CUP Loan Program Application- How to Apply?

Are you planning to develop an essential community facility in a rural area? CUP Loan Program provides affordable financing for projects that enhance a community’s quality of life. This comprehensive guide covers the multi-step Cup Loan Program application online process, from initial eligibility to final loan approval and construction, ensuring you have all the information needed for a successful outcome.

It delves into:

• Pre-application stage, covers required documents, financial records, and the selection of professional advisors.
• Application phase, including underwriting, financial feasibility evaluations, and the pathway to obtaining approval through the Letter of Conditions.
• Construction phase, highlighting crucial aspects such as procurement requirements, bidding procedures, interim financing, and the eventual loan closing process.

How to Apply for a Cup Loan Program?

Applying for a USDA CUP loan program might seem overwhelming, but breaking it down into clear steps can simplify the process.

Here we’ll discuss everything that you need to know for the Cup Loan Program application, from gathering essential documents to submitting your application.

Let’s dive in and make sure you’re well-prepared for each step.

Step 1 – Initial Meeting with Rural Development

The pre-application meeting is a crucial step to ensure both the applicant and Rural Development are fully aligned on the specific requirements, timelines, and processes before the applicant proceeds with incurring expenses for the full application package.

Topics to Discuss

Revisiting Eligibility

During the pre-application meeting, Rural Development will revisit and scrutinize the eligibility criteria discussed in the initial meeting. This includes an in-depth review of the proposed project’s purpose, location, and service area to ensure it aligns with Cup Loan program requirements and guidelines.

They will also thoroughly examine the applicant’s organizational documents and financial records for the past 5 years to verify that the 5/5 criteria of having been in existence and operating successfully for at least 5 years is met.

Evidence proving the inability to secure commercial credit at reasonable rates and terms will also be assessed.

Application Timelines

One crucial aspect discussed is the anticipated application timelines. This includes the environmental review process, which can take 3-6 months or longer depending on the level of review required. The process and time needed for historic preservation reviews is also outlined.

Additionally, Rural Development will guide the typical timeline of 6-12 weeks for an independent third-party consultant to prepare the required financial feasibility report for the project.

Advisor Selection

Applicants need to submit draft legal agreements for all professional service providers they plan to engage, such as legal counsel, architects/engineers, and financial advisors. Rural Development provides specific guidance like using RD Instruction 1942-A Guide 14 for the legal services agreement and RD Form 1942-19 for architectural/engineering agreements.

Importantly, all such advisor agreements are subject to Rural Development’s review and approval before finalizing them.

Other Requirements

Several other key requirements are discussed like the need for interim financing if the loan amount exceeds $50,000 and the potential requirement for appraisals based on whether real estate is taken as security.

If the project involves any leased facilities or properties, or any management agreements, Rural Development requires the draft agreements to be submitted for review during this stage itself.

Next Steps

The pre-application meeting also lays out the next steps and additional requirements in the application process. This includes the need to hold a public meeting and provide evidence of substantial community support.

Rural Development will explain the full set of application document requirements as well as their internal processes for application review at various levels – local, state, and potentially national office reviews.

How to Prepare for the Meeting?

By compiling all required details and documentation in advance, applicants can maximize the productivity of this initial meeting with Rural Development. It allows for a thorough assessment of eligibility and provides clarity on the specific requirements to be met before applying. This upfront preparation sets the stage for a seamless application process.

• Organizational Documents: Applicants need to have their organizational documents ready to submit to Rural Development during this meeting. For public bodies, this includes their charter, acts of assembly, and any relevant court orders. For nonprofit organizations, they must provide their articles of incorporation, bylaws, any amendments made, and a certificate of good standing. Tribal entities should have tribal resolutions and codes available. These documents will be reviewed by USDA’s Office of General Counsel to confirm the applicant’s eligibility to receive federal financial assistance.

• Financial Records: A major requirement is providing audited financial statements for the previous 5 years to demonstrate a successful operating history. Applicants must document their ability to take on and repay the additional debt through these financial records. Having these statements organized and any other supporting documents showing 5 years of positive operations and debt repayment ability is crucial for this meeting.

