USDA Rural Development

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USDA

Rural

Development

Rural Business—

Cooperative Service

ICBA Convention

Tuesday, March 8, 2016

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Sam Rikkers

Administrator, RBS

[email protected]

John Broussard

Director, Business & Industry, RBS

[email protected]

Mark Brodziski

Director, Energy Programs, RBS

[email protected]

Michael Foore

Senior Policy Advisor, RBS

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Agenda

• Background

• Program Basics

• Leverage of Resources

• Access Points to Programs

• Q & A

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USDA Rural Development

Rural Development is committed to

helping improve the economy and

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We accomplish this by:

• Investing financial resources and providing technical

assistance to businesses located in rural

communities.

• Establishing strategic alliances and partnerships that

leverage public, private, and cooperative resources

to create jobs and stimulate rural economic activity.

• Increasing access to capital in rural America

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Rural Utilities Service

Helps rural utilities expand and keep their infrastructure and technology up to date, and establish new and vital services such as distance learning and telemedicine.

Rural Business—Cooperative Service

Provides leadership in building competitive businesses including sustainable cooperatives that can prosper in the global marketplace.

Rural Housing Service

Helps rural communities and individuals by providing loans and grants for housing and community facilities.

To assist rural communities in creating prosperity so they are self-sustaining and economically thriving through investments that create ladders of opportunity, build regional resilience, and

support the growth of emerging markets.

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Rural Business-Cooperative Service

Programs

• Rural Energy for America Program

• Business and Industry Guaranteed Loans

• Biorefinery Assistance Program

• Rural Business and Development Grants

• Intermediary Relending Program

• Rural Microentrepreneur Assistance Program

• Value Added Producer Grants

• Rural Business Investment Program

• Cooperative Development Assistance

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Rural Energy for America Program

(REAP)

Promotes energy efficiency and development of

renewable energy for agricultural producers

and rural small businesses through:

• Grants for energy audits and renewable

energy development assistance

• Guaranteed loans and grants for energy

efficiency improvements and renewable

energy systems

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USDA Rural Development

Business & Industry (B&I)

Guaranteed Loan Program

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Business and Industry

Guaranteed Loan Program Mission

 Create and maintain employment and improve the

economic and environmental climate in rural

communities

 Bolster the existing private credit structure through

the guarantee of quality loans that will provide

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Types of Lenders

• Traditional Lenders – Federal or State

chartered banks, Savings & Loans, Farm

Credit banks, Credit Unions

• Other Lenders – that have legal authority,

sufficient experience and financial strength

to operate a successful lending program

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Eligible Borrowers

 Any legal entity, including nonprofit organizations,

Federally recognized tribal groups, public bodies and

individuals

 Individual borrowers must be US citizens or

permanent residents. Corporations must be at least

51 percent owned by US citizens or permanent

residents.

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Eligible Business Locations

 Rural Area – Anywhere except within the boundaries

of a city or town with more than 50,000 inhabitants or

the urbanized area of that city or town

 Eligibility can be determined at the following Web

site:

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Typical Loan Purposes

 Real estate purchase and improvements

 Machinery and equipment purchase

 Working capital

 Integrated agriculture production/processing

facilities--agricultural-production portion of

any loan will not exceed 50 percent of the

total loan or $1 million, whichever is less

 Debt refinancing and business acquisitions

-under certain conditions

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Fees and Percentage of Guarantee

 Fees

 Initial Guarantee Fee – 3% in most cases

 Annual Renewal Fee – ½ of 1% *subject to

change

 Percent of Guarantee Maximums

 Greater than $10 MM – 60%

 $5MM - $10MM – 70%

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Loan Limits

 No minimum loan amount

 $10 Million maximum without Administrator

exception

 Up to $25 Million to any one borrower

 Up to $40 Million for rural cooperative

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Loan Structure

 Negotiated by the lender and borrower

 Rates can be

Fixed/Variable/Combination, but cannot

vary more often than quarterly

 Origination fees and prepayment

penalties are permitted

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Maximum Loan Terms

 Real estate - 30 years

 Machinery and equipment - the

lesser of 15 years or useful life

 Working capital - 7 years

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Tangible Balance Sheet Equity

 Financial statements must be prepared in

accordance with GAAP (may be “In-house”

financials)

 Minimum of 10 percent required for existing

businesses

 Minimum of 20 percent required for new

businesses

 Minimum of 25-40 percent required for

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Equity, continued

 Intangibles - goodwill, R&D, amortized loan

costs, customer lists, etc. - must be removed

 Appraisal surplus and subordinated debt is

not allowed; however, subordinated debt can

be converted to stock

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Rural Development State Offices

• Each state has at least one Rural

Development Office that processes B&I

loans

• Contact the Business Programs

Director or staff early in the process

• Visit our website at:

www.rurdev.usda.gov

for a State Office

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Loan Application

• An assigned Loan Specialist is available by

phone and in person to work with you in

preparing loan application

• Decision making is local for loans within

delegated authority ($5MM - $10MM in most

states)

• Pre-application enables lender to get a

preliminary response without completing a full

application.

