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USDA RURAL DEVELOPMENT
• RBS - Rural Business-Cooperative Service
• RHS - Rural Housing Service
• RUS - Rural Utilities Service
Objective
• Improve and develop Rural Businesses by financing business needs that result in greater employment
• Improve economic and environmental climate in rural communities
Why do we do it ?• To create and save jobs in rural America
• Thus, improving the economy in rural America.
Why should a business want a B & I Guaranteed Loan?
4. Assists in providing:
a. Stability
b. Growth
c. Expansion
d. Rural
Employment
Why would a lender want to do a Business and Industry
Guaranteed Loan?
1. Provides another tool to expand their loan portfolio
Why would a lender want to do a B & I Guaranteed Loan?
2. Reduce the risk of loss on rural business loans
2. Reduce the risk of loss on rural business loans
Why would a lender want to do a B & I Guaranteed Loan?
3. Improves the economy and quality of life in rural California , while satisfying CRA requirements
Why would a lender want to do a B & I Guaranteed Loan?
4. Reduces concerns about collateral /appraisal issues often found in rural California
Why would a lender want to do a B & I Guaranteed Loan?
5. Allows loans to be made above their legal lending limits
Why would a lender want to do a B & I Guaranteed Loan?
6. Increases their return when guarantee is sold in the active secondary market
Why would a lender want to do a B & I Guaranteed Loan?
7. Uses their forms, loan documents, and security instruments
What is a Rural area?
• All areas except for cities of more than 50,000 people and their urbanized areas
Who can borrow?
1. Any legal entity:
a. Individuals
b. Public organizations
c. Private organizations
d. Federally recognized tribal groups
Who can borrow?
2. Majority ownership by
US. citizens or permanent residents.
3. Less than 20% ownership by government or military employees
What businesses are excluded from the B & I Guaranteed Loan
Program?
• Owner-occupied and rental housing projects
What businesses are excluded from the B & I Guaranteed Loan
Program?
• Golf courses, racetracks, and gambling facilities
What businesses are excluded from the B & I Guaranteed Loan
Program?
• Lending, investments, insurance companies
What can you do with the B& I loan funds?
• Business and industrial acquisitions
• Construction• Conversion• Expansion• Repair• Modernization• Reasonable Fees
How much can be guaranteed?
• Loan guarantees typically range from $750,000 to a maximum of $10 million. Exceptions to $25 million
What are Loan Guarantee Limits? (maximum % applies to the
entire loan)• 80% for $5 million
or less
• 70% for over $5 million to $10 million
• 60% for over $10 million to $25 million
What are the Terms?• Working Capital - 7
years maximum• Equipment - 15 years
maximum• Real Estate - 30 year
maximum• Blended Terms OK
What are the Equity Requirements?
• New Business - 20% Tangible Equity
• Existing Business - 10% Tangible Equity
• Recreation and energy businesses may be higher
• Book Value Basis with intangibles deducted.
FEASIBILITY STUDIES
• A feasibility study is generally required:– a new business (start-up) eg. Ethanol Plant– an existing Company lacking profitable history– significant expansion.
• The feasibility study should be prepared by an independent consultant with expertise in that type of operation.
What type of collateral is required?
• Collateral secures the entire loan. 100%
• Personal and corporate guarantees are required.
• A qualified appraisal report is required on property that will serve as collateral.
What is Adequate Collateral?• Sufficient Value,
established by appraisal, to secure the loan. The values are discounted depending on the type of security offered.
B&I vs. SBA GUARANTEES
• B&I can do Tenant Occupied Buildings (No 51% occupancy rule)
• B&I can do Non-Profit Corporations
• B&I Guarantee Fee at 2%
• B&I limited to Rural Areas (<50,000 population)
How do I apply?
• Lender contacts the local B&I Loan Officer - or - Larry Strong / Davis
• Contact Davis Office with any questions
• (530) 792-5805
Lender submits Preapplication
• Simple Format with basic information
• Local B&I Loan Officer reviews it and schedules field visit
Loan Process
Lender submits Complete Application
• Form 4279-1• Lender Credit Memo,
Appraisals, Credit reports, etc.
ALL LENDER FORMS !
Loan Process
Rural Development Reviews Application
• B&I Loan Officer processes the application and presents it to the State Loan Review Board.
Loan Process
Approval• SLRB Approves
Guarantee• Request allocation NO
fund• 6 day wait minimum
for funding• Local Office issues the
Conditional Commitment to lender
Loan Process
Issuing the Guarantee• Lender closes loan,
provides documentation meeting conditions to Rural Development
• Rural Development issues the Loan Note Guarantee
Loan Process