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Rural Development

Housing & Community Facilities Programs

 

 

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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 borrowers 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: 

    • $100,000 contribution from the community

    • A broad-based board fully representative of the community

 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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