32.304-8
Other borrowing
Contractors may obtain additional loans during a government-guaranteed loan period only with agency consent and must comply with strict limits, collateral, and reporting requirements.
Overview
FAR 32.304-8 addresses the circumstances under which contractors may seek additional borrowing (outside of a government-guaranteed loan, or "V-loan") during the period of the guaranteed loan. While the ideal is to prohibit such outside borrowing, the regulation recognizes that it may be necessary in some cases. If an agency consents to this additional borrowing, it must impose specific restrictions to protect the government's interests and ensure transparency.
Key Rules
- Permitting Other Borrowing
- Contractors may obtain additional, unguaranteed loans during the guaranteed loan period if the agency consents and certain restrictions are applied.
- Agency-Imposed Restrictions
- Agencies must set a reasonable limit on the amount of other borrowing.
- If both guaranteed and unguaranteed loans are from the same institution, any collateral for the unguaranteed loan must also serve as secondary collateral for the guaranteed loan.
- Contractors must provide documentation to the agency, at least every 30 days, disclosing all outstanding unguaranteed borrowings.
Responsibilities
- Contracting Officers: Must ensure any consent to other borrowing includes the required restrictions and monitoring.
- Contractors: Must comply with borrowing limits, collateral requirements, and timely reporting of unguaranteed borrowings.
- Agencies: Must review and monitor contractor disclosures and enforce compliance with borrowing restrictions.
Practical Implications
- This section exists to prevent contractors from over-leveraging or jeopardizing the government's security interest during the guaranteed loan period.
- It impacts how contractors manage their financing and requires careful coordination with both the agency and lending institutions.
- Common pitfalls include failing to report unguaranteed borrowings or not adhering to collateral requirements, which can jeopardize contract performance or loan guarantees.