USDA Rural Business-Cooperative Service

USDA Rural Business-Cooperative Service Rural Economic Development Loan Program Summary of Loan Requirements Overview: The Rural Economic Development Loan and Grant (REDLG) Program is administered by the Rural Business-Cooperative Service (hereafter referred to as RBS), a division of USDA Rural Development. LOAN funds are provided to qualified Rural Utilities Service (hereafter referred to as RUS)-financed electric and telephone borrowers to promote sustainable rural community economic development and job creation projects. The RUS utility is required to re-lend, at zero-percent interest, the loan proceeds to an eligible “third-party recipient.” Funds are awarded through a nationally competitive program, so there are NO GUARANTEES of funding to the third-party recipient once the RBS application is submitted by the utility. The RUS utility borrower is responsible for repaying the loan to RBS in the event of delinquency or default by the third-party recipient. Therefore, application for the zero-percent loan by the third-party recipient must first be made to the RUS utility in the recipient’s area. (Please see “MRTC REDLG Loan Requirements” for information on applying to Mid-Rivers.) Loan Terms through Mid-Rivers Telephone Cooperative, Inc.:  The maximum amount of loans outstanding throughout the service area may not exceed $800,000. Please check with Mid-Rivers on the availability of loan funding capacity prior to applying.  The Rural Business-Cooperative Service (RBS) sets maximum grant and loan awards each fiscal year based on the total appropriations for that year. For Fiscal Year (FY) 2007, the maximum dollar award on zero-interest loans is $1,040,000; on grants the maximum dollar award is $300,000. Applicants may be eligible for a combination of a loan and grant.  Maximum term of loan by RBS guidelines is 10 years. Third-party recipients sign a 10-year promissory note (lesser term notes are acceptable).  Interest rate is 0%.  Principal repayment will be on a monthly basis. Deferment of principal payments may be included within the note term. The deferment period for an established third-party business will be limited to one (1) year; for a startup business or community infrastructure project, two (2) years.  Reasonable loan servicing fees may be charged by the RUS utility to the third-party recipient, not to exceed 1% per year on the unpaid principal balance of the loan. Mid-Rivers does not typically charge such servicing fees, though the need to do so is revisited by the Board with each project.  There is a supplemental financing requirement of 20% of the amount of RBS zero-interest loan. Equity funds, private sources, state and local government sources, other Federal government sources, the borrower, or other sources of funds are considered eligible supplemental financing. This must be a hard, or cash, match (NO in-kind contributions are accepted). Priority in the national RBS competition for funds will be given to third-party recipient projects with greater than 20% supplemental financing.  The third-party recipient will provide collateral to the RUS utility that is acceptable to the RUS utility. Eligible Third-Party Recipients: Third-party recipients may be private or public organizations having corporate and legal authority to incur debt. If you are interested in a loan as a third-party recipient, you must apply to the RUS utility in your area, not to RBS. Eligible Loan Purposes: Examples of eligible loan purposes include but are not limited to:  Business expansions and business start-ups, including cost of buildings, equipment, machinery, land, site development, and working capital  Community infrastructure necessary for economic development and job creation purposes  Community facilities and services necessary for economic development and job creation purposes  Medical facilities and equipment to provide medical care to rural residents  Educational facilities and equipment to provide training and job enhancement skills to rural residents to facilitate economic development  Business incubator projects to assist in developing emerging enterprises 1 Ineligible Loan Purposes: Zero-interest loans will NOT be used by the RUS utility OR the third-party recipient for:  Project costs incurred by the third-party recipient prior to filing of the completed application with RBS  Refinancing or paying off existing debt owed by the third-party recipient  Projects that would be used for residential purposes or entertainment purposes at the residential level  Purchase of an established business or operation or to primarily transfer property or real estate between owners without making substantial improvements or additions that will result in long-term job creation  Projects that will result in the transfer of existing employment or business activities from one area to another  Projects related to the sponsoring RUS utility that would, in the judgment of RBS, create a conflict of interest, or present a potential for or the appearance of a conflict of interest  Electric or telephone purposes related either to the Utilities Program utility or the third-party.  Projects located in areas covered by the Coastal Barrier Resources Act or projects that would adversely impact the environment. Limitations on use of Zero-interest Loan Funds: The RUS Borrower may require the recipient of a passthrough loan to provide and/or obtain adequate security for the zero-interest loan funds. The RUS Borrower may NOT charge interest for the use of the proceeds of the zero-interest loan provided under this program. However, the borrower may charge a reasonable loan-servicing fee to the third-party recipient, not to exceed 1% per year on the unpaid principal balance of the loan. Applications: Information necessary for the RUS Borrower to make application to RBS will consist of: a) An application form (SF 424) signed by the RUS utility b) An RUS Borrower Board resolution requesting the third-party loan that includes: 1. Amount of loan requested 2. Repayment period requested for a zero-interest loan (if less than 10 years) 3. Board’s endorsement of the proposed rural economic development project as described in the application 4. Statement that the proposed project does not violate ineligible uses and Limitations on use of funds; disclosure of any information regarding an existing or potential conflict of interest 5. Miscellaneous Federal forms and certifications as set forth in 7 CFR 1703.34 (see “Certification Requirements” below) a) Narrative discussion of