1
Brief History of the REDLG
Program
A brief history of the program and purpose
(1987-to date)
The Program was created by Section 313 of the Rural Electrification Act
enacted on December 22, 1987 and implemented through regulation, 7 CFR
1703, Subpart B, in 1989. At that time, the program constituted a new “rural
development” section of the former Rural Electrification Administration
(REA) and frequently this former agency’s name is used to identify both this
program and the electric and telephone utilities that have borrowed funds
from REA for many years.
Now administered under RD Instruction 4280-A
2
History of the REDLG Program
cont….
 Since inception of the program over $16,000,000 has
been invested in Georgia through the REDLG program.
 Over 2,600 jobs have been created and/or saved and
more than 50 businesses have been assisted by the
program.
3
Brief History of the REDLG
Program cont….
Many Positive Results
 RUS Borrowers have been successful in
promoting economic development through this
program.
4
Program Purpose
Rural Economic Development Loan (REDL) and
Grant (REDG) Programs provide financing to
eligible Rural Utilities Service electric or
telecommunications borrowers (Intermediaries)
 Promote rural economic development
 Promote job creation projects
5
Benefits of Participation
 Providing access to capital for community and
economic development finance
 Business retention/expansion tool for
cooperatives and their communities
 stimulate economic growth in your region
 employment retention/creation
 improve rural development capacity and
infrastructure
 may lead to increased sales
6
RED Loan & Grant Overview ‐ Definitions
 RUS Eligible Borrower— “Intermediary”
 Project - “Ultimate Recipient of Funds”
 REDL - “Rural Economic Development Loan”
- a/k/a “Pass Through Loan”
 REDG - Rural Economic Development Grant”
-
Grant is to Intermediary (Applicant)
- 0% Loan to Project (Ultimate Recipient)
 Eligible Location
- Rural Areas with populations < 50,000
- Priority for areas of under 2,500 and under 1,250
7
Program Types
Loans- Up to 2 million for FY 2014
Zero interest loan for up to 10 year term is made to
an Intermediary who relends to a preselected
borrower (ultimate recipient) at identical loan
terms.
Grants- Up to 300,000 for FY 2014
Grants are awarded to the Intermediary to
establish a Revolving Loan Fund (RLF) to make
loans to Ultimate Recipients
8
How REDLG is Funded
Loans made to Utilities from
Rural Electrification and
Telephone Revolving Fund
Utilities repay principal and
interest to the Fund and may
deposit extra into the Cushion of
Credit Payments Account
The utility earns 5% on
its extra deposits.
Utilities provide
energy and
telecommunications
The difference between
fund earnings, and cushion
earnings is deposited to a
sub-account.
The sub-account funds REDLG
9
Applicant Eligibility
The Intermediary must be either:
1.
A borrower with an outstanding loan with the
Rural Utility Service (RUS)
2.
A former borrower of RUS
3.
A Utility that was never a borrower of RUS, but
would be eligible to become one (municipal
electric)
10
Security for REDLG
 The type of eligible applicant determines the security
for the REDL:
 Current RUS borrower:
- Already secured through RUS loan documents
 Former or otherwise eligible:
- Irrevocable Letter of Credit
- This letter of credit can come from the Ultimate Recipient and
can be assigned to USDA through the Intermediary.
11
How The Process Works
 The Intermediary has a project that it would like to
assist with REDLG funds.
 The Intermediary determines the credit worthiness of
the borrower and the level of security it will require.
Rural Development (RD) Staff will not “Re-Underwrite”
the file.
 The Intermediary submits an application to the State
Office. RD Staff will provide guidance on process.
12
How The Process Works
Cont…
The RD staff will process the application and
submit to the National Office for funding
consideration.
The National Office is currently awarding REDLG
projects on a monthly basis.
Program is currently under subscribed
13
14
REDL or “Pass Through” Loan
Intermediary
borrows from
UDSA RD at 0%
interest
Intermediary loans to
recipient at 0%
interest
15
Eligible Uses of Loan Funds
 Startup venture costs which may include real estate,
buildings, equipment, and working capital.
 Business expansion.
 Business incubators.
 Technical Assistance – By a qualified Independent
Provider.
 Project Feasibility Studies - By a qualified Independent
Provider.
16
Eligible Uses of Loan Funds
Cont…
 Advanced Telecommunications or computer
networks to facilitate medical or educational
services or job training.
Community Facility type projects, such as
hospitals, nursing homes, fire stations, etc.
17
REDLG Ineligible Project
Purposes
 Refinancing or costs incurred prior to the
application
 Residential purposes
 Conflicts of interests
 Agricultural production (limited situations)
 Pass-through grant
18
Supplemental Funds for
Loans
 RED Loans require a minimum of 20% of the loan
amount for the Project be provided as supplemental
funds
 The 20% supplemental funding has to be in the form of
cash or equivalent
 RED Loan funds will not exceed 80% of the project
cost.
 May be provided by the Intermediary or the Ultimate
Recipient from other sources
 Expenses incurred prior to date of application cannot
be used as supplemental funding.
19
RED Loan Terms
Intermediary is strongly advised to obtain security.
 0% Interest Loan
 Up to 10 Year Term
 Up to 2 year deferment for start-up operations and
1 year for existing, if requested.
**NOTE: If requested must be addressed in project
narrative and in board resolution
 Monthly payments match Co-op’s repayment to
USDA
20
Multiple RED L&G Awards
 No Upper Limit to # of applications
 Multiple awards to same RUS eligible borrower
 Each project is reviewed independently
 Multiple Awards to same company / entity
 Minor scoring implications
 Bonus points if first time applicant
 Bonus points if first award for county
21
22
How it Works- Grants
 RD provides grants to Intermediaries to establish an RLF
 Initial loans are made from the RLF to a pre-selected
local community facility project or other eligible project
 Subsequent loans from revolved funds can be used for
community or economic development projects
23
USDA Grant for Revolving Loan
Fund: Initial Loan
USDA RD grants to RLF
$300,000 Max
Intermediary
Administered
RLF of $360,000
Intermediary
matches 20%
with own funds
$60,000 max
24
Eligible Ultimate Recipients for
Initial RLF loans

