U.S. Energy Department Secretary Steven Chu announced the loan would help finance Project Liberty, a plant in Iowa that is expected to annually produce around 25 million gallons of ethanol.
"This project represents a pioneering effort to make broad scale deployment of cellulose ethanol a reality," Chu said in a statement.
"Producing the next generation of biofuels can not only reduce America's oil dependency, it can also create vast new economic opportunities for rural Americans."
The facility would produce enough biogas to power infrastructure associated with the Iowa plant. By 2013, the project would start using ethanol generated from corncobs, leaves and husks provided by area farmers.
The project is part of U.S. President Barack Obama's green-energy initiative. That program is under scrutiny from the president's Republican critics, who point to the bankruptcy of solar panel company Solyndra as a sign his policies are misguided.
Solyndra officials refused to testify last week before congressional leaders, pleading Fifth Amendment protections. Solyndra was the recipient of a $535 million federal loan.