Most
frequently asked questions for Guaranteed Loans:
1.
What is a guaranteed loan?
Community
Facilities (CF) guarantees the loan rather than lending directly.
A lender applies for the CF guarantee, and makes and services the
loan. The CF guarantee cannot
exceed 90 percent of the loan amount.
The processing of the loan and the requirements placed on the
organization receiving the loan are the lender's responsibility.
2.
What is an essential community facility?
Essential
community facilities must meet all of the following criteria
-
Provide
an essential public service to the local community - the service
-
should
be a service that is typically provided by a local unit of
government;
-
Be
needed for the orderly development of the rural community and
considered a public improvement;
-
Does
not include private, commercial or business undertakings; and
-
Must
include significant community support.
3. What types of entities qualify for funding?
Public
bodies, such as towns, cities, counties, or special-purpose districts,
nonprofit organizations including cooperatives operated on a
not-for-profit basis, and Federally recognized Indian tribes.
4. Where are the CF applications processed?
All
applications are filed and processed in either the State or local office
of the State where the project is located.
Contact your USDA Rural Development State Office and request
information on how to proceed with your loan request.
5. What is the processing time for an application?
Approximately
45 days is required to determine applicant eligibility. After an
application is submitted, time to process the application depends upon the
scope of the project, environmental review, and legal issues.
6. What is the maximum loan I can apply for?
There
is no set maximum loan limit with the CF guaranteed loan programs.
The amount that can be financed is determined by project feasibility
and payment ability.
7. Can we pay 100% of the project costs with CF funds?
CF
guaranteed loan funds may be used to pay 100 % of the project costs.
8. Can we use CF funds to refinance existing debts?
Refinancing
existing debts may be considered an eligible guaranteed loan purpose if
the debt being refinanced is a secondary part of the loan, is associated
with the project facility, and if the organization's creditors are
unwilling to extend or modify terms in order for the new loan to be
feasible.
9. What are the population limits?
Currently,
eligibility is limited to cities and towns of 20,000 inhabitants or less,
based on the 1990 census report. Unincorporated
and open areas are also eligible for this program.
10.
Who prepares the feasibility study and what is required?
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.
11.
What are the interest rates and terms of the loans?
For
the guaranteed loan program, interest rates are negotiated between the
lender and the organization and can be a fixed or variable rate.
Loan
repayment terms may not exceed the organization's authority (under State
law or organizational structure), the useful life of the facility, or 40
years.
12.
What forms are required for filing a guaranteed loan application?
There
are only a few basic CF forms required. All other documentation will be
either on lender or borrower forms. Your lender should contact the Rural
Development State Office where you are located in order to obtain all
necessary forms. For those lenders new to the CF guaranteed loan program
Rural Development staff members will provide guidance in completing the
requirements for a guaranteed loan.
13.
What security is required for a loan note guarantee?
The
security is determined by the lender. The “security package” can
include many elements such as real estate, equipment, accounts receivable,
assured income and significant community support. An example of a security
package might be:
The
ABC Day Care Center has applied for a $500,000 CF Guarantee loan to
construct a new day-care center . The total cost of the project will be
$600,000. The appraised value of the property (as improved) is $450,000.
The organization has available assured income of $25,000/year. The
scheduled payment on an annual basis is $53,000. In addition, the
community has raised $100,000 toward the completion of the project, and
the board of directors for the organization has an excellent
representation from a cross-section of the community. The security
package for this loan would consist of the following:
-
First
lien on property valued at $450,000
-
Assured
income of $25,000 assigned to repayment of the loan, and
-
Essential
community support as evidenced by:
Rural
Development is willing to offer a loan note guarantee based on a security
package that best ensures repayment of the loan.
14.
What lenders are eligible to participate in the Guarantee Loan
Program?
All
lenders that have oversight
from a federal or state agency and are willing to maintain responsibility
for servicing of the loan are eligible for this guaranteed loan program.
15.
What is the percent of loan note guarantee?
The
maximum percent of guarantee is 90%
16.
What are the benefits for a lender participating in the Guarantee
loan program?
The
benefits are the reduced credit risk the guarantee offers on the financing
of specialized facilities that may not have the hard collateral value to
fully fund a project, loss protection, marketability of the loan note
guarantee on the secondary market, reduced appraisal requirements, FDIC
oversight, and Community Reinvestment Act credits.
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