USDA Creating Program to Encourage Rural Venture Capital

A demonstration program using federal loan guarantees to attract venture capital funds to rural areas is being created by the Rural Business-Cooperative Service (RBS) of the U.S. Department of Agriculture (USDA). RBS is seeking public comment on the program by May 9.

The Federal Agriculture Improvement and Reform Act of 1996 calls for the Secretary of Agriculture to designate up to 60 community development venture organizations over six years to demonstrate the utility of guarantees in attracting increased private investment in rural companies. The organizations must establish a rural business private investment pool to make equity investment in rural companies. USDA will guarantee up to 30 percent of the total funds in the pool against loss.

USDA will issue up to $90 million in guarantees over a six year period. The term of a guarantee is not to exceed 10 years.

USDA will conduct a competition for the designation and establishment of pools. Preliminary plans are to give priority to organizations that:

• have a demonstrated record of performance or have a board and executive director with experience in venture capital, small business equity investment, or community development finance;
• propose to serve low-income communities;
• propose to maintain an average investment of not more than $500,000;
• will invest funds statewide or in a multicounty region; and,
• propose to target job opportunities resulting from the investments primarily to economically disadvantaged individuals.

Additionally, to be eligible to participate in the program, organizations will have to submit a plan that describes:

• potential sources and uses of the pool to be established by the organization;
• the utility of the guarantee authority in attracting capital for the pool; and,
• mechanisms for notifying state, local and private nonprofit business development organizations and businesses of the pool.

Comments are being sought on a variety of points, including the choice and relative importance of selection criteria, the structure of the guarantee, and rights and restrictions of investors in the pools.

A copy of the Federal Register notice describing the proposed program and the request for comments can be obtained by calling SSTI at 614/421-SSTI (7784).