Development Loan Program

Development Loan Program

Funder: USDA Rural Development

Purpose: Provides zero-interest loans and grants to Rural Utilities Service (RUS) financed telephone and electric utilities to promote rural economic development and job creation projects.

Authority: Section 313 of the RE Act, 7 CFR 1703, Subpart B

Geographic Scope: Rural areas; administered through RUS borrowers including electric and telecommunications utilities

Applicant Eligibility

• Zero-interest loans may be made to any RUS borrower that is:
- Not delinquent on any Federal debt - Not in bankruptcy proceedings

Eligible Loan Purposes

To promote rural economic development and/or job creation projects including but not limited to:
• Project feasibility studies
• Start-up costs
• Incubator projects
• Other reasonable expenses

Ineligible Purposes

• Any project in which any director, officer, manager, stockholder, or relative thereof with significant ownership interest would present a potential conflict of interest
• Costs incurred prior to receipt of completed application without prior written approval
• Projects located in areas covered by the Coastal Barrier Resources Act or projects which would adversely impact the environment
• For purchase or lease of real property, materials, equipment, or services from the borrower or significant stockholders, officers, managers, or close relatives without RBS Administrator's prior written approval
• To refinance any debt incurred prior to receipt of completed application
• For any electric or telephone purpose
• For the borrower's electric or telephone operation
• Any operations affiliated with the borrower without prior written approval
• To pay salaries of any employee or owner of the borrower or its affiliates
• Community antenna television systems or facilities unless in conjunction with educational or medical entities and projects

Loan Size

• Maximum Size: 3% of projected total funds available under Section 313 during that fiscal year, rounded to nearest $10,000
• FY 2006 Maximum: $740,000
• Minimum Size: $10,000

Supplemental Funding Requirement

• A project will not be selected unless supplemental funding is provided in an amount equaling at least 20% of the zero-interest loan funds
• Supplemental funding may be provided by:
- Project owner (equity funds) - Private sources - State and local government sources - Other Federal Government sources - The RUS borrower

Loan Terms and Repayment

• Repayment Terms: Based on nature of project, ordinarily not exceeding 10 years including any principal deferment period
• Principal Deferment: May be deferred for up to 2 years; ordinarily limited to 1 year for established businesses
• Repayment by Recipient: Must equal terms to RUS borrower unless approved by RBS Administrator

Program Policy

The program is designed to:
• Promote projects resulting in sustainable increase in productivity of economic resources in rural areas
• Lead to higher level of income for rural citizens
• Promote sound economic and financial analysis with long-term perspective
• Encourage economic development in rural areas and job creation without regard to service area
• Promote financially viable projects
• Encourage RUS borrowers to deposit funds in Cushion-of-Credit Accounts

Selection Factors

The following will be considered in the selection process:
• Nature of the project
• Job creation projections
• Long-term improvements in economic development
• Diversifying the rural economy or alleviating under-employment
• Supplemental funds amount
• Economic conditions and job creation
• Unemployment rates
• Per capita personal income
• Change in population
• Number of long-term jobs
• Community-based economic development program
• Plan for improving marketable skills of people in rural areas
• Location (rural areas)
• Support for program funds deposited in cushion-of-credit account
• Demonstration project potential
• Probability of success
• Special economic status

Other Considerations

• Environment requirements
• Equal opportunity and nondiscrimination
• Architectural Barriers Act of 1968
• Flood hazard area precautions
• Real property acquisition and relocation
• Debarment and suspension
• Drug-free workplace (grant only)
• Restrictions on lobbying

Funding Sources

• Funds for zero-interest loans are derived from annual appropriations from Congress
• Available for Loans in FY 2006: Approximately $24,752,479

Program Administration

• Administered at the state level by USDA-Rural Development State Offices