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Financing
Eligible Purpose
Loan proceeds may be
used to construct, enlarge, or otherwise improve essential community
facilities. This includes purchasing equipment, machinery, and
vehicles. Reasonable professional fees associated with the project such
as legal, engineering, architectural services, and feasibility studies
may be included. Customary loan fees and costs, such as loan
origination fees, may be included, as well as interest on interim
financing and initial operating expenses for startup operations. RD is
not required to be involved in the construction phase of a project
unless direct loan funds are included in the permanent financing of the
project. Eligible purposes may include the refinancing of existing debt
(up to 50% of the total financing), provided there is an overall savings
to debt service requirements and there has been no change in the
ownership structure (transfer from For-Profit to Non-Profit)
Feasibility Study
Feasibility Studies
prepared by an independent consultant are normally required for the
start-up of a new facility, an expansion or improvement that will result
in a significant change in the borrower's financial operations, a
larger, more complex project, or a project of a unique nature. The
Feasibility Study is not required for a Pre-Application assessment.
Eligible Location
Projects must be
located in a
rural area with a population of up to 20,000. Because of differences
in how State laws define municipalities, Lenders of Record should
contact their
State RD offices to determine community eligibility for the program.
Priority of Funding Requests
USDA places a priority
toward financing of community projects that can provide some assistance
from within the community. Community pledges and revenue sources (Sales
Tax, Property Tax, General Obligation and Revenue Bonds) that can
provide a portion of the initial cost of the project or that can provide
for an assurance of payment for a portion of the annual debt service
shall receive a priority for consideration.
Other Financing and
Guaranteed Financing
USDA will give first
priority to community requests that utilize other forms of financing
coupled with guaranteed financing.
Guaranteed
Financing
Guaranteed financing
remains a priority for USDA Rural Development, as guaranteed loan funds
generate a multiplier affect on congressional budget authority and the
tax payer’s dollars and allows USDA to invest in more rural communities
and essential community facilities than direct loan or grant funds.
Based on credit subsidy costs, guaranteed funding generates 27 times the
amount of funds Congress budgeted for the program.
Guarantee and
Direct Lending
When needed, USDA will
consider Direct Lending in combination with Guaranteed Lending. This
combination can provide the community with a reasonably low overall cost
of funding.
Pre-Application for
Early Feedback
Applicants
and Lenders that are interested in using the program may submit a
pre-application to determine project and applicant eligibility. RD will
recommend that a full application be prepared if the project appears to
be eligible and funds are available. Lenders of Record may choose to
submit a complete application instead of a pre-application; however,
through the pre-application process, USDA can work with the lenders and
applicant much earlier in the overall timeline to provide assistance
with the regulations and processes. |
