What the FY 2026 guarantee percentages and fees actually mean, when USDA requires an independent feasibility study, and how Appendix A to Subpart D of Part 5001 defines an acceptable report.
Financing a rural project? See our USDA feasibility study consultants service — built on the 7 CFR Part 5001 five-factor framework.
The USDA Business & Industry Guaranteed Loan Program can finance a rural business acquisition, the purchase of real estate, an expansion, equipment, permanent working capital, qualifying debt refinancing, or the development of a new project.
For fiscal year 2026 the program became particularly noteworthy because USDA increased the guarantee percentage to 85% for qualifying B&I loans under $5 million. Loans from $5 million through $25 million generally carry an 80% guarantee under the FY 2026 annual notice.
The guarantee percentage is only one part of a USDA B&I transaction. Borrowers and lenders must also satisfy project eligibility, rural location, capital and equity, repayment ability, collateral, management qualifications and — for certain projects — an independent USDA feasibility study.
For qualifying B&I loans under $5 million obligated during fiscal year 2026, yes. USDA raised the guarantee from 80% to 85% effective with its March 27, 2026 announcement, unless superseded by a subsequent appropriation. Loans of $5 million through $25 million generally remain at 80%. FY 2026 ends September 30, 2026, so any project closing after that date should confirm the FY 2027 percentages and fees with the lender before relying on the 85% figure.
The Business & Industry, or B&I, Guaranteed Loan Program is administered through USDA Rural Development. USDA does not generally make the commercial business loan directly to the borrower. An eligible lender originates and services the loan, and USDA guarantees an approved percentage of that lender's exposure.
The purpose of the program is to improve, develop or finance business, industry and employment while improving the economic and environmental climate in rural communities. The RD Staff Instructions identify B&I as one of the guaranteed-loan programs governed by 7 CFR Part 5001, the consolidated OneRD Guarantee rule.
Because the guarantee runs to the lender rather than the borrower, the practical question in most transactions is not whether USDA likes the project in the abstract. It is whether the lender's credit file — including the market and cash-flow analysis — supports the credit decision USDA is being asked to stand behind. If you are weighing this program against USDA's competitive grants, see how USDA grants and B&I loans compare in 2026.
USDA announced on March 27, 2026 that it increased the guarantee percentage for qualifying B&I projects requesting less than $5 million from 80% to 85%, for loans obligated during FY 2026, unless superseded by a subsequent appropriation.
The fee schedule itself was published earlier, in the FY 2026 annual notice at 91 FR (Vol. 91, No. 45, March 9, 2026), document 2026-04581, under Docket No. RUS-25-AGENCY-0002. That notice sets the initial guarantee fee and the periodic retention fee for the fiscal year across all four OneRD guaranteed-loan programs.
The FY 2026 Federal Register notice provides these principal categories.
| USDA B&I category | Guarantee | Initial guarantee fee | Periodic retention fee |
|---|---|---|---|
| Less than $5 million | 85% | 3.00% | 0.55% |
| $5 million – $25 million | 80% | 3.00% | 0.55% |
| Qualifying reduced-fee B&I | 80% | 1.00% | 0.50% |
| Certain high-cost isolated Alaska projects | 90% | 1.00% | 0.50% |
A separate 0.50% fee can apply when a borrower and lender request issuance of the Loan Note Guarantee before construction completion. USDA specifically states that this additional fee does not apply to every construction loan, so it should not be assumed into a construction budget without confirming it against the transaction structure.
The two fees behave very differently, and conflating them is a common budgeting error.
The initial guarantee fee is a one-time charge calculated on the guaranteed portion of the loan — that is, the principal amount multiplied by the guarantee percentage — and is payable when the Loan Note Guarantee is issued.
The periodic retention fee is an annual charge. It is calculated as the retention fee rate multiplied by the outstanding principal balance as of December 31, multiplied by the guarantee percentage. Because it is assessed on the declining balance, it falls over the life of an amortizing loan rather than staying flat.
The 85% guarantee protects a portion of the lender's approved loan exposure. For an eligible $4,000,000 B&I loan:
This does not mean that USDA funds 85% of the project's cost, and it does not mean the borrower automatically needs only a 15% equity contribution. USDA's capital and equity standards are separate requirements, addressed below. Borrowers who read the guarantee percentage as a down-payment figure routinely arrive at the lender under-capitalised.
