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Capital Funding for Rural Healthcare

Capital funding sources allow for investment in healthcare infrastructure, including the construction, renovation, or expansion of rural healthcare facilities. Capital investments can also be made through the purchase and installation of major equipment and technology. Some capital funding sources also look at operational needs to ensure that a facility has the operational funding it needs to increase efficiency and quality of care. Finding funding for capital projects is a major concern for many rural healthcare facilities.

The ability of a healthcare facility to meet the needs of a rural patient population is directly related to the efficiency, size, and quality of the facility and its equipment. According to the 2008 Rural Hospital and Renovation Expansion Study, updated facilities and equipment impact the ability of a rural community to recruit and retain health professionals, improve patient safety, expand services, and increase satisfaction rates. All of these factors play a role in the overall operational cost, making capital investments an important part of financial viability.

Needs for healthcare capital are many in rural communities. As mentioned in Critical Access Hospital Replacement Process: The Manual, many small rural hospitals were built in the Hill-Burton era of the 1940s and 1950s. Faced with aging infrastructure, hospital leaders must consider and undertake major capital projects such as renovation or replacement of the facility. In addition to bricks and mortar, capital projects may include patient redesign, which includes facility design elements and equipment needed to manage patient flow and reduce patient stress. In recent years, another pressing capital funding need has been the purchase and installation of electronic health records and telehealth systems, which can add significant hardware, software, implementation, and data compilation costs.

Successfully funding a capital project can require blending multiple sources and types of funding, including public grants and low-interest loan programs, as well as private sources such as foundations and local donors. Blending funding sources can be especially effective for larger projects, such as hospital building and major renovations.

While there is a lot of complexity and many steps to acquire capital for a facilities project, it is critically important to start with an understanding of how the proposed project is connected to the changing healthcare needs of the community and the industry trends of population health. In addition to this kind of strategic planning, successful organizations plan up front on their debt capacity and operational needs. If needed, hiring a consultant or financial advisor early in the process can ensure that projects are in fact feasible and planning dollars are spent wisely.

This guide brings together resources for running successful capital campaigns and provides information on current capital funding needs of rural hospitals, clinics, and other providers of healthcare services. This guide also lists federal, state, foundation, and community development finance funders that are interested in supporting capital projects.

Frequently Asked Questions

What are the major federal grant programs that support capital projects for rural healthcare facilities?

When healthcare facilities undertake a capital project that will require significant fundraising, grant programs can play an important part in achieving a monetary goal. While healthcare facilities are eligible for many grant programs, the majority of grants available are for programmatic costs and do not allow for purchases of major equipment, construction, renovation, or expansion. It is important to look for programs that specifically state that they will fund capital projects.

Here is a list of federal agencies that fund capital projects for rural healthcare facilities. Please note that the application cycles for these programs may or may not be open at this time.

Federal Agencies that Fund Capital Projects for Rural Healthcare Facilities
Program Name Eligible Organizations Maximum Amount Funding Uses
Administration for Children and Families (ACF)
Community Economic Development Projects Nonprofit Community Development Corporations with or without a 501(c)(3) status. (May require a change or addition to the company's charter with regard to economic development) $800,000 Expansion, construction
In many cases, this funding is tied to the number of jobs created.
Economic Development Administration (EDA)
Economic Development Assistance Programs District organizations; Indian tribes; states, cities, or subdivisions of states; institutions of higher education; nonprofit organizations $3,000,000 Infrastructure, including water, wastewater, telecommunications and roads projects which could strengthen healthcare facilities
USDA Rural Development
Community Facilities Direct and Guaranteed Loans and Grant Program Public entities such as municipalities, counties, and special-purpose districts, as well as nonprofit corporations and tribal governments in rural areas with populations of up to 20,000 Grant Maximum: Up to 75% of the project cost
Loan Maximum: Up to 100% of appraised value
Construction, expansion, renovation, or equipment for essential community facilities
Economic Impact Initiative Grants Public bodies, federally-recognized tribes, and nonprofit organizations in eligible rural areas Up to 75% of eligible project costs. Grants typically do not exceed $25,000. Development of essential community facilities in areas of extreme unemployment and severe economic depression
Rural Economic Development Loan and Grant Program Local businesses, including healthcare facilities, can apply through local utilities in towns with a population with less than 50,000 residents. Up to $300,000 for grants and $2,000,000 for loans Construction, equipment

There are many other funders that support capital projects at the state or local level — see RHIhub's Funding and Opportunities by Topic: Capital Funding. RHIhub also offers free customized funding searches — email for assistance.

What types of low-interest loan programs are available to rural healthcare facilities for capital investment projects?

USDA Rural Development tends to be the most available capital resource for rural healthcare facilities. USDA offers programs that provide low-interest loans and grants for capital funding. A brief description of those programs is below. Contact your local USDA Rural Development state office or a USDA guaranteed lender to discuss which loan product is the best fit for the project. In many cases, the funding will include a combination of grant and loan products.

USDA published a Community Facilities Infrastructure Toolkit that may be used to guide rural healthcare facilities step-by-step through the development process from concept to conclusion. USDA has also created a Guidance Book for applicants of the Community Facilities Direct Loan Program.

