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Growing Rural Businesses & Local Economies with. ASBDC National Annual Training Conference September 15 - 18, 2009. Panel. Jim Mitchell – Lead Business Analyst Business and Cooperative Programs – National Office Joe Muller – Acting State Director

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    1. Growing Rural Businesses & Local Economies with ASBDC National Annual Training Conference September 15 - 18, 2009

    2. Panel Jim Mitchell – Lead Business Analyst Business and Cooperative Programs – National Office Joe Muller – Acting State Director Rural Development - Florida State Office Brunilda Robles - Business Program Specialist Rural Development - Florida State Office

    3. US Department of Agriculture

    4. USDA - 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…” SourceUSDA 2007 Progress Report

    5. American Recovery and Reinvestment Act of 2009

    6. USDA - American Recovery and Reinvestment Act Funding Community Facilities $1.1 Billion Water & Waste $3.6 Billion Broadband $9.1 Billion Business & Cooperative Programs $2.9 Billion Single Family Housing $11.2 Billion

    7. 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 Business & Cooperative Programs (RBS)

    8. 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

    9. $4.2 Billion PortfolioNumber of Active Loans (2,662) Code 11-Agriculture, Forestry, Fishing, and Hunting Code 21-Mining, Quarrying, and Oil and Gas Extraction Code 22-Utilities Code 23-Construction Codes 31-33-Manufacturing Code 42-Wholesale Trade Codes 44-45-Retail Trade Codes 48-49-Transportation and Warehousing Code 51-Information Code 52-Finance and Insurance Code 53-Real Estate and Rental and Leasing Code 54-Profession, Scientific, and Technical Services Code 55-Management of Companies and Enterprises Code 56-Administrative and Support and Waste Management and Remediation Services Code 61-Educational Services Code 62-Health Care and Social Assistance Code 71-Arts, Entertainment, and Recreation Code 72-Accomodation and Food Services Code 81-Other Services (except Public Admin.) Code 92-Public Administration Unknown NAICS

    10. 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. Program Eligibility

    11. 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

    12. 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

    13. 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

    14. Additional Loan Purposes • 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

    15. Additional Loan Purposes • 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

    16. Ineligible Purposes • 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

    17. Ineligible Purposes • 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

    18. 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

    19. Interest 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.

    20. 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

    21. Questions?

    22. Intermediary Re-lending Program (IRP)

    23. 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

    24. 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

    25. 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.

    26. 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.

    27. 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.

    28. Ineligible Purposes • 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

    29. 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

    30. Rural Energy for America Program (REAP)

    31. 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.

    32. 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. Improvements to a facility, building, or process that reduces energy consumption, or reduces energy consumed per square foot. Renewable & Energy Efficiency Renewable Efficiency

    33. 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.

    34. 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

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

    36. Applicant Eligibility The applicant must be an agriculturalproducer or a ruralsmall business.

    37. 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”.

    38. 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

    39. 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.

    40. 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.

    41. 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

    42. Questions?

    43. 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

    44. Value-Added Producer Grant Program

    45. 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.

    46. 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

    47. VAPG Applicant Eligibility Independent Producer Farmer or Rancher Cooperative Agricultural Producer Group Majority-Controlled Producer-Based Business Venture

    48. 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

    49. 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

    50. 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)