The USDA Rural Development Business & Industry (B&I) Guaranteed Loan Program was created by the U.S. government to help expand economic opportunities, create jobs and improve the quality of life for millions of Americans in rural areas. Launched in October 2020, the program provides USDA-backed loan guarantees to lenders for making collateral-backed commercial loans available to credit-worthy rural borrowers. The Business & Industry (B&I) Loan program is one of four the USDA administers that provide backing for projects ranging from rural energy to water and waste disposal to community facilities.
Following a successful rollout, new rules and regulations were enacted to make all the programs stronger and more consistent to encourage lenders to extend their services to more rural business owners. At that time, the program was rebranded “OneRD”. While it still refers to the same USDA Rural Development Program, the revamped OneRD incorporated important changes that made this already incredible lending initiative even more appealing for lenders and borrowers.
Under the original program, all four OneRD loan programs operated under varying parameters for what constituted a “rural community”. This was found to be confusing and limiting. The new regulations expanded and standardized the definition to refer to any town or city with 50,000 or fewer residents. This may seem inconsequential, but in fact, more than 97% of all American towns fit this definition. So, the expansion is enabling the USDA to serve many more people.
In addition, businesses with their headquarters in larger metropolitan areas are not disqualified simply because they have their home offices in larger urban locations. They can still obtain OneRD loans for branches, divisions or franchises located within rural communities with fewer than 50,000 residents.
Surprisingly, the original loan program was for non-agricultural uses only, as the USDA already offers numerous other lending programs for farmers and agricultural businesses. However, the new legislation expanded eligibility to include certain agricultural producers who are not eligible for USDA Farm Service Agency loans. This includes people and non-profits engaged in the production of agricultural products including the growing and harvesting of plants and crops (including farming); breeding, raising, feeding, or housing livestock (including ranching); forestry products; hydroponics; nursery stock; or aquaculture, whereby 50 percent or more of their gross income is derived from the operations.
Despite being limited to non-agricultural businesses from the onset, the Rural Development program still always provided for a broad range of qualifying uses enabling non-profits, for-profits, cooperatives, public bodies, start-ups, and others to use funds for purposes that included business development, expansion, conversion, modernization, repair, the acquisition and development of land and infrastructure for commercial properties, purchase of equipment, supplies, and even refinancing.
Under the new regulations, debt refinancing was expanded further, still. Whereas previously, direct lenders were only able to refinance loans from other lenders, under the new guidelines, they are also able to refinance up to 50% of a loan that they wrote themselves.
The new OneRD regulatory changes leave loan guarantee percentages to the discretion of individual lenders based on their evaluation of current Federal credit policy and how that affects the lender’s ability to effectively manage its portfolio. Most B&I loans in fiscal year 2021 approved by North Avenue Capital, America’s #1 B&I lender, receive an 80 percent guarantee. This is a significant figure when considering that loan amounts can be as much as $25 million for B&I loans (up to $40 million for cooperatives that process certain agricultural commodities, subject to approval) and even higher for other non-B&I programs. The new changes also set the application and guarantee fee at two percent of the loan, across all programs.
Rural Development B&I loans are collateral-backed loans. Borrowers are required to have sufficient fixed assets, cash, real estate, equipment, etc. to securitize the loan on a 1:1 basis for the loan amount. Lenders are required to discount collateral consistent with sound loan-to-value policy while maintaining that 1:1 ratio. The new OneRD regulations eliminated the requirement for working capital loans. They also extended the maximum term for those working capital loans from to 10 years. Depending upon planned use for the funds, some terms can extend out to as long as 40 years.
These are just a few of the key regulatory changes that were made to the USDA Rural Development Program in tandem with its rebranding as OneRD. Other notable changes included:
Other Key Changes to OneRD
North Avenue Capital’s mission is to empower American businesses to grow, flourish, and enrich the communities they serve. Since the introduction of the USDA’s OneRD program, we have become America’s #1 USDA Business & Industry Loan lender. We have offices in Northeast Florida, Nevada, Arkansas, Georgia, Tennessee, and Texas, and can partner with businesses in all 50 states. Get in touch today to learn more about how North Avenue Capital can help your business grow.