The FY 2026 notice sets guarantee percentages and fees in categories running from loans under $5 million through loans of $25 million, with the guarantee percentage stepping down as loan size rises.
Because the applicable ceiling for a particular request depends on the program authority, the borrower's structure and the fiscal year's available funding, the maximum for any specific transaction should be confirmed with the lender and USDA Rural Development rather than assumed from the fee table. The categories in the annual notice describe how loans are priced; they are not a statement that every borrower can reach the top of the range.
Capital requirements vary considerably depending on whether the borrower is an existing or a new business. This is the single most consequential classification in a B&I application, because the equity requirement can more than double based on how the project is characterised.
Under § 5001.105, an existing business generally needs to satisfy one of USDA's applicable capital tests. These can include at least 10% balance-sheet equity, a borrower investment equal to at least 10% of eligible project costs, or the specified owner-contributed-capital test. The Agency may impose a higher requirement if it considers the transaction higher risk.
Certain new businesses with sales contracts adequate to service the debt for at least the guaranteed loan term may qualify under a 10% capital and equity standard, provided USDA accepts the counterparty's creditworthiness. The strength of the offtake counterparty is doing real work here, and a contract from a thinly capitalised buyer will not carry the test.
A new business involving construction where the lender requests the Loan Note Guarantee before construction completion generally must satisfy a substantially higher requirement: 25% balance-sheet equity, or a qualifying 25% investment in eligible project costs.
Other new businesses generally must meet 20% balance-sheet equity, or a qualifying investment equal to at least 25% of eligible project costs.
USDA may increase the required capital or equity when a loan presents elevated risk. Factors the Agency lists include industry conditions, collateral coverage, guarantees, cash flow, contractual relationships, management experience and — explicitly — the strength of the feasibility study. A weak or generic report is therefore not merely a documentation problem; it can raise the cash the borrower has to bring.
USDA's regulations authorize a broad range of rural business projects. Eligible purposes can include land and buildings, business startups and expansions, entire-business acquisitions, machinery and equipment, permanent working capital, inventory, pollution-control projects and other qualifying commercial purposes.
The Staff Instructions also specifically recognise feasibility studies and business plans as eligible uses of B&I loan funds when the applicable requirements are satisfied. That point is addressed in more detail below, because it is frequently missed at the budgeting stage.
B&I financing can be used for qualifying business acquisitions, but the structure matters more than buyers usually expect.
One important distinction in the Staff Instructions is that a business acquisition generally involves the acquisition of the entire business, rather than a partial stock acquisition.
Special provisions can apply to ownership changes among existing owners where the remaining owners have held ownership and actively participated in operations for the required period, and the selling owner retains no direct or indirect ownership interest.
Business buyers should therefore evaluate the proposed transaction structure before assuming that every stock-purchase arrangement qualifies. A partial buy-out negotiated on the assumption of B&I financing can require restructuring late in the process.
Federally recognized Tribes and Tribally owned enterprises may also be eligible B&I borrowers. The entity-structure, sovereign-immunity and trust-land collateral questions that come with that are covered separately in Tribal USDA grants and B&I loans 2026.
The project's location is central to B&I eligibility.
USDA's 2026 announcement states that eligible businesses generally must be located in rural areas with populations below 50,000, although the business headquarters may be located in a larger city if the financed project itself is in an eligible rural location.
The regulatory definition is more detailed and contains several exceptions and special rural-in-character provisions. The safest approach is to verify the exact project address against USDA's eligibility mapping rather than relying on a general impression that the community is rural. Adjacent parcels on opposite sides of a boundary can produce different answers.
Debt refinancing can qualify under the program when the applicable requirements are met. The Staff Instructions distinguish between debt owed to another creditor, applicant-lender debt, federally guaranteed debt and other refinancing situations.
For loans where refinancing represents the majority purpose, the regulations generally require historical actual cash available to produce a total debt-service coverage ratio of at least 1.1 times the new debt-service requirements — unless current financial performance demonstrates recovery from the adverse conditions that affected historical performance.
Refinancing should therefore be analysed transaction by transaction rather than assumed eligible. For how coverage thresholds compare across programs, see our note on DSCR requirements under SBA, USDA and conventional underwriting.
A feasibility study can become one of the most important documents in a USDA B&I application.
USDA defines a feasibility study as a report containing an opinion or finding, prepared by an independent qualified consultant, evaluating the proposed project's:
The purpose is to evaluate the project's expectation for success.
