(1) Matching loan funds must be provided in cash.

(2) The development loan agreement between the department and a MBDC must specify account(s) , or type of account(s) , into which the full amount of the cash matching funds must be deposited before the development loan may be disbursed to the MBDC, except that, when the MBDC presents a legally binding commitment for cash matching funds from a federal agency contingent only upon disbursement of the development loan, the development loan may be disbursed prior to deposit of that committed federal portion of the cash matching funds.

(3) In order to assist a MBDC in obtaining cash matching funds from other sources, the department may provide a legally binding commitment to a MBDC to award a development loan, contingent on receipt and deposit of cash matching funds as specified in the loan agreement.   Such a commitment will be made first to MBDCs with cash matching funds ready and available and then to MBDCs with strong evidence of commitments.   Commitments to those developing cash matching funds must have an expiration date.

(4) All development loan and matching funds not invested in microbusiness loans must be maintained in:

(a) direct obligations of, or obligations guaranteed as to principal and interest by, the United States which mature within 15 months from the date of investment; or

(b) repurchase agreements with federally insured institutions, with a maturity of seven days or less.   The securities underlying the repurchase agreements must be direct obligations of, or obligations guaranteed as to principal and interest by the United States.   The securities must be maintained in a custodial account at a federally insured institution; or

(c) certificates of deposit with a maturity of one year or less, issued by a federally insured institution; or

(d) deposit account in a federally insured institution; or

(e) a checking account in a federally insured institution; or

(f) a reasonable petty cash fund.

(g) deposit of funds in excess of the insured amount is allowed only if the institution meets the definition of "well capitalized" in accordance with the regulations of the federal deposit insurance corporation.

(5) All funds and all receivables held by MBDCs pursuant to the authority of the Microbusiness Development Act in cash, cash deposits or investments other than microbusiness loans or guarantee funds must be pledged as collateral to secure the development loan.

(6) A MBDC must provide the department with senior security interest in the full amount of all microbusiness loans made from development loan and matching funds.

(7) In the case that proceeds from a development loan are used to establish a revolving loan fund, from which loans are made directly to microbusinesses, matching loan funds must be deposited, invested and lent together with the development loan proceeds, and must be used for only those purposes for which the development loan fund proceeds are used, as defined in 17-6-407(5) , MCA.

(8) In the case that an MBDC establishes both a revolving loan fund and a guarantee fund, matching loan funds must be allocated between the guarantee fund and the revolving loan fund in the same proportion that development loan proceeds are allocated between the guarantee fund and the revolving loan fund.

(9) In the case that proceeds from a development loan are used in whole or in part to establish a guarantee fund, with which the MBDC guarantees loans made by financial institutions to microbusinesses, the following additional requirements apply:

(a) the guarantee agreement between the financial institution and the MBDC must be approved by the department prior to the placement of development loan proceeds in a guarantee fund;

(b) the MBDC must provide the department with a first lien against receivables of the MBDC generated by assignment by the financial institution to the MBDC, or purchase from the financial institution by the MBDC, of microbusiness loans;

(c) the MBDC must provide the department with no less than a second lien against the guarantee fund established with development loan proceeds.