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Rural Economic DevelopmentLoan & Grant Program11Brief 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 agencys 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-A2Since 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.3History of the REDLG Program cont.3Brief History of the REDLG Program cont.4Many Positive Results

RUS Borrowers have been successful in promoting economic development through this program.

Program PurposeRural 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 projects55Benefits 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 sales66RED 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 1,2507Program Types Loans- Up to 2 million for FY 2014Zero 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 2014Grants are awarded to the Intermediary to establish a Revolving Loan Fund (RLF) to make loans to Ultimate Recipients 889

Loans made to Utilities from Rural Electrification and Telephone Revolving Fund

Utilities provide energy and telecommunications

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. The difference between fund earnings, and cushion earnings is deposited to a sub-account.

The sub-account funds REDLG

How REDLG is Funded9Applicant EligibilityThe Intermediary must be either:A borrower with an outstanding loan with the Rural Utility Service (RUS)A former borrower of RUSA Utility that was never a borrower of RUS, but would be eligible to become one (municipal electric)1010Security for REDLGThe 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.1111How 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.1212How The Process Works ContThe 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

13Loan Overview14REDL or Pass Through Loan

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Intermediary borrows from UDSA RD at 0% interest Intermediary loans to recipient at 0% interestEligible Uses of Loan FundsStartup 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.

1616Eligible 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.

1717REDLG Ineligible Project Purposes Refinancing or costs incurred prior to the application Residential purposesConflicts of interestsAgricultural production (limited situations)Pass-through grant1818Supplemental Funds for LoansRED Loans require a minimum of 20% of the loan amount for the Project be provided as supplemental fundsThe 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 sourcesExpenses incurred prior to date of application cannot be used as supplemental funding.

1919In no case will the Loan funds exceed 80% of the total project costs. The remaining 20% may come from the ultimate recipient in the form of cash or a loan from a private lender such as a bank, the Intermediary, Third party, or any other source.

RED Loan TermsIntermediary 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-ops repayment to USDA

2020Multiple RED L&G AwardsNo Upper Limit to # of applicationsMultiple awards to same RUS eligible borrowerEach project is reviewed independentlyMultiple Awards to same company / entityMinor scoring implicationsBonus points if first time applicantBonus points if first award for county21Grant Overview22How it Works- GrantsRD provides grants to Intermediaries to establish an RLFInitial loans are made from the RLF to a pre-selected local community facility project or other eligible projectSubsequent loans from revolved funds can be used for community or economic development projects

232324USDA Grant for Revolving Loan Fund: Initial LoanUSDA RD grants to RLF$300,000 Max

Intermediary matches 20% with own funds $60,000 max

Intermediary Administered RLF of $360,000

24Eligible Ultimate Recipients for Initial RLF loansNon-profit entities

Public bodies

Federally-recognized Indian tribes

For Profit businesses with limitations (see RD Instruction 4280-A)2525Eligible Purposes of Initial RLF Loan Community Development ProjectsCommunity Facility ProjectsBusiness IncubatorsFacilities and equipment for education and training to facilitate economic developmentMedical facilities or equipment Telecom or computer network for medical or educational services or job training

2626 Supplemental Funds for REDG

The Intermediary must match 20% of the Grant into the fundThe contribution may be used to fund the same project that the Agency is funding or another REDLG loan or grant eligible project.

2727USDA Grant for RLFInitial 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.2828RLF Operation BasicsREVOLVING LOAN FUND PLANServes as Administration rules of RLF

You set the rules (within limits) for your loan fund.RLF plan is approved by RDMust 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

29RLF AdministrationResponsibilities & Limitations

Conflicts of Interest, cannot lend to: - Cooperative, its 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 boardCannot limit lending only to customers - Or use that as a reason to say no30RLF 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. 31Combination Loan and Grant ApplicationsMust meet both Grant and Loan eligibility criteriaSubmit in applications under one cover, USDA can approve separatelyMatch required for RLFTwo separate loans are issued by the IntermediaryWorks well for Health Care, Education, community projects3232REDL&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)33REDL&G Application cont.. Selection Factors Narrative- Ultimate Recipients Legal Structure Minimum 20% Supplemental Financing Location of the ProjectRural Area or Benefits to Rural AreaNumber & Description of Jobs Business Plan & Financial Projections Supporting Information for Scoring Criteria If Grant/RLFRLF Plan or Draft Administrative Rules

34Environmental ProcessRural Development will conduct a review for the potential of any environmental impacts resulting from the proposed ProjectRural 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.35REDLG Scoring Criteria - REDL&G Scoring CriteriaIntermediary 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 document36Project Type Nature of Project (up to 20 points for each)1. For profit business, business incubator, industrialbuilding or park, infrastructure (streets or utilities)2. Provides Technical Assistance to rural businesses orresidents, educates or provides medical care to ruralresidents3. Enhances rural development by providing advancedtelecomm services/computer networks for medical,educational and/or job training. Evaluated onapplications Technology Plan37

REDL&G Scoring Criteria

REDL&G Scoring Criteria

Project TypeJobs 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 15 jobs/$100,000 = 15 points < 1 job /$100,000 = 0 points38REDL&G Scoring Criteria

Project Type

Supplemental FundsLeverage Evaluated by % = (Project CostREDLG Amt) REDL&G Amt % Greater than 200% = 20 points From 100% to 200% = 10 points From 50% to < 100% = 5 points39REDL&G Scoring CriteriaLocationRural Area Population 1,249 or less 20 points Population 1,250 to 2,500 10 points Population > 2,500 0 pointsPopulation Decline(19902000) If yes, 10 pointsFirst REDL&G for County? If yes, 10 points40REDL&G Scoring CriteriaLocationDemographicsCounty 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

41REDL&G Scoring CriteriaUltimate RecipientComplete Business/Project Plan (Up to 15 points) Description Management Products MarketingFinancial 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 Flow42REDL&G Scoring CriteriaState Discretionary Points (5 pts each)1. Located in Rural Empowerment Zone Rural Economic Area Partnership Zone Rural Enterprise Community Champion Community2. Major employer closing in last 3 years resulting in 2% increase in unemployment rate3. Located in county with chronic or long-term economic deterioration4. Presidential Disaster Declaration5. Consistent with State RDs approved strategic plan

43REDL&G Scoring CriteriaSummary 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)44REDL&G Scoring CriteriaSummary 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 documented4546Questions & Discussion