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Everything You Should Know About the USDA Rural Energy for America Program

Aug 24, 2022
Posted by: Stearns Bank
Windmills on a rural development

Energy efficiency is good business. It can reduce costs, lower emissions, and make your business more appealing to environmentally conscious consumers. However, for many companies, energy-efficient improvements are critical to maintaining normal operations. For example, many livestock-related businesses will soon need to invest in better ventilation and cooling systems to prevent catastrophic loss.

While energy improvements can help small businesses cut their utility costs between 10% and 30% in the long run, upgrading equipment or investing in alternative energy generation can require a significant upfront investment. Fortunately, the federal government has created a special program to help eligible businesses make much-needed improvements.

What Is the Rural Energy for America Program?

The Rural Energy for America Program (REAP) was created by the U.S. Department of Agriculture (USDA) to provide funding through grants and loans to agricultural producers and businesses in rural areas. Funds from REAP loans can be used to upgrade energy efficiency and invest in renewable energy sources. Although REAP loans are backed by the federal government, these loans are funded through a private lender.

Because REAP is a program within the USDA, many people mistakenly believe that REAP funds can be used solely for agricultural businesses. However, in addition to agricultural producers in any area of the country, small businesses that operate in rural areas with fewer than 50,000 residents are generally eligible to obtain financing through REAP, regardless of business type. To determine if your business is located in an area that can access REAP funds, enter your address here.

What Can a REAP Loan Be Used For?

REAP funds can be used for almost any project that will save energy, including investments that will help you use less fossil fuel. Common uses of REAP funds include the following:

  • Investing in alternative energy generation systems, including hydrogen, geothermal, wind, solar, ocean, and biomass
  • Installing new insulation or other energy-saving products or devices
  • Installing new HVAC systems
  • Replacing outdated or inefficient equipment
  • Switching to equipment that uses renewable energy sources
  • Adding cooling or refrigeration units

It’s important to keep in mind that some potentially energy-saving projects aren’t eligible for REAP funds:

  • Improvements to your residence
  • Improvements using unproven technology that is not commercially available
  • Vehicles, including agricultural equipment
  • Expansion of your existing facilities

4 Reasons to Consider a USDA REAP Loan

1. REAP Loans Are Flexible

While adding solar panels to a property is a common use of REAP funds, business owners get a surprising amount of flexibility to determine where improvements will benefit their operations most. For example, if you own a large cattle ranch and have been dreaming of installing an anaerobic digester to provide renewable energy while reducing pathogens and odor and improving water quality, REAP funds could significantly reduce your upfront costs.

2. Most Rural Businesses Are Eligible

As we mentioned before, although the REAP program falls under the jurisdiction of the USDA, REAP funds are not solely reserved for agricultural businesses. All rural businesses that meet the SBA’s definition of a small business are eligible for REAP loans, and the SBA’s definition of a small business is broader than you might think. In fact, 99.9% of businesses in the United States fit the SBA’s criteria of a small business.

3. REAP Loans Have Generous Terms

Because REAP Loans are backed by the federal government, lenders are able to provide more flexible terms, lower fees, and longer amortization periods (the amount of time you have to pay off the loan). Individual interest rates will depend on many factors, but REAP loans typically offer lower interest rates than traditional loans.

4. REAP Loans Can Help Improve Long-Term Viability

Energy prices are predicted to remain high for years to come. And while rising costs can eat into profits, they also can rob businesses of funds needed to make strategic investments and remain competitive. Agricultural businesses in particular will likely need to use more energy, not less, to avoid losses. Therefore, an investment that will reduce your energy costs in the long run could be key to helping your business remain agile and viable in the future.

Some Lenders Make the REAP Loan Process Easier Than Others Do

Many loans backed by the federal government, including SBA Loans, have earned a reputation for being time-consuming and tedious. However, the lender you choose can make a surprising difference in your timeline and overall experience. If your lender is well-versed in the USDA’s processes and understands how to best work with USDA state offices throughout the United States, they can streamline the entire application and approval process.

As a USDA Multi-State Lender, Stearns Bank has direct contacts at the federal agency, making it much easier for their lending team to process loan applications efficiently and avoid unnecessary delays. The expert lending team will manage your loan personally and will work diligently to reduce frustration and keep the entire funding process moving smoothly.

What You Should Expect During the Application and Approval Process

For your USDA REAP loan to be approved, you will need to gather various documentation to confirm your eligibility and prove that the loan will not present a significant risk to your business or the lender.

Your lender will then evaluate your personal and business credit and take note of any areas of financial risk that will need to be addressed. In this evaluation, they will primarily consider what are frequently called the five Cs of credit: character, capacity, capital, collateral, and conditions. The character category refers mainly to your track record of managing credit and your experience owning and managing your business. 

How to Get Started

While REAP loans offer tremendous advantages for eligible businesses, it’s important to understand that a wide variety of lending options are available for rural small businesses and agricultural producers. If you’re not eligible for a REAP loan, your business may be eligible for a different loan that offers similar advantages.

However, you don’t have to become an expert on which loan programs would be most beneficial for your business and its goals. The easiest way to get started is to find a lender that’s highly experienced in rural small businesses and agriculture and is already familiar with the government-backed loan programs available.

Stearns Bank has a dedicated USDA lending team that specializes in getting the job done. Plus, they already know the ins and outs of federal programs like the Rural Energy for America Program, so you don’t have to. Getting your REAP loan started can be as easy as connecting with the Stearns Bank USDA lending team; they’ll answer any questions you might have and help you discover if a REAP loan is the best option for your business.

Contact a USDA Loan Expert