Learn More about BEAD’s Letter of Credit Requirement Changes Thumbnail Image

Learn More about BEAD’s Letter of Credit Requirement Changes

There’s big changes coming for BEAD applicants after recent announcements from the National Telecommunications and Information Administration (NTIA) on its controversial Letter of Credit requirement. 

Applicants, under new NTIA guidelines, will be eligible for a Letter of Credit Waiver and other sources of funding, such as performance bonds. Credit unions are also now able to provide letters of credit according to the new guidelines. 

“Applicants can waive their letter of credit requirement entirely if their state issues funding on a reimbursable basis,” John Windhausen, president of SHLB Coalition and a member of the Letter of Credit (LOC) Coalition who ushered the change, said. “This, in turn, minimizes the risk to the federal government of losing money, allows applicants to take full advantage of greater flexibility provided by some states and allows for greater competition.” 

NTIA’s decision to allow credit unions to provide Letters of Credits gives greater flexibility to applicants with limited access to financial institutions. “Credit unions are usually the best equipped and knowledgeable about these small communities,” attorney Phil Macres, who is also a member of the LOC Coalition, said.

The Letter of Credit Coalition, a broad coalition of industry experts and organizations, was responsible for pressuring the NTIA to modify the requirement. 

These experts will be conducting a Letter of Credit Discussion  on the broadband community on Thursday, November 9 at 12 p.m. ET. 

Why’s this important? 

Under previous guidelines, applicants were required to obtain a Letter of Credit valued at 25% of the total grant amount from a bank with a Weiss rating of B- or higher. This not only excluded other financial institutions, most notably credit unions, but also tied up enormous amounts of capital limiting opportunity to a smaller pool of applicants. 

Connect Humanity provides a clear example of the requirement’s cost. An applicant seeking to apply for  a $7.5 million grant would need to have $4.6 million, or 61 cents per dollar, set aside at all times in order to be approved. 

“This presented an enormous burden to smaller applicants, minority-owned applicants, women-owned applicants and made many financially prohibited from participation,” Macres said. “It was even a hurdle for some bigger companies who couldn’t afford to just have so much cash on hand.” 

What’s next? 

Letter of Credit Coalition members are optimistic that modifications to the requirement will spur competition and allow for a larger pool of applicants. This, in turn, means a greater number of projects slated for completion. 

Windhausen told us that he believes this would allow non-profits and others to be able to qualify for projects serving anchor institutions which are usually less attractive to bigger players. 

As the financial services sector faces uncertainty, there remains growing concern of the requirement that financial institutions maintain a Weiss credit rating of B- or higher. This especially as some of the country’s largest banks, notably Wells Fargo and Bank of America, fail to meet the standard. 

To learn more, please be sure to RSVP and attend our Letter of Credit discussion here

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