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Revolving Loan Fund
WESTERN COOPERATIVE ELECTRIC ASSOCIATION, INC.
Rural Development Plan (RDP) for a Revolving Loan Fund (RLF) under the Rural Economic Development Loan and Grant Program
Rural Business - Cooperative Service (RBS)
United States Department of Agriculture
Objective
This application is being submitted to the Rural Business – Cooperative Service (RBS) on behalf of Western Cooperative Electric Association Inc (Western), requesting that Western be approved for an economic development grant for the purpose of establishing a Revolving Loan Fund (RLF) for the region. The purpose of this report is to demonstrate the economic need and Western’s ability to administer this program. As a not-for-profit rural electric cooperative, Western is a consumer-oriented organization. Through this program Western has the opportunity to be a leader in Western Kansas for rural economic development.
Loan Criteria:
It is not the intent of this RLF to compete with local lending institutions; rather it is the intent of the program to stimulate private investments and complement local lenders for the creation of jobs and wealth in the rural areas of the region. Each loan must meet the following criteria:
- An acceptable irrevocable letter of credit or equivalent guarantee that extends to the term of the loan.
- Interest cost for loans made following the initial loan will be set at a minimum of 0% and a maximum of New York Prime as published the day the application is submitted.
- An acceptable business plan with a three (3) year operating projection is required to be submitted with the application.
- The loan request cannot exceed 80% of the project costs.
- Proceeds from the loan request cannot be used for the purpose of refinancing or paying off an existing debt.
- The RLF is available to either existing or new businesses or communities in the region.
- Individual loan requests will be considered between the minimum amount of $5,000 and a maximum based on the available balance in the RLF account.
- Applications will be reviewed monthly and must be received two (2) weeks prior to the regular monthly Board of Directors meeting which is held on the fourth Tuesday of each month.
- The designated contact is the CEO/GM of Western or the designated employee. In the event of a merger, consolidation, sale, or other change in status of Western, this program and its funding shall continue and remain in full force and effect, with appropriate changes in this policy to allow same.
- Each loan will have a maximum term of ten (10) years.
Types of projects to be funded:
Western will consider applications for loans from the RLF for projects that will significantly benefit rural areas, without restriction to the cooperative’s service area. Western will not condition the approval of any loan with the requirement that the prospective recipient take electric service from Western. It is the intent of Western that funds for this program serve as seed money to stimulate economic development. Western will work with local lenders and others to maximize the leverage of this program to result in the maximum possible rural economic development. Projects to be considered for this program must create or retain employment or provide needed community facilities and services. These types of projects include industrial/commercial development, small business expansion, small business startup, business incubators, community infrastructure, community facilities, medical facilities, training/educational facilities, and tourism. No director or employee of Western may benefit from or be a recipient of the RLF. Any project in which a trustee or employee of Western, or close relative thereof, is an owner, stockholder, partner, or director, or which would create a conflict of interest, potential conflict of interest, or any appearance of a conflict of interest, would be ineligible for funding from this program.
Coordination with Other Lenders:
Area financial institutions, business financing professionals, and related businesses and agencies are very supportive of the establishment of the RLF and related projects. They understand the need for additional financial resources to serve the small business community in the region. Attached letters of support will indicate need and cooperation in working together to develop projects that will benefit the community.
Application Process and Method of Disposition
Application Process:
The funds will be administered under the direction of Western’s General Manager within the parameters set by the Board of Directors. Western staff, to the extent possible, will provide technical assistance for potential projects. Once projects have been identified as potentially eligible for funding, assistance will be provided in completing the application and/or referral made to other technical assistance providers. All applicants for RLF financing will be required to complete an application that includes sufficient information to properly evaluate the merits of the request. The procedure for review and action on applications will be:
- Applications will be reviewed monthly by the Western RLF committee.
- The Western RLF committee will review applications for eligibility and completeness prior to being submitted to the Board of Directors. If more information is needed, it will be requested. Any request for additional information may delay processing. If the proposed project does not meet eligibility criteria, the applicant will be notified of the reason(s) and allowed to provide additional information to establish eligibility, or to submit a new application with eligible criteria, within a reasonable time. An application will be considered complete when the following information is submitted to Western: (a) Name(s) of borrower, (b) Name of company, (c) Address, (d) Telephone, fax, e-mail addresses, (e) Name and address of bank, (f) Business plan, and (g) Personal and business credit references.
- An RLF committee consisting of (a) Western’s General Manager, (b) Western’s Manager of Member Services, and (c) Western’s Assistant Manager, will analyze the loan request using the RLF criteria, negotiate terms with the applicant and develop a recommendation for the Board of Directors. All applications submitted and determined to be eligible will be forwarded to the Board. Meetings of the RLF committee shall be called by Western’s General Manager or designated employee, as the number of applications warrants.
