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Financing Local Infrastructure Projects with the USDA

November 14, 2018 / by VITAL Financial Services

public works sewer


Communities all over the nation face a daunting task – how to upgrade and replace aging infrastructure, and fund these expensive and complex projects. There is a particular need around water, wastewater, and sewer systems. This is a critical service most municipalities provide, and upgrading and maintaining these systems can easily cost millions of dollars. Funding this is no small task, especially for small towns.


Within this dilemma is a real opportunity for lenders to step up as community partners, employing a highly under-utilized program through the USDA that comes with 90% loan guarantees.


If your bank serves towns with a population of 10,000 or less, the USDA Water and Waste Disposal program is a tool you’ll want to be aware of. It allows private lenders making loans to public bodies and not-for-profits to receive guarantees of up to 90% of the loan amount, with terms of up to 40 years. The funds must be used to construct or improve facilities for drinking water, sanitary sewers, solid waste disposal or storm water disposal.


There’s little debate about how important clean, reliable water and sewer systems are for the quality of life and economic viability of local communities. Most community lenders are deeply involved in the areas they serve, and want to help cultivate places that are desirable to live and allow businesses to expand and grow. Wise lenders know they will share in the prosperity they help to create.


If you’re interested in strengthening your bank reputation as solid community partner by financing water infrastructure projects, here are the key things you should know about the USDA Water and Waste Disposal programs:


  • Eligibility: Borrowers must be state or local government entities, not-for-profits or federally recognized tribes. Areas that will be served must have a population of 10,000 or less. 
  • Purposes: The funds must be used to construct or improve facilities for drinking water, sanitary sewers, solid waste disposal, or storm water disposal facilities. Depending on the circumstances, some funds may also be used for legal and engineering fees, land acquisition and equipment, start-up operations and maintenance, capitalized interest, and other costs determined to be necessary for completion of the project. 


  • Funding Options: The Water and Waste Disposal program offers not only guaranteed loans, but grant funds from the USDA and direct, low-interest loans. These options can be layered, along with other state and local funding resources, to create complete, cost-effective financial solutions. 


  • Terms: Loan guarantees can reach a maximum 90% with interest rates that are fixed or variable, as determined by the lender. Payback periods of up to 40 years are allowed, depending on the useful life of the facilities. There is a strong secondary market interested in purchasing the guaranteed portion of the loans, providing an excellent source of noninterest income. Also, your bank’s capital requirements, loan loss reserves and lending limits are based only on the 10% portion of the loan that you retain.


VITAL has successfully financed a number of infrastructure projects with support from the USDA, and we will be your expert resource throughout the entire process. We understand how to layer funding resources and develop complete, economically viable solutions for expensive and complex projects. Contact us to learn more.

Topics: Noninterest income, USDA loans, USDA Water and Waste Disposal program, Lenders

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