CDFA Spotlight: Rural Financing Programs By CDFA Staff Writers

Rural Finance Overview

Rural communities require access to capital and financial resources for new infrastructure, investment, growth and sustainability. However, the challenges facing rural communities are often far removed from urban and suburban needs. Rural communities often require specialized financing options that provide resources relating to agribusiness, broadband development, energy assistance and value-added business assistance. Several federal, regional and state agencies exist to assist in financing rural development. The major programs and players are highlight in the following article.

USDA Rural Programs

The United States Department of Agriculture (USDA) has broad goals and areas that it deals with and aids. Like any successful organization, it has evolved with the times and now has a variety of programs that foster community and economic development in rural areas to compliment its traditional role helping agribusiness. The USDA dates to 1889, although earlier versions of a federal department to deal with agriculture existed in several forms going back to 1836. The USDA is the lead Federal agency for rural development through the Rural Development Policy Act of 1980, although there is a fair amount of overlap with other Federal agencies offering rural development programs.

Most of these programs are run through the Rural Development unit of the USDA. This entails many areas but several programs pertain to development finance through their Community Facilities programs.

Rural Development has three main mission areas in addition to community facilities development. They are rural business, rural housing, and rural utilities.

Part of the problem with development in rural areas is defining rural. Different programs have different definitions, but the general definition is any city with less than 20,000 people (some programs have a 50,000 population maximum) that is not a part of a larger metropolitan region and does not border a larger metro area. Unincorporated rural areas are also included in the programs.

USDA infrastructure programs deal with three specific areas. The first is “traditional” infrastructure in the form of utilities such as water, sewer, and electric. The second is critical access infrastructure that includes hospitals, schools, community centers, long-term care centers, police and fire stations, and other public-use facilities.

The USDA has three different programs to aid community critical access infrastructure. There are two loan programs and one grant program under the Community Facilities unit.

• The Community Facilities Direct Loan program is available to applicants who can’t obtain commercial credit. Interest rates range from poverty level (4%) to market rate depending on the project and applicant. The Direct Loan program is aimed at building essential community facilities related to health care, public safety, and other public services. Besides government entities (municipalities, counties, special purpose districts), non-profit corporations and tribal governments may also apply.

• The Community Facilities Loan Guarantee program provides guarantees in place of direct loans. Instead of directly loaning money to the applicant, the USDA will guarantee the loss of interest or capital on a loan up to 90%. Loans are made by private lenders at typical market rates for projects of similar size. Those eligible to use this program and projects that qualify are otherwise the same as the direct loan program.

• The Community Facilities Grant Program has the same general requirements as the loan programs, first consideration is given to areas with especially low income and population. The grant program can be used to finance up to 75% of a project.

• The Rural Development Broadband Loan and Loan Guarantee Program provide loans and helps secure loans for companies to expand broadband services in rural areas. While improvements to broadband services opens new IT and other business opportunities to rural communities.

• The Rural Business Enterprise Grant program provides grants for rural projects that finance and facilitate development of small and emerging rural businesses by funding distance learning networks and employment related adult education programs. To assist with business development, RBEGs may fund a broad array of activities although they are aimed at helping firms with less than 50 employees.
  
• The Rural Community Development Initiative provides funding for adult education. Grants are also available to public and non-profit organizations for technical assistance and training (Rural Business Opportunity Grants). These grants may be used for feasibility and planning studies or other activities needed for economic development.

• The Business and Industry Guaranteed Loan (B&IGL) program allows for-profit and non-profit businesses and organizations borrow money to increase employment or generally improve the economic condition of the region. This program can also be used to fund development of renewable energy resources and water usage for aquaculture.

• The Intermediary Relending Program establishes revolving loans. Intermediaries are given up to $2 million to distribute loans to businesses and projects. Payments made on the loan by the business should replenish the fund to allow other loans to be made.

• The Section 108 Loan Guarantee Program helps fund projects aimed at addressing economic development, housing rehabilitation, public facilities, and large-scale physical development projects. Section 108 can be used in conjunction with HUDs Brownfield Economic Development Initiative in areas where environmental concerns have prohibited development.
• The Renewal Community Incentives (RCI) program offers tax incentives for businesses to open, grow, and hire local workers.
• HUD created Empowerment Zones offer similar incentives as RCI except concentrated on a specific area.