1. (a) Subject to the other provisions of this subpart, a SEDO may borrow money to finance a § 26.69(c) investment entirely or partially if the SEDO has paid, on a net basis, at least 15 percent of the total value of the investment by the time the firm applies for certification.

   Example 1 to paragraph (a) introductory text:A SEDO who borrows $9,000 of her $10,000 cash investment in Applicant, Inc., must have repaid, from her own funds, at least $500 of the loan's principal by the time Applicant, Inc. applies for certification.

   Example 2 to paragraph (a) introductory text:A SEDO who finances $8,000 of a $10,000 investment in Applicant may apply for Applicant's certification at any time.

   Example 3 to paragraph (a) introductory text:A SEDO who contributes to the Applicant equipment worth $40,000, which she purchased with $10,000 of her own money and $30,000 of seller financing may apply for Applicant's certification at any time.

   1. (1) The SEDO pays the net 15 percent portion of the investment to Seller or Applicant (as the case may be) from her own, not borrowed, money.
   2. (2) Money that the SEDO receives as a § 26.69(e) gift is her own money.
   3. (3) The firm, whether Applicant or DBE, does not finance any part of the investment, directly or indirectly.

2. (b) The loan is real, enforceable, not in default, not offset by another agreement, and on standard commercial, arm's length terms. The following conditions also apply.

   1. (1) The SEDO is the sole debtor.
   2. (2) The firm is not party to the loan in any capacity, including as a guarantor.
   3. (3) The SEDO does not rely on the company's credit or other resources to repay any part of the debt or otherwise to finance any part of her investment.
   4. (4) The loan agreement requires level, regularly recurring payments of principal and interest, according to a standard amortization schedule, at least until the SEDO satisfies requirements in paragraph (a) of this section.
   5. (5) The loan agreement permits prepayments, including by refinancing.

3. (c) If the creditor forgives or cancels all or part of the debt, or the SEDO defaults, the entire debt-financed portion of the SEDO's purchase or capital contribution is no longer an investment.

   Example 4 to paragraph (c):SEDO finances $40,000 of a $50,000 investment, and the firm becomes certified. When the SEDO has repaid half of the loan's principal and associated interest, the creditor forgives the remaining $20,000 debt. The SEDO's investment is now $10,000.

4. (d) Paragraph (c) of the section does not prohibit refinancing with debt that meets the requirements of this section or preclude prompt curation under § 26.69(f).

[89 FR 24973, Apr. 9, 2024]