USDA Rural Development

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1 Guaranteed Loan Programs USDA Rural Development Rural Business Cooperative Service ICBA Convention Tuesday, March 8, 2016

2 Guaranteed Loan Programs Sam Rikkers Administrator, RBS John Broussard Director, Business & Industry, RBS Mark Brodziski Director, Energy Programs, RBS Michael Foore Senior Policy Advisor, RBS

3 Guaranteed Loan Programs Agenda Background Program Basics Leverage of Resources Access Points to Programs Q & A

4 Guaranteed Loan Programs USDA Rural Development Rural Development is committed to helping improve the economy and quality of life in rural America.

5 Guaranteed Loan Programs We accomplish this by: Investing financial resources and providing technical assistance to businesses located in rural communities. Establishing strategic alliances and partnerships that leverage public, private, and cooperative resources to create jobs and stimulate rural economic activity. Increasing access to capital in rural America

6 Guaranteed Loan Programs Rural Development s Mission To assist rural communities in creating prosperity so they are self-sustaining and economically thriving through investments that create ladders of opportunity, build regional resilience, and support the growth of emerging markets. Rural Utilities Service Helps rural utilities expand and keep their infrastructure and technology up to date, and establish new and vital services such as distance learning and telemedicine. Rural Business Cooperative Service Provides leadership in building competitive businesses including sustainable cooperatives that can prosper in the global marketplace. Rural Housing Service Helps rural communities and individuals by providing loans and grants for housing and community facilities.

7 Guaranteed Loan Programs Rural Business-Cooperative Service Programs Rural Energy for America Program Business and Industry Guaranteed Loans Biorefinery Assistance Program Rural Business and Development Grants Intermediary Relending Program Rural Microentrepreneur Assistance Program Value Added Producer Grants Rural Business Investment Program Cooperative Development Assistance

8 Rural Energy for America Program Rural Energy for America Program (REAP) Promotes energy efficiency and development of renewable energy for agricultural producers and rural small businesses through: Grants for energy audits and renewable energy development assistance Guaranteed loans and grants for energy efficiency improvements and renewable energy systems

9 Guaranteed Loan Programs USDA Rural Development Business & Industry (B&I) Guaranteed Loan Program

10 Business Rural & Industry Energy for Loan America Guarantees Program Business and Industry Guaranteed Loan Program Mission Create and maintain employment and improve the economic and environmental climate in rural communities Bolster the existing private credit structure through the guarantee of quality loans that will provide lasting community benefits

11 Types of Lenders Rural Business-Cooperative Service Business Rural & Industry Energy for Loan America Guarantees Program Traditional Lenders Federal or State chartered banks, Savings & Loans, Farm Credit banks, Credit Unions Other Lenders that have legal authority, sufficient experience and financial strength to operate a successful lending program

12 Eligible Borrowers Rural Business-Cooperative Service Business Rural & Industry Energy for Loan America Guarantees Program Any legal entity, including nonprofit organizations, Federally recognized tribal groups, public bodies and individuals Individual borrowers must be US citizens or permanent residents. Corporations must be at least 51 percent owned by US citizens or permanent residents. Must be in an eligible rural area

13 Business Rural & Industry Energy for Loan America Guarantees Program Eligible Business Locations Rural Area Anywhere except within the boundaries of a city or town with more than 50,000 inhabitants or the urbanized area of that city or town Eligibility can be determined at the following Web site:

14 Typical Loan Purposes Rural Business-Cooperative Service Business Rural & Industry Energy for Loan America Guarantees Program Real estate purchase and improvements Machinery and equipment purchase Working capital Integrated agriculture production/processing facilities--agricultural-production portion of any loan will not exceed 50 percent of the total loan or $1 million, whichever is less Debt refinancing and business acquisitions - under certain conditions

15 Business Rural & Industry Energy for Loan America Guarantees Program Fees and Percentage of Guarantee Fees Initial Guarantee Fee 3% in most cases Annual Renewal Fee ½ of 1% *subject to change Percent of Guarantee Maximums Greater than $10 MM 60% $5MM - $10MM 70% $5MM 80%

