General
FAR 32.303 establishes the framework and requirements for loan guarantees to support national defense contracts, detailing agency, lender, and Federal Reserve roles and compliance obligations.
Overview
FAR 32.303 outlines the general rules and procedures for loan guarantees under Section 301 of the Defense Production Act, specifically for contracts or operations related to national defense. The regulation establishes the authority, limitations, and responsibilities for guaranteeing agencies, private financial institutions, and the Federal Reserve Banks in the administration of these loan guarantees. It clarifies that guarantees are typically less than 100% unless exceptional circumstances exist, and that such guarantees are not available to other government agencies. The section also details the roles of the Federal Reserve Board and Banks in regulating, supervising, and executing loan guarantee agreements, including setting interest rates, fees, and standardizing forms and procedures. The guaranteeing agency is responsible for certifying contractor eligibility and determining the terms of the guaranteed loan to support contract performance.
Key Rules
- Authority and Limitations
- Loan guarantees are authorized for national defense contracts, subject to Congressional limits and statutory exceptions.
- Guarantee Percentage
- Guarantees are generally less than 100% unless the contractor is vital to national defense and no other financing is available.
- Exclusion of Government Agencies
- Loan guarantees cannot be issued to other government agencies.
- Role of Private Financial Institutions
- Private lenders administer the loans, with the guaranteeing agency sharing losses up to the guaranteed percentage.
- Federal Reserve Involvement
- Federal Reserve Banks execute guarantee agreements and are supervised by the Federal Reserve Board, which sets regulations, rates, and procedures.
- Agency Responsibilities
- The guaranteeing agency certifies eligibility and sets loan terms to meet contract financing needs.
Responsibilities
- Contracting Officers: Ensure contractors are aware of loan guarantee options and eligibility requirements.
- Contractors: Apply for loan guarantees through private financial institutions and provide necessary documentation.
- Agencies: Certify eligibility, set loan terms, and coordinate with the Federal Reserve and the Federal Reserve Board for compliance.
Practical Implications
- This section enables contractors to secure financing for defense contracts when conventional funding is unavailable, supporting national defense priorities.
- Contractors must demonstrate exceptional need and lack of alternative financing for 100% guarantees.
- Agencies must carefully certify eligibility and loan terms to ensure compliance and proper use of federal guarantees.