Non-profit entities

Public bodies

Federally-recognized Indian tribes

For Profit businesses with limitations (see RD
Instruction 4280-A)
25
Eligible Purposes of Initial
RLF Loan






Community Development Projects
Community Facility Projects
Business Incubators
Facilities and equipment for education and
training to facilitate economic development
Medical facilities or equipment
Telecom or computer network for medical or
educational services or job training
26
Supplemental Funds for REDG
 The Intermediary must match 20% of the
Grant into the fund
 The contribution may be used to fund the
same project that the Agency is funding or
another REDLG loan or grant eligible project.
27
USDA Grant for RLF
“Initial Loan” Terms
 Application is submitted on behalf of one or more
projects
 Initial Loan for Community Facility Project
 Project receives a 0% Interest Loan
 Up to a 10 Year Term
 Up to 2 year deferment for start-up operations and 1
year deferment for existing operations, if requested.
28
RLF Operation Basics
REVOLVING LOAN FUND PLAN
“Serves as Administration rules of RLF”
 You set the rules (within limits) for your loan fund.
 RLF plan is approved by RD
 Must follow RLF Plan (even after the first loan)
“Revolved Funds”/Subsequent loans (your RLF)
 Funds lose federal identity –environmental review not required.
 Only the first loan must be at 0% interest for 10 years
 For profit businesses eligible to apply for revolved funds
29
RLF Administration
Responsibilities & Limitations
 Conflicts 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
30
RLF Administration cont..
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
- Covers Intermediary Operational Expenses
 Can be charged on initial 0% loans from RLF and subsequent loans
 Can be used to offset cost of staff time.
31
Combination Loan and Grant
Applications
 Must meet both Grant and Loan eligibility criteria
 Submit in applications under one cover, USDA can
approve separately
 Match required for RLF
 Two separate loans are issued by the Intermediary
 Works well for Health Care, Education, community
projects
32
REDL&G Application
• Standard Federal Application Form 424 & Certifications
• Board Resolution authorizing & requesting application
• Ultimate Recipient Business/Project Plan
• Project Description Narrative -
• History of Ultimate Recipient
• Detail of Project Costs
• Detail of Supplement Funds & Status
• Specific Purpose for Loan Funds
• New / Existing Employment
• Loan Terms and Security (collateral)
33
REDL&G Application cont..
• Selection Factors Narrative
- Ultimate Recipient’s Legal Structure
– Minimum 20% Supplemental Financing
– Location of the Project—Rural Area or Benefits to Rural Area
–Number & Description of Jobs
– Business Plan & Financial Projections
– Supporting Information for Scoring Criteria
• If Grant/RLF—“RLF Plan” or Draft Administrative Rules
34
Environmental Process
 Rural Development will conduct a review for the potential of any




