economic development finance service
DESCRIPTION
Economic Development Finance Service. August 24, 2011. USDA REDL&G Program. USDA Rural Economic Development Loan and Grant Program REDL – Loan Program (1989) REDG – Grant Program (1994) Both are nationally competitive programs REDG program is the basis for REED Fund. Definitions. - PowerPoint PPT PresentationTRANSCRIPT
Economic Development Finance Service
August 24, 2011
USDA REDL&G Program
• USDA Rural Economic Development Loan and Grant Program – REDL – Loan Program (1989)– REDG – Grant Program (1994)– Both are nationally competitive programs
• REDG program is the basis for REED Fund
Definitions
• RUS Eligible Borrower is applicant — “Intermediary”• Project — “Ultimate Recipient of Funds” at 0%
interest• REDL— “Rural Economic Development Loan” a/k/a
“Pass Through Loan”• REDG— “Rural Economic Development Grant” for
loan fundGrant is to Intermediary (Applicant Co-op)0% Loan to Initial Project (Ultimate Recipient)
• Eligible Location– Rural Areas with populations < 50,000– Priority for areas of under 2,500 and under 1,250
USDA Rural Economic Development Loan (REDL)
– RUS Borrower’s Assets Guarantee the Loan– Impacts to their Balance Sheet
REDL or “Pass Through” Loan
Intermediary borrows from
UDSA RD at 0% interest
Intermediary loans to recipient at 0%
interest
Intermediary
$740,000 max
REDL&G Loan Terms
• Maximum $740,000 or up to 80% of Project, whichever is less (less than 50% is better for scoring purposes)
• 0% Interest Loan• Up to 10 Year Term• Up to 2 year deferment until payments start• Monthly payments match Co-op’s repayment to
USDA
** Intermediary Guarantees Loan **** Adequate Security a Must **
Rural Economic Development Grant (REDG) for Revolving Loan Fund
1. USDA RD grants$300,000 (max) to Intermediary (Co-op)
3. IntermediaryAdministers RLFof $360,0001st loan at 0%
Intermediary2. Intermediary match is 20% $60,000 (max)
4. Funds revolve for lending at interest
USDA Grant for RLF-- “Initial Loan” Terms
Application is submitted on behalf of one or more projects
• Initial Loan must be to a Non-Profit Entity or Public Body• Project receives up to $300,0000 in a 0% interest loan• Up to a 10 year yerm• Up to 2 year deferment until payments start• Application can be up to 80% of project costs (less is
better)• Revolved funds are re-loaned at interest not to
exceed ‘prime’
USDA Grant for RLF-- RLF Operation Basics
Risk / Exposure Adequate security needed--RLF is taking risk
Each revolved loan considered 17% Intermediary funds Losses do no have to be replenished
Allowance for loan losses protects fund from losses Future interest earnings build RLF
Compliance Must Collect Annually
Financial Statements from Borrower Job Count
Submit Annual Report to USDA Expected to be web-based in future Annual Loan Fund Budget (if applicable)
REDL&G Applications
• Submitting a REDL&G application is a cooperative board decision
• Recipients cannot be limited to customers only
• RLFs can use third party administration
RLF Administration—Responsibilities & Limitations
• Conflict of Interest, cannot lend to:– Cooperative, it’s Subsidiaries or Affiliates – Board Member or relative– Key Management Staff or relative
• May lend to non-profit entities when board or key staff serve on the board
• Cannot limit lending only to Customers– Or use that as a reason to say no
RLF Administration—Interest & Administrative Fees
• Interest on “Subsequent Loans”– Allowed to Charge from 0% to WSJ Prime Rate– Administrative fee may also be charged– Interest paid to RLF increases fund, may not be
withdrawn by cooperative– Interest may be used for loan making expenses per
an annual budget (i.e. loan loss reserve)• 1% Annual Administrative Fee
– To cover Intermediary operational expenses• Can be charged on initial 0% Loan and subsequent loans• Can be used to offset cost of staff time
USDA REDG Program Eligible vs. Competitive Projects
Eligible• Non-Profit Expansions
and Start-ups• Medical, Safety and
Training Facilities• Community Development
Projects• Business Incubator
Projects
More Competitive• Medical Facilities
• Hospital Renovation • New Medical Clinics
• Educational Facilities• Computer / Technology
• Key Component: – Direct Job Creation– “High Tech” training and/or
