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    Subdivision 1. Authority for and limitation of guaranty. Subject to the provisions of
sections 41A.01 to 41A.06 and upon determination that a loan will serve the public purposes and
satisfy the conditions set forth in sections 41A.01 to 41A.06, the state may guarantee and commit
to guarantee against loss an amount not exceeding 90 percent, exclusive of accrued interest, of a
loan for the cost of an agricultural resource project or the refunding or refinancing of a loan. The
loan must be secured by the best available collateral including but not limited to a mortgage on
and security interest in all real and personal property comprising the project and other collateral
as provided in the loan agreement.
    Subd. 2. Limitation of loan amount. The total principal amount of any guaranteed loan
may not exceed 80 percent of the total cost of the related project as estimated by the state at the
time the commitment to guarantee is made or, in the case of a refunding or refinancing loan, 80
percent of the aggregate amount of principal and interest refunded or refinanced. If the actual
cost exceeds the estimate the state may, upon request of the borrower and the lender, consent to
an increase of the loan by a principal amount not greater than 80 percent of the excess cost, and
may increase the guaranteed amount by not more than 90 percent of the increase in the principal
amount, and accrued interest on that amount.
    Subd. 3. Required provisions. A loan guaranty or loan agreement pertaining to any loan
guaranteed by the state may provide that:
(a) Payments of principal and interest made by the borrower under the loan shall be applied
by the lender to reduce the guaranteed and nonguaranteed portion of the loan on a proportionate
basis, and the nonguaranteed portion shall not in any event receive preferential treatment over the
guaranteed portion.
(b) A period of grace shall be allowed of not less than 60 days from a date a principal or
interest payment is due, prior to the making of demand for payment pursuant to the loan guaranty,
to permit adequate time for a decision on behalf of the state regarding principal and interest
assistance in accordance with subdivision 4. Payment as required by the loan guaranty shall be
made within 60 days after receipt by the state of written demand complying with the terms and
conditions of the guaranty.
(c) The lender may not accelerate repayment of the loan or exercise other remedies available
to the lender if the borrower defaults, unless (i) the borrower fails to pay a required payment of
principal or interest, or (ii) the state consents in writing, or (iii) as otherwise permitted in the loan
guaranty. In the event of a default, the lender may not make demand for payment pursuant to the
guaranty unless the state agrees in writing that such default has materially affected the rights or
security of the parties, and finds that the lender should be entitled to receive payment pursuant
to the loan guaranty.
(d) If a payment of principal or interest is made by the state upon default of the borrower, the
state shall be subrogated to the rights of the lender with respect to the payment.
(e) The borrower shall have promptly prepared and delivered to the state annual audited or
reviewed financial statements of the project prepared by a certified public accountant according
to generally accepted accounting principles.
(f) Duly authorized representatives of the state shall have access to the project site at
reasonable times during construction and operation of the project.
(g) The borrower shall maintain adequate records and documents concerning the construction
and operation of the project in order that representatives of the state may determine its technical
and financial conditions and its compliance with environmental requirements. The records shall
include the amounts of all sales and use taxes paid on personal property and services purchased
for the construction and operation of the project, with tax receipts furnished by the sellers or other
supporting documentation determined by the board to be satisfactory. The amounts of those taxes
shall be reported to the board in the manner and at the times required by the board.
(h) The borrower shall protect and preserve at all times the project assets and other collateral
securing the loan and shall assist in liquidation of collateral to minimize loss in the event of default.
(i) Orderly liquidation of assets of the project shall be provided for in the event of default,
with an option on the part of the state to acquire from the lender the lender's interest in the assets
pursuant to the nonguaranteed portion of the loan.
(j) The state shall be paid at or prior to the closing of the guaranteed loan a fee or fees for the
loan guaranty or the commitment to guarantee the loan. The aggregate fee may not exceed one
percent of the total principal amount of the guaranteed portion of the loan.
(k) The lender shall perfect and maintain the mortgage lien on the real estate and the security
interest in personal property and collateral granted as security for the loan, and shall cause all
other loan servicing functions to be performed which are normally required or performed by a
reasonable and prudent lender with respect to a loan without a guaranty.
(l) The state shall be notified in writing without delay of (i) the date and amount of and basis
for each disbursement of loan proceeds; (ii) any nonpayment of principal or interest due; (iii) any
failure to honor a commitment by any person of an intended source of capital for the project; and
(iv) any significant adverse changes from original cash flow projections as evidenced by reports
from the borrower, or any other known evidence that the borrower might be unable to meet a
future scheduled payment of principal or interest.
(m) The loan agreement shall require the borrower to establish a reserve, from the proceeds
of the loan or otherwise, to be maintained with the lender or with a trustee for the holders of the
borrower's obligations in cash or securities of a specified market value not less than one-half of
the annual amount which would be required to amortize the entire amount of the loan over the
term and at the interest rate (or at the rate of yield resulting from the interest rates) provided in
the loan agreement.
(n) The agreement shall contain other terms and conditions that the board in its sole
discretion determines necessary and appropriate to carry out the purposes of this chapter.
    Subd. 4. Principal and interest assistance. The state may at any time enter into a written
contract with the borrower to pay the lender, on behalf of the borrower, an amount not greater
than the amount of principal and interest to become due on one or more subsequent dates, without
acceleration, if the state determines that (i) the borrower is not in default in payment of principal
or interest due more than 60 days prior to the date of the contract; (ii) the borrower is or may
become unable to meet in full principal or interest payments, or both, which are due or to become
due within a specified period; (iii) it is in the public interest to permit the borrower to continue to
pursue the purposes of the project; (iv) the probable net financial loss to the state will be less than
that which would result in the event of a default; (v) the borrower is obligated by the contract
to reimburse the state for all principal or interest advanced, with interest on those amounts,
upon terms and conditions satisfactory to the state; and (vi) funds are available for allocation to
the account established for the project in the guaranty fund, and are continuously allocated to
the account in accordance with the provisions of section 4, subdivision 3, in an amount equal
to the amount of interest on the advances until actually reimbursed to the state by the borrower.
All sums so advanced and interest on those amounts shall be secured by the mortgage lien and
security interest granted by the loan agreement, but none of the advances shall thereafter be repaid
to the state until and unless all principal and interest currently due on the loan has been fully paid.
In the event of subsequent default by the borrower, acceleration by the lender, and payment by
the state of the full amount due under the loan guaranty, the state shall be subrogated to the
rights of the lender with respect to the principal paid by it under the contract. Upon payment of
the loan in full, with accrued interest, the remaining amount of the advances and interest on the
advances may be paid to the state.
    Subd. 5. Limitation on liability. The liability of the state for loan guaranties or bonds
authorized under this chapter is limited to the amount of funds appropriated to the guaranty
fund pursuant to section 41A.06. The legislature intends not to appropriate money from the
general fund to the guaranty fund, other than the sales and use taxes from a project as provided
for in section 41A.06, subdivision 4. The loan guaranties or bonds are not a general obligation
or debt of the state.
History: 1984 c 502 art 10 s 3; 1Sp1985 c 13 s 151-153; 1990 c 610 art 2 s 2