USDA Business and Industry (B&I) Guaranteed Loan Program
What does this program do?
This program bolsters the availability of private credit by guaranteeing loans for rural businesses.
What kind of businesses qualify for loan guarantees?
- For-profit businesses
- Federally-recognized Tribes
- Public bodies
What is an eligible area?
- Any area other than a city or town with a population of greater than 50,000 inhabitants and the urbanized area of that city or town
- The borrower’s headquarters may be based within a larger city as long as the project is located in an eligible rural area
- The lender may be located anywhere
- Projects may be funded in rural and urban areas under the Local and Regional Food System Initiative
Find Out if an address is Eligible for this Program
How may funds be used?
Eligible uses include but are not limited to:
- Business conversion, enlargement, repair, modernization or development
- Purchase and development of land, easements, rights-of-way, buildings, or facilities
- Purchase of equipment, leasehold improvements, machinery, supplies, or inventory
- Debt refinancing when refinancing improves cash flow and creates or saves jobs
- Business and industrial acquisitions when the loan will create or save jobs
Guaranteed loan funds MAY NOT be used for:
- Lines of credit
- Owner-occupied housing
- Golf courses
- Racetracks or gambling facilities
- Churches, church-controlled organizations or charitable organizations
- Fraternal organizations
- Agricultural production, with certain exceptions
What collateral is required?
Collateral must have documented value sufficient to protect the interest of the lender and the Agency. The discounted collateral value will normally be at least equal to the loan amount. Lenders will discount collateral consistent with sound loan-to-value policy. Hazard insurance is required on collateral (equal to the loan amount or depreciated replacement value, whichever is less).
Maximum Advance Rates
- Real Estate: 80% of fair market value
- Equipment: 70% of fair market value
- Inventory: 60% of book value (raw inventory and finished goods only)
- Accounts Receivable: 60% of book value (less than 90 days)
What is the maximum amount of a loan guarantee?
- 80% for loans of $5 million or less
- 70% for loans between $5 and $10 million
- 60% for loans exceeding $10 million, up to $25 million maximum
What are the loan terms?
- Maximum term on machinery and equipment is its useful life or 15 years, whichever is less
- Maximum term for real estate is 30 years
- Maximum term on working capital not to exceed 7 years
- Loans must be fully amortized; balloon payments are not permitted
- Interest-only payments may be scheduled in the first 3 years
What are the interest rates?
- Typically North Avenue Capital offers competitive rates pegged to the market prime rate
- Interest rates are negotiated between the borrower and lender
- Rates may be fixed or variable
What are the applicable fees?
- Reasonable and customary fees are negotiated between the borrower and lender
- There is an initial guarantee fee that is paid at the time the Loan Note Guarantee is issued
- There is an annual renewal fee on the outstanding balance of the guaranteed portion of the loan that is set by Rural Development at a rate published annually in the Federal Register
What are the underwriting and security requirements?
- The proposed operation must have realistic repayment ability
- New enterprises will be asked to obtain a feasibility study by a recognized independent consultant
- The business and its owners must have a good credit history
- At loan closing/project completion, the business must have a tangible balance sheet equity position of: 10% or more for existing businesses, or 20% or more for new businesses.
- Personal and corporate guarantees are normally required from all proprietors, partners (except limited partners), and major shareholders (i.e., all those with a 20% or greater interest)
How do I apply for a loan?
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