| Who may apply Community
Programs can make and guarantee loans to develop essential community facilities in rural
areas and towns of up to 20,000 in population. Loans and guarantees are available to
public entities such as municipalities, counties, and special-purpose districts, as well
as to non-profit corporations and tribal governments.
Applicants must have the legal authority to borrow and repay loans, to pledge security
for loans, and to construct, operate, and maintain the facilities. They must also be
financially sound and able to organize and manage the facility effectively.
Repayment of the loan must be based on tax assessments, revenues, fees, or other
sources of money sufficient for operation and maintenance, reserves, and debt retirement.
Feasibility studies are
normally required when loans are for start-up facilities or existing facilities when the
project will significantly change the borrower’s financial operations. The
feasibility study should be prepared by an independent consultant with recognized
expertise in the type of facility being financed.
Community Programs can guarantee loans made and serviced by lenders such as banks,
savings and loans, mortgage companies which are part of bank holding companies, banks of
the Farm Credit System, or insurance companies regulated by the National Association of
Insurance Commissioners. Community Programs may guarantee up to 90% of any loss of
interest or principal on the loan. Community Programs can also make direct loans to
applicants who are unable to obtain commercial credit.
Fund Uses
Loan funds may be used to construct, enlarge, or improve community facilities for
health care, public safety, and public services. This can include costs to acquire
land needed for a facility, pay necessary professional fees, and purchase equipment
required for its operation. For examples of essential community facilities click here.
Refinancing existing
debts may be considered an eligible direct or guaranteed loan purpose if the debt being
refinanced is a secondary part of the loan, is associated with the project facility, and
if the applicant’s creditors are unwilling to extend or modify terms in order for the
new loan to be feasible.
Rates & Terms
For
the direct loan program there are three levels of interest rates available (poverty,
intermediate, and market) each on a fixed basis. The
poverty rate is set at 4.5%. The market rate
is indexed to the eleventh bond buyers rate as determined by the U. S. Treasury
Department. The intermediate rate is set halfway between the market and the poverty rates. Eligibility for these different interest rates is
determined by the median household income (MHI) of the area being served and the type of
project. The intermediate and market interest
rates are adjusted quarterly. Contact your
Rural Development State Office to determine the eligible interest rate for your area.
For
the guaranteed loan program, the interest rate is the lender’s customary interest
rate for similar projects. The interest rates
for guaranteed loans may be fixed or variable and are determined by the lender and
borrower, subject to HCFP review and approval.
Loan
repayment terms may not exceed the applicant’s authority (under State law or
organizational structure), the useful life of the facility, or a maximum 40 years.
Security Requirements
Bonds or notes pledging taxes, assessments, or revenues will be accepted as security if
they meet statutory requirements. Where State laws permit, a mortgage may be taken
on real and personal property. Tax-exempt notes or bonds may be issued to secure
direct loans, but cannot be used for guaranteed loans.
Application Processing
Applications are handled by USDA Rural Development field offices. Rural
Development staff will be glad to discuss a community's needs and the services available
from HCFP and other agencies within USDA. Field staff can provide application
materials and current program information, and assist in the preparation of an
application.
The CF application process is a
two-stage procedure (preapplication and application). Approximately 45 days is required to
determine applicant eligibility, project priority status, and funding availability. After
an application is submitted, time to process the application depends upon the scope of the
project, environmental review, and legal issues. |
