
Secondary Loan Requirements. Please refer to the CDFI Bond Guarantee Program’s regulations
at 12 C.F.R. 1808. Capitalized terms used herein and not defined elsewhere are defined in the
regulations at 12 C.F.R. 1808.102.

UNDERWRITING REQUIREMENTS APPLICABLE TO SECONDARY LOANS
If an Eligible CDFI proposes to make a Secondary Loan, the Eligible CDFI must have loan
policies and procedures in place which detail the origination, underwriting, credit approval and
portfolio management process for Secondary Loans to each asset type. Secondary Loans must
be made in compliance with the Secondary Loan Requirements. The Eligible CDFI’s
underwriting, credit approval and portfolio management processes will be evaluated during the
CDFI Fund’s Guarantee Application review, and approved asset types will be set forth in the
terms of the Bond Loan agreement, entered into by and between the Qualified Issuer (as lender)
and the Eligible CDFI (as borrower). The CDFI Fund may consent to allowing additional asset
types during the term of the Bond Loan. 1

REQUIREMENTS FOR ELIGIBLE CDFIS
In order to finance or refinance Secondary Loans with Bond Loan proceeds, the Eligible CDFI
must remain in compliance with the representations and warranties set forth in the corresponding
Bond Loan agreement.
REQUIREMENTS FOR SECONDARY LOAN AGREEMENTS / DOCUMENTATION
As a condition to closing and ongoing disbursements, the Eligible CDFI shall provide, to the best
of its knowledge, representations and warranties which, at a minimum, must include the
following with respect to each Secondary Loan.
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The Eligible CDFI must attest that it is in compliance with all financial and non-financial
covenants on existing indebtedness, both before and after the addition of Secondary
Loan.
The information provided with respect to the Secondary Loan set forth in loan
documentation is true and accurate.
There are no unsatisfied mechanics liens or claims for labor, materials, fines, confiscation
or repletion relating to the Secondary Loan.

See CDFI Bond Guarantee Program Underwriting Review Checklist.

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The Secondary Loan includes a schedule of monthly payments payable in United States
dollars, which, if timely paid, are sufficient to fully amortize the principal balance of the
Secondary Loan on its maturity date.
If the Secondary Loan is secured by a mortgaged property, the mortgaged property has a
valid and subsisting lien of record on the mortgaged property.
If the Secondary Loan is secured by collateral other than mortgaged property, the related
financing documents, security agreement and Uniform Commercial Code (UCC) filings
create a valid and subsisting lien of record on such pledged collateral.
If the Secondary Loan is secured by a mortgaged property, the mortgaged property is free
of contamination from toxic substances or hazardous waste requiring action under
existing applicable laws.
There are no delinquent tax or assessment liens on any property which is pledged as
collateral for the Secondary Loan.
The Secondary Loan is not subject to any right of rescission, set-off, counterclaim or
defense.
The Secondary Loan complies, in all material respects, with applicable State and Federal
laws and regulations including, without limitation, usury, equal credit opportunity,
disclosure and recording laws.
The Secondary Borrower is not subject to any ongoing, pending, or threatened litigation
that impairs its ability to undertake the proposed Secondary Loan project or continue with
the proposed Secondary Loan business.
The Secondary Borrower is current on all withholding tax, corporate income tax and
owner’s personal income tax liability.
The Secondary Borrower’s management or governing organization has been approved by
and is in good standing with its licensing authority.
The Secondary Borrower shall warrant that the proposed Secondary Loan site and
facilities shall maintain comprehensive insurance coverage, security, required ground
leases, and easements through the final maturity of the Secondary Loan
For Secondary Loans benefitting from a Principal Loss Collateral Provision (structured
either as a payment guarantee or deficiency guarantee), the provider of a Principal Loss
Collateral Provision must be an institution with an investment grade rating from a public
rating agency or, in the case of a private provider such as a foundation, have substantial
liquidity and financial assets as determined by Bond Guarantee Program Credit and Risk
Management and the Credit Review Board. A financial institution provider that is
regulated by an Appropriate Federal Banking Agency or an Appropriate State Agency,
must demonstrate performance of financially sound business practices relative to the
industry norm for providers of collateral enhancements as evidenced by reports of
Appropriate Federal Banking Agencies, Appropriate State Agencies and / or auditors.

COLLATERAL REQUIREMENTS
If an Eligible CDFI proposes to finance or refinance a Secondary Loan utilizing funds drawn
under the Bond Loan (including funds that reside in the Relending Account), the Secondary
Loan shall be secured by pledged collateral as set forth below.
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General Requirements Applicable to All Secondary Loans
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Secondary Loans may be utilized for expansion or major renovation projects , but may
not be used for new construction..
Secondary Loans must be secured by a perfected senior lien on pledged collateral to the
Eligible CDFI, which shall in turn be assigned to the Federal government. In no event
shall the Eligible CDFI’s claim on pledged collateral be subordinated to the claims of
another creditor.
Pledged collateral must have a useful life no less than the life of the proposed Secondary
Loan.

