Growing Growing Rural Businesses & Local Economies Rural Businesses & Local Economies

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ASBDC National Annual Training Conference

September 15 - 18, 2009

Panel Panel

Jim Mitchell – Lead Business AnalystBusiness and Cooperative Programs – National Office

Joe Muller – Acting State Director Rural Development - Florida State Office

Brunilda Robles - Business Program SpecialistRural Development - Florida State Office

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US Department of Agriculture

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USDA - Rural DevelopmentUSDA - Rural Development

MISSION– To increase economic opportunity and improve the quality of

life for all rural Americans.

HOW– Use over 40 loan and grant programs to create housing,

businesses and infrastructure (RHS, RBS RUS).

– Technical assistance and increasing the flow of capital through leveraged partnerships with public and private sector partners, and educational institutions.

– Over $90 Billion since 2001

“We are the only agency that can build an entire community from the ground up…”

Source USDA 2007 Progress Report

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American Recovery and Reinvestment Act of 2009

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are needed to see this picture.

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USDA - American Recovery and Reinvestment Act Funding

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are needed to see this picture.

Community Facilities $1.1 BillionWater & Waste $3.6 Billion Broadband $9.1 Billion Business & Cooperative Programs $2.9 Billion Single Family Housing $11.2 Billion

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Business & Cooperative Programs (RBS)Business & Cooperative Programs (RBS)

Business Programs• Business & Industry (B&I)

Guarantee Loan Program• Rural Business

Enterprise Grant (RBEG)• Intermediary Relending

Program• Rural Energy for America

9007

Cooperative Programs• Value Added Producers

Grant• Small Minority Producers

Grant• Rural Co-op Development

Grant• Rural Business Opportunity

Grant

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Business and Industry (B & I) Guaranteed Loan Program

• Provide financial backing to start or improve businesses in rural areas.

• To create jobs and stimulate economic development by funding the growth and creation of rural businesses Provide financial backing to start or improve businesses in rural areas.

• FY-2009 $1Billion

• An additional $1.7 Billion in ARRA Funds

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$4.2 Billion PortfolioNumber of Active Loans (2,662)

Code 11-Agriculture, Forestry, Fishing, and HuntingCode 11-Agriculture, Forestry, Fishing, and Hunting

Code 21-Mining, Quarrying, and Oil and Gas ExtractionCode 21-Mining, Quarrying, and Oil and Gas Extraction

Code 22-UtilitiesCode 22-Utilities

Code 23-ConstructionCode 23-Construction

Codes 31-33-ManufacturingCodes 31-33-Manufacturing

Code 42-Wholesale TradeCode 42-Wholesale Trade

Codes 44-45-Retail TradeCodes 44-45-Retail Trade

Codes 48-49-Transportation and WarehousingCodes 48-49-Transportation and Warehousing

Code 51-InformationCode 51-Information

Code 52-Finance and InsuranceCode 52-Finance and Insurance

Code 53-Real Estate and Rental and LeasingCode 53-Real Estate and Rental and Leasing

Code 54-Profession, Scientific, and Technical ServicesCode 54-Profession, Scientific, and Technical Services

Code 55-Management of Companies and EnterprisesCode 55-Management of Companies and Enterprises

Code 56-Administrative and Support and Waste Management Code 56-Administrative and Support and Waste Management and Remediation Servicesand Remediation Services

Code 61-Educational ServicesCode 61-Educational Services

Code 62-Health Care and Social AssistanceCode 62-Health Care and Social Assistance

Code 71-Arts, Entertainment, and RecreationCode 71-Arts, Entertainment, and Recreation

Code 72-Accomodation and Food ServicesCode 72-Accomodation and Food Services

Code 81-Other Services (except Public Admin.)Code 81-Other Services (except Public Admin.)

Code 92-Public AdministrationCode 92-Public Administration

Unknown NAICSUnknown NAICS

45

66

86 204, 8%

204, 8%

85

385, 14%

76

11

10

57

124, 5%

21

659, 25%

161, 6%

369, 14%

19

4110

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Code 11

Code 21

Code 22

Code 23

Codes 31-33

Code 42

Code 44-45

Code 48-49

Code 51

Code 52

Code 53

Code 54

Code 55

Code 56

Code 61

Code 62

Code 71

Code 72

Code 81

Code 92

Unknown NAICS

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Program Eligibility

Lenders • Federal Banks

• State Chartered Banks

• Credit Unions

• Others as deemed eligible

Borrowers• Co-op• Corporation• Partnership• Public Body• Individuals• Legal profit or nonprofit entity:

Examples include LLC’s, Land Trusts, etc.

