USDA Rural Energy for America Program Guide

4. LOAN GUARANTEES


REAP loan guarantees do not directly provide funds. Instead, they help to secure financing from lenders and can reduce financing costs for energy projects. Only lenders such as banks can submit a REAP loan guarantee application.

The USDA office in Oregon has written an extensive guide to REAP loan guarantees for borrowers and lenders. We highlight some of the key information in that guide below. But because of the extensive detail for lending requirements, we strongly encourage you to review the guide.

4.1. LOAN GUARANTEE LEVELS

Loan Guarantee Amounts

Project Type Minimum Maximum
Renewable energy system $2,500 $25 million
Energy efficiency improvement $1,500 $25 million

Loan Guarantee Maximum Loan Coverage

Loan Amount Maximum Percentage of Loan Guarantee
Up to and including $600,000 85%
Above $600,000 up to $5 million 80%
Above $5 million and up to $10 million 70%
Above $10 million and up to $25 million 60%

4.2 BORROWER & LENDER ELIGIBILITY

In addition to other borrower eligibility requirements, the borrower must not be an officer, director, or owner of 10% or more of the stock of the lender.

The following types of lenders are automatically eligible for REAP loan guarantees. All other types of lenders must obtain approval from their state’s USDA REAP official.

  • Federal or State chartered banks
  • Farm Credit System institutions, including Bank for Cooperatives
  • Savings and Loan Associations
  • Credit unions
  • Insurance companies
  • National Rural Utilities Cooperative Finance Corporation

Lenders do not have to be located in a rural area.

4.3 PROJECT ELIGIBILITY

Loan guarantees can support the following types of projects:

  • Project components: Land, real estate improvements, retrofitting, equipment, expansion/capital improvements to existing facility, working capital
  • Project development components: Energy audits, technical reports, feasibility study costs, business plans, other fees including loan fees & costs (including REAP guarantee fee).

Loan guarantees cannot support the following activities:

  • Equipment: Agricultural tillage equipment, used equipment (though remanufactured equipment is okay), vehicles
  • Activities: application preparation fees, ownership transfers
  • Financial: Lines of credit, debt financing, construction loans for unapproved energy projects
  • Residential improvements

A REAP guarantee will be issued once the system or project is operational and is producing at a level that meets the performance criteria specified in the technical reports.

For loan guarantees, the required cash equity contribution is:

  • For loans up to $600,000, 15% or more of project costs
  • For loans over $600,000, 25% or more of project costs.

For loan guarantees, required collateral can include:

  • Real estate, of which 80% of the appraised value is calculated as the collateral amount.
  • Equipment, of which 60-80% or less of the appraised value is calculated as the collateral amount.
  • Inventory and accounts receivable, 60% or less of book value, excluding accounts receivable more than 90 days past due, and excluding accounts receivable from owners, officers, employees and affiliates.

Collateral cannot be in the form of power purchase agreements, insurance, or personal guarantees.

4.4 APPLICATION FORMS

PDF Sample preapplication letter

Form RD 4279-1 - Application for Loan Guarantee (for loans above $600,000). Both the lender and the borrower must fill this form.

  • The borrower must provide detailed information on key interests such as owners. Project information should include current sources of financing, equipment, design and engineering plans, suppliers, and consultants. Financial statements must comply with 7 CFR 4280.128 (PDF). You will need a DUNS number unless you are an individual.
  • The lender must provide information on other financial interest in the borrower; fees to be charged to the borrower; loan servicing plan (e.g., audits); other loans guaranteed by USDA; collateral for the loan; other financing for the energy project; terms and rates for the loan to be guaranteed; credit reports on the borrower, its principals, and any parent, affiliate or subsidiary firms; proposed term Loan Agreement between lender and borrower; appraisal reports whenever available; and an analysis including spreadsheets of the balance sheets and income statements for 3 years historical, proforma balance sheet at start up, 2 years projected year-end balance sheets and income statements with appropriate ratios and comparison with industrial standards (such as D&B, RMA).

Form RD 4279-1A - Application for Loan Guarantee (for loans up to $600,000).

PDF Form RD 4279-2 - Certification of Non-Relocation & Market & Capacity Information Report (only for loans equal to or greater than $1 million that will create 50 or more jobs).

PDF Form RD 1940-20: Request for Environmental Information. This is a checklist of any environmental reviews and identified impacts of your project. If you are applying for a systems grant, then make sure you have done the necessary reviews. For example, an energy efficiency upgrade will likely not require review by a state historic preservation officer, while a wind project ready for construction should have gone through such review already. For land uses, understand that many of the categories listed have legal and/or technical definitions (e.g., wetlands, wilderness, critical habitat) that may require a consultant to confirm.

Supplemental Environmental Information. As with Form RD-1940-20, the level of information will vary greatly depending on your project. Most energy efficiency upgrades will not require this step, but other projects with large physical footprints (wind, geothermal power, hydropower, biomass) should have gone through the necessary analysis and permitting to answer these questions in full.

4.5 CLOSING FORMS

4.6 SERVICING FORMS

USDA requires lenders to provide routine servicing, collateral servicing, financial information servicing, and problem loan servicing.

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