the third-party project consisting of the following:  “Selection Factors”, discussing the factors considered by RBS when making awards, such as: o Nature of the project (business expansion or start-up, community infrastructure, etc.) o Direct job creation resulting from the proposed project o Long-term improvements in economic development resulting from the project – diversification of the rural economy, alleviation of unemployment, etc. o County economic conditions – unemployment rates, per capita personal income, change in population o Number of long-term jobs to be created per $100,000 of total project cost o Physical location of project in rural area of less than 2,500 people o Loan repayment ability of the third-party recipient based on its business plan; ratio of supplemental funds available o Probability of project success  “Project Description”, including the following: o Nature of project, location of project, organizations involved, and primary beneficiaries o Breakdown of specific uses of RBS funds and breakdown of specific uses of all funds necessary to ensure completion of project (costs should be limited to the amount to be spent over the 2-year period after receiving RBS funds) o Risks involved o Description of ultimate recipient o Description of construction necessary to make project operational  Discussion regarding environmental impact of third-party project (including area description, air quality, water quality, waste management, transportation, noise, historic/archeological properties, wildlife, etc.; flood hazard zone map; description of modifications, changes to existing buildings, structures being proposed, size of site, general nature of proposed use). If a separate environmental review has been conducted in connection with the project for permits, zoning, etc., it may meet this requirement. 2 Certification Requirements:  Architectural barriers: All facilities financed with RBS zero-interest loans that are open to the public or in which physically handicapped persons may be employed or reside must be designed, constructed, and/or altered to be readily accessible to, and useable by handicapped persons.  Flood hazard area precautions: Third-party recipients must carry appropriate insurance if the project is in an area subject to flooding.  Disclosure of lobbying activities Timeline: Applications will be accepted by Rural Development State Offices from RUS Borrowers on a quarterly basis. The deadline for applications is quarterly according to the fiscal year of the United States Department of Agriculture. This deadline refers to the Cooperative applicant filing a full proposal with the state Rural Development Office; proposals from ultimate recipients must be presented to the Cooperative well in advance of this deadline in order to obtain approval for and work with the Cooperative on development of a full application. Depending on the completeness of the project information provided to the Borrower by the third-party recipient, 15 to 30 days or longer may be needed to complete the application. State and local governments then have 60 days to review a borrower’s proposal (they are sometimes willing to speed this up depending on the nature of the project). It could then be anywhere from one to three months for the Federal level to make award decisions. After award decisions are made, awardees must request release of funds in writing, including promissory notes and similar certifications. Getting these funds released then sometimes involves an additional three to five months in legal work by the RUS Borrower. Program Administration: The program is administered at the state level by Rural Development State Offices. Montana’s State Office is located at P.O. Box 850, 900 Technology Blvd., Suite B, Bozeman, MT 59771 and on the web at http://www.rurdev.usda.gov/mt/. RBS Program Director for Montana is John D. Guthmiller, (406) 585-2549. Examples of Funded Projects:  Mid-Rivers Telephone Cooperative, Inc., MT – Facilities expansion project for educational institution, including new physical education center, performing arts center, and expansion/renovation of library/learning center. Will help Dawson Community College (DCC) become more competitive in student recruitment and provide permanent community assets. Loan will help with construction costs.  High Plains Power, Inc., Riverton, WY – Expand outdoor navigational gear manufacturer in Riverton, WY. Loan will assist the Brunton Company in financing the construction of a new commercial office and manufacturing facility. Brunton currently employs 70 workers and expects to create 37 additional job opportunities as a result of its expansion.  Consolidated Telephone Company, Brainerd, MN – Equipment for grocery store in Randall, MN. Loan will assist Gosch’s Store in financing the purchase of equipment for a new full-service supermarket. The store will employ approximately 14 full-time and part-time workers and will be the largest employer in the community.  Mountrail-Williams Electric Cooperative, Williston, ND – Establish large-scale dairy near Parshall, ND. Loan will assist NorthWestern Dairy, LLLP, in financing the construction costs and equipment purchases for the development of a 400-head dairy operation. Approximately nine job opportunities will be created.  United Electric Cooperative, Inc., Maryville, MO – Construct county library. Loan will assist the Worth County Partnership Library, Inc., a not-for-profit organization, in financing the construction of a library facility in Grant City, MO. Two full-time staff positions will be created.  The S&T Telephone Cooperative Association, Inc., Brewster, KS – Expand seed cleaning business. Loan will assist Mattson Farms in expanding its certified seed cleaning business located near Levant, KS. A conveyor system will be added under four bulk bins that will allow Mattson to mix grain varieties according to a customer’s needs. Job creation for the project is three full-time and one seasonal part-time position. For additional examples of funded projects, visit the Rural Development web site at http://www.rurdev.usda.gov/. Current Program Levels: The projected Fiscal Year 2007 Program Level for the Rural Economic Development Loan and Grant Program is $44,652,000. Reference: Section 313 of the Rural Electrification Act of 1936 and 7 CFR 1703, Subpart B. Prepared by: Erin Lutts, Business Development and Government Affairs Manager Mid-Rivers Telephone Cooperative, Inc. Tuesday, March 27, 2007 by Nicole Jones, Rural Development and Grants Coordinator Last Updated: 3