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B & ILoan Guarantee Limits

• $0-$5 million: 80% guarantee• $5-$10 million: 70% guarantee• $10-$25 million: 60% guarantee• ARRA Funds up to 90% guarantee ($1.7 Billion)

**exceptions possible for cooperatives and high priority projects

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Eligibility Requirements

• Citizenship– Corporations or other entities must be 51% owned by U.S. citizens– Individuals must be U.S. citizens

• Rural Area– City or town less than 50,000 (census tract)– As determined on the rural business eligibility identifier web-site – http://www.rurdev.usda.gov/rbs/

• ERS – Rural Area Determination

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Eligible Loan Purposes

• Acquisitions• Conversion, enlargement, repair, modernization or development• Purchase and development of land, easements, right-of-way,

buildings and facilities.• Purchase of equipment, leasehold improvements, machinery,

supplies and inventory• Pollution control and abatement• Transportation services

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• Startup costs and working capital (capital insertion, not line of credit)

• Purchase of membership, stocks, bonds or debentures necessary to obtain a loan from Farm Credit Systems institutions and other lenders

• Purchase of cooperative stock• Aquaculture

Additional Loan Purposes

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• Commercial fishing, nurseries, forestry• The growing of mushrooms or hydroponics• Debt Refinancing• Takeout of interim financing• Professional services and routine lender fees• Rural Development guarantee fee

Additional Loan Purposes

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• Charitable institutions (churches, fraternal organizations)• Lending and investment institutions, insurance companies• Assistance to government employees and military personnel

who are directors or officers or own 20% or more• Gambling (unless it is less than 10% of revenues)• Illegal business activities• Agriculture production loans, unless vertically integrated• Lines of Credit

Ineligible Purposes

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• Guarantee of lease payments• Guarantee of loans made by other Federal

agencies and tax exempt financing• Owner-occupied housing or housing projects

eligible for other USDA Housing Programs• Conflicts of interest involving Rural

Development• Golf Courses

Ineligible Purposes

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Program Guidelines

• Personal guarantees required from all entity owners > 20% (bank may have more stringent requirements)

• State Certified General Appraiser for all real estate

• 2% fee calculated on guaranteed portion of loan (due at closing)– May be part of financing package

• Annual renewal fee currently .25% (billed as of 12/31)– May be billed to customer or included in interest rate

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Interest RatesInterest Rates

• Negotiated between lender and customer

• Fixed or variable rates are allowed

• Variable rates can not adjust more than quarterly and must be tied to a published base rate.

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Maximum Loan Terms

• Real estate 30 years• Machinery and equipment 15 years or useful

life, whichever is less• Working capital 7 years• Balloon payments not allowed

Questions?

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Intermediary Re-lending Program (IRP)

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• Program Purpose: Finance and facilitate the development of small, private business enterprises

• Eligible applicants: Public bodies or NFP’s• Small business definition: < $1 million in

gross revenue (manufacturing can deduct CGS) or less than 50 new employees

• Rural definition: 50,000 population or less

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Revolving Loan Program

• Rural Development makes a large loan to the intermediary with a 30 year term and 1% interest rate. The first 3 years are interest only payments.

• The intermediary relends those funds in smaller amounts at shorter terms and slightly higher rates (below available market rates). The principal and interest recaptured from the ultimate recipient loans is used to create a revolving loan fund.

• Intermediary: Loan amounts are subject to each year’s fiscal year funding limitations. The last few years have been capped at $750,000 per IRP loan

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Who is Eligible?

• Public bodies and not-for-profits are eligible to apply for an IRP loan directly from Rural Development. These are known as the intermediaries.

• Rural small businesses, public bodies, or private organizations are eligible to apply for loans from the intermediary. These are known as the ultimate recipients.

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How Does it Work?

• Rural Development makes a large loan to the intermediary with a 30 year term and 1% interest rate. The first 3 years are interest only payments.

• The intermediary relends those funds in smaller amounts at shorter terms and slightly higher rates (below available market rates). The principal and interest recaptured from the ultimate recipient loans is used to create a revolving loan fund.

