Business and Industry (B&I) Loan Guarantees

Eligible Lenders - All State or Federally chartered banks, savings banks, savings and loan associations, credit unions and Farm Credit System institutions are approved as lenders. Other commercial lenders will be able to apply to be approved to participate in the program. Active lenders will also be able to apply to become Certified Lenders which allows them to file applications with less paperwork and to reserve guarantee authority for an application in process.

Eligible Applicants - Individuals, corporations, partnerships, cooperatives, federally recognized Indian Tribes and other legal entities are eligible borrowers.

Loan Purposes - Most business purposes can be financed with a guaranteed loan. Real estate, equipment, rolling stock, working capital, expansions or new locations are all eligible purposes. Purchase of an existing business is included only if it is necessary to preserve jobs or will result in new jobs being created. Debt refinancing can be done when necessary to preserve or create jobs and a sound business plan is possible.

Eligible Types of Businesses - Most businesses located in rural areas are eligible, including tourism, recreation (except golf courses and race tracks), amusement, and hotels. Charitable, educational or religious organizations are not eligible, and farming is not eligible unless it is part of a larger business that is also processing agricultural products. Farmers can apply for loan guarantees to purchase stock in a new cooperative that will be processing their crop.

Terms and Interest Rates - The lender determines the repayment term of the loan and the interest rate. Rural Development allows maximum terms of 30 years for loans for real estate purposes, 15 years for machinery and equipment and 7 years for working capital. Revolving credits cannot be guaranteed. Interest rates are not subsidized by the Government and are usually the prevailing commercial rates. Variable or fixed rates are allowed and separate rates can be charged on the guaranteed and unguaranteed portions of the loan.

Loan Sizes - There is no minimum loan size, but applicants eligible for guarantees through the Small Business Administration program are encouraged to also explore the possibility of obtaining assistance through that program. The maximum loan to any one business is $10 million. Guarantees of 80% are available only for loans up to $5 million. Loans between $5 million and $10 million can receive a maximum 70% guarantee.

Quality Loans - A test for other credit is not required. The program seeks to promote long-term job development through guarantee of quality loans to businesses that have the resources to survive and prosper. All applicants must have a positive tangible net worth of at least 10% of tangible assets (20% to 25% for new businesses), adequate collateral to secure the loan, cash flow based on either historical results or well supported projections which is adequate to repay the debt, and good management. Personal guarantees are usually required of the owners. Feasibility studies may be required for new businesses or when past results do not support the projections.

Cost - A one-time only guarantee fee is charged to the lender and may be passed on to the borrower. The fee is equal to 2% of that portion of the loan which is guaranteed and is payable when the guarantee is delivered.

Other - The guaranteed portion of the loan is considered to be an investment and does not have to be included in determining the bank's maximum loan. Guaranteed loans often help the bank to meet its CRA requirements. The guaranteed portion of the loan can be sold to investors providing more liquidity to the lender. Banks can also participate out part of the unguaranteed portion as long as they retain at least 5% of the loan, all unguaranteed. Tax-exempt financing cannot be guaranteed. Environment assessments are prepared by Rural Development and the applicant may have to supply additional information for this purpose.

Priority – Rural Development programs are targeted to rural communities that are remotely located, have experienced the loss of jobs or population, or are economically distressed for other reasons. Loans will also receive priority based on the quality of the jobs created, the interest rate for the loan and other factors. If guarantee authority is limited, higher priority applications will be funded first.

Applications – Applications  can only be filed by banks or other lenders that are eligible to receive loan guarantees. The applicant completes their part of the application and forwards it to the lender. Preapplications  can also be filed by applicants and lenders who wish to obtain Agency comments before completing an application. Application forms can be obtained at any Rural Development office or on line through the USDA eForms website . Applications and Preapplications should be filed with the Rural Development Specialist covering the county where the business will be located.  The Rural development Specialist can also provide more information about the program and the application process. Click on Applications or Preapplications  for specific instructions on completing and filing with Rural Development.