Dangers of Rural Housing Service Community Facility Loan

A rural loan provided through the Community Facility Loan program gives rural communities and American Indian tribes access to funding necessary to build community facilities. The types of facilities that are built with these funds include schools, hospitals, police and fire, medical clinics and senior care centers. The programs provide loans directly to the community (Community Facility Direct Loans) or through a loan guarantee with a private lender (Community Facility Guaranteed Loans). The program is administered through the U.S. Department of Agriculture (USDA).

Minimal Danger

The danger in using a rural housing service community facility loan is minimal at best.  There are applications that need to be filed and feasibility studies requires in the case of the Community Facility Direct Loan program, but otherwise having access to this form of funding represents more opportunity than danger for a rural community.

Finding a Lender

A rural community, not-for-profit association and American Indian tribe can apply for a community facility loan. The process involves identifying a new or existing project in need of funding and making a loan application with the program or a participating lender. A danger that may be present is the lack of private lenders willing to extend loans under the program or unwilling to work with the federal government to secure funding under the loan guarantee programs.

Use of an Independent Consultant

Another danger may be that a rural community, with hopes of building a new hospital or school to meet the growing needs of the community, is deemed not in need of the facility. The Community Facility Direct Loan program requires that a feasibility study be conducted in order to determine the necessity of the facility. This study must be conducted by an independent outside consultant who is unbiased and beyond the control of the rural community. This could lead to a conclusion that the facility is unnecessary and go against the desires of the community for the facility.

Refinancing an Existing Facility Loan

Community Facility Loans may also be used to refinance an existing facility loan provided by a private lender. The danger with seeking refinancing is making sure that the lender is willing to accept the renegotiated loan in order to lower interest costs for the community. Ideally, the loan guarantees provided under the Community Facility Guaranteed Loan program will give a private lender assurance that the loan is safe and is willing to make arrangements with the community, non-profit or American Indian tribe in order to create more favorable loan terms.