Rural Economic Development Loan and Grant Program
USDA created the REDLG program in 1989 as a pass through loan program offering zero interest loans to Rural Utilities Service (RUS) eligible borrowers (generally an electric or telephone cooperative) on the condition that they pass the funds on to an approved rural development project (described at length in the application) at zero interest. The cooperative is required to guarantee repayment (cooperative assets provided security) to USDA, therefore requires the ultimate recipient of a pass through loan to provide collateral or other repayment guarantee. Applications are submitted by the cooperative utility at its discretion.
The REDLG program also offers RUS eligible borrowers the opportunity to create a revolving loan fund under the condition that the first loan from grant funds is a 0% interest loan to a non-profit or public body. The project(s) must be described in the application. USDA also requires a 20% matching contribution from the cooperative that is generally used to establish the revolving loan fund. Applications are submitted by the cooperative utility at its discretion. This program is used more frequently than the pass through loan program.
To the ultimate recipient of a 0% loan, the application process is the same whether funds come as a grant or a loan to the cooperative. USDA Rural Development field offices manage the program, but applications are approved at the national level. The program is very competitive.
The following is comparison and contrast between the pass-thru loan and the loan fund programs:
- $300,000 grant/loan fund • 80% of total project cost, maximum
- $1,000,000 pass-thru loan • 80% of total project cost, maximum
The average 0% loan is about 30-50% of total project costs.
- $10,000, either program • 5% of total project cost
The average 0% loan is about 30%-200% of total project costs. Leverage is the additional funding for the project and may come from a variety of sources including other USDA programs. The greater the leverage—the more competitive the project.
Funds Available for FY 2016 (proposed):
$50 million in the loan program • $10-15 million in the loan fund program
Loan Fund Loan: 10 years, cooperative/fund has discretion over payment frequency (monthly, quarterly, semi-annual or annual) up to a 1-year deferral of payments may be granted, and in certain circumstances a 2-year deferral is approved, with payments scheduled over the remaining eight or nine years. Under special circumstances a longer amortization with a balloon payment at 10 years has been approved.
Pass through Loan: A 10 year term, with monthly payments, up to a 1-year deferral of payments may be granted for certain projects, with payments scheduled over the remaining nine years. A 2-year deferral is only granted if the project is a start-up organization.
Project Time Line: Applications must be submitted by the cooperative to USDA prior to the project commencement. A project cannot sign contracts, "break ground" or incur costs on the phase of project requesting USDA funds until USDA has received (date-stamped) the cooperative’s application. After that date, the applicant can proceed with the project by using other sources of funds as "interim financing." Interim lenders must be advised that the application for federal funds is competitive and approval is not guaranteed.
USDA Time Line: Applications may be submitted at any time.
Environmental review is required on all projects involving exterior construction. Equipment, furniture, fixtures and interior modifications are generally not subject to environmental review; however the form 1920-40 must be signed and submitted. Environmental review takes a minimum of 30 days to complete generally prior to submission to the State Office for consideration. The State Office scores the applications and submits them to the National Office for approval. Applications are generally considered within two-three months of submission. Awards are announced at UDSA’s discretion. If not initially funded, an application is held over in contention for the next 12 months and during that time may be altered to increase its competitiveness.
Cooperative Time Line: Upon approval, agreements are drawn and sent to the cooperative by USDA. These documents outline the time line during which the cooperative must complete legal work and outlines the terms and conditions imposed by the government. Regardless of the timeline, the funds cannot be drawn and issued to the project until the project is complete. Projects would be wise to arrange for interim financing for construction costs, down payments, etc. as needed prior to completion.
What is the REED (Loan Fund)? A group of electric cooperatives have pooled their REDLG funds into a consolidated fund, Rural Electric Economic Development, Inc. Revolving Fund (REED Fund). The fund is a private, non-profit, tax-exempt (501.c.3) corporation. The 22 member cooperatives govern the fund and East River Electric Power Cooperative provides management services. In addition to USDA REDLG and matching funds, the REED Fund has additional capital from a variety of resources available for lending to both community and business projects. REED financing may be used as interim financing for REDLG projects, in conjunction with REDLG funds or in conjunction with other types of both commercial and non-profit loan financing. REED can lend up to 50% of total project costs with some restrictions. Visit Financing Eligibility, Applicant Eligibility and Application for more information and create the links.
Equal Credit Opportunity Lender: The cooperative issuing this application is an Equal Opportunity Lender, Provider and Employer. In accordance with Federal law and U.S. Department of Agriculture policy, this institution is prohibited from discriminating on the basis of race, color, national origin, age, disability, religion, sex and familial status (not all prohibited bases apply to all programs). To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, 1400 Independence Avenue, S.W. 20250-9410 or call (800) 794-3272 (voice) or (202) 720-5964 (TDD).
Rural Economic Development Loan and Grant Program: Applicant Checklist
The electric cooperative is the applicant on behalf of a specific project. When the cooperative’s application to USDA is completed, the cooperative and project will receive a copy. USDA approval takes a minimum of 2-3 months. USDA must receive (date stamp) applications before the project makes purchases, awards contracts or begins construction on the project. Dirt work or other activities may have been started prior to application submission. If this is the case, the project will need to finance those costs with other funds. A completed application form, Federal forms and business data, based on the following list, is essential to the application process.
- Application (visit Application to request a form)
- Federal Forms (supplied via e-mail to complete electronically, print and sign):
- AD-1048 Debarment Form—Lower Tier Transactions
- 400-4 Assurance Statement, construction projects
- 400-1 Equal Opportunity Agreement
- Seismic Certification (construction projects only). Certification that the building will be constructed in a manner that will reduce the damage caused by earthquakes
- 1940-20 Request for Environmental Information, all projects must complete and sign the form (see Environmental Requirements)
- Guide 13 Uniform Relocation Assurances
- Accessibility Assessment and Transition Plan, as needed, generally construction projects
The following is a list of specific project information that is required from for submission of a REDLG application.