• Project Details: Applicants should be prepared to describe the proposed community facility project in detail – its purpose, location, service area, and other key details. Having preliminary cost estimates and funding requirements for the project is also important to discuss. Additionally, applicants need to provide information on expected revenue sources that will fund the operating costs and repayment of the loan.

• Lender Declinations: As part of the requirement to seek other credit sources first, applicants must make efforts to secure credit from commercial lenders. They should come prepared with declination letters from lenders stating the rates and terms that were offered, as evidence of their inability to get reasonable credit commercially.

• Advisors: During this meeting, Rural Development will likely discuss the need to engage various professional advisors and consultants like architects, engineers, legal counsel, financial advisors and more. Applicants should be ready to discuss their plans for selecting and hiring these advisors to ensure a smooth application process.

Step 2 – The Pre-Application Process

Pre-Application Meeting

Revisiting Eligibility

The pre-application meeting allows Rural Development to revisit and verify the applicant’s eligibility in greater detail. They will thoroughly review the proposed project to confirm its purpose, location, and intended service area meet the program’s criteria for an eligible essential community facility.

The applicant’s organizational documents and financial records from the past five years will undergo strict scrutiny to validate that the 5/5 criteria of being in existence and operating successfully for at least five years is satisfied. Additionally, Rural Development will assess the evidence provided by the applicant to demonstrate their inability to secure credit from commercial lenders at reasonable rates and terms.

Application Timelines

A crucial aspect discussed during the pre-application meeting is the anticipated timeline for the various components of the application process. This includes the environmental review, which can be a lengthy process taking 3-6 months or more, depending on the level of review mandated. The processes and timelines for historic preservation reviews, if applicable, are also outlined.

Furthermore, Rural Development provides guidance on the typical 6-12 week timeline required for an independent third-party consultant to prepare the comprehensive financial feasibility report, which is a critical requirement.

Advisor Selection

Applicants are required to engage professional service providers, such as legal counsel, architects/engineers, and financial advisors, to assist with the application process. During the pre-application meeting, Rural Development mandates that draft legal agreements for all such advisors be submitted for their review and approval.

Specific guidelines are provided, such as using RD Instruction 1942-A Guide 14 for legal services agreements and RD Form 1942-19 for architectural/engineering agreements. Rural Development’s concurrence on these advisor agreements is necessary before they can be finalized.

Other Requirements

Several other significant requirements are discussed during the pre-application meeting. If the loan amount exceeds $50,000, Rural Development outlines the need for interim financing and guides the applicant on fulfilling this requirement. The potential need for appraisals, particularly if real estate is being taken as security, is also addressed.

Moreover, if the project involves any leased facilities or properties or any management agreements, Rural Development requires the applicant to submit draft versions of these agreements for review during this stage.

Next Steps

The pre-application meeting serves as a platform for Rural Development to clearly lay out the next steps and additional requirements in the application process. This includes the necessity of holding a public meeting and providing evidence of substantial community support for the project.

Rural Development will comprehensively explain the complete set of application document requirements, as well as their internal processes for application review at various levels – local, state, and potentially national office reviews, if the loan amount exceeds certain thresholds.

Submitting the Pre-Application Package

After the productive pre-application meeting where all the requirements and next steps are clearly outlined, the applicant proceeds to compile and submit the pre-application package to Rural Development. This package includes several crucial documents that will be thoroughly evaluated.

For nonprofit organizations, the pre-application must include their organizational documents that have already undergone legal review by USDA’s Office of General Counsel (OGC) to confirm eligibility. This includes the original articles of incorporation with any amendments, the most recent bylaws, certificate of good standing, and a list of the current board of directors.

Both nonprofits and public bodies need to submit the Standard Form (SF) 424 “Application for Federal Assistance” along with supporting documents like obtaining a DUNS number, Tax ID number, and ensuring they are registered with the System for Award Management (SAM).

