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Lender of Record Applicant Financing Priority of
Funding Requests Pre-Application Guaranteed Program Process Check List Estimated Time Line USDA Required Forms Links to Eligible Lender |
USDA Rural Development (defined herein as either USDA or RD) provides a credit enhancement to help finance community facilities in rural areas. Through the Community Facilities Guaranteed Loan Program, RD guarantees up to 90 percent of loss of principal and interest on loans and bonds made to develop or improve essential community facilities in rural areas. A broad range of community facilities are eligible for guaranteed loans. These include, but are not limited to, community health services (such as health clinics, assisted-living facilities, hospitals, nursing homes, and medical and vocational rehabilitation centers); fire, rescue, and public-safety facilities (such as police cars, fire trucks, communication centers, and police stations); educational and cultural facilities (such as schools, libraries, art museums, and theaters); transportation facilities (such as airports, municipal garages, street improvements, rail, or bus service); community support services (such as child or adult day care and business incubators); and public buildings and improvements (including community and multipurpose centers). The guaranteed portion is
backed by the full faith and credit of the Eligible Lenders of Record
include Federal or State chartered banks, thrifts, the Bank for Cooperatives,
National Rural Utilities Cooperative Finance Corporation, Farm Credit System,
insurance companies regulated by a State or National insurance regulatory
agency, and State bond banks or State bond pools. Eligible Lenders of Record must be subject
to credit examination and supervision by an appropriate agency of the Guaranteed Community Facility financings result in excellent public relations with the community. As the lender is providing financing for community projects, there is a much higher probability for additional financing within the community from business development generated through the infrastructure enhancement and stability. - Loans are guaranteed by the USDA against loss for up to 90 percent of the loss. - Guaranteed Community
Facilities loans are eligible to meet - Reduction in capitalization requirements: Once the guarantee is in place, the guaranteed portion carries a risk weighting of 20% (i.e. Assuming a capital target of 10%: $1,000,000 guaranteed portion X 20% risk weighting X 10% capital target = $20,000 capital allocation vs. $100,000 capital allocation without the guarantee). - Loans may be sold on the secondary market through an assignment of guarantee, increasing the Lender of Record’s return on investment. Secondary Market purchase of the guaranteed portion carries a risk weighting of 0%. (i.e. Assuming a capital target of 10%: $1,000,000 X 0% risk weighting X 10% capital target = $0 capital allocation vs. $100,0000 capital allocation without the guarantee). - Lenders of Record use their own forms, loan documents, and security instruments. - There is no maximum loan limit; the amount is determined based upon project feasibility, repayment ability, and reasonable project cost; however, when demand is high, projects requiring less budget authority will take precedence over substantially larger requests. - The only USDA fee is a one-time 1% guarantee fee assessed against the guaranteed portion, with no annual renewal fee. This fee is payable upon the release of the USDA loan note guarantee. (Face Amount X 90% Guaranteed X 1% Guarantee Fee). - Rates and terms are flexible, and are negotiated between the Lender of Record and the borrower. The Lender of Record may split the interest rates charging a higher rate for the non-guaranteed portion than for the guaranteed portion. - Typically, loan approval occurs 30-60 days after the receipt of a completed application. Eligible applicants are municipalities, counties, special purpose districts, nonprofits, and tribal governments. Eligible nonprofits, which are broadly defined, must demonstrate significant community support and have significant ties to the local rural community, have a broad membership base, be controlled by members of the community, and have articles of incorporation and by-laws. Applicants must have the legal authority to borrow and repay loans, pledge security for loans, and construct, operate, and maintain facilities. They must also have the ability to manage the facilities effectively. Applicants must be financially sound, need funds at reasonable rates and terms, and must have the ability to organize and manage the facility effectively. Applicants must demonstrate that the proposed community facility has substantial community support. 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 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. [Un-numbered memorandum – Click here to access the Financial Feasibility Study requirements] 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. 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 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. 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. The Community Facilities Guaranteed Loan program is lender-driven. The Lender of Record makes the application and, if approved, makes and services the loan. In addition to making guaranteed loans, lenders may provide interim construction. Should a loss occur the guarantee provides for a 90% guaranty of the losses incurred, including interest for 90 days beyond the declaration of default and cost of collection. The Lender of Record must retain a minimum of 5% of the total loan amount. This amount must be part of the non-guaranteed portion of the loan. The Lender of Record is responsible for servicing the entire loan. All projects financed must be based on revenues, taxes, assessments, fees, or other sources of revenues in an amount sufficient to provide for facility operation and maintenance, a reasonable reserve, and debt payment. The lender is responsible for determining the credit quality and economic feasibility of the proposed loan and must address all elements of the credit quality in a written analysis which includes adequacy of equity, cash flow, security, history, and management capabilities.
