Interim Loan Financing Program

Question:  How Much Will It Cost to Complete Your Next RD Project?
Probably More Than Your Available Capital.

The Minnesota Rural Water Finance Authority Interim Public Projects Construction Finance Program Can Help You Bridge the Gap!

Brochure  |  Finance Application  |  Loan Process  | Borrower Letter  |  Frequently Asked Questions

The Minnesota Rural Water Finance Authority (MRWFA) was created in December of 1999 by the Minnesota Rural Water Association (MRWA). The purpose of the authority is to assist communities in obtaining competitive interim financing for construction projects.

In an effort to assist borrowers across the State of Minnesota with the overwhelming burden of financing capital construction projects, the MRWFA in conjunction with Raymond James have created an interim construction loan program to provide funding for communities which have received a permanent loan commitment from the United States Department of Agriculture, Rural Development (RD). The program is structured to provide a mechanism for obtaining competitive fixed rate loans for construction projects at a very low cost of borrowing.

The program is designed as a tax-exempt pooled financing and will have a loan term within the program sufficient to complete each project . The MRWFA will be the program administrator. Information regarding the program can be obtained through the MRWFA.

The stated or nominal loan rate is fixed at the market level. Loan funds are disbursed on an invoice requisition basis. The effective rate of borrowing is based on the nominal loan rate less an interest earnings credit on undisbursed construction proceeds. The effective rate of funds is estimated at approximately 2% – 3.5% depending on the actual timing of disbursements.

The final loan rate will be based on the residual earnings of the program. Depending on the success of the program, the potential for a final rebate does exist but is not guaranteed. Should excess funds exist after the closing of the program, a final rebate will be made to program participants. Any potential rebate will lower the effective cost of funds to the borrower.

Loan Process

Pre Application Phase:
Obtain Commitment from RD for permanent bond financing.

Application Phase:
Obtain application from MRWFA, complete and return with RD Letter of Conditions

Loan Approval Phase:
MRWFA will approve loans contingent upon execution of final loan agreement.

Loan Agreement Phase:
Complete and return loan agreement (your bond counsel will assist).

Disbursement Phase:
Request funds from Trustee Bank.

Loan Payoff Phase:
Once project is complete, payoff will be made to MRWFA by the borrower with RD Bond funds.

Loan Terms

Initial Rate of Borrowing: “set at market level”

Estimated Rate of Borrowing After Investment Earnings Credit and Final Rebate: 1.00% – 3.00%

Loan Origination:
Loans will be approved on a case-by-case basis and will depend upon available funds.

Capitalized Interest:
All interest is capitalized per RD budget.

Your loan is repaid when your project is complete and final closing for the long term financing from RD is approved by RD.

Borrower Letter

Dear Prospective Borrower:

I would like to take this opportunity to introduce you to the Minnesota Rural Water Finance Authority (MRWFA). The Minnesota Rural Water Finance Authority was formed to assist communities in obtaining competitive interim financing for construction projects. The program is designed to provide funding for communities that have received a permanent loan commitment from the United States Department of Agriculture, Rural Development (RD). We hope you will consider the Minnesota Rural Water Finance Authority for your interim borrowing needs.

The following points describe the financing steps.

Step 1:

Prospective borrower obtains Letter of Conditions.

Step 2:

Borrower completes application and returns it with the RD Letter of Conditions to the Minnesota Rural Water Finance Authority (the “MRWFA”).

Step 3:

The MRWFA approves application within one week. Final approval is contingent upon execution of loan agreement. The Advance Agreement, which will be prepared by Bond Counsel, consists of the following:

– Advance Agreement
– Resolution Approving Advance Agreement
– Application for Interim Financing
– Opinion of Counsel
– Request for Payment Form
– Opinion of Board Counsel
– Revenue Bond Anticipation Note
– RD Commitment Letter

Step 4:

RD conducts Pre-closing with local Bond Counsel (generally, most of the loan documents are finalized at pre-closing). The completed loan package is mailed to the MRWFA for final approval and then forwarded to the Trustee Bank. Construction disbursements may commence once the Trustee receives a complete set of documents.

Step 5:

Borrower requests funds via fax from Trustee Bank. RD, Engineer, and Borrower sign off on request. No invoices are required. Interest on the entire loan is capitalized at the loan rate and is held in escrow. All other funds are used for construction purposes. The borrower receives an interest earnings credit on construction proceeds until funds are actually disbursed.

Step 6:

Upon project completion, payoff is made to the Trustee Bank with RD bond funds. Morgan Keegan coordinates loan payoff with RD, the MRWFA and Borrower. The payoff equals construction draws plus capitalized interest less interest earnings credit. A final rebate is made when the pool Notes are paid off.

Step 7:

Once the Note issue has matured and program expenses paid, remaining funds will be disbursed on a pro-rated basis to program participants.

To start this process, just fill out the enclosed application form and return to the Minnesota Rural Water Association. We will then take care of contacting your Bond Counsel and getting the next step started. If we can answer any questions, please contact us at 800-367-6792.