The most important threshold involves a new business and a guaranteed loan greater than $1 million. For that type of B&I transaction, the Staff Instructions require a feasibility study prepared by an independent qualified consultant acceptable to the Agency. USDA determines the study's scope based on project and borrower complexity.
For loans of $1 million or less, USDA may still require feasibility analysis where the lender's underwriting or other borrower information is insufficient to establish technical feasibility or economic viability, or where a project significantly changes an existing business and its historical cash flow.
USDA also explains that when the Agency remains concerned about market information, technical issues, management capacity or cash-flow projections in the lender's analysis, an independent feasibility study may be used to provide additional detail. In practice, this means the threshold is a floor and not a ceiling.
This issue deserves careful attention, because USDA's definition can be broader than the age of the legal entity.
The Staff Instructions distinguish an existing business based on operating history and achievement of full operational capacity or stable operations. A project involving a new location, a new activity or materially different operations can therefore require closer analysis even where ownership has an existing operating history.
Borrowers should resolve the new-business versus existing-business classification with the lender and USDA before commissioning a feasibility report. The classification drives both the equity requirement and whether the study is mandatory, and reworking a report scoped against the wrong classification is expensive.
There is no generic document that becomes “USDA certified” simply because a consultant labels it a USDA feasibility study.
The study needs to address the applicable requirements contained in Appendix A to Subpart D of Part 5001, and the scope USDA considers appropriate for the particular transaction. Appendix A divides the analysis into economic, market, technical, financial and management feasibility, and also requires a consultant recommendation and a statement of qualifications.
Economic feasibility asks whether the economic foundation of the project makes sense.
Depending on the project, the consultant should consider labour, infrastructure, utilities, materials or feedstock, contracts, environmental risks, and the relationship between project costs and economic benefits. The report should connect these factors to the borrower's operating assumptions rather than provide generic industry commentary.
Market feasibility evaluates whether enough sustainable demand exists to support the business. For many USDA transactions this analysis can include market size and growth, the geographic service area, customer demand, competition, pricing, customer concentration, sales contracts, purchase agreements, offtake agreements, historical and projected utilisation, and industry risk.
The key question is whether the market evidence reasonably supports the revenue forecast. Our discussion of capture rate analysis covers the arithmetic that usually decides this.
Technical feasibility asks whether the facility, equipment, construction and production process can actually perform as projected.
Depending on the business, the analysis can address infrastructure, labour, raw-material availability, construction risk, technology reliability and operating requirements. Integrated processing and specialised technology projects may require additional technical documentation beyond an ordinary commercial feasibility review.
Appendix A defines financial feasibility around the project's ability to produce sufficient income, credit and cash flow to sustain operations and meet its debt obligations. USDA specifically identifies project underwriting, management assumptions, accounting policies, source of repayment, dependency on other businesses, equity contribution, market-demand forecast, industry comparisons, cost accounting, availability of short-term credit, raw-material availability and sensitivity analysis.
Sensitivity analysis is therefore directly contemplated by USDA's guidance. A strong report tests material downside conditions instead of showing only management's base case — what happens if sales run below projection, opening is delayed, payroll increases, construction costs rise, or gross margins compress. See how sensitivity analysis should be constructed.
Management feasibility evaluates whether ownership and the management team have the background and capabilities needed to execute the project. Appendix A identifies business history, professional and educational background, experience, skills and the qualifications necessary to implement the project.
A meaningful management analysis assesses capability against what this specific project demands, rather than reproducing resumes.
Appendix A instructs the consultant to conclude the feasibility study with an opinion and recommendation. That matters. A report that compiles market statistics and projections without reaching an independent conclusion does not follow the full Appendix A framework.
The Appendix also calls for a resume or statement of qualifications of the feasibility-study author, including prior experience. USDA's broader definition of a qualified consultant emphasises independence, expertise, knowledge and experience relevant to the required task.
Before engaging a consultant, borrowers should ask the lender whether USDA considers the proposed consultant and study scope acceptable.
Qualification claims are easier to make than to verify. Our guide to how to verify a feasibility consultant’s degrees and designations sets out which credentials actually bear on this work, how to confirm an MAI designation or a claimed securities-industry background, and what experience benchmarks are reasonable to ask for.
