Presentation: Business and Industry Guaranteed
Loan Program
Business and Industry Guaranteed Loan Program
USDA Rural Business-Cooperative Service
www.rurdev.usda.gov/rbs
Business and Industry Guaranteed Loan Program
- Improve, develop, or finance business, industry, and employment,
and improve the economic and environmental climate in rural communities.
- Bolster the existing private credit structure through the guarantee
of quality loans that will provide lasting community benefits.
Location
Rural Area - not within the boundaries of a city or town with
more than 50,000 inhabitants or the urbanized area of the city
and town.
(http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do)
Borrower
- Any legal entity, Federally-recognized tribal group, public
body or individual.
- Manufacturing, wholesaling, retailing, service oriented.
Partnership with Lenders
- Traditional Lenders - Federal or State chartered banks, Farm
Credit Bank, Savings & Loans
- Other Lenders - legal authority, sufficient experience and financial
strength to operate a successful lending program
- All lenders must have adequate experience and expertise to make,
secure, service, and collect B&I loans
Loan Purposes (common purposes)
- Real estate purchase and improvements
- Machinery and equipment
- Working capital
- Integrated agriculture production/processing facilities
- Debt refinancing and business acquisitions - under certain conditions
Fees and Percentage of Guarantee
- Fees
- Annual Renewal Fee
- Guarantee Fee
- Loan Limits
- Percent of Guarantee Limits
Annual Renewal Fee
The fee is calculated based on:
- The outstanding principal balance as of December 31
multiplied by the percent of the guarantee
- Fee rate is annually published in the Federal Register
- Annual fee for B&I loans made in FY2007 is 0.25%
- Fee remains fixed at the percentage for the life of the loan
Loan Structure
- Negotiated by the lender and borrower and approved by the Agency
- Fixed/Variable/Combination
- Customary
- Maximum terms
- Real estate - 30 years
- Machinery and equipment - the lesser of 15 years or useful life
- Working capital - 7 years
- No balloon payments
Preapplication/Application
- Preapplication optional but encouraged
(Memo or State form must be signed by the lender and applicant)
- Application:
- Form 4279-1 (Parts A & B)
- Form 4279-1A (Parts I & II)
(MUST be signed by the lender and borrower)
- Form 4279-2, DOL (if applicable)
- Form 1940-20, Environmental
- Personal and Commercial Credit Reports
- Appraisals
- Financial Statements
Application
Lender’s written analysis:
- Spreadsheets for three previous years for existing businesses
- Pro forma balance sheet at startup/loan closing
- Two years projected yearend balance sheets/income statements
with ratios and comparisons with industrial standards
- Data shown in complete dollars and in common-size form, obtained
by expressing all items a a percentage of assets (balance sheet)
and sales (income statement)
Application, continued
Lender’s credit analysis:
- The lender is primarily responsible for determining credit quality
through a written credit and financial statement analysis
- Repayment ability, including a cash flow analysis
- Must address borrower’s management
- History of debt repayment
- Necessity of any debt refinancing
- Credit reports of the borrower, its principals and any parent,
affiliate, or subsidiary.
Application, continued
- Proposed Loan Agreement (See 4279.161(b)(11) for requirements
to be included)
- Business Plan
- Feasibility Study
- Lender Certification
Feasibility Study
- Economic
- Market
- Technical
- Financial
- Management
Equity
Tangible Balance Sheet Equity -
- Financial statements prepared in accordance with GAAP, except
for the Coop Stock Purchase Program where financial information
may be provided that is generally accepted by commercial agricultural
lenders.
- Minimum of 10 percent for existing businesses.
- Minimum of 20 percent for new businesses.
Equity, continued
Tangible Balance Sheet Equity –
- Minimum of 25 - 40 percent for energy projects.
- Intangibles - goodwill, R&D, amortized loan costs, customer
lists, etc.
- Appraisal surplus not allowed
- Subordinated debt is debt not equity. Subordinated owner debt
allowed when refinancing Federal direct or guaranteed loans.
Collateral
- Sound and sufficient to protect interests of the lender and
Agency (normally discounted value will be at least equal to the
loan amount).
- Appropriately discounted.
- B&I Guarantees are not collateral.
- Cannot secure unguaranteed portion with other collateral separate
from the guaranteed loan.
Planning and Performing Development
Lender responsibilities include:
- Design policy
- Project control
Insurance
- Hazard
- Life
- Worker Compensation
- Flood
- Other
Conditional Commitment
- Agency requirements
- All conditions must be met and incorporated into the final loan
agreement
- Don’t let it expire
7 CFR Regulations
Examples of B&I Healthcare Projects
- Sabine Medical Center, Many, Louisiana. $7.28
million guaranteed loan to fund seller finance, working capital,
and refinance existing debt. The SMC facility is a one story structure
with slightly over 28,000 square feet of space has 48 acute care
beds including 4 intensive care unit beds.
- Potomac Valley Hospital of WVA, Inc., Keyser, West Virginia.
$10 million guaranteed loan to construct a new 25-bed Critical
Access Hospital.
- Desert View Regional Medical Center, Pahrump, Nevada.
$17.5 million guaranteed loan to construct a 25-bed acute primary
care hospital.
- Northern Dutchess Hospital, Rhinebeck, New York.
$12.34 million guaranteed loan to take out construction financing
and debt refinancing of a 68-bed acute care facility.
- CareSouth Carolina, Darlington, SC. $1.25 million
guaranteed loan for permanent working capital to a private, non-profit
health and human services provider located in the Pee Dee region
of South Carolina. During the past 2 decades, the Society Hill
Family Health Clinic grew to become a national model of health
care delivery in rural communities. Now called CareSouth Carolina,
the private non–profit community owned business operates
9 medical centers in seven communities in the Pee Dee region.
Web Links
USDA Rural Development
Rural Business-Cooperative
Service
Rural Area Eligibility
Nondiscrimination Statement
The U.S. Department of Agriculture (USDA) prohibits discrimination
in all its programs and activities on the basis of race, color,
national origin, sex, religion, age, disability, political beliefs,
sexual orientation, or marital or family status. (Not all prohibited
bases apply to all programs.) Persons with disabilities who require
alternative means for communication of program information (Braille,
large print, audiotape, etc.) should contact USDA’s TARGET
Center at (202) 720-2600 (voice and TDD).
To file a complaint of discrimination, write USDA, Director, Office
of Civil Rights, Room 326-W, Whitten Building, 1400 Independence
Avenue, SW, Washington, DC 20250-9410 or call (202) 720-5964 (voice
or TDD). USDA is an equal employment opportunity lender, provider,
and employer.
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