1. Economic Development Finance Service August 24, 2011

2. USDA REDL&G Program USDA Rural Economic Development Loan and Grant Program –REDL – Loan Program (1989) –REDG – Grant Program (1994) –Both are nationally competitive programs REDG program is the basis for REED Fund

3. Definitions RUS Eligible Borrower is applicant — “Intermediary” Project — “Ultimate Recipient of Funds” at 0% interest REDL— “Rural Economic Development Loan” a/k/a “Pass Through Loan” REDG— “Rural Economic Development Grant” for loan fund  Grant is to Intermediary (Applicant Co-op)  0% Loan to Initial Project (Ultimate Recipient) Eligible Location –Rural Areas with populations < 50,000 –Priority for areas of under 2,500 and under 1,250

4. USDA Rural Economic Development Loan (REDL) –RUS Borrower’s Assets Guarantee the Loan –Impacts to their Balance Sheet

5. REDL&G Loan Terms Maximum $740,000 or up to 80% of Project, whichever is less (less than 50% is better for scoring purposes) 0% Interest Loan Up to 10 Year Term Up to 2 year deferment until payments start Monthly payments match Co-op’s repayment to USDA ** Intermediary Guarantees Loan ** ** Adequate Security a Must **

6. Rural Economic Development Grant (REDG) for Revolving Loan Fund 1. USDA RD grants $300,000 (max) to Intermediary (Co-op) 3. Intermediary Administers RLF of $360,000 1 st loan at 0% Intermediary 2. Intermediary match is 20% $60,000 (max) 4. Funds revolve for lending at interest

7. USDA Grant for RLF -- “Initial Loan” Terms Application is submitted on behalf of one or more projects Initial Loan must be to a Non-Profit Entity or Public Body Project receives up to $300,0000 in a 0% interest loan Up to a 10 year yerm Up to 2 year deferment until payments start Application can be up to 80% of project costs (less is better) Revolved funds are re-loaned at interest not to exceed ‘prime’

8. USDA Grant for RLF -- RLF Operation Basics Risk / Exposure  Adequate security needed--RLF is taking risk  Each revolved loan considered 17% Intermediary funds  Losses do no have to be replenished  Allowance for loan losses protects fund from losses  Future interest earnings build RLF Compliance  Must Collect Annually  Financial Statements from Borrower  Job Count  Submit Annual Report to USDA  Expected to be web-based in future  Annual Loan Fund Budget (if applicable)

9. REDL&G Applications Submitting a REDL&G application is a cooperative board decision Recipients cannot be limited to customers only RLFs can use third party administration

10. RLF Administration— Responsibilities & Limitations Conflict of Interest, cannot lend to: –Cooperative, it’s Subsidiaries or Affiliates –Board Member or relative –Key Management Staff or relative May lend to non-profit entities when board or key staff serve on the board Cannot limit lending only to Customers –Or use that as a reason to say no

11. RLF Administration— Interest & Administrative Fees Interest on “Subsequent Loans” –Allowed to Charge from 0% to WSJ Prime Rate –Administrative fee may also be charged –Interest paid to RLF increases fund, may not be withdrawn by cooperative –Interest may be used for loan making expenses per an annual budget (i.e. loan loss reserve) 1% Annual Administrative Fee –To cover Intermediary operational expenses Can be charged on initial 0% Loan and subsequent loans Can be used to offset cost of staff time

12. USDA REDG Program Eligible vs. Competitive Projects Eligible Non-Profit Expansions and Start-ups Medical, Safety and Training Facilities Community Development Projects Business Incubator Projects More Competitive Medical Facilities Hospital Renovation New Medical Clinics Educational Facilities Computer / Technology Key Component: –Direct Job Creation –“High Tech” training and/or equipment –Technology Plan