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Ultimate Recipients Must:

• Be located in a rural community of 25,000 or less

• Be U.S. citizens or legally admitted aliens. Organizations must

be 51% U.S. owned.

• Be unable to finance the project from its own resources or obtain

conventional financing at reasonable rates and terms.

• Hold no legal or financial interest or influence in the intermediary.

• Have no delinquent Federal debt.

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• Charitable institutions (churches, fraternal organizations)• Lending and investment institutions, insurance companies• Assistance to government employees and military personnel

who are directors or officers or own 20% or more• Gambling (unless it is less than 10% of revenues)• Illegal business activities• Agriculture production loans, unless vertically integrated• Lines of Credit

Ineligible Purposes

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Ineligible Loan Purposes

• Intermediary’s own administrative expenses• Some charitable institutions, churches, organizations

affiliated with or sponsored by churches, and fraternal organizations

• Agricultural production loans• Transfer of ownership unless it keeps the business

from closing or provides expanded job opportunities• Golf courses, race tracks, or gambling

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Rural Energy for America Program (REAP)

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Rural Energy for America Program

• Created in the 2008 Farm Bill (Section 9007)– Formerly known as the Section 9006 Program

• Designed to assist farmers, ranchers and rural small businesses with energy projects

• Provides grants, guaranteed loans, and combined guaranteed loans and grants for renewable energy and energy efficiency projects.

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Renewable & Energy Efficiency

• Energy derived from a wind, solar, biomass, or geothermal source;

• Renewable energy system– A system that produces or

produces and delivers usable energy from a renewable energy source.

Renewable Efficiency• Improvements to a

facility, building, or process that reduces energy consumption, or reduces energy consumed per square foot.

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Section 9007 - Rural Energy for America Program Funding

• Loan Guarantee Limits:– $25 Million Cap– Cap Federal share at 75% of project costs

• Mandatory Funding:– FY 09 - $55 Million– FY 10 - $60 Million– FY 11 - $70 Million– FY 12 - $70 Million

• Discretionary funding of up to $25 million each fiscal year, 2009 -12

• Notice of Solicitation of Applications published May 26, 2009.

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Grant Program – FY ‘08

• Minimum grant $2,500 for renewable• Maximum grant $500,000 for renewable• Grant can cover up to 25% of eligible project

costs

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Energy Efficiency Improvement

• Improvements to a facility, building, or process that reduces energy consumption, or reduces energy consumed per square foot.

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Applicant Eligibility

The applicant must be an agricultural producer or a rural small business.

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Applicant Eligibility

If the applicant is applying as a rural small business, the business headquarters and the funded project must be in a rural area.

The applicant must have “demonstrated financial need”.

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Eligible Purposes

• Post-application construction, improvements and purchase of equipment

• Professional service fees (except for application preparation)

• Feasibility studies and technical reports • Business plans• Permit and license fees

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Examples – Rural Small Business

• Replace a grocery store’s coolers and freezers with high efficiency models.

• Replace old inefficient furnace in retail shop with high efficiency HVAC system.

• Install high efficiency lighting and insulation in a manufacturing facility.

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Examples – Rural Small Business

• Install thermal blanket for greenhouse.• Install geothermal heat pumps in shopping

complex. • Install wind turbine or solar panels for rural

cold storage facility.

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Examples – Ag Producers

• Install high efficiency diesel engine and low pressure center pivot irrigation system replacing older inefficient irrigation system.

• Purchase a high efficiency grain dryer. Applicant could be an agricultural producer or small grain elevator.

• Purchase a wood, corn or straw burning furnace to supply heat to the farm shop

Questions?

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Section 9009 -- Rural Energy Self-Sufficiency Initiative

• Provides grants for the purpose of enabling eligible rural communities to substantially increase their energy self-sufficiency.

• Authorizes funds of $5 million per year, beginning in FY 2009 and continuing through FY 2012.

• Policy discussion is in progress to identify program requirements

Value-Added Producer Grant Program

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Value-Added Producer Grants

PURPOSE - The VAPG Program is intended to provide grant funds to agricultural producers for planning activities and working capital expenses to assist them in receiving a greater share of the consumer’s dollar for value-added agricultural products.

