Sec. 71.7. Interest subsidies

(a) Maximum amount of interest subsidy.

(1) Interest subsidies shall be available to program recipients on loans from financing institutions in principal amounts up to $250,000.

(2) Rate.

The interest subsidy which the department shall pay on loans to program recipients by financing institutions shall be equal to the difference between the loan interest rate and the base rate established by the department. The base rate shall initially be five percent, provided, however, that such base rate shall at no time exceed 75 percent of the prime rate published daily in the Wall Street Journal.

(b) Term.

The term of an interest subsidy shall be determined by the department, in its sole discretion, but shall not exceed 10 years.

(c) Calculation of interest subsidy rate.

(1) The amount of an interest subsidy shall be the difference between the total interest due on a loan over the term of the loan, calculated at the financing institution's lending rate at the time of closing, and the interest due on such loan over such period, calculated at the base rate, multiplied by a fraction equal to the interest subsidy term divided by the term of the loan. The total amount of the interest subsidy may be discounted to reflect the payment of interest subsidies in advance of their becoming due.

(2) For variable rate loans, the amount of the interest subsidy will not change during the subsidy period, regardless of fluctuations in the financing institution's lending rate on that loan, except in cases where such lending rate drops to a level where the interest subsidy would result in the program recipient receiving a negative net interest rate. In such cases, the amount of the interest subsidy will be reduced accordingly.

(d) Default on interest subsidized loan.

Except as otherwise provided for in this subdivision, where a program recipient defaults on a loan, interest subsidies shall be terminated and any interest subsidy payments being held by the financing institution shall be returned to the department. The financing institution shall notify the department, in writing, of the default within 30 calendar days of its occurrence. The department, in its sole discretion, may authorize the financing institution to continue to receive interest subsidies on behalf of the program recipient for a period of time mutually agreed upon by the department and the financing institution, in order for the financing institution to work out a revised payment schedule with the program recipient. If continued interest subsidies are authorized by the department and loan payments are not resumed by the program recipient within 90 days of the initial default, then all subsidy payments will be terminated immediately. Where a new payment schedule is established between the financing institution and the program recipient, the total interest subsidy originally approved by the department will remain unchanged; provided, however, the department may establish a revised schedule of interest subsidy payments on behalf of the program recipient.

(e) Prepayment of loan.

In the event of the prepayment of a loan, the financing institution shall promptly return to the department any unapplied portion of the interest subsidy being held by the financing institution.