13. REDL&G Scoring Criteria —Summary of Key Factors Support the program –Participate in Cushion of Credit Type of Project –Business Expansion with good job training / new technology (pass through loan) –Medical Facility (grant or loan if job creation) –Educational Facility (grant or loan if job creation) –Job Creation/Retention (higher priority for loan)

14. REDL&G Scoring Criteria —Summary of Key Factors Project Located in Rural Area –Communities of under 2,500 Complete Business Plan & Financials – From the project, plus your analysis Demographic Trends –Population Loss –Higher Unemployment Rate than state or nation –Per Capita Income Levels documented

15. Pre-REED 1990-1994 12 - REDL pass through 0%Loans -- $2,005,000 (9 RUS Borrowers) 5 – REDL applications (1993-1994) stalled in the funding queue- $1.35 million USDA issues rules on REDG (Grant Program) –Grant were to create a ‘revolving loan fund’ –REED concept defined and applications modified to seek grant funds Shift from USDA pass-through 0% loans to cooperatively-controlled loan fund

16. REED Today Twenty one cooperatives and East River 43 USDA Grants, $8,924,000 loaned to 48 projects at 0% and retained in REED $38 million loaned to 173 projects directly through REED $19 million outstanding in loans to 100 projects, $5.7 million committed 11 sources of Capital, $30 million 24 pass thru USDA 0% loans, $7.9 million (additional impact)

17. Capital Resources USDA Rural Economic Development Grants (REDG) USDA Intermediary Relending Program (IRP) Community Development Financial Institutions Fund (CDFI) Communities at Work Fund (CAW) Calvert Foundation Commercial Banks National Rural Utilities Cooperative Finance Corp (CFC) Basin Electric Power Cooperative South Dakota Rural Enterprise (SDREI) Member Cooperative Investment Increase in Net Assets

18. Loan Capital

19. Impact – 2010 Over 6,200 jobs retained and created $357 million total project investment 87% of loans in communities of less than 4,000 people 95% local ownership $47.5 million in 213 loans $19 million outstanding, 100 loans

20. Portfolio Facts REED Loans Assisted: Loans to Cooperative members -- 90 loans (42%)

21. Case Study—REDL & REDG Recapitalize Revolving Loan Fund –$740,000 REDL –Plus $300,000 REDG (and 20% match) –Loan Fund receives 2-zero interest loans and relends the funds at interest to local economic development projects –Must adhere to REDL&G regulations –$300,000 plus the 20% match becomes the applicant’s fund as repaid

22. City of Bowdle Health Care –$400,000 0% loan, $1.8 million total cost –Connect hospital to nursing care, add wellness center, medical records, city offices –72 jobs impacted –community of 500 Case Study — Health Care

23. City of DeSmet –$300,000 0% loan, $150,000 3% REED loan –$1.5 million total cost –Replace infrastructure and re-surface –81 jobs impacted, including school and hospital –Population 1,200 Case Study—REDG for Infrastructure

24. Rosholt School District 1 –$200,000 0% loan (2003) –$400,000 total cost –Media Center, library and 6-classroom addn. Rosholt School District 2 –$300,000 0% loan (2008) –$2.4 million total cost –Administration –Gym/wellness, music 190 students, 33 FTE jobs Population 400 Case Study- Multiple Awards

25. Dakota Provisions –$2 million REED loan to $50 million plant –$450,000 0% loan for equipment –823 jobs and counting –Producer owned, state of the art start-up processing facility –Expansion in planning stage Case Study- Revolved Funds & REDL

26. Plagman’s Grocery –$428,000 REED loan and Bank loan –$952,000 project cost –Retail grocery facility moved to highway location –Population 1,100 –10 jobs Case Study—Revolved Funds

27. Hometown Variety –$23,000 REED loan, –$88,000 project –1 FTE Job –Local retail store closed –Chamber purchased building for lease to community store, population 1,200 Case Study—Revolved Funds

28. Thank You Contact Information Linda Salmonson 605.256.8015 lsalmonson@eastriver.coop