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VAPG Application and Funding History

Year Awarded Projects (million $)

Funded 2001 19.9 63 2002 38.0 231 2003 28.5 193 2004 15.1 97 2005 14.8 169 2006 21.2 185 2007 22.8 162 2008 19.7 144

591483

588

292212 258 219

306

63 231193

97169

185162

144

-50

50

150

250

350

450

550

650

750

850

2001 2002 2003 2004 2005 2006 2007 2008

Year

Numb

er of

Appli

catio

ns

Unfunded Funded

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VAPG Applicant Eligibility

• Independent Producer• Farmer or Rancher Cooperative• Agricultural Producer Group• Majority-Controlled Producer-Based Business

Venture

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Applicant Eligibility con’t

• Agricultural Producer Group – General farm organizations such as the Farm Bureau,

American Soybean Association, IL Beef Association, IL Corn Growers Association, etc. that represent agricultural producers

• A majority of the membership and board of directors must meet the independent producer definition

• Must identify a specific group of independent producers on whose behalf the work will be done

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Applicant Eligibility

• Majority-Controlled Producer-Based Business Venture – An organization where a majority of the members,

financial interest, and voting rights reside with independent producers

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Product Eligibility

• Change in physical state (e.g. lamb chops, milk to cheese, corn to ethanol)– Change must be permanent so that commodity

cannot be returned to its original state– Common production or harvesting methods are

not eligible (e.g. dehydrated corn, raw fiber, cut flowers)

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Product Eligibility

• Physical segregation– Uniquely produced commodity is physically separated from other

similar commodities produced in other manners– Enhancement of value must be quantified by comparing with similar

commodities which are not segregated– Must have physical barrier (structure or distance) separating value-

added commodity from other varieties of that commodity– Must be kept separate during production, harvest, processing, and

marketing– Ex. Farm that produces non-GMO corn on a separate plot from

GMO corn, which increases the non-GMO corns’ value

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Product Eligibility

• Differentiated production or marketing (e.g. organic vegetable marketing campaign, identity preserved beef) – Enhancement of value must be quantified by

comparing with products produced or marketed in standard manner

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Ineligible Purposes

• Plan, repair, rehab, acquire, or construct a building or facility• Fund engineering or design work for a physical facility• Purchase land or vehicles• Purchase, rent, or install permanent, fixed, or processing

equipment– Can purchase, rent, or install office equipment & supplies, though

• Pay for a grant writer or any other preparation of the grant

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Ineligible Purposes con’t

• Pay any expenses not directly related to the value-added venture

• Pay project cost incurred prior to the date of grant approval

• Fund political or lobbying activities• Pay any costs associated with the production of the

raw agricultural commodity• Research and Development• Expenses involving a conflict of interest

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Planning Grants

• Grants to assist in determining if a particular value-added venture is viable or paying costs associated with establishing a venture– Ex: feasibility study, business plan, marketing plan, legal

expenses associated with establishing the venture

• FY ’08: $100,000 grant maximum

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Working Capital Grants

• Grant to assist in the eligible operation costs of the value-added venture – Ex: Design or purchase an accounting system– Pay salaries, utilities, and office space rental– Purchase inventory, office equipment, and supplies– Conduct marketing campaign for value-added product

• FY ’08: $300,000 grant maximum

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Other Stipulations

• Applicant organization must be at least 51% owned by U.S. citizens or permanent, legal aliens

• Applicant must produce and provide at least 50% of the commodity used in the value added process.

• Applicant must own the product from its raw commodity state through the entire value-added process.

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Other Stipulations con’t• Grant funds must be matched dollar for dollar by applicant

contributions (other federal grants do not qualify)– Can be cash, loans, lines of credit, 3rd party in-kind contributions, or

inventory etc.• In-kind contributions can be in the form of cash, donated labor, office

supplies, and inventory. Donated R/E, fixed equipment, and vehicles do not qualify

• In-kind contributions will not be considered from sources where a conflict of interest exists

• Inventory example: Dairy farmer producing cheese will commit $50,000 worth of milk produced on his farm to the cheese operation

– Matching funds may only be used for the same purposes allowed for grant funds

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Other Stipulations con’t

• Except for independent producers, applicants must prove that they are entering into an emerging market. This is demonstrated by proving the venture has been in operation for less than 2 years.

• Should be a high probability of success for the venture.

• Working capital applicants must have a business plan and feasibility study completed at the time of application and available for review. Feasibility study must be from a independent 3rd party.

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Examples of Eligible Projects

• Feasibility of a producer-owned biodiesel plant

• Labor for a dairy farm to produce cheese products– Labor of cheese production, marketing, & selling

only… no agricultural production labor

• Organic vegetable farm marketing campaign

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Questions?

