When it comes to funding community development projects, Veritex Community Bank understands the importance of exploring different financial options. Two key funding opportunities offered by the USDA Rural Development Program are the USDA Community Facilities Guaranteed Loan Program and the USDA Community Facilities Direct Loan & Grant Programs. Any and all of these programs offer valuable resources to support the development of essential community facilities, but each has distinct features and requirements. Here, we will highlight the main differences between these funding options to help you make informed decisions for your project.
What is an Essential Community Facility?
The USDA defines an “essential community facility” as a facility that provides a vital service to the “local community for the orderly development of the community in a primarily rural area, and does not include private, commercial, or business undertakings.” Examples of such facilities include healthcare facilities, town halls, courthouses, community centers, fire and police stations, libraries, food pantries, nursing homes, childcare centers, educational facilities, etc. The USDA Community Facilities Guaranteed Loan Program (USDA CF Loan) and the USDA CF Direct Loan & Grant Program both aim to enhance the quality of life in rural communities, however, there are key differences.
Key Features of USDA Community Facilities Loan & Grant Programs
USDA Community Facilities Guaranteed Loan Program
The USDA Community Facilities Guaranteed Loan is a government-guaranteed loan. Meaning, the USDA works with private lenders to guarantee portions of commercial loans, making it possible for lenders to provide a more affordable financing option. The program is designed to provide low-interest rates and long-term financing for eligible projects that serve rural communities.
USDA Community Facilities Direct Loan & Grant Program
On the other hand, the USDA Community Facilities Direct Loan & Grant Program is designed to assist in the development of essential community facilities in rural areas with extreme unemployment or serve economic depression. Unliked loans, USDA CF Grants provide non-repayable funding to eligible applicants.
USDA CF Guaranteed Loans at a Glance
Eligible Borrowers
Public bodies, nonprofits, and federally recognized tribes located in rural communities can apply. For guaranteed loans, the USDA defines rural as a city or town with a population of fewer than 50,000.
Loan Amounts
High loan amounts are an attractive feature. Guaranteed loans are available from Veritex Community Bank, starting at $2 million and going up to $25 million, $50 million, and, in some instances, even $100 million, the maximum amount.
Use of Funds
Funds can be used to purchase, construct, or improve essential community facilities, purchase equipment, and pay related project expenses. Guaranteed loans also can be used for refinancing existing debt.
Repayment
The repayment term can be as long as 40 years, depending on the ability to repay, the use of loan funds, and the collateral pledged to secure the loan.
USDA CF Grants at a Glance
Eligible Borrowers
Public bodies, nonprofits, and federally recognized tribes in eligible rural areas can apply. Applicants must serve rural areas with populations less than 20,000, demonstrate financial need, and provide evidence of community support and facility management capabilities.
Grant Amounts
The amount of grant assistance for project costs depends on the median household income and the population in the community where the project is located.
Use of Funds
Grant funds can be used to construct, enlarge, or improve community facilities for healthcare, public safety, and community and public services.
Repayment
Unlike loans, grants do not need to be repaid.
Main Differences Between USDA CF Guaranteed Loans & Grants
The primary differences between the USDA Community Facilities Guaranteed Loan Program and the USDA Community Facilities Grant Program are the repayment terms and the eligibility criteria. A USDA CF Guaranteed Loan must be repaid over time, while a USDA CF Grant does not require repayment.
Additionally, the grant program is specifically targeted toward communities with high unemployment rates or severe economic depression. Only projects located in rural communities with populations of fewer than 20,000 are eligible for CF grants. However, the rural population stipulation for CF guaranteed loans is set at 50,000. Use Veritex Government Lending’s handy map tool to find out within seconds if your project qualifies as rural for a USDA loan.
Making the Right Choice: Guaranteed Loan vs. Grant
When considering whether to pursue a USDA Community Facilities Guaranteed Loan or Grant, it’s crucial to evaluate the specific needs ad circumstances of the community development project. Loans provide access to capital that must be repaid over time, while grants offer non-repayable funds. Consider the long-term financial implications and ability to repay a loan versus the immediate financial support of a grant. Assess the feasibility and sustainability of the project. Loans may require a solid business plan and financial projections, while grants focus on community impact and need. Loans typically have longer application and approval processes compared to grants, which may impact project timelines. Grants often require evidence of community support, while loans may focus more on financial viability. Consider the level of community involvement and engagement required for each funding option.
Understanding the main differences between USDA Community Facilities Guaranteed Loans and USDA Community Facilities Grants is crucial when seeking financing for rural community development projects. Guaranteed loans offer affordable financing with favorable terms, while grants provide non-repayable funds. By evaluating the specific needs, financial considerations, and project viability, Veritex Government Lending can help you make an informed decision and choose the funding option that best suits your community development goals.
Both programs play a crucial role in enhancing the quality of life in rural areas. At Veritex Bank, we’re here to help you navigate these options and find the best fit for your community’s needs.
