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FEDERAL RESERVE BANK
OF NEW YORK
Fiscal Agent of the United States
r Circular No. 2 9 4 1 1
L
May 5, 1945
J

REGULATION Y
T-Loans for Prime Contractors and Subcontractors Engaged in War Production
To All Banks, Other Financing Institutions and Others Concerned
in the Second Federal Reserve
District:

W e believe that all prime contractors and subcontractors should consider immediately whether they have made
adequate arrangements to recover their working capital invested under war production contracts, in the event such
contracts are terminated or cancelled for the convenience of the Government. Ordinarily, unless those engaged in
war production have assured financing under a V or T guarantee arrangement or by other means, working capital
employed in such production would not become available for other purposes until a claim had been prepared and
submitted for approval and payment. If a claimant should be a subcontractor, particularly one below the first tier,
it is possible his claim would not be paid until after the prime contractor had received his compensation from the
government contracting agency.
Among the methods of interim financing authorized by the Contract Settlement Act of 1944, probably the most
simple and convenient is that afforded by so-called T-Loans made pursuant to Regulation V of the Board of
Governors of the Federal Reserve System. The T - L o a n method of interim financing is available generally in
respect of all war production prime contracts of the W a r Department or the Navy Department and all subcontracts
thereunder. The financing can be limited to provide for the release of working capital invested in one particular
contract if and when it is terminated, or can, where appropriate, be arranged to give broader coverage. At the time
the application for a T-Loan is filed, provision may be made to include then existing contracts in the borrowing
base when subsequently terminated.
Under the T-Loan financing plan, a prime contractor or subcontractor may arrange with a commercial bank
or other financing institution to obtain, upon cancellation or termination for the convenience of the Government, loans
against ( a ) accounts receivable, ( b ) reimbursable expenditures for inventory (including direct labor, cost of raw
materials and parts and supplies), ( c ) reimbursable amounts paid or to be paid to his subcontractors, ( d ) reimbursable
manufacturing and administrative overhead, to the extent that these items are applicable to the prime contracts
or subcontracts covered by the arrangement. If the T-Loan arrangement has been made before termination, the
advance can be obtained promptly by the contractors subsequent to the termination. Such a T - L o a n is repayable
f r o m the proceeds of the settlement of the claim which the borrower is required to file after a contract has been
terminated.
The T-Loan form of financing may be covered by a simple standard form of loan agreement which places a
minimum of restrictions upon the borrower.
A s part of a T - L o a n arrangement it is necessary for the financing institution to obtain a T - L o a n Guarantee
Agreement, through the Federal Reserve Bank of its district, from either the W a r Department or the Navy
Department. Such guarantees protect the financing institution against loss on the loan to an extent agreed upon
between it and the guarantor. While both of these Services have the authority to guarantee T-Loans fully,
guarantees in excess of 9 0 % will be considered only when the prospective borrower is small and financially weak,
or in other exceptional circumstances.
While T-Loans may be negotiated after, as well as before, contracts are terminated, and every effort will be
made to process guarantee applications promptly, it is desirable for war production contractors who will require
the protection afforded thereby to complete their arrangements prior to the event of termination in order to be
certain of receiving such financing without undue delay. A n arrangement made in advance entails the payment by the
contractor to the financing institution of a commitment fee on the average daily unused balance of the credit
involved. Such fee cannot exceed
of 1 % per annum. Moreover, we have been informed that pursuant to the
provisions of the Joint Termination Regulation the expenses of such a fee may be properly included as a reimbursable
cost in a termination claim. The financing institution's commitment to the prospective borrower in respect of
termination financing may be cancelled by such borrower at any time in accordance with the terms of the contract
between them.
W e should appreciate it if you would communicate with all of your customers who are engaged in war
production and who have not availed themselves of the protection afforded by the T-Loan procedure and point
out to them the benefits to be obtained thereunder; also to urge them, if they anticipate the need for such financial
protection, to arrange to have you file an application on their behalf immediately and not wait until their contracts
are terminated or cancelled.
Technical data respecting T-Loan procedure was furnished to you in our Circular No. 2837, dated September
12, 1944. W e shall be glad to supply you with any further information you may require. Additional copies of this
circular will be furnished upon request.




ALLAN

SPROUL,

President.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102