Financial records form a major component of the pre-application. Nonprofits must provide audited financial statements for the previous five years to demonstrate their 5 years of successful operations and ability to repay debt. Public bodies may only need to submit one year of financial statements unless the security being provided is a revenue bond, in which case five years of historical data is required.

Copies of any existing debt instruments like notes, financing statements, leases etc. are required to evaluate current debt obligations. Additionally, evidence that the applicant cannot obtain credit from other commercial sources at reasonable rates and terms through declination letters from lenders is a key requirement.

The pre-application package also includes certifications like the RD Instruction 1900-D identifying any affiliations with Rural Development employees, as well as the OMB Survey on Ensuring Equal Opportunity for Applicants.

Step 3 – The Application Process

Required Documents

Organizational Documents

Nonprofit applicants must submit their organizational documents for legal review by USDA’s Office of General Counsel (OGC) to confirm eligibility. This includes the original articles of incorporation along with any amendments made over time, the most recent bylaws, a certificate of good standing from the state, and a list of the current board of directors with their titles, addresses, and term expiration dates. Public bodies typically do not need to submit organizational documents unless they are special purpose districts.

Application Form

Both nonprofit and public body applicants need to complete the Standard Form (SF) 424 “Application for Federal Assistance.” Supporting documents required with this include obtaining a Dun & Bradstreet Data Universal Numbering System (DUNS) number and Tax Identification Number (TIN) for the applicant entity. Registration with the System for Award Management (SAM) is also mandatory.

Financial Records

A critical component is providing historical financial records. For nonprofits, this includes audited financial statements covering the previous five years to demonstrate adherence to the “5/5 criteria” of being in existence and operating successfully for at least five years prior to application. Public bodies generally only need one year of financial statements unless the proposed loan security is a revenue bond, which requires five years of data.

Evidence of Credit Unavailability

Applicants must provide evidence that they cannot obtain credit from other commercial lenders at reasonable rates and terms. This usually takes the form of declination letters from multiple commercial lenders that typically offer similar types of credit.

Debt Instruments

Copies of any outstanding debt instruments like notes, deeds of trust, bonds, financing statements, security agreements, and leases must be included to evaluate existing debt obligations.

Certifications

The pre-application package also requires certain certifications like the RD Instruction 1900-D identifying any affiliations with Rural Development employees, as well as the OMB Survey on Ensuring Equal Opportunity for Applicants.

The Underwriting Process

Assessing Repayment Ability

A crucial aspect of the underwriting process is evaluating the applicant’s ability to repay the proposed debt. This assessment is largely based on the financial feasibility report and Rural Development’s credit analysis.

The financial feasibility report, which could range from a financial feasibility analysis to a full examination opinion based on the loan amount and applicant’s experience, provides in-depth projections and assumptions about the proposed project’s financial viability. Rural Development underwriters analyze this report thoroughly to gauge the adequacy of the projected revenues to cover operating costs and debt service payments.

In addition to the feasibility report, underwriters review the applicant’s historical financial performance and strength as evidenced by past audits and financial statements. Key ratios and trends related to liquidity, profitability, and existing debt coverage are scrutinized.

Other repayment factors evaluated include any special tax revenues, fee income or community assessments that could be pledged to secure repayment. The overall certainty of the identified revenue streams is a critical consideration.

Financial Feasibility Requirements

The required level of financial feasibility evaluation is determined by factors like loan amount, the applicant’s longevity of operations, and the type of security being provided. Loans under $500,000 may only need a financial feasibility analysis, while larger loans mandate a feasibility study with compilation or full examination report prepared by a qualified independent CPA or firm.

These financial feasibility reports provide Rural Development with reasonable or firm assurances regarding the validity of the applicant’s financial forecasts, assumptions, and income projections for the proposed facility based on their level of attestation.

Getting Approved

Letter of Conditions

If the underwriting analysis by Rural Development deems the project financially feasible and the applicant has demonstrated sufficient repayment ability, a Letter of Conditions (LOC) is issued. The LOC outlines all the specific requirements, terms, and conditions that must be met for final loan approval and issuance.

