In Short: REAP (Rural Energy for America Program) loans can significantly enhance a business’s energy efficiency efforts. These loans, provided by the U.S. Department of Agriculture (USDA), offer financial assistance to rural small businesses and agricultural producers for installing renewable energy systems and making energy efficiency improvements.
In Detail : The far-reaching impact of climate change is well covered. This summer, we saw smoke from wildfires in Canada—caused by ongoing droughts combined with hot temperatures, among other things—result in poor air quality and public health alerts from New York to Minnesota. Beverage companies are warning that water scarcity from climate change could threaten alcohol production. And the change in climate is even making airplane turbulence worse, according to recent reports.
To fight climate change and attempt to meet stakeholder expectations, many large global companies have been making net-zero emissions pledges to eliminate or offset emissions from greenhouse gases, such as carbon dioxide and methane, by a specified future date.
Many smaller businesses around the U.S. are recognizing the sustainability imperative and that they, too, may be asked to reduce and/or report their emissions reduction efforts. A key step along the way is to increase energy efficiency, which, of course, is no mean feat for any organization—and can be expensive to achieve.
The Rural Energy For America Program
It’s worthwhile for businesses to see if there are any federal programs that can help them finance energy-efficiency improvements in a cost-effective way. One place to turn is the U.S. Department of Agriculture, which offers the Rural Energy for America Program. It provides grants and government-guaranteed loans for businesses to reduce their usage of energy or to develop renewable energy.
One of the program’s goals is to increase U.S. energy independence. When people think of energy independence, they often think of renewable energy, such as solar and wind turbines. But it’s more than that: It also includes decreasing the demand for energy through efficiency improvements.
In my experience working with REAP loans, which can be up to $25 million and are 80% guaranteed by the USDA, they almost always offer more favorable and flexible terms than traditional loans. But business owners will need to balance that upside against the process and timeline, which is generally noticeably longer than financing through a traditional bank.
What Can REAP Financing Be Used For?
Broadly speaking, businesses can use the financing to purchase, install and construct a variety of energy-efficiency improvements, such as new windows and doors, refrigeration, roofing, lighting, insulation and high-efficiency HVAC systems, among many others.
A local grocery store, for example, could update their old freezers to reduce electricity usage. A body shop with a paint booth could build a heat recapture system to help heat the rest of the facility. A plant nursery could install new high-efficiency lighting and grow light systems. An agricultural producer could purchase new energy-efficient equipment or update its production and processing systems.
Outside of energy efficiency improvements, REAP loans can be used to buy and install renewable energy systems, such as hydrogen, wind generation, solar generation, geothermal and biomass, such as anaerobic digestors and biodiesel.
Potential borrowers might consider making a combined grant and guaranteed loan request. While all projects are eligible for a federal grant share of up to 25%, some applicants are eligible for a federal grant share of up to 50%. For energy-efficiency improvements, the most grant funding a borrower can request is $500,000, and for renewable energy systems, the maximum grant request is $1 million. If applying for a grant only, borrowers do, however, need to provide matching funds.
Checking Eligibility
As with any commercial loan, there are requirements both for borrowers and for lenders. Outside of the rural community requirement, others include energy audits and assessments, environmental reviews and full credit evaluations. Business owners who are interested in pursuing a REAP loan can start by checking in with their local USDA Rural Development office to see if they are eligible.
Of course, cutting down on energy use isn’t just good for the planet; it’s also good for a business’s bottom line. That local grocery store owner will see lower electricity bills once their new energy-efficient freezer is installed!