There may be other types of low-interest loan repayments offered at your state or local level — see RHIhub's Funding and Opportunities by Topic: Capital Funding. RHIhub also offers free customized funding searches — email for assistance.

What is a loan guarantee and how can it help fund a capital project in a rural hospital or clinic?

A loan guarantee, or mortgage insurance, provides reassurance to a lending institution that if the borrower defaults, a third party (usually a government agency) will agree to pay some or all of the debt owed.

Rural healthcare organizations are more prone to face financial hardships than their urban counterparts, and are therefore generally considered higher risks to lenders. Loan guarantees essentially boost the credit rating of a healthcare facility borrower because they provide security to the lending institution. Many federal and state agencies will provide loan guarantees, enabling healthcare organizations to have access to needed capital.

Federal programs that provide loan guarantees for rural healthcare facilities include:

What is an Essential Community Facility and how can it help rural healthcare facilities access capital?

Essential Community Facilities is a term used by USDA Community Facilities programs to describe the types of facilities it will fund. Essential Community Facilities must provide an essential public service to the local community which meets all of the following criteria:

  • Be a service that is typically provided by a local unit of government
  • Be needed for the orderly development of the rural community and considered a public improvement
  • Does not include private, commercial, or business undertakings
  • Must include significant community support

This source of capital can be useful to rural healthcare facilities because USDA considers Essential Community Facilities to include medical clinics, hospitals, assisted living facilities, police stations, fire and rescue stations, community centers, public buildings, transportation, schools, libraries, and childcare centers — facilities that are essential to the quality of life in rural communities.

Which foundations support capital projects for rural healthcare facilities?

Individual foundations have funding priorities which dictate the types of projects that they will consider. Most foundations typically like to be the “last in” on a capital project. That is, foundations will usually want all other funding secured, and then the foundation will come in with the funds to complete the project.

Examples of private foundations that list capital projects for healthcare facilities as a focus area include:

  • Charles A. Frueauff Foundation – This foundation awards grants in 35 states. They will consider applications from hospitals and healthcare agencies for equipment purchases.
  • Gladys Brooks Foundation – This foundation awards grants in 17 states. Capital funding is listed as one of the types of funding applicants may request.
  • Sunderland Foundation – This foundation awards grants in 10 states. They will consider applications from healthcare agencies and hospitals for capital funding purposes.

There are many other foundations that support capital projects at the state or local level — see RHIhub's Funding and Opportunities by Topic: Capital Funding. RHIhub also offers free customized funding searches — email for assistance.

Can for-profit healthcare facilities apply for grant funds, or are only nonprofit organizations eligible?

There are several low-interest loan programs available to for-profit entities but, with very few exceptions, grant funds are only extended to nonprofit healthcare facilities, government entities, or tribal entities. Funders view grants as an investment in social good. Giving grant money to for-profit businesses is unlikely because that would be an investment in one particular individual or set of individuals who stand to monetarily gain from the ultimate success of a venture.

In rare cases, funders may consider a for-profit applicant if it has a strong social mission and is seen as a force for public good. It is important to read through all eligibility requirements prior to applying for funding.

What other avenues of funding are available to finance capital projects for rural medical facilities?

When funding a capital project, it is best to gain local support before approaching federal agencies or national foundations. National funders generally have more competitive processes with longer, more time-intensive applications. Many funders also have a matching funds requirement, which can be met by initiating a local fundraising campaign.

Rural communities have a distinct interest in seeing healthcare facilities remain in their area because of the community and economic benefits they bring. For information on demonstrating the economic impact healthcare facilities have on their rural communities, see RHIhub's Community Vitality and Rural Healthcare guide.

Fact sheets, reports, and toolkits on federal financing resources and capital project planning and financing are available on Capital Link's publications page.

Community fundraising campaigns can be an effective way of raising funds with the proper strategy and a dedicated committee. Approaching organizations and individuals within the community can be helpful to achieving a successful fundraising goal.

Consider involving:

  • Local businesses and business organizations
  • Local locations of larger companies
  • Major employers
  • Schools, school boards, and post-secondary institutions
  • Chambers of commerce
  • Economic development organizations
  • Local human resources groups
  • Local banks or lending institutions
  • Elected officials and city staff
  • Local CDFIs and community loan funds

Fundraising letters to individuals and businesses, special events, and planned giving are several strategies to achieving a fundraising goal. Local government agencies may also be able to award grants or loans, or assist in implementing a dedicated tax levy.

What are some strategies to running a successful fundraising campaign for capital projects?

According to the National Rural Health Resource Center's manual, Raising Funds for Rural Health Care, it is important to:

  • Plan well by conducting a feasibility study, creating a budget, determining leadership for the campaign, and engaging a consultant.
  • Gain local support by forming steering committees, executing a marketing strategy, preparing a case statement, and soliciting donations from local donors.
  • Have a kick-off event in which you announce funding goals and advanced gifts, begin to solicit larger funding sources, and talk about how the project will impact the community.