16 Loan Limits No minimum loan amount Rural Business-Cooperative Service Business Rural & Industry Energy for Loan America Guarantees Program $10 Million maximum without Administrator exception Up to $25 Million to any one borrower Up to $40 Million for rural cooperative organizations

17 Business Rural & Industry Energy for Loan America Guarantees Program Loan Structure Negotiated by the lender and borrower Rates can be Fixed/Variable/Combination, but cannot vary more often than quarterly Origination fees and prepayment penalties are permitted No balloon payments

18 Maximum Loan Terms Rural Business-Cooperative Service Business Rural & Industry Energy for Loan America Guarantees Program Real estate - 30 years Machinery and equipment - the lesser of 15 years or useful life Working capital - 7 years

19 Business Rural & Industry Energy for Loan America Guarantees Program Tangible Balance Sheet Equity Financial statements must be prepared in accordance with GAAP (may be In-house financials) Minimum of 10 percent required for existing businesses Minimum of 20 percent required for new businesses Minimum of percent required for energy projects, depending on certain criteria.

20 Equity, continued Rural Business-Cooperative Service Business Rural & Industry Energy for Loan America Guarantees Program Intangibles - goodwill, R&D, amortized loan costs, customer lists, etc. - must be removed Appraisal surplus and subordinated debt is not allowed; however, subordinated debt can be converted to stock

21 Business Rural & Industry Energy for Loan America Guarantees Program Rural Development State Offices Each state has at least one Rural Development Office that processes B&I loans Contact the Business Programs Director or staff early in the process Visit our website at: for a State Office Directory

22 Loan Application Rural Business-Cooperative Service Business Rural & Industry Energy for Loan America Guarantees Program An assigned Loan Specialist is available by phone and in person to work with you in preparing loan application Decision making is local for loans within delegated authority ($5MM - $10MM in most states) Pre-application enables lender to get a preliminary response without completing a full application. Application form is electronically fillable

23 Rural Energy for America Program Eligible Applicants and Borrowers Agricultural Producer Rural Small Business Individual or entity that receives 51 percent or more of their gross income from agricultural production crops, livestock, aquaculture, forestry operations, nurseries, dairies For-profit small business - as defined by the Small Business Administration (SBA) Rural area or non-metro community of < 50,000

24 Improve Profits for Your Farm or Ranch with REAP Rural Business-Cooperative Service Rural Energy for America Program Energy Efficiency Lighting Heat & Power Refrigeration HVAC Equipment and Processes Automated Controls Buildings Updates Renewable Energy Solar Wind Small Hydroelectric Anaerobic Digesters Biomass Geothermal Wave/Ocean Power The technology must be commercially available. Research and development projects do not qualify.

25 Rural Energy for America Program Eligible Project Costs Equipment: Purchase & installation New or refurbished Post-application construction & facility improvements Retrofitting Professional service fees Permits & license fees Working capital, land acquisition (Guarantee loan ONLY with restrictions) Ineligible Project Costs Residential energy projects Equipment: Farm tillage equipment Used equipment Vehicles Pre-application construction & facility improvements Application preparation or grant writer fees Line of credit Lease payments Payment to the applicant/business owner, beneficiary, or relative

26 Renewable Energy Systems Rural Business-Cooperative Service Rural Energy for America Program Energy Efficiency Improvements Grant amount cannot exceed 25% of Eligible Project Cost Minimum Grant Request Maximum Grant Request Minimum Loan Amount Maximum Loan Amount $2,500 Total eligible project costs > $10,000 $500,000 Total eligible project costs > $2 million $5,000 Total eligible project costs > $6,667 Minimum Grant Request Maximum Grant Request $25 million Total eligible project costs > $33.4 million $1,500 Total eligible project costs > $6,000 $250,000 Total eligible project costs > $1 million Loan amount cannot exceed 75% of eligible project cost Details USDA guarantees a commercial loan; applicant must have a willing lender. Terms are negotiated between the lender and borrower. Applications accepted year round Loan and Grant combo 75% of project cost

