Comment on FR Doc # 2010-11931

July 26, 2010 TO: Branch Chief, Regulations and Paperwork Management Branch, USDA FR: Dr. Mark A. Edelman, Professor of Economics and Community Vitality Center Director, Iowa State University 515-294-6144 RE: Comments on USDA Rural Microentrepreneur Assistance Program Rules I am providing two comments regarding the RMAP rules on behalf of the Community Vitality Center (CVC: which has a statewide board of 27 rural leaders representing diverse community interests) and the Iowa Foundation for MicroEnterprise and Community Vitality(IFMCV: which has a board of 22 leaders representing finance and entrepreneurial technical assistance networks). IFMCV has been an SBA Microloan intermediary for the past 2.5 years. 1. We strongly recommend that USDA consider allowing RMAP intermediaries to use best practices in co-financing opportunities with local conventional lenders by allowing subordination of position on collateral for up to 1/3 of the combined loan request in a co-financing package. The availability of this type of tool would limit risk for each project to no more than 1/3 of the package and could potentially be marketed to donors as a way to spread scarce microloan capital across a larger number of businesses by leverage private sector capital. We are currently allowed to make such co-financing arrangements under the SBA Microloan program. The objective our Iowa’s Microloan Program is to graduate clients back to conventional lenders with a more solid financial foundation. The proposed strategy would aid in building relationships between nonprofit lenders and conventional lenders to encourage transition of microloan clients back to conventional lending as their financial positions and credit improves. The Community Vitality Center conducted a survey of Iowa Bankers and interviews with entrepreneurial training networks in 2007 that indicated that local lenders were not willing to fill out the paperwork for agency loan guarantees for projects requesting debt less than $50,000 to $75,000. Thus, there is a gap in availability of loan guarantees for the microloan segment that could judiciously be filled with a similar tool that is currently available to larger small businesses. Specifically, our recommendation would allow RMAP microlenders to use up to 1/3 or $50,000 in co-financing projects with a subordinated collateral position, if the local lender brings 2/3s or $100,000 in loan capital for a project with a combined $150,000 maximum loan request. The intermediary would need to use this tool in all cases, and a conservative approach could be recommended as a starting point as it may prudent to restrict the RMAP subordinated debt to 1/ 4 or 1/10 of the total combined debt for some projects and none for others. A more flexible approach would allow the microlenders to collaborate with the conventional lenders to become a little more flexible in working with their business clients and moving through the recession to recovery. 2. The original rules focused on targeting some assistance to rural counties with population decline. The interim rules replaced the population decline criteria with a low income criteria. The Community Vitality Center has done research that suggests there are many reasons for certain populations in rural communities to be underserved. Population decline is one reason for a community to be underserved. Chronic low income is another. Loss of a major employer or natural disasters such as floods and tornados may instantaneously transform a normal rural community that may be adequately served by private conventional lenders to one that is grossly underserved for a transition to a new or rebuilt economy before people leave town. We would argue that too much attention on one cause undervalues the other causes of rural communities being underserved and that a broader approach should be used in the criteria if targeting is to be used. We would also argue that perhaps the “enhancement grants” should be targeted for use in addressing the wider range of underserved populations with special projects that would provide extra technical assistance targeted to build local network capacity in underserved counties.