The USDA Community Facilities Infrastructure Toolkit is also a resource that can be used to guide the capital fundraising process.

Are there funding programs that specifically support electronic health record implementation or telehealth projects in rural healthcare facilities?

In addition to the grant programs listed above, there are a number of funding programs that offer grants specifically for electronic health records, health information technology, and telehealth projects, including:

  • Healthcare Connect Fund – Universal Services Administrative Company (USAC) program which provides funding to healthcare providers for telecommunications and internet access services, as well as network equipment at a discounted rate.
  • Distance Learning and Telemedicine Grant Program – USDA Rural Development program which provides funding to purchase and install equipment for telemedicine and distance learning programs.
  • Telecommunications Infrastructure Loans and Loan Guarantees – USDA Rural Utilities Service program that provides financing for telephone and broadband infrastructure in rural areas.
  • Community Connect Broadband Grant Program – USDA Rural Utilities Service program that funds broadband deployment into rural communities where it is not yet economically viable for private sector providers to deliver service.
  • Small Hospital Improvement Grant Program (SHIP) – Federal Office of Rural Health Policy (FORHP) program which provides grants to State Offices of Rural Health on behalf of small rural hospitals in each state. Among other things, these funds may be used to purchase health information technology (HIT) equipment. For program information and application, contact your State Office of Rural Health.

There may be other types of funding offered at your state or local level — see RHIhub's Funding and Opportunities by Topic: Capital Funding. RHIhub also offers free customized funding searches — email for assistance.

What is a Community Development Financial Institution (CDFI) and how do they help rural healthcare facilities?

Community Development Financial Institutions, or CDFIs, are financial institutions that have community development as their primary mission and that develop a range of strategies to address that mission. CDFIs provide comprehensive credit, investment, banking, and development services. Some are chartered banks, others are credit unions, and many operate as self-regulating, nonprofit institutions that gather private capital from a range of investors for community development or lending. CDFIs make loans and investments and provide basic services to people and institutions that, for various reasons, are unable to get these services from conventional financial institutions.

CDFIs get capital from many different places, such as private investors, public entities, and philanthropic organizations. CDFIs serve economically disadvantaged people and communities throughout the United States, such as affordable housing developers, small business owners, community groups, and other nonprofits or social service providers.

The U.S. Department of the Treasury CDFI Fund administers several programs that may benefit rural healthcare facilities:

  • The New Markets Tax Credit Program provides options for the capital needs of rural healthcare organizations. The program provides tax incentives for investments for projects in distressed rural or urban counties that will spur economic growth, including capital investments in healthcare facilities. Investors give to Community Development Entities which then offer low-interest financing to businesses and nonprofit organizations. New Markets Tax Credit deals are complex; facilities will want to work with an experienced consultant.
  • The Capital Magnet Fund provides grants to finance affordable housing and community revitalization efforts that benefit low-income people and communities. Community facilities that have been funded under the program include health clinics, senior housing, wellness centers, and oral health facilities.
  • The Community Development Financial Institutions Program is federal funding that allows CDFIs to provide affordable financing and related services to low-income communities and populations that lack access to affordable credit, capital, and financial services.
  • The Native American Community Development Financial Institution Assistance Program (NACA) provides funding to build the community development capacity of Certified Native CDFIs, Emerging Native CDFIs, and Sponsoring Entities, and to increase access to capital in Native Communities.

The Opportunity Finance Network (OFN) is a national membership network of CDFIs that works to provide high-impact investments in distressed communities. OFN maintains a CDFI Locator tool that allows you to search for member CDFIs with service areas that match your location. A full list of certified CDFIs may be accessed on the Treasury Department website.

For additional information, the Rural Monitor article CDFIs ‘Make Dreams Come True’ by Creating Opportunity in Rural Spaces provides an in-depth look at CDFIs, philanthropy groups, and the impact they are making in the rural health arena.

Examples of CDFIs that have invested in rural healthcare facilities include:

  • Rural LISC – Works to equip rural areas with capital, strategy, and technical assistance to preserve and strengthen rural life across the United States
  • Rural Community Assistance Corporation (RCAC) – Helps rural communities in Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming improve community infrastructure
  • Hope Enterprise Corporation – Works to strengthen communities in the Delta and other economically distressed parts of Alabama, Arkansas, Louisiana, Mississippi and Tennessee.
  • Fahe – Works with leadership, housing, education, health, and economic development in an effort to eliminate poverty in Appalachia

What are State Health Facilities Finance Authorities, and how can they help with capital funding?

Many states have State Health Facilities Finance Authorities, which issue tax-exempt bonds and pool loans as well as other programs, such as capital planning assistance. Organizations with strong historical performance and/or with general obligation tax support can access non-rated bond financing.

For further information, contact your state health facilities finance authorities program. The National Association of Health and Educational Facilities Finance Authorities (NAHEFFA) provides a state-by-state listing of its member authorities. In most cases, an organization will need to hire a municipal advisor to work through a bond deal. For additional information, consult the Municipal Securities Rulemaking Board website.

Last Reviewed: 12/4/2019