The USDA Rural Development Community Facilities program has been the mainstay of capital for rural health care providers seeking to rebuild or renovate. Without $6+ billion in loans distributed through this program over the past five years, hospitals, nursing homes, and assisted living organizations would not have been able to access the capital needed to reinvest in their facilities. Not surprisingly, the success of the program and the size of the loan portfolio, which has grown 500% since 2008, have brought changes in the underwriting standards for new applicants.
The most important development is the emphasis on “Public-Private” partnerships, which means that loan money available through the USDA should be paired with a loan from another source of funds to provide a package of debt. These other sources can include the USDA Community Facilities Guaranteed Loan program, tax-exempt or taxable bonds, and conventional loans and grants (e.g., Community Development Block Grant). The Public-Private partnership has the advantage of allowing the USDA to leverage the underwriting strength and servicing capabilities of another lender and minimize its risk or exposure. In other words, the Public-Private partnership provides a second set of eyes to evaluate the creditworthiness of the borrower and provide monitoring throughout the life of the loan. This is important because although the Community Facility loan portfolio has grown significantly, the number of USDA staff to monitor existing loans and process new applications has actually decreased.
Another significant change is that most loans must have interim financing during construction. Again, given the limitations of USDA staff and the risks during construction, it is prudent for the USDA to allow private lenders to provide construction loans. The interim loan is typically secured by the USDA’s obligation of funds to provide permanent financing post-construction, and there are a number of lenders who are very interested in providing this type of “bridge” financing.
The challenge to the borrower can be that other sources of funds don’t always understand the documentation, application process, and/or requirements that the USDA has for it private partners. It requires a translator who knows the languages of the bank lending, bond financing, and the USDA and who can provide the education needed to help all work together on behalf of the borrower.
Wipfli is well-versed in the current underwriting standards through regular communication with the USDA at the national and state levels. If you are interested in learning more about the program and what you need to do to secure financing, call us; we can help.
Length: 0 pages ()