In the 2002 Farm Bill, Congress sought to expand broadband access in rural markets by allocating approximately $1.4 billion to the Rural Broadband Access Loans and Loan Guarantees Program (“Program”). The purpose of the Program, which is administered by the Department of Agriculture’s Rural Utility Service (“RUS”), is to provide loans and guarantees for construction, improvement and acquisition of facilities and equipment that make broadband services available in rural areas. The RUS regulations define broadband as any technology that enables a customer “to originate and receive high-quality voice, data, graphics, and video” with a minimum upstream and downstream rate of at least 200 kilobits per second. Any company (not just rural telephone or electric cooperatives or other nonprofits or small companies) may apply for Program funds for eligible markets.
As of Aug. 31, 2003, RUS had received only 70 applications for Program funds, requesting far less in total than the $1.4 billion available. Under the Program, the remaining funds will simply be rolled over into fiscal year 2004, and companies may still apply for them. In addition, RUS expects significant additional appropriations by Congress for the Program through 2007. Thus, our clients with operations in rural areas have a great opportunity to take advantage of several low-cost broadband support options within the Program.
What types of loans and guarantees are available?
Guaranteed Loans from private lenders
- $80 million available;
- Interest rate set by lender;
- Loans for up to 80 percent of total loan amount.
Direct 4% Loans
- $80 million available;
- Available in communities
- Maximum loan amount of $5 million.
(2) with a population of less than 2,500;
(3) in a county with a per capita personal income less than or equal to 55 percent of the
national per capita income (the national per capita income is approximately
(4) with maximum population density of 10 persons per square mile;
Direct Treasury Rate Loans
- At least $1.295 billion available;
- Interest rate set at time of each loan and determined by interest rate of Treasury’s
comparable maturities (approximately 4.5 percent).
Who is eligible?
Any company—no matter its size or present line of business—is eligible to apply for Program funds. Loans and loan guarantees are available to entities currently providing or proposing to provide service (1) in areas with no more than 20,000 inhabitants; (2) not in an area designated as standard metropolitan statistical area; (3) under a plan that meets RUS criteria; and (4) at an upstream and downstream rate at no less than 200 kilobits per second.
Who is not eligible?
Individuals, partnerships, and entities serving more than 2 percent of the telephone subscriber lines in the U.S. (i.e., the Regional Bell Operating Companies) are not eligible for the Program. Additionally, entities seeking financing for the following purposes are not eligible: (a) to acquire stock, facilities or equipment of an affiliate; (b) to finance customer terminal equipment or inside wiring that will be owned by the customer; (c) to finance vehicles not used primarily in construction of the facilities; (d) to finance broadband facilities leased under an operating lease; (e) to finance systems that do not meet RUS specifications; (f) to finance mergers or consolidations; or (g) to provide funds for operating costs.
Must participating companies publicly disclose their financial information?
No. To date, the RUS has kept all sensitive company information contained in the applications in confidence, even when faced with Freedom of Information Act (“FOIA”) requests from competitors.
What are some general terms and conditions of the loans?
General terms and conditions
- Loan term is equal to the expected useful service life of the facilities;
- Minimum loan amount is $100,000;
- Maximum loan amount (applicable for direct 4 percent loans only) is $5 million;
- RUS generally will require a first lien on all of borrower’s assets.
What does the application process entail?
The application process is detailed, but some of the requirements may include the following:
- Credit support in the amount of 20 percent of the loan amount, which may include “cash on hand to
support operations for one year” and may be waived under certain conditions;
- Market survey (e.g., analyzing where service exists but is not being provided at rates that are
comparable to nearby urban or suburban communities or where the quality of service is
- Business plan;
- Feasible engineering design.
When is the filing deadline?
It appears that the next “hard” deadline for applications is July 31, 2004, but the RUS may adopt a different and earlier date at any time.
Because of the rolling nature of the filing deadline and the fact that RUS generally will not approve more than one loan per market, we urge our eligible clients to contact us soon to learn more about the Program and the innovative plans we have to assist in the application and approval processes.