Eligible Forms of Secondary Loan Collateral
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Eligible forms of collateral to secure Secondary Loans include:
o Real estate, including land and existing structures
o Machinery, equipment, and movables
o Cash and cash equivalents
o Accounts receivable
o Letters of credit
o Inventory
o Fixtures
o Contracted revenue streams from non-federal creditworthy counterparties
provided the Secondary Borrower pledges all assets, rights and interests necessary
to generate such revenue stream
o Principal Loss Collateral Provision.

A Principal Loss Collateral Provision may be provided in lieu of pledged collateral and in
addition to pledged collateral. A Principal Loss Collateral Provision shall be in the form of letter
of credit, cash or cash equivalent guarantees in the amounts necessary to secure the Eligible
CDFI’s obligations under the Bond Loan after exercising other remedies for default. A Principal
Loss Collateral Provision may be structured in the form of a deficiency guarantee whereby
another entity assumes liability after other default remedies have been exercised and it covers the
deficiency incurred by the creditor. The Principal Loss Collateral Provision shall at a minimum
provide for an amount that is not less than the difference between the discounted value of the
collateral and the unpaid principal balance of the outstanding SecondaryLoan.
Intangible assets, such as customer relationships or intellectual property rights, and to-beconstructed real estate improvements are not acceptable forms of collateral.
Requirements for Secondary Loan Collateral Valuation
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The value of pledged collateral for Secondary Loans must be determined in accordance
with the following guidelines:

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o Independent third party appraisals: Appraisals shall conform to the standards set
forth in The Uniform Standards of Professional Appraisal Practice (USPAP)
established by The Appraisal Foundation. Independent third party appraisals shall
be required for the following:
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Real estate
All fixtures, machinery and equipment and movables stock valued in
excess of an aggregate value of $250,000
Contracted revenue streams from non-federal creditworthy counterparties
provided the Secondary Borrower pledges all assets, rights and interests
necessary to generate such revenue stream.

o Book Value: Secondary Loan collateral shall be valued using the cost approach,
net of depreciation, and shall be required for the following:
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Inventory
Accounts Receivable
Machinery, equipment, & movables less than or equal to an aggregate
value of $250,000
Fixtures

Loan-to-Value Requirements
In each month of the Secondary Loan amortization period, the following requirements shall
apply:
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Real estate (except owner-occupied homes): Any Secondary Loan collateralized by real
estate (except owner-occupied homes) must have a loan-to-value ratio of 90 percent or
less, with additional collateral required for any amount in excess of 80 percent of value.
Owner-occupied homes: Any Secondary Loan collateralized by an owner-occupied home
must have a loan-to-value ratio of 95 percent or less, with additional collateral required
for any amount in excess of 90 percent of value.
New machinery, fixtures, equipment, and movables: Any Secondary Loan collateralized
by new equipment, machinery, or movables, must have a loan-to-value ratio of 70 percent
or less.
Used machinery, fixtures, equipment, and movables: Any Secondary Loan collateralized
by used equipment, machinery, or movables, must have a loan-to-value ratio of 40
percent or less.
Inventory: Any Secondary Loan collateralized by inventory must have a loan-to-value
ratio of 75 percent or less.
Accounts receivables: Any Secondary Loan collateralized by accounts receivable must
have a loan-to-value ratio of 80 percent or less.
Cash, cash equivalents, letters of credit, and Principal Loss Collateral Provision: Any
Secondary Loan collateralized by cash, cash equivalent, letters of credit, and Principal
Loss Collateral Provision shall have a loan-to-value ratio of 100 percent or less.
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Contracted revenue stream: Any Secondary Loan collateralized by a contracted revenue
stream shall have a loan-to-value ratio of 70 percent or less.
Letters of Credit or Principal Loss Collateral Provision: Any Secondary Loan
collateralized by a letter of credit or Principal Loss Collateral Provision shall have a loanto-value ratio of 100 percent or less.
Additional collateral: Additional collateral may be utilized to satisfy loan-to-value
requirements set forth above, provided a senior lien is provided on such additional
collateral and the combined collateral satisfies the loan-to-value requirements in each
month of the loan amortization period.

Additional Collateral Requirements for Credit Enhancements
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For Secondary Loans that satisfy applicable collateral requirements but require a Credit
Enhancement, secondary liens on real estate owned by guarantors is acceptable to secure
the Credit Enhancement.

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