The Business and Industry (B&I) Guaranteed Loan Program guarantees loans by eligible local lenders to businesses to benefit rural areas.

Purpose

The primary purpose of this program 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 benefits. Administered by the Rural Business-Cooperative Service (RBS) of USDA Rural Development, the program typically guarantees losses of up to 80 percent of the original loan amount. Inability to obtain other credit is not a requirement.

Benefits to Businesses

• Higher loan amounts, 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.
• Allows lenders to make loans above their legal lending limits.

Eligible Areas

B&I loans can be made by commercial or other authorized lenders in rural areas including all areas other than cities of more than 50,000 people and their immediately adjacent urban or urbanizing areas. Priority is given to applications for loans in rural communities of 25,000 population 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 business. Local economic development organizations can be considered.

Eligible Loan Purposes

• Business and industrial acquisitions, construction, conversion, expansion, repair, modernization, or development costs.
• Purchase of equipment, machinery, or supplies.
• Start-up costs and working capital.
• Processing and marketing facilities.
• Pollution control and abatement.
• Refinancing for viable projects, under certain conditions.

Maximum Loan Amount

Loan guarantees are limited to a maximum of $10 million per borrower, although the RBS Administrator may approve up to $25 million.

Loan Guarantee Limits (maximum percentage applies to the entire loan)

• 80% for $5 million or less.
• 70% for over $5 million and up to and including $10 million.
• 60% for loans exceeding $10 million and up to and including $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 percent owned and controlled by U.S. citizens.
• Charitable and educational institutions, religious organizations and affiliated entities, and fraternal organizations.
• Loans to golf courses, gambling establishments, and race tracks.

Fees and Costs

A one-time guarantee fee of 2 percent of the guaranteed principal is paid by the lender and may be passed on to the borrower.

Borrower Equity Requirements

A minimum of 10 percent tangible balance sheet equity is required at the time of issuance of the Loan Note Guarantee. Twenty percent tangible balance sheet equity is required for new businesses. Equity is developed in accordance with generally accepted accounting principles. Feasiblity 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. Variable rates cannot be adjusted more than quarterly.

Credit Quality

Lender adresses 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 concurrence).

Important Forms & Regulations

• Form 4279 (pdf format)
• Underwriting Regulation 4279-B (pdf format)

How To Participate

For more information, contact Brian Wiles, USDA Rural Development, 100 USDA, Suite 108 Stillwater, OK 74074.