The Rural Development (RD) division of the USDA has an exciting guaranteed loan and grant program for agricultural producers and rural small businesses to purchase or install renewable energy systems or make energy efficiency improvements. The agricultural producer may be in a rural or non-rural area. For businesses, RD defines rural as an area other than a city or town with a population of more than 50,000 inhabitants.
The funds may be used to buy, install, or construct renewal energy systems for items such as: biomass (biodiesel, ethanol, anaerobic digesters, and solid fuels), geothermal for electric generation or direct use, small hydropower below 30 megawatts, hydrogen, wind generation, or solar power generation.
The program can also be used for the purchase, installation, and construction of energy efficiency improvements such as: high efficiency heating, ventilation, and air conditioning systems (HVAC), insulation, lighting, cooling or refrigeration units, doors and windows, electric, solar or gravity pumps for sprinkler pivots, changing from a diesel to electric irrigation motor, or replacement of energy-inefficient equipment. On the agricultural side, some of the more popular uses are grain dryers, energy efficiency pumps, or LED lighting.
The guarantee is up to 75% of the total eligible project costs. Grants are available for up to 25% of the project costs but the combined grant and loan guarantee funding are limited with up to 75% of the total eligible project costs. The grant requests are graded on a scoring basis set forth by RD. Grant request which score higher on the RD scale, have a stronger chance for funding than those which do not.
The loan guarantees range from a loan of $5,000 up to $25 million. The RD guarantee is up to 85%. The lender has the ability to negotiate terms with the borrower but are subject to approval by the RD. No balloon features are acceptable. The maximum term for real estate is up to 30 years. Machinery and equipment loans are maxed at 15 years, or the useful life, of the machinery and equipment. The initial guarantee fee is 1% with the renewals of 0.25% annually on the remaining outstanding balance of the loan at the end of the previous year.
In addition to the loan guarantee program, RD has an energy efficiency and renewable system grant program. The renewable energy grants range from $2,500 to $500,000. Energy efficiency grants range from $1,500 to $250,000. If the applicant is only seeking a grant, they must provide 75% of the project cost on their own. If there is a loan guarantee request or combined guarantee and grant request, the applicant must provide at least 25% of the project cost.
If the project cost is over $200,000, a technical report from a qualified third party is required. Energy efficient projects will require an energy audit or assessment. Ultimately, there needs to be some validation that the extra expense for the efficiency or production equipment would produce the desired results.
So how are some practical uses for this program? On the agricultural side, items such as energy efficient pivots, grain dryers, solar or wind power generators for remote equipment uses, or installation of LED lighting in an agricultural production facility are all possible uses.
On the business side there are many possible applications to this program. I once financed energy efficient refrigeration equipment for a food processing company. Other options would be installation of new energy efficient HVAC and lighting with or without small solar or wind production would work. Keep in mind this program can also be used in conjunction with other RD programs. A possibility here would be if you have a new hotel construction and are able to obtain a RD Business and Industry guarantee on the project. If a portion of the project could be for high efficiency HVAC, LED lighting, a small vertical wind turbine on the roof and a covered parking by a solar cells, these items could fall under the RD Renewable Energy Program while the remainder of the project can be under a regular B&I guarantee.
If you have questions, reach out to us or your state USDA RD office. We look forward to hearing from you.