Lori Blair – Minnesota Rural Water Finance Authority

Frequently Asked Questions:

Is there an application form to be completed and a waiting period for approval and funding of the loan?
There is a simple two-page application that requests simple information of names and addresses for your political subdivision, the project engineer, the Rural Development (RD) district loan officer, bond counsel, and your bank where the loan funds are to be wired. The application also asks for a short description of the project, the amount of the loan and an estimated start and completion date for the project construction. To the application you will attach the Letter of Conditions received from RD. This completes the application for mailing to the Minnesota Rural Water Finance Authority (MRWFA). It will be approved upon receipt by MRWFA and a letter of loan approval generally mailed within 3 days of receipt of the completed application.

Is there a standard loan agreement for the Program?
There is a standard loan document called the Advance Agreement. This document, with all attached exhibits for completion of the loan, will be sent electronically or by mail to the bond counsel named on your application. Your attorney for your specific loan will revise it. When completed with all signatures you can forward the document to MRWFA or the Program Attorney for review and submission to the Program’s Trustee Bank.

Is there a maturity date on the borrowing?
There is a maturity date on the Advance Agreement that is 45 days before the maturity date of the Program’s Notes to fund each annual pool. If your project is not complete by the stated maturity, your loan will be rolled over into the next year’s pool for continued funding. The program will advise you of the need to rollover your loan and contact your bond counsel to arrange for a new signed Advance Agreement.

Are there additional fees to apply or receive a loan through the Program?
There are no additional fees. The stated interest rate on the loan is the only cost charged by the Program. Each borrower is responsible for paying the fees charged by their own bond counsel to complete the loan. If your loan is rolled over to a subsequent year’s pool, any legal fees for completing new documents will be paid by the Program.

Where does the money come from for the loans?
The Minnesota Rural Water Finance Authority, a political subdivision in Minnesota formed in 2000, borrows the money for the pool by the sale of their tax-exempt Public Project Construction Notes. Each series of Notes matures in 12 months. The Authority issues a new series of Notes whenever needed to keep the pool continuously funded at the levels required to make all the existing loans, the applications approved for funding, and the new loans likely to be approved over the next 12 months.

How is the interest rate on the loan determined?
The Advance Agreement has a stated interest rate, which is the Program cost of money. This rate of interest is charged on each dollar drawn by a borrower to pay a project bill. Interest is charged only for those dollars drawn from the Trustee Bank. The remaining dollars for an individual borrower’s loan remain invested at the investment rate of the Program. The rate of investment is higher than the interest rate charged. All investment earnings accrue to the benefit of the borrower and go to reduce the amount of interest due and owing when the interim Advance Agreement is repaid at the completion of the project. In addition, each borrower from the Program receives a rebate of interest paid on a completed project from pool investment earnings at regular intervals. The rebate is paid upon the maturity of each series of MRWFA Public Projects Construction Notes to the borrowers from that series of Notes during the previous 18 months.

Are the investment earnings or the rebate returned to RD?
No, the interest earnings and rebate are considered part of the overall funding for the project. Project funds can be used for eligible construction costs, administration, engineering, legal and interest on the first RD payment. The rebate, when received, can be used to pay project costs including the interest on your first RD payment. The rebate is money to the borrower. When the rebate is used to repay RD it means that other dollars that would otherwise go to debt repayment are available for other needs of the project and the borrowing political subdivision.

Who do we contact to answer questions about the Program?
Contact Lori Blair at the Minnesota Rural Water Association, 800-367-6792 for applications and general questions on the Program. When your application is approved and loan documents submitted you will be advised on how to contact the Program’s Trustee Bank. If you want someone to attend a meeting of your governing board to describe the Program and answer questions, please contact Lori Blair. Additionally, we will prepare loan and repayment scenarios for your project for the draw of funds and repayment for any length of time. If your project is going to take 2 months or 30 months, we can prepare debt/draw schedules to answer your questions.

How do we draw funds to pay a project bill?
The form and procedure to draw funds are in the exhibits attached to the Advance Agreement. The completed form is easy to complete and fax to the Trustee Bank. The Trustee Bank reviews the form and generally wires the funds to your designated bank account within 1 business day.

Is there a loan limit for the MRWFA Program?
The only limit is the amount of loan dollars approved by Rural Development in its Letter of Conditions. A borrower can borrow up to that amount in one loan or in a series of loans. If there are multiple Letters of Conditions for a borrower the total of all can be borrowed in one Advance Agreement or in more than one. This is generally the case if RD, with subsequent Letters of Conditions, approves a project in phases over time. The Program can be flexible to meet the needs of the way the project is completed.

How is the loan to the MRWFA Program Repaid?
When your project is certified by RD and they are ready to close your long-term loan with them, you contact the Program. We will verify the amount of the repayment to the Trustee Bank and coordinate with you, your bond counsel and RD for the repayment of the MRWFA Program loan with the proceeds of your long-term RD loan.