Interim Loan Program

The purpose of the program is to provide construction funding for water and sewer systems that have received a permanent loan commitment from the United States Department of Agriculture-Rural Development (“RD”) (formally known as the Farmers Home Administration). The program structure provides communities access to short-term loan funds at favorable interest rates. Loan proceeds are utilized for the construction period only and are repaid with RD bond funds when the project is complete. RD will provide the permanent financing once the construction phase is complete and project conditions have been met.

The program is designed as a tax-exempt pooled financing with flexible loan terms. The administrator of the program is the Kentucky Rural Water Association and the issuer was recently transitioned from the Kentucky Rural Water Finance Corporation to the Rural Water Financing Agency (the “Agency”).  The effective rate of borrowing under the program is based on a stated loan rate less an interest earnings credit on undisbursed construction proceeds.

History of the Program

Since the program’s inception in 1995, the Agency has made over $1.5 billion in loans to finance utility projects.

Loan Approval Process:

  1. Completed application, Rural Development Letter of Conditions, and most recent audit are submitted to the Agency for preliminary approval.
  2. The Agency will issue a conditional approval letter to the Borrower pending completion of the loan package.
  3. The Borrower formally adopts and executes all legal documents associated with the loan package.
  4. The Agency funds its loan to the Borrower and construction disbursements may commence. All loan interest is capitalized within the loan amount.
  5. The Borrower requests funds from Regions Bank (Trustee). The RD, Engineer and Borrower must sign and approve each request for funds. No invoices are required. Construction funds are wired to the Borrower’s local construction depository for actual disbursement.
  6. Upon project completion, payoff is made to Regions Bank with RD bond funds. The payoff equals construction draws plus interest accrued during construction less interest earned.