Last Updated January 26, 2010
Business and Industrial Guaranteed Loan Program (B&I)
Guaranteeing loans by commercial local lenders to businesses in rural areas
The Business and Industry (B&I) Guaranteed Loan program guarantees loans by commercial local lenders to businesses in rural areas. By guaranteeing loans against a portion (up to a maximum of 90 percent) of loss resulting from borrower default, the B&I Guaranteed Loan program is meant to expand the available credit for businesses. B&I guarantees can result in a number of benefits to such businesses.
The loan guarantee may be used for business and industrial acquisitions, construction, conversion, expansion, repair, modernization or development costs; purchase of equipment, machinery or supplies; startup costs and working capital; processing and marketing facilities; pollution control and abatement; and refinancing for viable projects, under certain conditions.
Examples of projects that have been funded include:
- In Indiana, a loan was made to a manufacturer of auto parts used in transmissions and drivetrains by the major auto manufacturers. This loan was used for the refinancing of debt and purchase of machinery and equipment. It created 24 jobs and saved 116 jobs.
- In Illinois, B&I loan funds were used to construct an assisted living facility and to provide working capital. The facility will have 78 units and will create 58 new jobs for the local community.
- In Louisiana, a guaranteed loan was used to refinance existing debt and construct a hospital. The facility, a one- story structure, will grow to 32,485 square feet after expansion. It currently has 44 acute care beds. After the expansion, it will also include a geriatric-psychiatric unit with 12 beds Twenty-five new jobs will be created and 93 jobs saved as a result of this loan.
- In Georgia, a B&I guaranteed loan and a section 9006 guaranteed loan were used to finance the construction of a wood pellet manufacturing plant designed to generate 19.8 tons per hour of high energy content, demystified (moisture removed) biomass pellets. The plant will be an integrated producer of densified biomass pellets. The plant will convert waste wood into pellets including wood receiving and storage, a green wood dryer heated by a wood waste furnace, size reduction, pellet press and cooling, dust-collection, pellet storage and truck loading equipment. This project created 18 jobs.
Application and Financial Information
As is the case with Small Business Administration loan guarantees, the business must first find a bank or lending institution willing to extend a loan subject to a guarantee. The bank then makes a joint application with the borrower to the USDA state or district office of Rural Development. The state office generally has loan approval authority.
Applications for loan guarantees exceeding a state's loan approval authority are submitted to the national office. They are available throughout the year and are accepted on an ongoing basis. Loan guarantees are to be approved within 60 days subject to the availability of funds. Pre-application reviews and advice are also available through state offices.
The maximum aggregate B&I guaranteed loan amount is $10 million to any one borrower, although the Agency Administrator can grant up to $25 million. The Secretary may approve guaranteed loans in excess of $25 million, up to $40 million, for rural cooperative organizations that process value-added agricultural commodities. For loans of $2 million or less, the maximum portion of guarantee is 90 percent; for loans over $2 million but not over $5 million, the maximum is 80 percent; and for loans in excess of $5 million, the maximum is 70 percent.
Maximum repayment terms are 7 years for working capital, 15 years (or useful life) for machinery and equipment, and 30 years for real estate. Collateral must be sufficient to protect the interests of the lender and the government and usually include personal and/or corporate guarantees.
A minimum of 10 percent tangible balance sheet equity is required for existing businesses, and 20 percent for new businesses. Feasibility studies may be required.
The interest rate is negotiated between the lender and borrower and may be fixed or variable. The lender addresses the business adequacy of equity, cash flow, collateral, history, management, and the current status of the industry in a written credit analysis. Lenders are expected to service, and if necessary, liquidate loans, with USDA's Rural Development's concurrence.
Eligibility, Uses, and Restrictions
B&I loans can be guaranteed in rural areas outside of cities with a population of 50,000 or more and the immediately adjacent urbanized area. Priority is given to applications for loans in rural communities of 25,000 or less.
Any legal entity—including individuals, public or private organizations, and federally recognized Indian tribal groups—may borrow funds. Charitable, religious or fraternal institutions or organizations cannot borrow money. Local economic development organizations and investors can also be considered. There is no size restriction on the business. Inability to obtain other credit is not a requirement.
Authorized lenders include federal or state chartered banks, credit unions, insurance companies, savings and loan associations, the Farm Credit Bank, other Farm Credit System institutions with direct lending authority, and nontraditional lenders approved on an individual lender basis.
Carolyn Parker, Division Director
National Program Office
Business and Industry Division USDA, Rural Business-Cooperative Service
1400 Independence Ave, SW
Washington, DC 20250-0700
Phone: (202) 690-4103
Fax: (202) 720-6003