The USDA Community Facilities Program provides Direct Loans, Loan Guarantees and Grants for "essential public services and facilities" to rural communities with no more than 20,000 residents. USDA Direct Loans, Loan Guarantees and Grants are available to eligible applicants including municipalities, counties, districts, not-for-profit organizations, and tribal governments for the purpose of constructing, expanding, or improving: rural hospitals, senior living, clinics, universities, community colleges, secondary schools, and public works projects. Proceeds may also be used for asset and facility acquisitions, as well as debt refinancing.
USDA Direct Loans and USDA Guaranteed Loans are almost exclusively refinance independent construction loans, which are funded with the proceeds of interim bank loans and short-term municipal note issues. InnoVative Capital executes construction financings as MSRB/SEC-Registered Municipal Advisor for tax-exempt BANs and commercial loans.
USDA Community Facilities Direct Loans
- Maximum loan term of 40 years
- Fixed rate loans
- Interest rates are set upon issuance of USDA Commitment and based upon the published quarterly USDA Direct Loan Rate
- Eligible borrowers must be unable to obtain commercial financing at reasonable rates
- USDA Direct Loans do not fund construction and must be used as the permanent “take-out” financing for privately obtained construction loans.
- In certain cases, USDA may require USDA Direct Loans be combined with a USDA Guaranteed Bank Loan
USDA Community Facilities Guaranteed Loans
- Originated by lenders such as commercial banks, farm credit system banks and mortgage companies
- Maximum loan term of 40 years
- USDA Guarantees up to 90% of the loan
- Commercial lender retains 10% loss position
- Interest rates and fees set by lender
- Covenants set by lender
- Funds construction and permanent financing
InnoVative Capital’s USDA Services
Due to federal funding constraints and state allocations, approved USDA Direct Loans may fall short of the projected capital needs of applicant hospitals. With this in mind, InnoVative Capital works upfront with its clients to identify composite-funding sources to meet any budgeted shortfalls in its Sources and Uses Statement. Composite-funding can take the form of grants, tax-support and nonprofit contributions. The viability of a project financing requires the receipt of all funding sources prior to loan closing. InnoVative Capital’s USDA Development Services establish the framework for the financing upfront to eliminate unnecessary expenditures and set achievable goals.
A pre-requisite for any USDA Direct Loan is the receipt of a construction loan commitment to fund the construction of the applicant’s project. USDA provides permanent, long-term financing, but is not a construction lender. InnoVative Capital’s commercial banking experience is a valuable resource in soliciting and negotiating with prospective construction lenders. Relying on local, national, and international banks, InnoVative Capital’s RFP process can offer its clients alternative construction loan options and save hospitals upfront fees and expenses. During the USDA underwriting, InnoVative Capital’s expertise in hospital financial operations and governance allows it to negotiate the most borrower-friendly covenants, security features, and terms in the industry.
Issuance of the USDA Commitment, Construction Loan Closing, and USDA Take-Out
Upon issuance of the USDA Direct Loan commitment, InnoVative Capital works to execute the construction loan closing. In conjunction with the construction lender, on behalf of the hospital, InnoVative Capital oversees construction loan disbursements and monitors hospital and project team compliance with any covenants specified in the USDA commitment. At the completion of the project, InnoVative Capital will supervise the cost certification process and manage the USDA Direct Loan closing and repayment of the construction loan.
> Three InnoVative Capital hospital clients have received USDA commitments for 100% Direct Loan funding for their replacement projects. The project funding totaled in excess of $80 million.
> Upfront cash requirements of hospital clients were eliminated by the inclusion of pledged assets and composite-funding.
> USDA commitments for urgently-needed projects to replace a hurricane-damaged hospital, and two critical access hospitals.
> Current USDA projects under consideration and underway exceed $75 million.
Products
- USDA Direct Loans
- USDA Guarantee Loans
- Commercial Bank Construction Loans
- Taxable and Tax-Exempt Municipal Construction Notes
- Composite-Funding