FL/VI Rural Business-Cooperative Service
BUSINESS AND INDUSTRIAL GUARANTEED LOANS FACT SHEET

The Rural Development program of the United States Department of Agriculture (USDA) guarantees loans made by lenders to businesses and industries in rural areas of Florida. and the Virgin Islands.

Quality loans of up to $10 million may be made by lenders to rural businesses and industries with a guarantee of up to 80 percent against any loss of principal or interest on the loan. However, the majority of guaranteed loans for both start-up and existing projects average from $1 to $2 million. With respect to certain high impact projects, loans can be guaranteed for up to $25 million.

Preference is given to projects that support one of Rural Development’s primary missions: improving both the employment and economic conditions in rural communities and towns with a population of less than 50,000. Loan guarantees for projects in areas of Florida and the Virgin Islands with less than 25,000 in population are a top priority of the Rural Development.

The Federal program offers a number of benefits to rural lending institutions:

• Loans guaranteed by Rural Development can be sold by local banks, to investors on a secondary market basis, thereby bringing fresh, outside capital into the community.
• In most banking jurisdictions, the lender is not required to apply the Rural Development guaranteed portions of the loan against its legal lending limit. This extends the lending potential of smaller, rural lending institutions and enables them to offer more competitive rates and better loan terms to their customers.
• These guaranteed loans help local lenders to meet their requirements under the Community Reinvestment Act (CRA).

Projects which are located outside cities and towns with populations of 50,000 or more and its immediate adjacent urbanized area are the primary recipients of Rural Development loan guarantees. A local lender ordinarily is required to be the lead lender on Rural Development guaranteed loans. In fact, an institution which receives a Rural Development loan guarantee normally:

• initiates the loan application and is responsible for servicing the loan;
• is located in or near the community where the project is or will be located; and
• routinely provides credit to that community.

Any lending institution subject to examination and regulation by a recognized regulatory agency is eligible to apply for a Rural Development Business and Industry Loan Guarantee. Eligible institutions include: Federal or State chartered banks, Federal land banks, building and loan associations, production credit associations, banks for cooperatives, savings and loan associations, mortgage companies which are part of a bank holding company, or insurance companies regulated by the National Association of Insurance Commissioners.

It should be noted that ineligible lenders are not barred from participating in loans made by eligible lenders.

Business and Industry Loan Guarantees are not available to institutions in cities of 50,000 or more and other adjacent areas that are urban or are becoming urban.

Rural Development Business and Industry Loan Guarantees cannot be issued for any project likely to result in the transfer of business or employment from one area to another or one likely to cause production that exceeds demand.

Likewise, these loan guarantees are not available for projects involving:

• transfer of ownership - unless this will keep a business from closing, prevent the loss of jobs in an area, or provide more jobs;
• payments to a creditor for more than the value of the collateral;
• guaranteed lease payments;
• loans made by Federal agencies;
• payments to owners, partners, shareholders, or others who retain any ownership in the business;
• agricultural production, except in certain cases
• church or church-sponsored organizations;
• golf courses and race tracks;
• any business that derives more than 10% of its gross revenue from gambling
• prostitution
• lines of credit

Rural Development guaranteed Business and Industrial Loans may be made for up to 30 years on land, buildings, and permanent fixtures; up to 15 years on machinery and equipment (depending on useful life of equipment); and up to 7 years for working capital.

The interest rates are determined between the lender and their customer. Rates can be either fixed or variable. However, variable rates can be changed no more than quarterly.

Interest must be paid at least annually. Rural Development normally expects monthly payments of principal and interest, except for seasonal enterprises.

The lender’s customer must have enough equity to provide reasonable assurance that the project will be successful. Generally, a minimum of 10 percent tangible balance sheet equity is required. Normally balance sheet equity of at least 20 to 25 percent is required for new businesses.

Reasonable prepayment penalties are permitted.

THE GUARANTEE FEE:

The guarantee fee to Rural Development is 2 percent of the loan amount multiplied by the percentage of the Rural Development guarantee. This is a one-time fee paid by the lender, who may pass it on to the borrower.

EFFECT ON LENDING LIMIT:

Only the non-guaranteed portion of the loan counts against a national bank’s legal lending limit per borrower. Bank regulatory agencies in most states apply the same rule to state banks under their jurisdiction.

The lead lender may sell all or any of the guaranteed portion of the loan. However, the lead lender must retain a minimum of 5 percent of the total guaranteed loan amount in its own portfolio.

With respect to the guaranteed portion of the loan, the lender has three options;

1. The lender may issue as many as 10 notes representing the guaranteed portion of the loan at the time of the loan closing. Under this option, Rural Development will provide a separate loan note guarantee for each of the loans. The guaranteed notes can be sold by the lender to investors. Such notes are 100 percent guaranteed by Rural Development.

2. The lender may assign, using a Rural Development assignment agreement, all or part of the guaranteed portion of the loan to one or more holders. If assigned in this manner, the assignment will carry a 100 percent guarantee.

The local lender contracts with Rural Development, by executing a Lender’s Agreement, to collect principal and interest payments on the entire loan and to service the loan. Servicing includes keeping in touch with the borrower in order to anticipate any potential problems such as late payment, and meeting with the borrower and Rural Development if a problem does occur.

The local lender is responsible for distribution of principal and interest payments to holder(s), assignee(s), or participant(s), as appropriate. The local lender may deduct a service fee agreed upon in advance between the lender and holder(s).

It is up to the lender to notify Rural Development when a borrower is 30 days overdue on a payment and is unlikely to bring

his/her account current within 60 days, or if a loan becomes a problem.

The lender is encouraged to work with the borrower to resolve any problems. In case of default, the hold(s) will be paid in full if demand is made.

The lender will ordinarily be responsible for liquidation.

Borrowers and lenders must comply with Federal requirements relating to equal employment opportunity, historic site preservation, flood and mud slide protection, environmental impacts, the Clean Air and Water Act, the Architectural Barriers Act, and nondiscrimination. All applications will be considered without regard to race, color, religion, sex, marital status, national origin, age, or handicapping conditions.

A guaranteed loan application can be obtained by contacting the Rural Development state headquarters in Gainesville, FL. The address, telephone and fax numbers are:

Florida Rural Development
US Department of Agriculture
4440 NW 25th Place
Gainesville, FL 32606
Phone: 352-338-3482
FAX: 352-338-3450