Wed. Apr 24th, 2024
Guaranteed Loan Program For Community Facilities

What Is the Purpose of This Program?

To develop necessary community facilities in rural areas, this program offers loan guarantees to qualified lenders. A public improvement that is run on a nonprofit basis and is necessary for the orderly development of a rural community—which can be a city, town, county, or multi-county area—is referred to as an essential community facility.  The physical structure that is financed as well as the service that is subsequently rendered to rural businesses or residents are referred to as the “facility.”

For This Program, Who May Apply?

lenders with the necessary financial stability, legal authority, and expertise to run an effective lending program. This includes lenders who are watched over and have their credit checked by the relevant US or state agency, such as:

State- And Federally-Chartered Banks

Direct lending farm credit banks Bank for Cooperatives Savings and Loan Associations

banks of savings

mortgage firms affiliated with bank holding companies

Credit unions and the National Rural Utilities Cooperative Finance Corporation

State-run bond pools or banks

The Agency may also approve other non-regulated lending institutions by the requirements of the OneRD regulation.

For Whom Might These Loan Guarantees Be Applicable?

Borrowers who qualify are:

Governmental organizations

federal and state reservations home to Indian tribes

Tribes with federal recognition

Non-governmental entities

Under the OneRD Guarantee Loan Initiative, more organizations might be qualified for different kinds of loan guarantees.

What Area Qualifies?

Census data from the most recent decennial census of the United States is used to exclude certain populations from rural areas with 50,000 or fewer residents; these populations are not located in the urbanized area that is adjacent to or contiguous with that city or town.   

The lender could be found anywhere in the US.

Choose a rural area that qualifies. * excluding those who are incarcerated. The determination of whether an area qualifies as “rural” or as a “rural area” shall not take into account populations of people who are incarcerated on a long-term or regional basis.

How Might Money Be Put To Use?

According to the following schedule for reserve of funds, the Agency will set aside money annually for projects in rural areas with 20,000 or fewer residents:

The whole amount of the initial $200,000,000 was made accessible

Fifty percent of the ensuing $200,000,000 made accessible

25% of all funds made available that are greater than $400,000,000

The money can be used to build, expand, or enhance other crucial community facilities.  It is also possible to refinance the debt of a vital community facility with guaranteed funds.

Among the Necessary Community Amenities Are:

Hospitals and other healthcare facilities and services are among them.

Facilities and services for public safety, fire, and rescue

Facilities or services that are social, educational, cultural, public, or community-based

Infrastructure related to transportation, including roads, bridges, ports, and airports

Some utility projects for which rural utilities are not applicable Gas distribution systems, recycling, service financing, and transfer stations or centers

End-user equipment for telecommunications used in public safety, healthcare, or educational settings when rural utilities are not an option financing for services

Levees, dams, reservoirs, inland waterways, canals, and irrigation systems are examples of water infrastructure facilities.

Acquisition and setup of renewable energy systems for a community facility that is deemed essential (conditions apply)

Purchasing land and completing the essential site preparations, such as extending utilities and creating access points, are necessary for creating an industrial park.

Community centers, parks, and other amenities of a similar nature 

See Code of Federal Regulations 7 CFR 5001.103(a) and 5001.121(a) for a comprehensive list.

What Could Funds From a Loan Guarantee Not Be Used For?

Credit lines

Both rental and owner-occupied homes

Golf courses or their infrastructure; racetracks or other gaming establishments

Spaces utilized for intrinsically religious activities

Initiatives that give rise to a conflict of interest, either directly or indirectly 

Businesses by nature are commercial

See Code of Federal Regulations 7 CFR 5001.115, 5001.116, and 5001122 for a detailed inventory.

What Kind of Support Is Needed?

For the guaranteed loan, the collateral must be obtained and kept up to date by the lender.  The guaranteed loan must be secured by all collateral.  Collateral should be discounted by the lender following good loan-to-discounted value procedures, and it must be sufficient to guarantee the loan.  Using an appraisal, the lender will ascertain the collateral’s market value. 

What Is a Loan Guarantee’s Maximum Amount?

Every year, a notice published in the Federal Register discloses the loan guarantee percentage. An 80 percent guarantee will be given for CF loan guarantees that are approved in Fiscal Year 2024.

How Much Can Be Lent at Most?

A guaranteed loan cannot have a maximum amount of $100 million. Both the guaranteed and unguaranteed portions of the loan amount are included. Together with the new CF-guaranteed loan request, it also contains the remaining balance on any current CF-guaranteed loans. 

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What Conditions Apply to the Loan?

The guaranteed community facilities Loan term will be determined and justified by the lender, with approval from the Agency, taking into account the borrower’s repayment capacity, the use of guaranteed loan funds, and the useful economic life of the assets being financed and those used as collateral. There will be a maximum loan term of 40 years.

Which Interest Rates Apply?

The lender and the borrower haggle over interest rates.

Rates can be either variable or fixed.

Variable interest rates can only be changed every three months.

Which Fees Apply?

Currently, 1The initial guarantee fee is twenty-five percent of the guaranteed amount.

A guarantee retention fee is paid annually and is currently equal to Five percent of the remaining principal amount.

The Issuance of Loan Note Guarantee before Construction is subject to a 0.5% fee.

The borrower and lender negotiate fair and customary origination fees for the loan.

What Prerequisites Need To Be Fulfilled to Be Underwritten?

Per generally accepted prudent lending practices as well as the lender’s policies, procedures, and lending practices, the lender will perform a credit evaluation using credit documentation and underwriting processes. Any financial or other credit weaknesses of the borrower and project, as well as any requirements for risk mitigation, must be covered in the lender’s evaluation.

To ascertain whether the credit factors and the guaranteed loan terms and conditions guarantee guaranteed loan repayment, the lender must examine all available credit factors. Analysis of credit factors should take into account character, capacity, capital, collateral, and conditions, among other things. 

For More Information: How to Application for 2024 

Exist Any Other Prerequisites?

In order to build, run, and maintain the suggested facilities and services as well as to apply for, receive, and repay the proposed loan, applicants must be legally authorized to do so. 

The project must be beyond the applicants’ ability to fund with their funds or on commercial credit at terms and rates that are reasonable.

Candidates must present proof of substantial community support.

The project service area must be closely connected to non-profit organizations.

This program cannot guarantee tax-exempt financing.

The facilities must be open to the public and benefit the rural community in which they are or will be located.

The lender is in charge of learning about Federal Environmental requirements and making sure they are followed.

You Can Also Read It: Program for Direct Loans 

Who Is Going To Handle the Loan Servicing?

The lender bears full responsibility for the loan’s servicing, including all actions that a prudent lender would take to service its non-guaranteed loan portfolio.

How Do We Begin?

Lender applications are always welcome through the local USDA offices.

Interested borrowers should speak with their lenders about the program.

The USDA Rural Development Community Programs Director in the state where the project is located should be contacted by lenders who are interested in taking part in this program.