- Project Description
- Describe the project the funds will be used for.
- What is the borrower’s (staff, governing board, consultants) prior experience with this type of project?
- How will the project benefit residents of rural areas?
- Project location or location where equipment is stored or maintained.
- Business Plan (comparable to what would be submitted to a bank for long term financing)
- Description of business/organization and project plans, description of management and qualifications, description of operations/purpose, describe products and services (as applicable)
- Background information, qualifications or resume of responsible parties/principal owner(s), normally those with 20% ownership or more, and/or management personnel/governing board chair or finance officer/treasurer
- Brief bio of persons who will manage project construction if different from above
- Attach a copy of any feasibility study, market analysis or other business plan document prepared for the project for other funding/financing or internal use
- Need for the project/equipment, project purposes and uses
- Financial plan including:
- Income Statement, Cash Flow Statement and Balance Sheet – most recent 3-year period plus current interim statements within 90 days (for existing business)
- Projected Balance Sheet, Income Statement and Cash Flow Statement – projected for the next three years, including assumptions/justification/break even analysis
- If no balances sheets are available a list of what is owned (including approximate value) and owed by the organization, including cash accounts, inventory, equipment, facilities
- Personal Financial Statement(s) of the principal owner(s) with over 20% ownership, current and signed (if private business)
- Business and/or Personal Federal Tax Returns of owners (past 3 years) depending on business’ legal structure (if private business)
- Nature of the project:
- Is the project a for-profit business, business incubator or an infrastructure connection project (ex: streets or utilities)? Please describe.
- Does the project provide Technical Assistance to rural businesses or residents; educate or provide medical care (including emergency assistance) to rural residents? If so, please describe.
- Will it enhance rural economic development by providing advance telecommunications services and computer networks for medical, education and job training (including training volunteers)? If so, please describe. Is there a written telecommunications plan? If so, please attach.
- Does the project have employees, if so how many? Will the project create new jobs, if so how many?
- Project Cost Documentation
- Cost estimates on real estate, construction and/or equipment purchases
- Preliminary building plans and specifications (if applicable)
- Investments or acquisition costs for land (can be assessed value), site preparation, engineering and architecture
- Draft purchase agreement on real estate, construction or equipment to be acquired with loan proceeds (if applicable)
- Legal Documentation
- Resolution giving authority to borrow funds and execute loan documents, if applicant is a corporation, LLC, or government entity
- Articles of Incorporation or Organization/By Laws, if corporation or LLC
- List of Board of Directors and relationship to organization
- Partnership Agreement, if partnership
- Franchise Agreement, if franchise
- Lease Agreement (if facility will be leased to others)
- Environmental Requirements:
- Complete and sign the 1940-20 and the SHPO form to get the process started. If the project involves new construction or exterior modifications, the balance of the bullet points in this section must also be addressed. If the project is interior modification or purchase of equipment/fixtures, a completed form is all that is needed.
- In order to understand the full scope of the land uses and environmental factors that need to be considered in responding to these items, it may be helpful to complete Item 3 of the Form before completing these narrative responses. The area’s planning and development district/council of governments can be called on to assist with this process or it can be done by the project engineer.
- If your application is for a project that Rural Development has classified as a Class I action, complete only parts (1), (2), (13), (15), (16), and (17) of this Item.
- Site map or photo of the project
- Determination that the project is not in a flood prone area as identified under the National Flood Insurance Program by FEMA, always required on construction or acquisition loans
- Accessibility Plan:
- Signed Assurance Agreement, post “And Just for All” and “EEO is the Law” posters, and include the proper non discriminations statement on employment applications, etc.
- Collect and report data on number of employees/owners, voluntarily report ethnicity race and gender to the Fund
- Maintain compliance with Title VI, the 504 Rehabilitation Act, Title IX, Age Discrimination Act and other applicable civil rights laws as applicable, and provide reasonable accommodations to employees
USDA scores all applications based on a point system. The following documentation will enhance the probability of success of the application:
- Documentation of matching funds, via letters of commitment (from bank or donors)
- Formal education and training plan (if available) to improve marketable skills of employees/volunteers or beneficiaries of the project. Example: annual fire school, safety or EMT training, if applicable.
- Copies of feasibility studies, engineering reports, bid specifications, other federal applications, environmental assessments, etc.
- Complete environmental review for construction projects. See instructions on form1940-20. We will work with you to identify a means to complete the environmental work.
Loan Closing Information
If your project is approved and as appropriate to each loan, the following information is generally required prior to completing an approved loan transaction and issuing funds. This information is generally not necessary to conduct a loan review. Borrowers should be aware of the items below that will be needed before funds can be released.
- Additional forms as determined by USDA after approval
- Fictitious Name Statement and Certificate of Good Standing
- Copy of government issued picture identification of owner(s) or officer(s) authorized to sign loan documents may be required
- Title Opinion on Real Estate to be acquired with loan proceeds or used as collateral
- Real Estate Appraisal, Legal Opinion and/or Title Insurance, if real estate is used for collateral
- Copy of Equity Capital/Buy-out Agreement, as appropriate
- Proof of Insurance on business/premises always required
- Other insurance on owners or key employees, as appropriate, may be required
Fees and Charges
The cooperative may charge reasonable fees for such items as legal work, perfecting liens, etc. These items may be deducted from proceeds or paid directly by the borrower and are negotiated with the borrower. The cost of preparing business plans, appraisals, title insurance, environmental assessments, etc. is the borrower’s responsibility.
The application is submitted by the cooperative to USDA. There is no guarantee that USDA will approve it.