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Rural Cooperative Development Grant

• Provides grant funds for establishing and operating rural cooperative development Centers.

• Eligible applicants are non-profit organizations and institutions of higher learning.

• Required matching funds equaling 25 percent of total project costs.

• Maximum grant size $200,000.

Land O LakesLand O Lakes Ocean SprayOcean Spray Florida’s NaturalFlorida’s Natural

All started out as small cooperativesAll started out as small cooperatives

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Cooperative Development

• The startup, expansion or operational improvement of a cooperative

• Development activities include technical assistance, and research, educational, and advisory services

• Operational improvement includes making a cooperative more efficient or better managed

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Small Socially-Disadvantaged Producer Grant(formerly Small Minority Producer Grant)

• Funds cooperatives or associations of cooperatives to provide technical assistance to small minority agricultural producers in rural areas.

• Maximum grant size $175,000

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Eligibility

• Applicant—minority cooperative or association of cooperatives where the governing board and/or membership is comprised of at least 75 minority.

• Activity—technical assistance: advisory services performed on behalf of small minority producers, including market research, product and/or service improvement; feasibility studies, business plans, training.

• Match—No matching funds requirement.

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SMPG Applications and Funding

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2823

9

88

0

10

20

30

40

50

60

2006 2007 2008 2009

Year

Num

ber

of A

pplic

atio

ns

FundedUnfunded

$1.4 mil

$1.2 mil$1.3 mil $1.4 mil

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RBEG and RBOG Program

Rural Business Enterprise Grant

(RBEG)

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• Program Purpose: Finance and facilitate the development of small, private business enterprises

• Eligible applicants: Public bodies or NFP’s• Small business definition: < $1 million in

gross revenue (manufacturing can deduct CGS) or less than 50 new employees

• Rural definition: 50,000 population or less

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How Does it Work?

• The applicant (Public body or NFP) applies for and receives the grant dollars for a specific project. They use these funds to assist small business development in a variety of ways. Grant dollars cannot be “passed through” to the small businesses, but can indirectly benefit them multiple ways.

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Eligible uses of Funds

• Purchase of land, R/E, or machinery/equipment• Construction or repair of buildings, equipment, infrastructure, parking

lots, etc.• Creation of a revolving loan fund for small businesses• Technical assistance to small businesses• Training in connection with technical assistnace

ALL GRANT PROJECTS MUST DEMONSTRATE HOW RURAL SMALL BUSINESS DEVELOPMENT WILL OCCUR

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Examples of Eligible Projects

• Construction of a business incubator center• Purchase of a building or equipment to be leased to

small businesses• Extension of water/sewer services to an industrial

park• Purchase of land to be used as an industrial park• Downtown business district streetscape and parking

renovations• Creation of a revolving loan fund

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Priority Scoring Selection Factors

• Population• Unemployment rate• Median household income• Experience of applicant• Other funds available for the project• Number of jobs created per grant dollar requested• Amount of grant request• Written evidence of small business development provided by

the small business to be assisted• Project consistent with local economic development plans

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Rural Business Opportunity Grant (RBOG)

The RBOG program promotes sustainable economic development in rural communities with exceptional needs through provision of training and technical assistance for business development, entrepreneurs, and economic development officials and to assist with economic development planning.

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RBOG Program

• Eligibility: Rural public bodies, nonprofit corporations, Indian tribes, and cooperatives with primarily rural members that conduct activities for the mutual benefit of the membership.

• Purposes: Technical assistance for business development and economic development planning.

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RBOG Project Funding

• Maximum grant for projects serving a single state is $50,000.

• Maximum grant for projects serving a multi-state (two or more) are is $150,000.

• FY2009 funding available - $2.6 million

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Business & Cooperative Programs (RBS)Business & Cooperative Programs (RBS)

Business Programs• Business & Industry (B&I)

Guarantee Loan Program• Rural Business

Enterprise Grant (RBEG)• Intermediary Relending

Program• Rural Energy for America

9007

Cooperative Programs• Value Added Producers

Grant• Small Minority Producers

Grant• Rural Co-op Development

Grant• Rural Business Opportunity

Grant

Contact the RD Program Specialist in Your StateContact the RD Program Specialist in Your State

For a List of all State Offices:

http://www.rurdev.usda.gov/recd_map.html