USDA Business & Industry Loans

The Business and Industry (B&I) Guaranteed Loan Program is a loan guarantee program designed to assist credit-worthy rural businesses obtain needed credit for most any legal business purpose. The intent is to save and create jobs in rural America.
 

The B&I program is specifically targeted to rural businesses. Rural Development has an extensive field structure of State and Area Offices that work closely with lenders in processing and servicing B&I loans. The lender and borrower work with a specific loan specialist in their State throughout the entire loan process. 

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• Legal Lending Limits
Some community and midsize banks with lower legal lending limits may find the B&I Guaranteed Loan Program useful for expanding their commercial lending business. The Federally guaranteed portion of a B&I loan does not count toward a bank’s legal lending limit. By utilizing the B&I Guaranteed Loan Program, lenders can make larger loans to some customers than they might otherwise be able to provide. The amount applied against the bank’s legal lending limit is the nonguaranteed portion of the loan.

• Capital Requirements
The Federal guarantee lowers a lender’s risk-weighting for capital reserve requirements. Under the B&I Guaranteed Loan Program, the capital risk weight is “preferred” – much lower than for nonguaranteed loans.

• Community Reinvestment Act (CRA)
Loans made through the B&I Guaranteed Loan Program have the potential to receive CRA consideration as either a loan to a small business or a community development loan, provided they meet the geographic requirements of the CRA regulation.
 

• Profitability
There are several ways that the B&I program can help increase bank profitability. By minimizing credit risk and expanding the universe of business loans that they can originate, this product allows banks to earn fees and interest on loans they might not
have otherwise made. Additionally, the guaranteed, and, to a lesser extent, the nonguaranteed, portions of a B&I loan can be sold into the secondary market or participated. This process can generate fees and loans can be sold for a premium,
depending on rate, maturity, and market conditions.

• Liquidity Management
Liquidity management policies for lenders typically direct them to have sufficient assets on their books that can be easily converted to cash if needed. There is a secondary market for the guaranteed portion of B&I loans. By selling these loan portions, lenders can help manage liquidity issues, which can enable them to recycle funds for new loans
or use the proceeds for other purposes.

• Mitigating Risk
The B&I Guaranteed Loan Program generally provides a 60 percent to 80 percent Federal guarantee on business loans depending on the size of the loan. This is a guarantee against loss. If there is a loss on the loan after liquidating the collateral,
USDA will reimburse the lender for a portion of the loss, on a pro-rata basis, based on the percentage of guarantee.
 

• New Business Development Opportunities
Lenders can offer eligible applicants B&I guaranteed loans that generally have better rates and longer terms than a conventional loan. Businesses receiving B&I loans may  become repeat customers. Furthermore, B&I borrowers may open additional accounts with their lending institution, establishing full banking relationships, such as checking and payroll accounts.

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• Borrower Benefits

Borrowers can benefit from better pricing and terms with the B&I loan guarantee in place than are typically given with conventional loans. The loans must be fully amortized, without calls or balloon repayment structures. Longer terms can reduce additional loan fees that may be incurred in the future on shorter term loans or balloon loans. The interest rates for the loans
are negotiated between the lender and the applicant and may be either fixed or variable (or a combination of fixed and variable).

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• Rural Area

Normally, projects seeking a B&I guaranteed loan need to be located in eligible rural areas, which include all areas other than cities or towns larger than 50,000 people and the contiguous and adjacent urbanized area of such cities or towns.

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• Eligible Businesses

Businesses with facilities located in rural areas that save or create jobs. Most types of businesses are eligible, including those engaged in the manufacturing, wholesale, retail and service industries. Eligible entities include partnerships, individuals, cooperatives, for-profit and nonprofit corporations, including publicly-traded companies, tribal groups, or public
bodies. Any size business may be eligible, but there are certain industries that may be restricted.
 

• Eligible Uses of Loan Funds

Loan proceeds may be used for essentially any business purposes, including but not limited to the following:

• Business acquisitions, construction, conversion, expansion, repair, modernization and
development
• Purchase of equipment, machinery, and supplies
• Startup costs and working capital
• Projects supported by New Markets Tax Credits
• Debt refinancing under certain conditions
 

• Debt Refinancing

The debt refinancing must improve cash flow while creating or saving jobs. If a lender wishes to refinance a loan already in its portfolio, the loan being refinanced must be closed and current for at least the past 12 months and may not exceed 50 percent of the overall loan unless the loan is Federally guaranteed.

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• Max Loan Terms

Loan terms are negotiated between the lender and borrower but are subject to program maximums that vary with the purpose of the loan. Terms may be blended, as appropriate:

• Working Capital - 7 years
• Machinery and Equipment - 15 years or useful life, whichever is less
• Real Estate - 30 years

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• Max Guarantee

 The maximum percentage of guarantee is based on loan size. The scale of maximum percentages is:

• 80 percent guarantee on loans up to and including $5 million
• 70 percent guarantee on loans greater than $5 million up to and including $10 million
• 60 percent guarantee on loans greater than $10 million
A limited amount of guarantee authority for guarantees of up to 90 percent is available for
loans of $5 million and less that are high-priority projects.

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• B&I Typical Loan Size

Typically, B&I loans range from $200,000 to $5 million, with an average size of about $3 million. There is no minimum loan amount, but loans cannot exceed $10 million without an exception by the Administrator.

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• Application Process

Upon receipt of a complete application, lenders can expect an Agency response within 30-60 days. Response times can vary based on complexity and scope of the project. For example, a construction project can take longer due to environmental clearances, whereas a refinancing project may be completed in a shorter timeframe.

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