The United States Department of Agriculture (“USDA”) offers a variety of loan programs designed to spur investment in rural communities located throughout the United States of America. These loans are available to governments, nonprofit corporations and for profit entities.
One of the missions of USDA is to provide affordable and safe rental housing for low to moderate income families and senior citizens that live in rural areas. The three most effective rural housing funding programs offered by USDA include the Section 515 program, the Section 538 Guaranteed Rural Rental Housing program (the “538 Program”) and the Section 515 Revitalization program. USDA conducted a report indicates $5.6 billion in additional investments are needed to preserve affordable multi-family housing in rural America for future generations. The report concludes that over the next 20 years, properties in USDA’s multifamily housing program will require significant funding to cover basic maintenance and improvements related to roofs, insulation, accessibility, plumbing, electrical and other structural repairs Pursuant to the 538 Program, a private mortgage company makes a loan to an eligible borrower that is guaranteed by USDA. The loan has a fixed rate of interest, a term of up to 40 years and the loan amount may be as much as 90% of appraised value. The 538 Program can be combined with other sources of capital including, low income housing tax credits (both state and federal) HOME loans, tax-exempt bonds and other sources.
Another mission of USDA Rural Development is to provide capital for essential community facilities in rural areas. This includes health care facilities such as rural hospitals, medical and dental clinics, nursing homes and assisted living facilities. Public entities and federally recognized Tribes with no more than 20,000 residents, and certain community based non-profit corporations are eligible applicants. The most popular and effective programs that help fund rural health care facilities are the Community Facilities Direct Loan and Grand Program and the Community Facilities Loan Guarantee Program.
As the program descriptions imply, the Direct Loan Program offers low interest loans to the qualifying applicant and the Grant Program offers direct grants. The Community facilities Loan Guarantee Program provides loan guarantees to eligible private lenders willing to make direct loans to eligible borrowers that would otherwise be unable to obtain needed credit on reasonable terms. Often, a combination of loans, grants and/or loan guarantees may be awarded. Generally, loans may be for a term of up to the useful life of the facility, or a maximum of 40 years, whichever is less. Grant approval, priority and size is based on a graduated scale with smaller communities with lowest median household income being preferred. Bottom line, USDA Rural Development is an important funding and financing source that small rural communities need to explore when exploring the development of essential community facilities, including health care facilities.
The USDA Rural Development programs can also be combined with other state and federal incentives, including the New Markets Tax Credit.