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Eligible Applicants and Borrowers

Agricultural Producer

Rural Small Business

• Individual or entity that

receives 51 percent or more

of their gross income from

agricultural production

– crops, livestock, aquaculture, forestry operations, nurseries, dairies

• For-profit small business

- as defined by the Small Business

Administration (SBA)

• Rural area or non-metro

community of < 50,000

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Improve Profits for Your

Farm or Ranch with REAP

Energy Efficiency

Renewable Energy

Lighting

Solar

Heat & Power

Wind

Refrigeration

Small Hydroelectric

HVAC

Anaerobic Digesters

Equipment and

Processes

Biomass

Automated Controls

Geothermal

Buildings Updates

Wave/Ocean Power

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

Eligible Project Costs



Ineligible Project Costs

• Equipment:

• Purchase & installation

• New or refurbished

• Post-application construction &

facility improvements

• Retrofitting

• Professional service fees

• Permits & license fees

• Working capital, land

acquisition (Guarantee loan

ONLY with restrictions)

• Residential energy projects

• Equipment:

• Farm tillage equipment

• Used equipment

• Vehicles

• Pre-application construction &

facility improvements

• Application preparation or grant

writer fees

• Line of credit

• Lease payments

• Payment to the

applicant/business owner,

beneficiary, or relative

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Renewable

Energy Systems

Energy Efficiency

Improvements

Grant amount cannot exceed 25% of Eligible Project Cost

Minimum Grant

Request

$2,500

Total eligible project costs > $10,000

Minimum Grant

Request

$1,500

Maximum Grant

Request

$500,000

_{Total eligible project}

costs > $2 million

Maximum Grant

Request

$250,000

_{Total eligible project}

costs > $1 million

Minimum Loan

Amount

$5,000

Maximum Loan

Amount

$25 million

Total eligible project costs > $33.4 million

Details

• USDA guarantees a commercial loan; applicant must

have a willing lender.

• Terms are negotiated between the lender and borrower.

• Applications accepted year round

• Loan and Grant combo ≤ 75% of project cost

Loan amount cannot

exceed 75% of

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REAP Guaranteed Loan Terms

 GUARANTEE

• 85% for loans $600,000 or

less.

• 80% for loans over

$600,000 up to $5 Million

• 70% for loans over $5

Million up to $10 Million

• 60% for loans over $10

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REAP Guaranteed Loan Terms

 MAXIMUM TERM LIMITS

• Working Capital – 7 Years

• Machinery & Equipment – 15 Years

(or useful life, whichever is less)

• Real Estate – 30 Years

 OTHER FUNDS REQUIRED

• 25% of project costs

 INTEREST RATE

• Fixed or Variable; if variable can be

adjusted quarterly

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REAP Guaranteed Loan Terms

BENEFITS FOR BORROWERS

Assists in providing stability and

growth through energy efficient

improvements and renewable

energy utilization.

Provides the ability to receive:

 Higher Loan Amounts

 Competitive Interest Rates

 Longer Repayment Terms

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REAP Guaranteed Loan Terms

 FEES

• One-time guarantee

fee of 1%

• ¼% annual renewal

fee

 Mitigate Risk

• Guarantee is a “loss” guarantee

 Additional Revenue streams

• Sale of Loan Note Guarantee on

Secondary Market

 Increase Profits

• Receive servicing fee from

Secondary holder

 May help satisfy Community

Reinvestment Act requirements

 Provides another tool to expand

and diversify portfolio

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WHY REAP Loan Guarantees?

Credit

Enhancements

Mitigate

Risk

Increase

ROI

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Renewable Energy

Scenic View Dairy

Anaerobic digester

• $1.9 Million Total Cost

Powers an equivalent of

1000 homes/year

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Small Energy Company

& Dairy Farmers

1 MW Anaerobic digester

• $4.15 Million Total Cost

Powers an equivalent of

700 homes/year

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Renewabl;e Energy

Organic Dairy Farm

10.75kW Solar

• $55,318 Total Cost

Offsets 49% of the

Farm’s energy needs

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Grocery Store

Geothermal heat, energy efficient

coolers & lighting

• $198,600 Total Cost

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Nursery

Energy efficient glass roof,

radiant heat, fans, vents, &

computerized controls

• $287,855 Total Cost

40% reduction in energy costs

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Radiant heat, fans,

vents & computerized

controls

• $99,293 Total Cost

Improved egg

production, reduced

time and labor, energy

savings

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Gewecke Family Farms

Wood River, NE

Grain Dryer Replacement

• $70,000 Total Costs

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Heartwell, NE

Diesel to electric irrigation pump

conversion

•$13,519 Leveraged funding

60% reduction in energy costs

Elm Creek, NE

Converted gravity irrigation to pivot

irrigation

•$104,128 Leveraged funding

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• Rural Energy for America Program (REAP)

www.rd.usda.gov/reap

• Contact the USDA Rural Development Energy

Coordinator in your state for application materials and

resources:

http://www.rd.usda.gov/files/RBS_StateEnergy

Coordinators.pdf

• Submit applications any time of year.

• Applications compete for

funding based on

score throughout

the year.

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Next Steps

• Reach out to your

USDA Rural

Development State

Energy Coordinator for

additional information.

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Biorefinery, Renewable Chemical, and

Biobased Product Manufacturing

Assistance Program (Section 9003)

Assists emerging technologies:

• Biorefineries:

o Advanced biofuels

o Renewable chemicals

o Biobased Products