Updated April 27, 2022
HUD Section 108 Loan Guarantee Program: An Overview
The Section 108 Loan Guarantee program (Section 108) is
Eligible Activities
one of several Department of Housing and Urban
All eligible activities must meet one of the three national
Development (HUD) programs designed to support local
objectives of the conventional CDBG program:
community and economic development activities. It is a
source of flexible financing for which grantees of the
1. principally benefit low- and moderate-
Community Development Block Grant (CDBG) can carry
income (LMI) persons;
out large-scale projects, by pledging current and future
2. aid in the prevention or elimination of
CDBG for a guaranteed loan. HUD considers Section 108
slums or blight; or
loan guarantee applications on a noncompetitive, rolling
3. meet an urgent need by addressing
basis. Private lenders finance Section 108 loans with a “full
faith and credit” guarantee by the federal government.
conditions that pose a serious and

immediate threat to the health and safety
of residents.
The Section 108 program shares similar programmatic
structure and flexibility with the CDBG program. These
As is the case with CDBG program funds, 70% of a
factors may position Section 108 as a useful tool for
borrower’s Section 108 loan funds must meet the objective
community and economic development as local
of principally benefitting low- and moderate-income
governments face an uncertain financial future and shifting
persons. Section 108 activities must also comply with
community development priorities. For instance, Section
program requirements outlined in 24 C.F.R. § 570 Subpart
108 funds can be used for activities related to long-term
M, as well as CDBG rules and crosscutting federal
disaster recovery or for resilience against future disasters.
regulations (e.g., Davis-Bacon).
This In Focus describes availability of and access to
The majority of eligible Section 108 program activities fall
program financing, summarizes the Section 108 program
into one of four broad categories:
structure, discusses annual principal loan amount
maximums, and outlines some policy considerations.
1. economic development;
2. public facilities and infrastructure;
Availability of Financing
3. housing rehabilitation; and
Section 108 funds are made available to CDBG recipients
on an ongoing basis, allowing participating communities to
4. debt servicing and related fees.
apply for funds anytime during the year. Typically, the
Though broadly similar, eligible Section 108 activities are
qualified loan amount is five times greater than a CDBG
somewhat more constrained than CDBG. Unlike CDBG,
grantee’s annual allocation (minus any outstanding loan
Section 108 funds cannot be used for public service
balances), which allows borrowers to maximize program
activities, nonfederal cost share, or long-term planning
funds for projects that would not necessarily be feasible
activities.
within a given CDBG program year.
Application Process
Program Structure and Administration
Prior to submission of a Section 108 application, eligible
Like CDBG, the Section 108 program derives its authority
communities are required to make a draft available for
from Title I of the Housing and Community Development
public comment, hold a minimum of one pre-submission
Act of 1974 (42 U.S.C. §5301 et seq.). CDBG eligibility
public hearing, and address any comments provided (24
and program requirements are also generally applicable to
C.F.R. §570.704). This process must comply with a local
Section 108. For more information on CDBG, please see
citizen participation plan, developed by the public entity
CRS Report R43520, Community Development Block
applying for Section 108 funds. This plan may be consistent
Grants and Related Programs: A Primer, by Joseph V.
with the participation plan required in the HUD
Jaroscak.
consolidated planning process. Communities then finalize
and submit their application for review and approval by
Eligible Entities
HUD (24 C.F.R. §570.704).
CDBG entitlement communities, insular areas, and states
(on behalf of nonentitlement communities) are eligible to
The relevant HUD Field Office and HUD Financial
leverage their annual CDBG allocations for Section 108
Management Division review Section 108 applications
financing. Recipients of Section 108 loans may execute
simultaneously. If the application clears review, the Deputy
planned activities directly, or relend the funds to a third
Assistant Secretary for Grant Programs considers it for
party, including private companies, to carry out the eligible
approval. In general, HUD attempts to review and approve
activities.
an application within 45 days, barring any delays associated
with programmatic or financial aspects of the application.
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HUD Section 108 Loan Guarantee Program: An Overview
Applicants are required to pledge current and future CDBG
appropriations. Since FY2016, Congress has included
allocations as a primary form of security for a Section 108
language in annual appropriations legislation directing the
loan. Additional pledges of collateral are required for loans