For larger loans exceeding the state office’s approval authority, the LOC and full application undergoes review by the Rural Development National Office as well before being issued to the applicant. The LOC is typically reviewed in-person with the applicant to ensure complete understanding of the conditions.

Any subsequent changes to key aspects like project costs, funding sources, service scope or other major factors must be approved by Rural Development through a written amendment to the LOC.

Signifying Intent

After receiving the LOC, the applicant must make critical decisions on whether to accept the conditions and proceed by signifying their intent. This involves executing specific forms like:

• Form RD 1942-46 “Letter of Intent to Meet Conditions”
• Form RD 1940-1 “Request for Obligation of Funds”
• Anti-lobby, debarment, equal opportunity and other certifications

These forms carry significant weight as the applicant is affirming their intention to fully meet all LOC requirements. They should only be signed by representatives with clear authority granted in the organizational documents.

Final Approval

The Community Facilities loan is not considered approved until Rural Development countersigns the Request for Obligation form. For loans within the state’s approval authority, the state director will execute the form. For larger loans, the National Office will issue final approval by signing the obligation request.

Step 4 – Construction and Closing

Procurement Requirements

Open and Free Competition: All procurement transactions for projects funded through the Community Facilities loan program, regardless of dollar value, must be conducted in a manner that provides maximum open and free competition. This is a core requirement that aims to ensure fair and transparent selection of contractors/vendors.

Code of Conduct: Applicants must maintain a written code of conduct governing the performance of their employees, officers or agents engaged in the contracting process. This code mandates disclosure of any real or apparent conflicts of interest in the selection, award or administration of contracts. No employee/agent with a conflict can participate in the supplier selection.

Competitive Bidding Process: For construction projects, applicants must follow a competitive sealed bid process that allows equal opportunity for qualified contractors and promotes open competition. This includes publicly advertising the invitation for bids, following established procedures for public bid openings, and maintaining documentation like bid tabulations.

Procurement Provisions: Any contracts awarded must contain certain procurement provisions required by federal regulations. These include provisions regarding compliance with federal labor laws, termination clauses, reporting requirements, and recordkeeping mandates to ensure proper administration and oversight.

Approval Requirements: Rural Development must provide approval at key stages of the procurement process. This includes concurring with the bid advertisement, bid evaluations to assess contractor responsibility and responsiveness, the proposed bid award, and executed contracts before work can proceed.

Prohibited Procedures: Certain procurement practices are explicitly prohibited, such as allowing geographic preferences in evaluating bids or breaking down project components to avoid more stringent procedures. Any non-competitive practices that arbitrarily limit competition are deemed unacceptable.

Construction Phase

Plans and Specifications

Before construction can commence, the applicant must submit final plans, specifications, and all related addenda for Rural Development’s review and approval. These architectural/engineering documents detail the scope of work, technical requirements, and construction quality standards that the contracted builder must follow.

Rural Development uses guidelines like the American Institute of Architects (AIA) construction contract documents to ensure the plans and specifications are comprehensive and align with program expectations. Any deviations from approved plans during construction require prior written approval.

Bidding and Contractor Selection

With Rural Development’s concurrence, the applicant proceeds to advertise for construction bids and facilitate the competitive bidding process as outlined in the procurement requirements. This includes public invitation of bids, prescribed procedures for bid openings and tabulations, and evaluations of contractor responsibility and responsiveness.

Applicants must submit evidence of the successful bid, bid tabulations, bid evaluations, and their recommendation for award to Rural Development for final concurrence before signing any construction contracts. Any real or perceived conflicts of interest in the bidding process are unacceptable per federal regulations.

Pre-Construction Conference

Prior to issuing the Notice to Proceed, Rural Development recommends holding a pre-construction conference with the applicant, contracted builder, architects/engineers, inspectors, and other key parties. This meeting aligns all stakeholders on responsibilities, schedules, inspections, payments, and construction administration requirements.

