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Farm Bill Provides Opportunity To Refinance Indebted Rural Hospitals

Tuesday, January 29, 2019
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President Trump signed the Farm Bill into law on December 20, 2018. In addition to providing substantial aid to U.S. farmers, a key provision of this legislation allows rural hospitals to refinance substantial debt through lower-interest loans from USDA Rural Development.

As written in the legislation, the Bill authorizes assistance for a community facility under section 306(a) for a business, non-profit or any other entity under section 310(b) to include the refinancing of a debt obligation of a rural hospital as an eligible loan or loan guarantee if the assistance would help preserve service in a rural community and meaningfully improve the financial position of the hospital. Hospitals seeking refinancing have to meet USDA’s financial feasibility and adequacy of security requirements. In other words, the project must be sustainable.

USDA defines financial feasibility and sustainability as:

An eligible project must a positive ending cash balance as reflected on the cash flow statement for each year of the forecast period and demonstrate positive cash flow from operations in year five of the forecast period.

Eligible projects must meet at least two of the three financial indicators by year five of the forecast period:

  • Times Interest Earned ratio of 1.26

  • Debt Service Coverage ratio of 1.20

  • Current ratio of 1.20

Current interest rates for the 1st quarter of Fiscal Year 2019 range from 4 – 4.5%.

This is a great opportunity for rural hospitals to evaluate their operational effectiveness and determine whether this funding opportunity may lead to or improve financial sustainability.

For more information, please contact:

Richard T. (Terry) Lang, CPA, FHFMA

315.446.3600 / tlang@fcc-cpa.com

Senior Manager

 

 

To locate your nearest USDA Rural Development office, please visit https://www.rd.usda.gov/.