For those who don’t know, the NRLA is the Natural Rural Lenders Association and is an advocate for rural lending. As an association, we meet each year and discuss USDA and Rural lending, upcoming regulations, and network with one another to increase the efficiency in which we can lend in rural markets. The NRLA website can be found by going to www.NRLA.org. If you or your lending institution are using USDA or FSA products you should consider joining!

DAY 1:


Opening remarks from Xochitl Torres Small – Under Secretary for Rural Development

  • Under Secretary Torres Small stated that Biden’s Build Back Better plan needs rural cities and towns to thrive for the Build Back Better plan to succeed. Access to capital in these small towns is important to increase employment and wealth in these areas. The increase in employment and wealth is expected to bring back citizens to the areas.
  • She also stated that increased capital opportunities for Telecom and broadband in rural markets is key for growth in those markets. She mentioned that there are some changes coming to the Rural Development lending regulations to make access to capital easier for these projects.
  • Mentioned a new guaranteed loan program for food supply chain which was announced on October 4th.
  • Mentioned that the increased outreach from the USDA offices will continue as they implement new regulations and ask for changes to existing regulations.
  • She has asked the USDA Rural Development team to be creative with financing for difficult projects including using multiple programs and working with banks to structure loans in unique ways in line with RD5001.
  • The REAP EEE program can be used for new equipment like for hydroponics. This is not well knowns in the industry. NO LOCATION ELIGIBLITY ON REAP EEE PROGRAMS!
  • A conference attendee asked if Disaster Funds can be used in ineligible locations. She said that they will review those regulations and report back.

USDA Community Facilities – Chad Parker – Director of Community Facility Programs

  • Community Facility funds are used to construct, expand, renovate, improve facilities that improve public health, education, safety, and services.
  • In 2021, 63% of loans were in Health Care, 23% in Education, 5% in Public, and 8% in other
  • In 2021 there were $242,000,000 CF loans made over 28 projects with an $8,600,000 average loan.
  • The biggest change from the 4279 is that lending institutions can now refinance 100% of debt instead of 50%.
  • At Direct Projects over $100,000,000, OMB will set subsidy rates. There are options for Direct/GTY parity loans to keep OMB out. Usually require a limited GO Bond as security
  • There were two grant programs, one of which has expired, for operating COVID related improvements. Mr. Parker asks prospective borrowers/lenders to consider those grants with their loan application,

USDA Business and Industry – Dr. Karama Neal (Administrator) – Mark Brodziski (Deputy Administrator)

  • In 2021 there were 198 lenders making $2,021,876,370 in loans over 368 loans. The average loan amount $5,500,000.
  • From 2020 to 2021 the number of participating lenders increased from 140 to 198 and the average loan size increased from $4.5MM to $5.5MM.
  • Since we are current under a continuing resolution, all loans are going to the National Office for funding and there are $470,000,000 in funds.
  • Collateral Margins should follow FDIC Part 365 levels for FDIC insured Banks and should be similar for other lending institutions.
  • Use of funds should roughly follow the economic life of those funds with consideration being given to collateral and repayment ability of the borrower.
  • Currently, I/O periods are not eligible in USDA Refinance loans. They will look to change this rule in the future.
  • For Environmental Phase 1’s a FONSI can be completed without the Intergovernmental Review and Phase I.
  • A question from a conference attendee was about payment reserves and how can they be used is not needed. Mark stated that if the payment reserve was funded via loan funds the principal must be reduced when the reserve is cancelled. If the reserve was funded via equity injection it can be returned to the borrower.
  • A conference attendee asked about certification of Balance Sheet Equity and the timing of when that needs to happen. Aaron said that it needs to be certified as close to closing as possible. Can be 30-60 days as long as the bank is not concerned that material changes have happened since they last collected financials and the date of closing.
  • A conference attendee asked about putting qualifiers in the RD Conditional Commitment to keep from having to go back to RD to seek approval on small U&S changes. Right now several states do not use “Approx/up to/no more than” terminology which requires additional approval when loan uses change.
  • REAP Max loan increased from $50,000,000 from $20,000,000

US Congressman Sanford Bishop Spoke is a member of the Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies. During his keynote he spoke about the rural struggles in Southwest Georgia, an area I know well from living near there in south central Georgia. Congressman Bishop confirmed his continued support for the USDA Rural Development programs and continued support for rural areas around the country.

My take:

Community Facilities:

I am happy to see increased pressure to mix Direct and Guaranteed loan programs for larger projects and that 100% of loan funds can be used for refinance. The refinance change will help several smaller towns and educational facilities that are being impacted by continued COVID pressures. It is also nice to see increases in the number of loans completed and the amount of loans completed. Continued success of these programs is key to the success of bringing back jobs and citizens to rural America.

One person at the conference mentioned that CF Direct loans should be able to be refinanced into new CF Direct or Guaranteed loans. Moving from CF Direct to CF Direct would generally be a loan modification to lower the interest rate. I don’t quite understand why this is not common practice already, especially with preforming loans. CF Direct loans being refinanced into Guaranteed loans do not make much sense either and the USDA has stated that they would be willing to take a parity position with the Guaranteed loan to help a bank with security and exposure. All in all, I don’t really see the need for a traditional refinance, in most situations, when there are other means to modify the loan or security position.

Business and Industry:

With this being the largest lending program and the major changes in the regulations, operations, and technology this FY, I believe the USDA did an excellent job to getting a record amount of money out the door. While there are things that need to be address operationally, they have been very vocal about making changes and have listened to lenders in the industry over the last 12 months. There have been several operational improvements which increase the efficiency and value of the program to lenders and borrowers. I am exited for these updated regulations to come out to fix some lingering issues that were found in the 5001 when released. Two pieces of criticism I would have, besides my on going hate for the Intergovernmental Review Process, is that turn times at the USDA remain slow for completed packages and we are still getting different levels of services from each state. Some states are inviting and help lenders through loan issues while others simply quote regulation back to you. While the interpretation of that regulation has become more consistent across the states, the interactions with some officials could be improved. Over all I an very excited for the future of B&I lending.

REAP:

While I don’t have much experience in this loan program, I do think the EEE program within REAP is undervalued and largely unused. These loan have no location based eligibility concerns. While they will not finance the whole project, they can be used with other programs like SBA or traditional bank financing, which is what the Agency would like to see on all their programs anyway. The increase in max loan is also exciting however my bank cannot fund a $50,000,000 project so it will not impact me a whole lot.

Thanks for reading. Day 2 recap is coming soon.