USDA loan-guarantee program for rural businesses

September 02, 2009 - The U.S. Department of Agriculture, Rural Development invests in business development, community infrastructure, homeownership and affordable rental housing in rural communities. Last year we invested more than $435 million in Tennessee jobs, homes, water, sewer, and civic infrastructure like libraries, education, first responder vehicles and community facilities. These investments improved the quality of life for more than 670,000 people in rural Tennessee. As Agriculture Secretary Tom Vilsack puts it, we help people in rural communities, everyday in every way.

So far this fiscal year USDA Rural Development has already worked with fifteen lenders to guarantee more than $26 million in loans for the expansion of Tennessee business and industry. Now, Vilsack has announced Rural Development will invest another $1.7 billion in American recovery and Reinvestment Act funds for business and industry loan-guarantees nationwide.

Under the Recovery Act, loans may qualify for a higher guarantee, up to 90 percent, and lower guarantee fee of one percent with no annual renewal fee. These funds are targeted at businesses that create or retain quality jobs, especially in hard to serve areas and communities hit hardest by the economic downturn.

According to Rural Development Acting State Director Robert Connelly, Jr., "Most businesses and manufacturers in rural areas are eligible and lenders will already have on hand what they need to participate. We've done a lot to make the program lender-friendly, and the agency staff is always working with lenders to streamline the process everywhere possible."

Who are eligible borrowers?

To qualify, individual borrowers must be U.S. citizens or reside here after being legally admitted for permanent residence. Corporate and other non-public borrowers must likewise be at least 51 percent owned by U.S. citizens. To be considered rural, the borrower may be located anywhere other than in a city of more than 50,000 people or its adjacent urbanized areas.

How may funds be used?

Funds may be used for typical business needs including working capital, startup, expansion, and in some cases for restructuring.

Are there limits on the loan amount?

Yes. In most cases the balance outstanding may not total more than $10 million to any single borrower. Exceptions may be made up to $25 million in some circumstances. Contact Rural Development business program staff for details.

Are there restrictions on the loan duration?

Generally, the maximum repayments for loans on real estate may not exceed 30 years. Loans on machinery or equipment may not exceed its useful life or 15 years, whichever is less. Repayment of working capital may not exceed 7 years.

Who sets the interest rate?

You do. Interest rates are negotiated between the lender and the borrower, subject only to agency review for reasonableness. They may be fixed or variable as long as the rate is legal. Variable rates may not be adjusted more often than quarterly.

What collateral is required?

Collateral must have documented value sufficient to protect the interest of the lender and the agency. The discounted collateral value will normally be at least equal to the loan amount. Collateral will be discounted consistent with generally accepted industry practice for loan-to-value.

Is there a deadline to apply?

Yes. The deadline to apply for Recovery Act business and industry loan guarantees is Sept. 30, 2010, or until all allocated funds are expended. Regularly allocated funding may be available for business loan guarantees after that date, though some terms will vary for loan guarantees not funded through the Recovery Act.

Who files the loan-guarantee application?

You do. Tennessee lenders interested in more detail or for assistance in submitting an application, contact the USDA Rural Development State Office in Tennessee at 615-783-1300 or visit www.rurdev.usda.gov/TN for a listing of local offices across the state.

-RD-