Guaranteed community facility loans

2004·0.76 MB·English

by  United States. Rural Development

Historic, Archive Document
Do not assume content reflects current
scientific knowledge, policies, or practices.
1

S: Rural
Development
Guaranteed
Community
Facility
Loans
USDA Rural Development is committed to
building stronger, more vibrant rural communi-
—
ties across the nation. Community facilities
such as health car—e clinics, police and fire sta-
tions, andschools are essential to the quality
oflife in rural communities. USDA Rural
Development's Community—Facilities programs
can work with local lenders including banks,
savings and loan associations, mortgage com-
—
panies, and Farm Credit System banks to offer
loan guarantees to help build essential commu-
nity facilities.
Types of Projects Financed
—
# Health Care suchashospitals, clinics, nursing
homes, ambula—torycarecenters, etc.
® PublicSafety suchaspolice andfire stations,jails,
fire andrescue vehicl—es, andcommunicationcenters.
# Telecommunications medical andeducational
telecommunications links.
—
® PublicServices suchas adultandchildcarecenters,
courthouses, airports, schools, fairgrounds,jails,etc.
Eligible Entities
—
# Publicentities municipalities, counties, otherpubhc
subdivisions, andspecial-purposedistricts.
® FederallyrecognizedIndianTribes.
# Nonprofitorganizations.
Eligibility Issues
® Lendermustbe unwillingtomaketheloan without
obtaining aloan guarantee.
# Loans arelimitedtounincorporatedrural areas and
incorporatedtowns of50,000orless.
Benefits to Lender
# Loans may beusedtowards CommunityReinvestment
Actrequirements.
# Guaranteerateisusually 80%ofloanamount.Under
specialcircumstances,a90%guaranteeisavailable.
# Excellentpublicrelations inlocal communities by
demonstratinglender's interestinfunding local
communityprojects.
• Variable-rateloansmaybeusedtoreducelenderrisk
frominterestfluctuation.
• Lendermaychargedifferentratesonguaranteedand
non-guaranteedportions oftheloan.
• Lender'sriskoflossisreducedbythepercentofloan
guarantee.
• Loanstimulatesrelatedbankingservicestocustomers,
such as checking andsavings accounts.
• Guaranteedportionofloanis securedbyfullfaithand
creditofU.S.Govemment.
• Providesportfolioprotectionfrom:
• Temporaryfinancialproblems, such asnatural
disasters, adverse economictrends, reduceduseof
facilities, etc.
• Majorreorganizationsdue toenlargements,
bankruptcy, death ofprincipalsoperatingand
managingfacility, etc.
• Decline in collateralvaluedue toadverse economic
trends.
• Accelerateddepreciationandinherentrisk
associatedwithhighlyspecializedfacilities.
• Guaranteedloans maybe soldonthe secondaiy
—
market lenderretainsinterestrate marginfor
servicingandincreases yieldonthe amountofloan
retained. See example below:
Approximate yield on fixed rate loan
Amountofloan $1,000,000
Portion sold (80%) $800,000
Invested funds $200,000
Loan lnterest rate 10.00%
Ratepaid onportion sold 9.00%
Servicing fee onamolw sold 1.00%
Prmer^ate 8.00%
—
Income 1% on $800,000 $8,000
10% on $200,000 $20,000
TOTALINCOME
$28,000
Approximateyield oninvestedfunds 14.00%
% Lendercanuserequireddepositreservestofund
guaranteedportionofloan.
# Guaranteedportionofloandoesnotcountagainstlegal
lendinglimits.
Benefits for the Customer
m Customeris abletoobtainmoretimelyfinancingof
project,therebyreducinginflationaryincreasesin
constructioncost.
# Customerestablishesloanhistorywitha
commerciallender,nottheGovernment.
# Lendercanofferbettertermstocustomer,
especiallywhenloanissoldonsecondarymarket.
« Thecustomermaycombineguaranteefundswithother
Federal, State, andlocalfunds.
Benefits for the Community
# Adequatelocal services attractresidentialand
commercialdevelopment.
# Taxbasecanincreasewithnewdevelopment.
# Lisuranceratescandecreasewithbetterfire
protection.
# Communityquality oflifeimproved
Assistance Available for
Loan Processing
@ AsidefromAgency applicationforms, the
lenderusestheirowndocumentstomake and
serviceloans.
® Agency staffis availabletoassistlendersto
preparedocumentsrequiredforguaranteedloan
processing.
# Agencyhastechnical staffwhoreview construction
plans andenvironmentalimpactstatements forthe
benefitoftheGovernment.

For additional information
contact your local
USDA Rural Development office.
-or-
USDA
Rural Development
Community Programs Division
SW
1400 Independence Ave.
Washington, D.C. 20250
TEL [phone]
FAX
[phone]
Web
Site
http://www.rurdev.usda.gov
The U.S. Department ofAgriculture (USDA) prohibits discrimination in
all its programs and activities on the basis ofrace, color, national origin,
gender, religion, age, disability, political beliefs, sexual orientation, and
marital or family status. (Not all prohibited bases apply to all pro-
grams.) Persons with disabilities who require alternative means for
communication ofprogram information (braille, large print, audiotape,
etc.) should contact USDA's TARGET Center at [phone] (voice
and TDD).
To file a complaint ofdiscrimination, write USDA, Director, Office of
Civil Rights, Room 326-W, Whitten Building, 14th and Independence
Avenue, SW, Washington, D.C. 20250-9410 or call [phone]
(voice or TDD). USDA is an equal opportunity provider and employer.
PA-1574
Reprinted August 2004