environmental impacts resulting from the proposed Project
Rural Development will inform the Intermediary of any additional
information needed and any subsequent environmental requirements
necessary for Rural Development to make a finding.
Rural Development will conduct all necessary environmental reviews
as prescribed in 7 CFR part 1940, subpart G.
These reviews must be completed before the application can be
considered for approval.
If your application is requesting financing for site development, the
destruction or alteration of buildings, or other activities that may
adversely affect the environment, you should not proceed with
construction until you receive notice of environmental clearance from
Rural Development.
35
REDLG Scoring Criteria REDL&G Scoring Criteria—
Intermediary
• First Application for Intermediary?
– If yes, add 10 pts
• Participate in Cushion of Credit?
– Up to 15 points added if
• Factor of deposits in C of C in relation to assets
• Attach RUS Form 7 to document
36
REDL&G Scoring Criteria—
Project Type
Nature of Project (up to 20 points for each)
1. For profit business, business incubator, industrial
building or park, infrastructure (streets or utilities)
2. Provides Technical Assistance to rural businesses or
residents, educates or provides medical care to rural
residents
3. Enhances rural development by providing advanced
telecomm services/computer networks for medical,
educational and/or job training. Evaluated on
applications “Technology Plan”
37
REDL&G Scoring Criteria—
Project Type
Jobs Created/Saved within 3 years
– Evaluated by number of jobs per $100,000 of total
project cost
• Greater than 5 jobs/$100,000 = 25 points
• 1‐5 jobs/$100,000 = 15 points
• < 1 job /$100,000 = 0 points
38
REDL&G Scoring Criteria—
Project Type
Supplemental Funds‐‐Leverage
– Evaluated by % = (Project Cost‐REDLG Amt)
REDL&G Amt
• % Greater than 200% = 20 points
• From 100% to 200% = 10 points
• From 50% to < 100% = 5 points
39
REDL&G Scoring Criteria—
Location
Rural Area
– Population 1,249 or less 20 points
– Population 1,250 to 2,500 10 points
– Population > 2,500 0 points
Population Decline—(1990‐2000)
– If yes, 10 points
First REDL&G for County?
– If yes, 10 points
40
REDL&G Scoring Criteria—
Location
Demographics—County comparison to State / National
– Unemployment Rate Up to 25 points
– Per Capita Personal Income Up to 25 points
http://www.bea.gov/bea/regionalbearfacts/countybf/cfm
41
REDL&G Scoring Criteria—
Ultimate Recipient
Complete Business/Project Plan (Up to 15 points)
– Description
– Management
– Products
– Marketing
Financial Plan (Up to 20 points)
Demonstrates Repayment Ability
– 3 Years Historical Financials
– Year to Date Income Statement & Balance Sheet
– 3 Years Projected Income Statement, Balance Sheet, Cash Flow
42
REDL&G Scoring Criteria—
State Discretionary Points (5 pts each)
1. Located in
– Rural Empowerment Zone
– Rural Economic Area Partnership Zone
– Rural Enterprise Community
– Champion Community
2. Major employer closing in last 3 years resulting in 2% increase in
unemployment rate
3. Located in county with chronic or long-term economic deterioration
4. Presidential Disaster Declaration
5. Consistent with State RD’s approved strategic plan
43
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)
44
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
45
Questions & Discussion
46