Economic Development Loans
PCS Revolving Loan Fund | USDA Rural Economic Development Loan & Grant Program(REDLG)
USDA Rural Economic Development Loan & Grant Program (REDL&G)
Program
Designed to encourage economic development and job creation in rural areas, REDL&G is the most popular funding mechanism for electric and telephone cooperatives that are, have been or are capable of being a Rural Utilities Service (RUS) borrower. The cooperative doesn’t have to participate in the Cushion of Credit; however since RUS is paying five percent for prepayments on the unpaid RUS debt, many cooperatives currently take advantage of participation, plus it is worth up to15 pts. in the scoring process. Cooperatives and other eligible recipients can apply for loans and grants to finance a revolving loan for a broad range of community and economic development projects.
Loans and Grants
Minimum loan and grant size: $10,000. Maximum loan: $740,000 and grant of $300,000. The cooperative can apply for a maximum totaling: $1,040,000. These figures may change for 2012.
Loans and grants stimulate a myriad of economic development. Recipients may include local and county governments for infrastructure, water/wastewater, industrial parks, business start-ups and expansion, medical facilities, project feasibility studies, business incubators, telecommunication and computer networks for medical and educational services and, with restrictions, community antenna television systems or facilities.
Loan: Electric and telephone cooperatives and other eligible recipients make an application for a loan. If awarded, the money is loaned at zero interest to either a business, non profit or local government
Loan Terms and Repayment
The RUS borrower receives the RED Loan and provides an ultimate recipient (the project) a
zero-interest loan with a maximum term of 10 years. Payments may be deferred for up to 2 years for
new businesses or community projects, and one year for existing businesses. The terms on the ultimate recipient’s (the project) loan can not be more restrictive than the repayment schedule of the RUS borrower’s RED loan. The ultimate recipient (the project) must bring at least 20 percent supplemental funding: equity, private, state, local, or other Federal government sources can be used.
Grant: In applying for a grant, the co-op agrees to provide a 20 percent match of the grant award. Once the grant is awarded, the 20 percent goes into the revolving loan fund. The grant then becomes the initial loan of the revolving loan fund, which initially is zero interest to the borrower. To subsequent borrowers, the rate shall not exceed prime. The first loan may go to a non-profit or public body for business and economic development purposes as well as to for-profits engaged specifically for education or health care services. See below.
Eligible Uses for the Initial Loan Using Grant Fund
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Business incubators established by non-profit or for-profit entities to assist in developing emerging enterprises.
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Community development assistance to non-profit and public bodies for employment creation projects or projects that provide needed community facilities and services.
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Education and training projects for rural residents to facilitate economic development; non-profit and for-profit eligible.
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Medical care services to rural residents including medical training to rural health care providers; non-profit and for-profit eligible.
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Advanced telecommunications and/or computer networks to facilitate medical or educational services or job training; for-profit and non-profit eligible.
Revolving Loan Fund (RLF)
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The initial loan made with grant funds will carry a zero percent rate and a maximum term of 10 years.
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Subsequent loans may be used for any rural economic development purpose outlined in a cooperative Rural Development Plan (completed as part of the RED Grant application).
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The cooperative can charge an interest rate on subsequent loans up to the prime rate. Maximum term remains at 10 years.
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Cooperative must provide matching funds to the RLF in an amount equal to 20 percent of the grant.
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Ultimate recipient (the project) will bring at least 20 percent supplemental funding to the project.
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Cooperative may charge reasonable annual loan servicing fees, not to exceed one percent of the outstanding principal balance.
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Cooperative may use funds from the RLF to cover operating expenses (not to exceed 10 percent of the grant over the lifetime of the RLF).
Application Process
Cooperative submit applications to the state Rural Development office, for review and rating then forwarded to the USDA Rural Development National Office for selection on a national competitive basis on a quarterly basis.
Snapshot of Scoring Factors and Points
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For additional information contact:
People's Energy Cooperative Economic Development Representative:
Tim Clawson CEcD
Economic Development Manager
(507) 367-7050
Email: Tim Clawson