Revolving Loan Fund
Did you know that Lincoln Electric Cooperative (LEC) administers a Rural Development Revolving Loan Fund (RLF) program? This program offers low-interest financing to provide community development assistance to nonprofit entities, businesses, and public bodies. The funding is intended to fill capital financing gaps in order to encourage economic development in rural areas.
In 2017, LEC and Interbel Telephone Cooperative (ITC) jointly applied with the United States Department of Agriculture (USDA) to create an RLF. We started with $300,000 in original loan funds. LEC and ITC each contributed $30,000, which then secured an additional amount of $240,000 from the USDA. LEC was designated as the administrator of the RLF with ITC continuing to act as an active partner in the program. Both cooperatives have representatives on the loan interview and selection committee.
Glacier Electric Cooperative (GEC) in Cutbank, Montana, also took advantage of the RLF program. However, in 2020, they decided to exit the program. The USDA required that they either transfer their existing RLF to another participant or relinquish the funds back to the USDA. In an effort to keep the money within the state, GEC contacted us to see if we might be interested in absorbing their RLF. They knew that LEC’s program was successful and that we had a lot of interest from additional applicants.
Late in 2020, LEC absorbed over $586,000 in additional RLF funds from GEC’s program. The additional money did not come with any costs to LEC beyond a small amount of administrative time. As of early 2021, LEC has over $600,000 in the RLF that is eligible for new loan applicants.
Behind the scenes
The name of the program is extremely descriptive of the way it works. The funds are loaned out, then paid back with an almost unbelievably low 1% interest rate. As payments are made, both the principal and interest are put back into the RLF to be loaned out again. It is continuously revolving as loans are taken out and paid. Due to the addition of interest, it is also continually growing at a gradual rate, creating more available funding.
The expense to LEC is very minimal. There is some general administrative time, but applicants are required to pay an application fee of $100 (subject to change). If approved for a loan, the applicant will also pay a $200 administrative fee (also subject to change) for the loan to be set up.
In the event LEC decides to leave the program, the original $60,000 in starter funds return to the investors ($30,000 each to LEC and ITC). Any funds in the RLF in excess of the $60,000 would return to the USDA national program. If there were any outstanding loans, LEC would have to pay the remaining loan balance to the USDA.
The RLF has three primary purposes for loans. The first is for rural development activities resulting in the creation or retention of job opportunities for rural people. The second is for the construction and installation of needed community facilities, infrastructure, or services that support rural economic development and result in the creation and/or retention of job opportunities. The third is loans that further new business development and/or existing business expansion.
Eligible applicants include the following entities:
- Business ventures - corporations, partnerships, sole proprietorships, cooperatives.
- Governmental units - local towns, municipals, county, regional, school districts.
- Non-profit entities.
There are a variety of project types that are eligible for RLF funding. These include industrial/commercial development, small business expansion or startup, business incubators, community infrastructure or facilities, medical facilities, training/educational facilities, and tourism. However, the project must be an employment creation or retention project, create business opportunities, or provide needed community facilities or services.
The RLF is mainly intended as gap financing. Essentially, an entity should have already secured bank financing for a portion of their project, but still need more to cover additional expenses. The RLF can be used as a standalone financing. However, evidence of availability of other financing, if required, must be in place prior to advance of RLF funds.
If you are interested, you must submit an application (attached below), the associated $100 fee, and supporting documents to LEC. Once you’ve applied, the RLF committee will review your application. Once they verify your application fits the required RLF criteria, you’ll perform an interview with the committee.
If approved, you would then complete the loan documents, receive your money, and begin (or continue) to provide much needed economic development to our area.