equipment– Technology Plan
REDL&G Scoring Criteria—Summary of Key Factors
• Support the program– Participate in Cushion of Credit
• Type of Project– Business Expansion with good job training / new
technology (pass through loan)– Medical Facility (grant or loan if job creation)– Educational Facility (grant or loan if job creation)– Job Creation/Retention (higher priority for loan)
REDL&G Scoring Criteria—Summary of Key Factors
• Project Located in Rural Area– Communities of under 2,500
• Complete Business Plan & Financials– From the project, plus your analysis
• Demographic Trends– Population Loss– Higher Unemployment Rate than state or
nation– Per Capita Income Levels documented
Pre-REED 1990-1994
• 12 - REDL pass through 0%Loans -- $2,005,000 (9 RUS Borrowers)
• 5 – REDL applications (1993-1994) stalled in the funding queue- $1.35 million
• USDA issues rules on REDG (Grant Program)– Grant were to create a ‘revolving loan fund’– REED concept defined and applications modified
to seek grant funds• Shift from USDA pass-through 0% loans to
cooperatively-controlled loan fund
REED Today
• Twenty one cooperatives and East River• 43 USDA Grants, $8,924,000 loaned to 48
projects at 0% and retained in REED• $38 million loaned to 173 projects directly
through REED• $19 million outstanding in loans to 100 projects,
$5.7 million committed• 11 sources of Capital, $30 million• 24 pass thru USDA 0% loans, $7.9 million
(additional impact)
Capital Resources
• USDA Rural Economic Development Grants (REDG) • USDA Intermediary Relending Program (IRP)• Community Development Financial Institutions Fund
(CDFI)• Communities at Work Fund (CAW)• Calvert Foundation• Commercial Banks • National Rural Utilities Cooperative Finance Corp (CFC)• Basin Electric Power Cooperative• South Dakota Rural Enterprise (SDREI)• Member Cooperative Investment• Increase in Net Assets
Loan Capital
Net Assets $13,088,732
53%
Debt $11,449,276
47%
$24,538,008
Earnings $1,915,163
8% Bank Loans $250,000
1%
Cooperative Loans $1,800,000
7%
Cooperative Investment $2,049,750
8%
Foundation Loans $4,900,000
20%
Federal Loans $5,499,275
22%Federal Grants $10,624,000
38%
REED Capital $24,538,008
Undrawn Capital$5,100,000
Impact – 2010
• Over 6,200 jobs retained and created• $357 million total project investment• 87% of loans in communities of less than
4,000 people• 95% local ownership• $47.5 million in 213 loans• $19 million outstanding, 100 loans
Portfolio FactsREED Loans Assisted:
Loans to Cooperative members -- 90 loans (42%)
Case Study—REDL & REDG
• Recapitalize Revolving Loan Fund– $740,000 REDL– Plus $300,000 REDG (and 20% match)– Loan Fund receives 2-zero interest loans and
relends the funds at interest to local economic development projects
– Must adhere to REDL&G regulations– $300,000 plus the 20% match becomes the
applicant’s fund as repaid
• City of Bowdle Health Care– $400,000 0% loan, $1.8 million total cost– Connect hospital to nursing care, add
wellness center, medical records,
city offices– 72 jobs impacted– community of 500
Case Study — Health Care
• City of DeSmet– $300,000 0% loan, $150,000 3% REED loan– $1.5 million total cost– Replace infrastructure
and re-surface – 81 jobs impacted,
including school and hospital
– Population 1,200
Case Study—REDG for Infrastructure
• Rosholt School District 1– $200,000 0% loan (2003)– $400,000 total cost– Media Center, library and 6-classroom addn.
• Rosholt School District 2– $300,000 0% loan (2008)– $2.4 million total cost– Administration – Gym/wellness, music
• 190 students, • 33 FTE jobs • Population 400
Case Study- Multiple Awards
• Dakota Provisions– $2 million REED
loan to $50 million plant
– $450,000 0% loan for equipment
– 823 jobs and counting
– Producer owned, state of the art start-up processing facility
– Expansion in planning stage
Case Study- Revolved Funds & REDL
• Plagman’s Grocery– $428,000 REED
loan and Bank loan– $952,000 project
cost– Retail grocery
facility moved to highway location
– Population 1,100– 10 jobs
Case Study—Revolved Funds
• Hometown Variety– $23,000 REED
loan, – $88,000 project– 1 FTE Job– Local retail store
closed– Chamber purchased building for lease to
community store, population 1,200
Case Study—Revolved Funds
