Diversity Insight: Three Ways Government-Guaranteed Loans Can Help Fortify Rural America

nurse rural highway
By Jeremy Gilpin

4 minutes

Guaranteed USDA loans support businesses and projects that might not otherwise be funded.

Rural America is facing a plethora of challenges that hinder its progress and vitality. From limited access to capital, which impacts economic opportunities, to inadequate infrastructure and a declining population, many rural communities across the country are struggling to keep pace with their urban counterparts. 

A creative solution to bridge the gap is government-guaranteed financing. The United States Department of Agriculture offers a variety of guaranteed loan programs that enable financial institutions to arrange packages of capital at favorable terms for businesses and projects that typically wouldn’t have access to traditional financing that meets their needs, time horizons and cost parameters. Depending on the program, the USDA guarantees about 80% of the loan total.

These loans offer immense benefits to rural communities nationwide—creating economic opportunities and improving the quality of life for millions of Americans. And, they can be just as beneficial to the community banks and credit unions that originate and participate in the loan. Financial institutions can increase liquidity and lower risk by selling the guaranteed chunk of the loan to investors on the secondary market for a premium—only keeping a small portion of the total loan on their balance sheet. They can encourage the borrower to keep their operating accounts at the institution, helping their liability side of the balance sheet. Certain loans currently on the balance sheet can even be turned into USDA loans. And, banks and credit unions that participate do not need to be located in the area of the borrower.

Here are three ways government-guaranteed loans can help to fortify rural America.

1. Encourage Small Business Growth and Boost Local Economies

Government-guaranteed financing, in the form of Small Business Administration and USDA loans, can provide small businesses with much-needed access to capital. The financing helps to foster small business growth by reducing financial barriers and providing business owners with the capital needed to operate efficiently and grow their business.

In turn, new job opportunities are created, potentially stimulating local economic activity and reducing unemployment rates.

An example of a company taking advantage of a government-guaranteed loan program to expand their business is Northline Seafoods, a seafood processing company headquartered in Sitka, Alaska, that freezes wild whole salmon at the source. 

The company used a $40 million USDA loan through the Food Supply Chain Guaranteed Loan Program to develop a state-of-the-art salmon processing barge in Bristol Bay, Alaska, for just-caught fish. The project will support about 46 full-time, year-round jobs in Alaska and Washington. Work in the salmon fishing industry is traditionally part-time or seasonal, so Northline Seafood's innovative model will provide more regular employment and economic predictability for the region. 

2. Improve Rural Infrastructure and Access to Health Care 

USDA loans can be critical in funding improvements to rural infrastructure, such as broadband connectivity and renewable energy initiatives—enhancing the attractiveness of rural communities for businesses, residents and tourists and leading to increased investment.

Of course, supporting and retaining a robust health care system is essential to any community, but rural areas often encounter barriers to this. Government-guaranteed loans can be used to fund the construction, renovation or modernization of hospitals and medical facilities; recruit healthcare professionals; and implement telemedicine initiatives.

An example of a community relying on government-guaranteed financing to improve healthcare access and outcomes for rural residents is Lane Regional Medical Center in Zachary, Louisiana. The medical facility leveraged $80 million in USDA-guaranteed loans to renovate and expand its hospital. 

The project will significantly improve patient care and bring critical healthcare access to rural residents throughout the region. The update to the facility is expected to bring more than 520 jobs.

3. Promote Agriculture and Rural Development  

USDA loans are crucial in supporting farmers and agricultural businesses. They offer farmers and ranchers in rural areas the ability to finance their current operations and expand as the opportunity arises—providing capital for machinery, equipment, supplies, and integrated agricultural production and processing facilities, as well as the purchase and improvement of commercial real estate. Besides the benefits for local communities, stronger agriculture also boosts food security and supply chains for the whole country.

Additionally, USDA loans can encourage the adoption of renewable energy sources and other sustainable practices in rural areas. The loans can support the development of solar farms, wind energy projects, biofuel production facilities and energy-efficient infrastructure—contributing to environmental sustainability and, again, creating new jobs.

Aemetis, a renewable natural gas and renewable fuels company focused on negative carbon intensity products, utilized $25 million in USDA-guaranteed loans to build a collection of anaerobic digesters at dairy farm lagoons that utilize waste animal manure emissions to produce renewable natural gas. 

Fully built, the Aemetis Biogas Central Dairy Digester Project in Stanislaus County, California, will connect dairy digesters spanning 66 dairy farms across a 40-mile pipeline, capturing more than 1.65 million Btu of dairy methane each year. That’s equal to removing the emissions from approximately 150,000 cars per year.

Now is a great time for credit unions and community banks around the U.S. to look into government-guaranteed loan programs. Not only will it help your balance sheets, but it will also help bolster rural America.

Jeremy Gilpin is president of Greater Commercial Lending.

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