- Western’s Board of Directors will act independently on the recommendation of the RLF committee and notify the applicant, through a member of the RLF committee, of the Board’s decision.
- For an approved loan, Western’s RLF committee will arrange for the closing in a timely manner, based on the contingencies set forth by the Board of Directors and existing circumstances.
Method of Disposition:
Loan funds will be dispersed to the successful applicants upon:
- Evidence that all supplemental funding has been committed.
- Evidence that all loan conditions have been met.
- Proper documentation of expenditure or commitment of funds for the approved purposes. Documentation may include invoices, purchase orders, bills of sale, deeds, receipts, or other evidence.
- Execution of all required loan agreements, security agreements, notes, financing statements, mortgages, letters of credit and any other documents necessary or required by Western prior to or contemporaneous with closing of the loan.
Loan Monitoring Procedures:
All projects will be monitored for compliance with all covenants in the closing documents and for financial performance. Reports will be made to the Board of Directors at least quarterly on all problem loans. The status of all outstanding loans will be reported to the Board at least annually. All successful applicants will be monitored by Western’s RLF committee to evaluate project accomplishments. Western reserves the right to require the submission of financial reports if it so deems necessary. A minimum of twice annually, a Western RLF committee member will initiate a phone call to review performance of the project. On-site visits will be conducted annually to verify and evaluate the use of the RLF.
Sanctions for Noncompliance/Nonperformance:
Any loan in arrears shall be brought to the immediate attention of the General Manager, and the project manager shall be sent notices ten (10) days after payment is due. If payment is not made within ten (10) days, a second notice shall be sent. After thirty (30) days, a telephone call shall be made to determine the problem, followed by an immediate site visit if necessary. If it is determined a restructuring loan is required, it shall be done within thirty (30) days thereafter. Loans shall be determined to be automatically in default if more than ninety (90) days pass without payment, subject to review by Western’s General Manager. Foreclosure proceedings shall be initiated by Western’s legal counsel if instructed by the Board of Directors.
Performance Standards:
The standards of performance for the loan portfolio will be designed to measure the progress towards meeting the financial goals and objectives of the RLF. Western will continuously evaluate its lending activity to determine if it is meeting the Goals established for the RLF. A formal evaluation of the RLF activity will be conducted annually to guide and direct future programming activity, measure progress toward goals, and most importantly to determine if the RLF is serving the purposes for which it was created.
Compliance with Rural Economic Development Loan and Grant Program:
All loans made will be required to comply with any applicable federal law, rule or regulation relating to the Rural Economic Development Loan and Grant. Western will not make changes or amendments to this Rural Development Plan or associated RLF rules without prior written consent of the USDA Rural Business – Cooperative Service.
Scope of Work
Documented Need for Grant Funds:
Western recognizes the need for a RLF to provide supplemental funding for economic development projects in the Western Kansas area. Business development for new and expanding ventures can be enhanced through such a fund to meet needs not already met through traditional banking means. Western’s contribution into the RLF of 20% of initial grant funds will add to the RLF funds available for loans. Loan repayments are deposited in the RLF and used for additional community and economic development projects.
Authority and Ability to Administer a Revolving Rural Development Loan Program:
Personnel from Western are well qualified to administer the RLF. Once a completed application is received, Western staff will submit the application to the RLF committee. The RLF committee comprised of the General Manager, Manager of Member Services, and Assistant Manager will review the application and provide an initial funding recommendation to Western’s Board of Directors. Members and qualifications of the RLF committee are:
Tom Ruth:
General Manager since 2018. Tom's cooperative career began in 1977 at Grundy Electric Cooperative in Trenton, MO. He is a graduate of the University of Missouri-Rolla, and a Professional Engineer, registered in Colorado. Tom has over 40 years of experience in the areas of field operations, business operations, construction, safety, communications, and engineering. Prior to Western, Tom served as Vice President of Distribution Services for South Central Indiana REMC. He joined Western in April of 2018.
Stacey Malsam:
Manager of Accounting and Finance since 2007. Stacey is a graduate of Kansas State University with a Bachelor of Science degree in Business Administration and a Masters of Accountancy. Stacey obtained her Certified Public Accounting certificate in 2003. Prior to joining Western, Stacey was Chief Financial Officer for a not-for-profit hospital and, prior to that, practiced with two public accounting firms.
Commitment of Financial Resources:
Western, through Board resolutions, has made commitments to the RLF by contributing an amount equal to 20% of each initial grant that funded the RLF.
Proposed Fees and Charges:
Western will charge the borrower the following loan fees at actual cost: origination fee, appraisal fee, title insurance, closing cost (including legal), mortgage and UCC filing fees, environmental studies, and any other cost associated with the loan. An administrative servicing fee will be applicable for loans made from the RLF. The fee will be no more than one percent (1%) per year of the outstanding principal loan balance on the first day of each year of the loan.
Contact Western at 800-456-6720 for more information.