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December 22, 2021   /   West Town Bank & Trust

What Is A USDA REAP Loan?

The USDA REAP program is an excellent resource for businesses that need funding to improve or jumpstart their energy related project. REAP stands for the Rural Energy for America Program, and helps support financing needs for the purposes of purchasing or constructing renewable energy systems or making energy efficiency upgrades to a business’ operations.

Starting a renewable energy plant or investing in other energy-efficient technologies can be very capital intensive, creating a hurdle for small businesses to enter the space. USDA REAP loans offer businesses flexible terms, longer amortization, and other unique benefits that many companies cannot find in a conventional loan. These loans can help eligible small businesses grow and succeed, and the flexibility surrounding loan amounts and terms makes them more accessible.  

Not all businesses are the right fit for a USDA REAP loan. The program has strict eligibility requirements that applicants should be aware of during the initial search for financing. Let’s take a look at USDA REAP eligibility and how to get started with the application process.

What Are The Eligibility Criteria For A USDA REAP Loan?

When determining if your business is eligible for a USDA REAP loan, there are three categories of eligibility that must be considered. These categories are the type of business, the type of project the funds will be used for and, lastly, how those funds will be used to benefit the business or project. To be eligible for a REAP loan, a business must be eligible in all three categories.

1. Eligible Business Types

Agricultural Producers

The first type of eligible business is an agricultural producer. To be defined as an agricultural producer, a business must have 50% or more of its gross income be attributed directly to agricultural operations for the 5 most recent years. If the business hasn’t been in operation for more than 5 years, then the gross income breakdown for the entire lifetime of the business will be considered. A business that is defined as an agricultural producer can be located anywhere in the United States.  

Rural Small Businesses

The second type of eligible business is defined as a “rural small business”. Therefore, to meet the criteria, the business must be located in a rural region and considered a small business by the USDA.

First, let’s discuss how “rural” is defined by the USDA. To fit this criteria, the project that you are using the funds for must be located in a rural region. This is typically a town or rural area with less than 50,000 people. To be sure your business’ project fits the “rural” criteria, the USDA offers an online tool to check rural eligibility. The business itself can be located anywhere in the United States, but the project that the funds will be used for must be located in a rural location, as defined by the USDA.

Next, the business itself must meet the criteria of being a “small business”. The USDA uses the Small Business Administration’s (SBA) Small Business Size Standards to determine this eligibility. The SBA offers an online tool where you can check to see if you meet their Small Business Size Standards. Click here to access the SBA’s “Size Standards Tool”.

2. Eligible Project Types

Once it is determined that your type of business is eligible to receive a REAP loan, you must also determine if the project you are going to use the funds for is REAP eligible as well. Below are the two types of projects that fit into REAP eligibility:

The first type of eligible project is a renewable energy system. This can be the purchasing, construction, or installation of a renewable energy system. The USDA defines a renewable energy system as a system that provides energy from any of the following renewable resources:

  • Solar
  • Wind
  • Renewable Biomass
  • Ocean
  • Geothermal
  • Small hydro-electric

The second type of project is an effort to improve the energy efficiency of a business’ facility or building. This could include things such as insulation improvements, lighting, doors, windows, or the replacement of energy-inefficient equipment.

3. Eligible Use of Proceeds

The third piece of eligibility criteria is to determine how the proceeds of the loan will be used. Below we detail eligible ways to use of proceeds under the REAP guidelines:

  • Purchase or installation of a new or refurbished renewable energy system
  • Energy efficiency improvements that have been identified in an energy assessment or audit
  • Professional service fees for consultants, contractors or other third parties related to the project
  • Land acquisition related to the project
  • Working capital to assist with the completion of the project
  • Energy audit and assessments

It is always recommended that you speak with a lender experienced in USDA REAP lending, as they will be able to identify whether or not your plans on how to use the loan funds will qualify under the REAP guidelines.

If you’re an eligible business, a USDA REAP loan can give you the capital you need to start your renewable energy project or make improvements to your business equipment. Working with a lender experienced in USDA REAP lending, like West Town Bank & Trust, can simplify the application process and help you get the funds that you need to move forward. If you are interested in getting a REAP loan for your energy project, use the contact form below to speak to an expert who can help guide you through the process.

About West Town Bank & Trust

During each of the previous three fiscal years, West Town Bank & Trust has ranked as a top 5 USDA B&I and REAP lender in the country by total dollar volume, authorizing nearly $400 million in financing collectively during this period. Click the link below to learn more or get started with your USDA REAP financing.