While fewer in number than the more than 100,000 Recovery contracts and grants, the nearly 1,900 Recovery loan awards play a key role in some agencies’ Recovery programs. In particular, loans are central to Recovery initiatives at the Department of Agriculture, Department of Energy, Department of Housing and Urban Development, and the Small Business Administration.
The federal government has long offered guaranteed and direct loans to individuals and businesses. Under the Recovery Act, agencies received additional funding to make federal guaranteed and direct lending more robust during the economic recession.
The total number and value of Recovery loans to date: 1,879 for $15 billion; the majority are for direct loans.
Guaranteed Loans
If borrowers can’t qualify for standard bank loans, they can apply for federally guaranteed loans. The government normally agrees to guarantee 80 percent of such a loan, the bank assuming 20 percent risk. But in some cases the government will guarantee as much as 100 percent.
Borrowers apply through a bank that has been approved by federal agencies to handle guaranteed loans; the bank in turn works directly with the relevant agency – say, the Department of Agriculture to manage a loan to buy farming equipment.
If the agency deems the applicant eligible, the agency then essentially co-signs the loan. Should the borrower default, the agency covers the previously agreed-upon amount of the outstanding balance.
Direct Loans
Almost all direct loans are student loans paid by the Department of Education to a particular educational institution for tuition and related costs. But other federal agencies, such as the Department of Energy, have also awarded Recovery funded direct loans to businesses and organizations. Recipients of direct loans are required to repay their loans with interest.
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