Interim Financing

For construction projects over $50,000, the applicant is required to obtain interim financing from commercial or other sources to fund construction activities until Rural Development loan funds can be disbursed. The interim financing agreement is subject to Rural Development’s review and concurrence.

Closing the Loan

Loan Closing Documentation

Once all construction requirements are met, Rural Development will issue closing instructions outlining the documentation needed to close and disburse the loan funds. The specific documents vary for different entity types:

For Nonprofits:

• Legal opinion from applicant’s counsel
• Executed loan agreement
• Real estate mortgage/deed of trust
• Financing statements (UCC-1)
• Promissory note (Form RD 440-22)
• Required certifications like equal opportunity, debarment, lobbying

For Public Bodies:

• Bond counsel’s final opinion
• Executed bond documents
• Certified bond transcripts
• No litigation certificate

Rural Development’s regional Office of General Counsel reviews the closing document package to ensure all requirements are satisfactorily met before providing a closing instruction to the applicant’s counsel who handles the actual loan closing procedures.

Post-Closing Obligations

After closing, the applicant submits final executed copies of all closing documents back to Rural Development and the Office of General Counsel. OGC conducts a post-closing review of documents like the opinion, mortgage recordings, title policy and issues a closing opinion confirming everything is in order.

Some key post-closing requirements include:

• Establishing debt service and capital reserve accounts
• Enrolling in pre-authorized debt payment system
• Providing annual audits/financial statements based on federal funds received
• Maintaining adequate insurance like property, liability, flood coverage

Loan Disbursement

Once Rural Development confirms all closing conditions are met, the loan obligation is finalized by issuing a closing statement showing the loan approval amount, any approved costs and disbursement of funds.

For construction projects, all other funding sources like applicant contributions and interim financing are required to be disbursed first before Rural Development loan funds. Grant funds associated with the project are disbursed last.

What is the Priority Scoring Criteria?

The CUP Loan Program receives a high volume of applications each year from rural communities across the country. To prioritize which projects get funded with the annual allocation from Congress, the USDA uses a priority scoring system that evaluates and ranks applications against certain criteria.

Population Size

A key priority factor is the size of the community’s rural population that will be served by the proposed facility project. Smaller communities with populations of 5,500 or less residents receive the highest priority scoring. Projects benefiting areas with larger populations between 5,501 to 15,000 people get moderate priority, while those over 15,000 receive the lowest priority ranking when funds are limited.

Median Household Income Levels

Another heavily weighted factor is the median household income of the community compared to the state’s non-metropolitan median income. Applications from lower income rural areas get higher priority scoring to direct funds where economic need is greatest. Projects serving areas with median incomes below 60% of the state non-metro median receive maximum priority points. Those between 60-80% of the median qualify for moderate priority, while communities above 80% get the minimum scoring.

Economic Conditions

Beyond just income, the USDA considers the overall economic conditions and characteristics of the rural community like unemployment rates, outmigration trends, presence of employers, housing conditions, and other indicators of economic vitality or distress.

Nature of Project

While most facility types are prioritized equally, certain project purposes like those increasing healthcare access, public safety, or educational opportunities may receive a scoring boost over others. State Directors can also apply Priority Points for projects based on state strategic economic and community development goals.

Conclusion

The CUP Loan Program provides rural communities with vital funding to develop essential facilities that enhance quality of life. However, securing this affordable financing requires navigating a multi-faceted application process with numerous requirements and considerations.

From initial eligibility assessments and documentation to financial underwriting, environmental reviews, construction administration, and ultimate loan approval – this comprehensive guide equips applicants with the knowledge to maneuver the process successfully.

By diligently following the steps outlined and maintaining consistent communication with Rural Development, eligible entities like public bodies, nonprofits, and Tribes can unlock the program’s benefits.

With proper planning and adherence to regulations, these low-interest, long-term loans can catalyze critical infrastructure projects that uplift rural America’s communities for generations to come.

Frequently Asked Questions