What is Credit Subsidy Cost? A Comprehensive Legal Overview

Definition & Meaning

The term credit subsidy cost refers to the net present value of estimated cash flows associated with a loan guarantee agreement at the time the agreement is executed. This includes:

Payments made by the government to cover defaults, delinquencies, interest subsidies, or other related payments.
Payments received by the government, which may include origination fees, penalties, and recoveries.

These cash flows are discounted to the point of disbursement, providing a financial estimate of the government's potential obligations and recoveries under the loan guarantee.

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Legal Use & context

Credit subsidy cost is primarily used in the context of federal loan guarantees, particularly in the energy sector and projects utilizing innovative technologies. This term is relevant in:

Financial regulations concerning government-backed loans.
Evaluating the financial implications of loan guarantees for both borrowers and lenders.

Users may encounter forms related to loan guarantees and subsidies, which can be managed using legal templates from US Legal Forms.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Here are a couple of examples of how credit subsidy cost might apply:

Example 1: A renewable energy company receives a loan guarantee from the government. The estimated credit subsidy cost is calculated based on potential defaults and recoveries over the loan's term.
Example 2: A manufacturer of innovative technology applies for a loan guarantee. The government assesses the credit subsidy cost to determine the financial risk involved (hypothetical example).

Relevant laws & statutes

Credit subsidy costs are governed by federal regulations, notably:

10 CFR 609, which outlines loan guarantees for projects employing innovative technologies.

Comparison with related terms

Term	Definition	Difference
Loan Guarantee	A promise by a third party to assume the debt obligation if the borrower defaults.	Credit subsidy cost is a financial estimate related to the guarantee, while the loan guarantee itself is the assurance provided.
Subsidy	Financial assistance provided by the government to support a specific sector or activity.	Credit subsidy cost specifically quantifies the financial implications of government support in loan guarantees.

Common misunderstandings

What to do if this term applies to you

If you are involved in a loan guarantee agreement, consider the following steps:

Review the terms of the loan guarantee carefully, particularly the estimated credit subsidy cost.
Consult with a financial advisor or legal professional to understand the implications of the credit subsidy cost on your financial obligations.
Explore US Legal Forms for templates that can assist you in managing loan agreements and related documentation.

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Quick facts

Attribute	Details
Typical Fees	Varies based on the loan agreement and the estimated risk.
Jurisdiction	Federal, primarily under the Department of Energy regulations.
Possible Penalties	Defaulting on loan guarantees may lead to financial penalties or loss of eligibility for future guarantees.