The repayment period is limited to the useful life of the facility, but the maximum term for all loans in the Community Facilities program is 40 years. The interest rate may be fixed or variable and is negotiated between the Lender of Record and the borrower. The rates may be different for the guaranteed portion of the financing vs. the non-guaranteed portion of the financing; however, the interest rate changes may not exceed reasonable rates for similar non-guaranteed loans. Security must be sufficient for
repayment of the loan to be reasonably assured from the cash flows of the
project and/or supplemented by other revenue streams when considering the
integrity and ability of project management, soundness of the project, and
the borrower’s prospective earnings. All projects financed require a shared
first priority lien (in some cases a best available lien) on: - the
real estate supporting the project, or if a leasehold, a first priority
leasehold mortgage; - the
chattels or if a leasehold a first priority leasehold claim. In some instances the best available lien
may be acceptable; -
inventories and accounts
receivable; -
revenues, taxes,
assessments, fees, or other sources of revenues. Collateral may be shared pari pasu with other financing for the same project, meaning that
the security may be first priority for the benefit of all the financing
providers of the project. Revenue
streams (revenues, taxes, assessments, fees, or other revenue streams) must
be sufficient to provide for facility operation and maintenance, a reasonable
reserve, and debt payment. USDA provides a process checklist of all documentation and analysis that should be maintained by the Lender of Record. Loans are primarily processed on the Lender’s own forms. When a pre-application is submitted, a borrower provides historical financial statements, financial projections, organizational documents, information on existing debt, budgets, site information, information on potential environmental issues that may affect project viability, and evidence of community support. When the full (final)
application is submitted, the Lender completes three specific USDA forms and
provides environmental information and its credit analysis, including
proposed security. The
lender is responsible for determining the credit quality and economic
feasibility of the proposed loan and must address all elements of the credit
quality in a written analysis which includes adequacy of equity, cash flow,
security, history, and management capabilities. The borrower provides cost
estimates, copies of permits, certifications, and recommendations of
appropriate regulatory agencies, feasibility study reports, and preliminary
engineering and architectural reports.
[Final Application
Checklist] Estimated
Timeline: Typical Application Process The application process consists of the following steps: 1. Lender of Record and borrower submit joint pre-application to determine eligibility. 2. RD field staff meets with all parties at project site (typically within 15 days) to make a preliminary eligibility determination and address any environmental issues. 3. The Lender of Record and Borrower submit an Application for Federal Assistance and a Request of Environmental Information. 4. If a positive response is provided from the Pre-Application, the borrower authorizes the Feasibility Study. Upon completion and assuming positive assessment by the Lender of Record, the lender submits the Application of Loan Note Guarantee. 5. Simultaneously, RD conducts a financial credit evaluation and an environmental assessment. 6. Typically, issuance of the Conditional Commitment for Guarantee takes approximately 30-60 days from the date of a complete application, depending upon the nature, scope, and complexity of the project. (Lenders of Record may submit a complete application instead of a pre-application; however, the pre-application provides some positive feedback to the community, prior to requesting the Feasibility Study.) 7, If approved, RD obligates funds and issues a Conditional Commitment for Guarantee. 8. The Lender of Record then provides the interim construction financing for development of the project. 9. After construction is completed and the facility is operational, the Lender of Record requests RD to review the completed project and, if acceptable provide the Loan Note Guarantee. 10. RD verifies that conditions are met and issues the Loan Note Guarantee. Application Forms (Completed by Lender of Record and Borrower) SF 424.2 Application for Federal Assistance (for pre-application only) RD 1940-20 Request for Environmental Information RD
3575-1 Application for Loan and
Guarantee Approval Forms (Completed by RD) RD 449-14 Conditional Commitment for Guarantee RD
1940-3 Request for Obligation
of Funds - Guaranteed Loans Closing Forms (Completed by RD) RD 449-34 Loan Note Guarantee RD 449-35 Lender's Agreement RD
1980-19 Guaranteed Loan Closing
Report Servicing Forms (Completed by Lender of Record) RD 1980-41 Guaranteed Loan Status Report RD 449-36 Assignment Guarantee Agreement RD 1980-7 Notification of Transfer and Assumption of a Guaranteed Loan
Please link to Eligible Lender
success stories. Rural Development
is proud of its commitment to rural communities across CF Guaranteed Loan Program Success Stories USDA Guaranteed CF Regulations 7 CFR
3575
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