USDA Business & Industry Loan Guarantee Program

The business and industry loan guarantee program guarantees loans by eligible local lenders to businesses to benefit rural areas. The program’s primary purpose is to create and maintain employment and improve the economic and environmental climate in rural communities. This is achieved by expanding the existing private credit structure capability to make and service quality loans to provide lasting community benefits. Administered by the USDA Rural Development, the program typically guarantees losses on up to 80 percent of the original loan amount. Inability to obtain other credit is not a requirement.

QUICK PRE-SCREEN APPLICATION PROCESS

Benefits To Businesses

	Higher loan amounts, strengthens the loan application, less equity injection, lower interest rates and longer repayment terms assist businesses that may not qualify for conventional lender financing.
	Assists a business in providing stability, growth, expansion and rural employment.

Benefits To Lenders

	Provides lenders with another tool to expand their loan portfolio.
	Improves the economy and quality of life in rural communities.
	Reduces concerns regarding collateral/appraisal issues often found in smaller communities.
	There is an active secondary market for B&I guarantees (e.g. Farmer Mac II).
	The guaranteed portion of the loan is protected against loss by a Federal guarantee.
	The guaranteed portion of the loan does not count against lending limits of the lender.
	B&I guarantees help lenders satisfy Community Reninvestment Act (CRA) requirements.
	Lenders use their own forms, loan documents and security instruments.

Here's a Primer on the Basics

Eligible Areas
Business and industrial loans can be guaranteed in rural cities up to 50,000 population. Priority is given to applications for loans in rural communities of 25,000 or less.

Eligible Borrowers
Any legal entity, including individuals, public and private organizations and federally recognized Indian tribal groups, may borrow.

There is no size restriction on the businesses.

Local economic development organizations and investors can be considered.

Eligible Loan Purposes

	Business and industrial acquisitions and under certain conditions construction, conversion, expansion, repair, modernization or development costs.
	Purchase of equipment, machinery or supplies.
	Startup costs and working capital.
	Processing and marketing facilities.
	Pollution control and abatement.
	Refinancing for viable projects, under certain conditions.
	Purchase of startup cooperative stock for family sized farms where commodities are produced to be processed by the cooperative.

Maximum Loan Amount
Loan guarantees are limited to a maximum of $10 million per borrower, although the RBS Administrator can grant up to $25 million.

B&I loans to eligible cooperative organizations may be made in principal amounts up to $40 million under certain conditions.

Loan Guarantee Limits (Maximum Percentage Applies To The Entire Loan)

	80% up to $5 million.
	70% over $5 million to $10 million.
	60% over $10 million to $25 million.

Collateral - Appraisals
All collateral must secure the entire loan.

Repayment must be reasonably assured.

Personal and corporate guarantees are required.

A qualified appraisal report is required on property that will serve as collateral.

Loan To Appraised Market Value Ratios
Lenders will discount collateral consistent with sound loan to value policy.

Maximum Repayment Terms

	Working Capital - 7 years.
	Machinery and Equipment - 15 years (or useful life).
	Real Estate - 30 years.

Ineligible Loan Purposes

	Line of Credit.
	Agricultural production which is not part of an integrated business involved in the processing of agricultural products.
	Any project likely to result in the transfer of employment from one area to another.
	Any project involving transfer of ownership, unless this will keep the business from closing, prevent the loss of jobs in an area or provide more jobs.
	Paying off a creditor in excess of the value of the collateral.
	Payment to owners, partners, shareholders or others who retain any ownership in the business.
	Corporations and businesses not at least 51% owned and controlled by U.S. citizens.
	Charitable and educational institutions, religious organizations and affiliated entities and fraternal organizations.

Fees And Costs
A one time guarantee fee of 2 percent of the guaranteed principal amount is paid by the lender and may be passed on to the borrower. Other typical lender costs may also be incurred.

Borrower Equity Requirements
A minimum of 10 percent tangible balance sheet equity is required at the time of issuing the loan note guarantee. Twenty percent tangible balance sheet equity is required for new businesses. Equity is developed in accordance with general accepted accounting principles. Feasibility studies may be required.

Interest Rate
Interest rates for loans may be fixed or variable.

The rate is negotiated between the lender and borrower and is similar to those rates customarily charged to other borrowers in similar circumstances.

A variable rate must be tied to a nationally published rate. Variable rates cannot be adjusted more than quarterly.

Credit Quality
Lender addresses the business adequacy of equity, cash flow, collateral, history, management and the current status of applicable industry in a written credit analysis.

Servicing/Liquidation
Financial Statements developed in accordance with generally accepted accounting principles are required. Lenders will service and, if necessary, liquidate the loans (with USDA Rural Development’s concurrence).

Here's a Primer on the Basics

For More Information
For more information contact Crown Point Capital Advisors here.