USDA Utility Program Loans and Grants

The USDA Rural Development Electric Program offers the following sources of financing assistance: FFB Guaranteed Loans, Hardship Loans, Treasury Rate Loans, Municipal Rate Loans, and Assistance to Rural Communities with Extremely High Energy Costs (loan and grant assistance). The primary differences between the programs are the qualifying criteria and the interest rate for each type of financing.

Guaranteed Loans are provided by USDA Rural Development primarily through the Federal Financing Bank (FFB), National Rural Utilities Cooperative Finance Corporation (CFC), and the National Bank for Cooperatives (CoBank). The FFB is an agency within the Treasury Department, providing funding in the form of loans for various government lending programs, including the guaranteed loan program. FFB loans are guaranteed by USDA and are available to all electric borrowers. FFB interest rates are fixed to the prevailing cost of money to the United States Treasury, plus an administrative fee of one-eighth of 1%. Under this program, loans are executed by the borrower and FFB, CFC, or CoBank, with payment of principal and interest guaranteed by USDA. CFC and CoBank rates are negotiated between the lender and the borrower.

Hardship Loans are used to finance electric distribution and sub-transmission facilities at the 5% hardship rate to qualified borrowers. These direct loans are made to applicants that meet rate-disparity thresholds and whose consumers fall below average per-capita and household income thresholds. In addition, Hardship loans can be made to qualified applicants if the Administrator determines that the borrower has suffered a severe unavoidable hardship, such as a natural disaster.

Treasury Rate Loans are used to finance distribution and sub-transmission facilities of both distribution and power supply borrowers, including, under certain circumstances, the implementation of demand-side management and energy conservation programs. The standard interest rate on direct Treasury rate loans is established daily by the United States Treasury. Borrowers may select interest rate terms for each advance of funds. The minimum interest rate term is 1 year. Interest rate terms are limited to terms published by the United States Treasury.

Municipal Rate Loans are used to finance distribution and sub-transmission facilities of both distribution and power supply borrowers, including, under certain circumstances, the implementation of demand-side management and energy conservation programs. The interest rate is based on interest rates available in the municipal bond market for similar maturities. In most cases, borrowers are required to seek supplemental financing for 30% of their capital requirements under this program. Borrowers may choose from several loan maturity alternatives with associated varying interest rates, which track investment securities and change quarterly.

Assistance to Rural Communities with Extremely High Energy Costs provides grants and loans to be used to acquire, construct, extend, upgrade, and otherwise improve energy generation, transmission, or distribution facilities serving communities in which the average residential energy expenditure for home energy is at least 275% of the national average. Eligible entities are persons, State and local governments, and federally recognized Indian tribes and tribal entities.

In addition, grants and loans may be provided to the Denali Commission, a State-Federal rural development entity, to improve energy facilities serving high-energy-cost communities in Alaska. Interested communities may apply to the Denali Commission.

There is a statutory cap of 4% on planning and administrative expenses for funds made available under these programs.

Renewable Energy Projects, including renewable energy systems, such as solar, wind, hydropower, biomass, or geothermal, can be financed through Guaranteed Loans.