27 Rural Energy for America Program REAP Guaranteed Loan Terms GUARANTEE 85% for loans $600,000 or less. 80% for loans over $600,000 up to $5 Million 70% for loans over $5 Million up to $10 Million 60% for loans over $10 Million

28 Rural Energy for America Program REAP Guaranteed Loan Terms MAXIMUM TERM LIMITS Working Capital 7 Years Machinery & Equipment 15 Years (or useful life, whichever is less) Real Estate 30 Years OTHER FUNDS REQUIRED 25% of project costs INTEREST RATE Fixed or Variable; if variable can be adjusted quarterly Negotiated between lender and borrower

29 REAP Guaranteed Loan Terms BENEFITS FOR BORROWERS Assists in providing stability and growth through energy efficient improvements and renewable energy utilization. Rural Business-Cooperative Service Rural Energy for America Program Provides the ability to receive: Higher Loan Amounts Competitive Interest Rates Longer Repayment Terms

30 Rural Energy for America Program REAP Guaranteed Loan Terms FEES One-time guarantee fee of 1% ¼% annual renewal fee BENEFITS FOR THE BANK Mitigate Risk Guarantee is a loss guarantee Additional Revenue streams Sale of Loan Note Guarantee on Secondary Market Increase Profits Receive servicing fee from Secondary holder May help satisfy Community Reinvestment Act requirements Provides another tool to expand and diversify portfolio

31 Rural Energy for America Program WHY REAP Loan Guarantees? Credit Enhancements Mitigate Risk Increase ROI

32 Rural Energy for America Program Renewable Energy Scenic View Dairy Anaerobic digester $1.9 Million Total Cost Powers an equivalent of 1000 homes/year

33 Rural Energy for America Program Renewable Energy Small Energy Company & Dairy Farmers 1 MW Anaerobic digester $4.15 Million Total Cost Powers an equivalent of 700 homes/year

34 Renewabl;e Energy Rural Business-Cooperative Service Rural Energy for America Program Renewable Energy Organic Dairy Farm 10.75kW Solar $55,318 Total Cost Offsets 49% of the Farm s energy needs

35 Rural Energy for America Program Renewable Energy Grocery Store Geothermal heat, energy efficient coolers & lighting $198,600 Total Cost 40% reduction in energy costs

36 Rural Energy for America Program Energy Efficiency Nursery Energy efficient glass roof, radiant heat, fans, vents, & computerized controls $287,855 Total Cost 40% reduction in energy costs

37 Rural Energy for America Program Poultry Farm Radiant heat, fans, vents & computerized controls Energy Efficiency $99,293 Total Cost Improved egg production, reduced time and labor, energy savings

38 Rural Energy for America Program Gewecke Family Farms Wood River, NE Grain Dryer Replacement $70,000 Total Costs 73% Projected Energy Savings

39 Guaranteed Loan Programs Energy Efficiency Elm Creek, NE Converted gravity irrigation to pivot irrigation $104,128 Leveraged funding 48% projected annual energy savings Heartwell, NE Diesel to electric irrigation pump conversion $13,519 Leveraged funding 60% reduction in energy costs

40 Rural Energy for America Program (REAP) Rural Business-Cooperative Service Rural Energy for America Program More Information and How to Apply Contact the USDA Rural Development Energy Coordinator in your state for application materials and resources: Coordinators.pdf Submit applications any time of year. Applications compete for funding based on score throughout the year.

41 Reach out to your USDA Rural Development State Energy Coordinator for additional information. Next Steps Rural Business-Cooperative Service Rural Energy for America Program

42 Guaranteed Loan Programs Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program (Section 9003) Assists emerging technologies: Biorefineries: o Advanced biofuels o Renewable chemicals o Biobased Products Biobased product manufacturing

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