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R ural Economic Development Loan & Grant Program. Brief History of the REDLG Program. A brief history of the program and purpose (1987-to date)

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brief history of the redlg program
Brief 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 agency’s 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-A

history of the redlg program cont
History of the REDLG Program cont….
  • Since 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.
brief history of the redlg program cont
Brief History of the REDLG Program cont….

Many Positive Results

  • RUS Borrowers have been successful in promoting economic development through this program.
program purpose
Program Purpose

Rural 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 projects
benefits of participation
Benefits 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


  • may lead to increased sales
red loan grant overview definitions
RED 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 1,250

program types
Program Types

Loans- Up to 2 million for FY 2014

Zero 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 2014

Grants are awarded to the Intermediary to establish a Revolving Loan Fund (RLF) to make loans to Ultimate Recipients


How REDLG is Funded

Loans made to Utilities from Rural Electrification and Telephone Revolving Fund

Utilities repay principal and interest to the Fund and may deposit extra into the Cushion of Credit Payments Account

Utilities provide energy and telecommunications

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

The utility earns 5% on its extra deposits.

The sub-account funds REDLG

applicant eligibility
Applicant Eligibility

The Intermediary must be either:

  • A borrower with an outstanding loan with the Rural Utility Service (RUS)
  • A former borrower of RUS
  • A Utility that was never a borrower of RUS, but would be eligible to become one (municipal electric)
security for redlg
Security for REDLG
  • The 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.

how the process works
How 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.
how the process works cont
How The Process Works Cont…
  • The 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
redl or pass through loan
REDL or “Pass Through” Loan

Intermediary borrows from UDSA RD at 0% interest

Intermediary loans to recipient at 0% interest

eligible uses of loan funds
Eligible Uses of Loan Funds
  • Startup 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.
eligible uses of loan funds cont
Eligible 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.
redlg ineligible project purposes
REDLG Ineligible Project Purposes
  • Refinancing or costs incurred prior to the application
  • Residential purposes
  • Conflicts of interests
  • Agricultural production (limited situations)
  • Pass-through grant
supplemental funds for loans
Supplemental Funds for Loans
  • RED Loans require a minimum of 20% of the loan amount for the Project be provided as supplemental funds
  • The 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 sources
  • Expenses incurred prior to date of application cannot be used as supplemental funding.
red loan terms
RED Loan Terms
  • Intermediary 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-op’s repayment to USDA
multiple red l g awards
Multiple RED L&G Awards
  • No Upper Limit to # of applications
  • Multiple awards to same RUS eligible borrower
  • Each project is reviewed independently
  • Multiple Awards to same company / entity
  • Minor scoring implications
  • Bonus points if first time applicant
  • Bonus points if first award for county
how it works grants
How it Works- Grants
  • RD provides grants to Intermediaries to establish an RLF
  • Initial loans are made from the RLF to a pre-selected local community facility project or other eligible project
  • Subsequent loans from revolved funds can be used for community or economic development projects

USDA Grant for Revolving Loan Fund: Initial Loan

USDA RD grants to RLF

$300,000 Max

IntermediaryAdministered RLF of $360,000

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

eligible ultimate recipients for initial rlf loans
Eligible Ultimate Recipients for Initial RLF loans
  • Non-profit entities
  • Public bodies
  • Federally-recognized Indian tribes
  • For Profit businesses with limitations (see RD Instruction 4280-A)
eligible purposes of initial rlf loan
Eligible Purposes of Initial RLF Loan
  • Community Development Projects
  • Community Facility Projects
  • Business Incubators
  • Facilities and equipment for education and training to facilitate economic development
  • Medical facilities or equipment
  • Telecom or computer network for medical or educational services or job training
supplemental funds for redg
Supplemental Funds for REDG
  • The Intermediary must match 20% of the Grant into the fund
  • The contribution may be used to fund the same project that the Agency is funding or another REDLG loan or grant eligible project.
usda grant for rlf initial loan terms
USDA Grant for RLF“Initial Loan” Terms
  • Application is submitted on behalf of one or more


  • 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.
rlf operation basics
RLF Operation Basics


“Serves as Administration rules of RLF”

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

rlf administration
RLF Administration

Responsibilities & Limitations

 Conflicts of Interest, cannot lend to:

- Cooperative, it’s 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 board
  • Cannot limit lending only to customers

- Or use that as a reason to say no

rlf administration cont
RLF 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.

combination loan and grant applications
Combination Loan and Grant Applications
  • Must meet both Grant and Loan eligibility criteria
  • Submit in applications under one cover, USDA can approve separately
  • Match required for RLF
  • Two separate loans are issued by the Intermediary
  • Works well for Health Care, Education, community projects
redl g application
REDL&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)

redl g application cont
REDL&G Application cont..

• Selection Factors Narrative

- Ultimate Recipient’s Legal Structure

– Minimum 20% Supplemental Financing

– Location of the Project—Rural Area or Benefits to Rural Area

–Number & Description of Jobs

– Business Plan & Financial Projections

– Supporting Information for Scoring Criteria

• If Grant/RLF—“RLF Plan” or Draft Administrative Rules

environmental process
Environmental Process
  • Rural Development will conduct a review for the potential of any environmental impacts resulting from the proposed Project
  • Rural 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.
redlg scoring criteria
REDLG Scoring Criteria -

REDL&G Scoring Criteria— Intermediary

• 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 document

redl g scoring criteria
REDL&G Scoring Criteria—

Project Type

Nature of Project (up to 20 points for each)

1. For profit business, business incubator, industrial

building or park, infrastructure (streets or utilities)

2. Provides Technical Assistance to rural businesses or

residents, educates or provides medical care to rural


3. Enhances rural development by providing advanced

telecomm services/computer networks for medical,

educational and/or job training. Evaluated on

applications “Technology Plan”

redl g scoring criteria1
REDL&G Scoring Criteria—

Project Type

Jobs 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

• 1‐5 jobs/$100,000 = 15 points

• < 1 job /$100,000 = 0 points

redl g scoring criteria2
REDL&G Scoring Criteria—

Project Type

Supplemental Funds‐‐Leverage

– Evaluated by % = (Project Cost‐REDLG Amt)REDL&G Amt

• % Greater than 200% = 20 points

• From 100% to 200% = 10 points

• From 50% to < 100% = 5 points

redl g scoring criteria3
REDL&G Scoring Criteria—


Rural Area

– Population 1,249 or less 20 points

– Population 1,250 to 2,500 10 points

– Population > 2,500 0 points

Population Decline—(1990‐2000)

– If yes, 10 points

First REDL&G for County?

– If yes, 10 points

redl g scoring criteria4
REDL&G Scoring Criteria—


Demographics—County comparison to State / National

– Unemployment Rate Up to 25 points

– Per Capita Personal Income Up to 25 points


redl g scoring criteria5
REDL&G Scoring Criteria—

Ultimate Recipient

Complete Business/Project Plan (Up to 15 points)

– Description

– Management

– Products

– Marketing

Financial 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 Flow

redl g scoring criteria6
REDL&G Scoring Criteria—

State Discretionary Points (5 pts each)

1. Located in

–Rural Empowerment Zone

– Rural Economic Area Partnership Zone

– Rural Enterprise Community

– Champion Community

2. Major employer closing in last 3 years resulting in 2% increase in unemployment rate

3. Located in county with chronic or long-term economic deterioration

4. Presidential Disaster Declaration

5. Consistent with State RD’s approved strategic plan

redl g scoring criteria7
REDL&G Scoring Criteria—

Summary 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)

redl g scoring criteria8
REDL&G Scoring Criteria—

Summary 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 documented