Secretary to set the amounts for credit subsidy fees.
with repayment periods of 10 or more years, or at the
discretion of HUD, as outlined in program regulations (24
Policy Considerations
C.F.R. §570.705(b)(3)).
As currently administered, the Section 108 program
provides communities with access to financing to support
Funding Process
large-scale community or economic development projects.
Upon approval of a Section 108 Loan Guarantee
Program participants leverage current and future CDBG
application, HUD generates loan documents and
allocations as the primary asset against which to borrow for
coordinates with the recipient on any necessary revisions.
such projects, which may generate revenue or enhance local
Typically, Section 108 loans are financed initially through
amenities and opportunities.
an interim variable rate product. Periodically, HUD releases
public offerings for permanent financing of Section 108
Although the Section 108 program provides access to
loans, once a sufficient aggregate amount in loan
flexible community development financing, there may be
guarantees has been awarded.
factors limiting its feasibility as an option for some
potential borrowers. HUD reporting indicates that fewer
Loan Terms and Repayment
than half of the current eligible state and local governments
Section 108 loans can be repaid over periods of up to 20
have borrowed under the Section 108 program since its
years. Repayment structures may vary depending on the
inception. Past HUD analysis has indicated that potential
individual project and borrower. The interest rates for
borrowers may have concerns over the perceived risk of
Section 108 interim loans are based on the three-month
pledging CDBG funds as collateral and its effect on project
Treasury Auction Bill Rate. Interest rates for loans funded
feasibility. Congress may consider identifying and
by a public offering are fixed, and are based on U.S.
examining potential barriers for some communities in
Treasury borrowing rates.
utilizing Section 108 financing.
Although borrowers use CDBG grant funds as collateral for
Additionally, Congress may wish to identify potential
Section 108 guaranteed loans, they do not necessarily use
options to enhance access and increase participation in the
the grant funds to pay off the loans. CDBG program
Section 108 program. In the 1990s, Congress funded and
activities related to Section 108 loan repayment represented
HUD administered competitive Economic Development
1.9% of overall program expenditures in FY2020. In many
Initiative (EDI) grants to provide flexible funding for
cases, borrowers use Section 108 project revenues or other
Section 108 to enhance the viability and security of their
local resources to pay these costs.
financed projects. Competitive EDI grants were used for a
variety of purposes including establishing reserve funds or
Planning and Program Monitoring
covering a range of project costs. HUD has cited an
Section 108 borrowers are required to include information
unpublished analysis of EDI from the University of
on planned activities in their HUD consolidated plans and
Louisville, suggesting that EDI grants improved Section
annual action plans. Additionally, participants must submit
108 project feasibility and revenue generation. Congress
annual performance evaluation reports consistent with
may consider reauthorizing the competitive EDI program,
CDBG program reporting requirements. Like CDBG,
or other programmatic options that could increase liquidity
borrowers report funding status and accomplishments in
for borrowers and improve the feasibility of potential
HUD’s Integrated Disbursement and Information System,
Section 108 projects.
or IDIS.
On the other hand, creation or reauthorization of additional
Total Principal Amounts and Credit
programs may not be necessary due to the Section 108
Subsidies
program’s inherent flexibility. HUD informs Section 108
Typically, Congress sets the maximum level of Section 108
borrowers of the ability to blend loan funds with other
loan commitments in annual appropriations legislation.
federal resources for community development such as Low-
Over the past five years, the Section 108 principal
Income Housing Tax Credits, New Markets Tax Credits,
maximum set by Congress has been $300 million.
and Opportunity Zone tax incentives. Congress may
consider options to increase awareness and enhance
If the overall amount of loan commitments reaches or
coordination of such resources to optimize the use of
exceeds 50% of the maximum loan commitment amount,
federal resources for large-scale community development
HUD can set additional limits on any new individual
projects.
guarantee amounts (42 U.S.C. 5308(k)(2); 24 C.F.R.
§570.705).
Joseph V. Jaroscak, Analyst in Economic Development
Policy
In 2015, HUD amended program regulations to allow for
the collection of fees from Section 108 borrowers as a
IF11889
credit subsidy for loan guarantees, in lieu of annual


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HUD Section 108 Loan Guarantee Program: An Overview


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