(b) Collateral.

1. (1) Repayment of an insured loan shall be secured by such collateral as the authority deems prudent.
2. (2) Insured loans may, at the discretion of the authority, be secured by collateral valued for collateral purposes at less than the amount of the insured loan, provided the borrower, its principals, and any guarantors are of good character and have good credit histories.

3. (3)

   1. (A) Real estate or unmovable machinery or equipment constituting a significant portion of collateral for repayment of an insured loan shall be located within the state.
   2. (B) Mobile machinery or equipment constituting a significant portion of collateral for repayment of an insured loan shall be:

(i) Registered with and taxed by the state or municipal authorities, if the state or municipal authorities register or tax machinery or equipment of a type similar to the collateral; and

1. (ii) Stored in the state when not in use.

   1. (c) Covenants.
2. (1) The covenants and requirements of the loan shall be established by the lender in accordance with prudent lending practices.

3. (2) The authority may require such additional covenants and requirements as may be:

   1. (A) Necessary;
   2. (B) Prudent; or
   3. (C) Desirable.

4. (3) At a minimum, the documents should ordinarily require the borrower to:

   1. (A) Make periodic interest payments with a balloon principal payment at receipt of final contract payment or due date of the loan;
   2. (B) Assign progress payments to an escrow agent that will be responsible for payment of appropriate charges against the contract;
   3. (C) Maintain adequate insurance on collateral and maintain books and records on the business;
   4. (D) Pay any taxes or governmental charges assessed against the collateral and comply with all applicable laws and regulations;
   5. (E) Keep the collateral free of liens and encumbrances except for as may be expressly accepted by the lender and the authority;
   6. (F) Provide for periodic financial reports; and
   7. (G) Repay advances necessary to protect the collateral and all expenses of protecting or enforcing the rights of the lender and the authority.