The required scope is not necessarily identical for every project. USDA's application guidance states that the elements of an acceptable study can vary based on project scope, and the Agency's concerns may determine which areas require the most detailed independent analysis.
For an established company entering a new geographic market, the principal underwriting questions may centre on market demand and financial feasibility rather than the viability of an already-proven operating process. The appropriate scope should be confirmed before the borrower pays for the study.
Hotels, motels, campgrounds and other qualifying tourism and recreation facilities can be eligible B&I projects.
USDA's Staff Instructions specifically warn that tourism projects may represent difficult credit decisions because of their risk, and state that an independent feasibility study may be warranted to closely evaluate demand, utilisation and related cash-flow issues.
For a hotel project, a strong feasibility study may therefore address competitive supply, historical occupancy, ADR, RevPAR, demand generators, the new-hotel pipeline, seasonality, market segmentation, projected occupancy and ADR, operating expenses, debt-service coverage and sensitivity scenarios. Generic national lodging statistics are rarely enough; the analysis has to be about the subject property's actual market. See our detail on how lenders review hotel and lodging feasibility studies.
Yes. Feasibility studies and business plans are expressly identified among eligible uses of B&I loan funds, subject to USDA's other applicable requirements.
Borrowers should nevertheless discuss timing and reimbursement with their lender before assuming that every pre-application consulting expense will automatically be financed.
USDA states that the lender, with Agency concurrence, determines the loan term based on the use of loan funds, the useful economic life of the financed assets and collateral, and the borrower's ability to repay. The loan term cannot exceed 40 years.
Interest rates are negotiated between the lender and borrower and may be fixed or variable. USDA states that variable rates generally cannot adjust more frequently than quarterly. There is therefore no single universal “USDA B&I interest rate,” and any rate quoted online as the program rate should be treated with suspicion.
Before entering formal underwriting, a borrower should be prepared to address project location, ownership, project costs, use of proceeds, historical financial performance, projections, equity, collateral, management qualifications, environmental requirements and feasibility-study requirements.
The lender's analysis should contain sufficient market and cash-flow information for an informed assessment of repayment risk. If USDA considers that information inadequate, it can request additional analysis or an independent feasibility study — which is the most common cause of a late-stage delay.
Is the USDA B&I guarantee 85% in 2026?
For qualifying FY 2026 B&I loans under $5 million, USDA increased the guarantee to 85%. Applications of $5 million through $25 million generally receive an 80% guarantee under the FY 2026 notice.
Does an 85% guarantee mean the borrower needs only 15% down?
No. USDA's guarantee protects the lender. The borrower's capital and equity requirements are governed separately by program rules and the specifics of the transaction.
Is a USDA B&I feasibility study required?
For a new business requesting a guaranteed loan greater than $1 million, an independent feasibility study is generally required under USDA's B&I application requirements. USDA may also require feasibility analysis in other transactions where existing underwriting does not sufficiently establish viability.
Who can prepare a USDA B&I feasibility study?
USDA expects an independent qualified consultant acceptable to the Agency. The report should document the consultant's qualifications and relevant prior experience.
What does USDA evaluate in a feasibility study?
The principal categories are economic, market, technical, financial and management feasibility. Appendix A also calls for a consultant recommendation and qualifications.
Does USDA expect sensitivity analysis?
Yes. Sensitivity analysis is explicitly identified among the financial-feasibility factors in Appendix A.
Can feasibility-study costs be financed?
USDA's Staff Instructions list feasibility studies and business plans among eligible B&I uses of loan funds, subject to the transaction's overall eligibility and loan structure.
How is the periodic retention fee calculated?
It is the retention fee rate multiplied by the outstanding principal balance as of December 31, multiplied by the guarantee percentage. Where the Loan Note Guarantee is issued between October 1 and December 31, the first payment is due January 31 of the second following year.
The 85% FY 2026 guarantee for qualifying loans under $5 million creates a genuinely valuable financing option for rural businesses, but the guarantee should not be read in isolation. Successful B&I transactions still depend on eligibility, rural location, repayment ability, borrower capital, collateral, management strength and credible assumptions.
For projects requiring a feasibility study, the report should be built directly around USDA's framework: economic, market, technical, financial and management feasibility, plus an independent recommendation and the consultant's qualifications. That is what makes the study an underwriting document rather than a marketing report — one designed to help the lender and USDA judge whether the project has a reasonable expectation of successful operation and repayment.
Primary sources for this article
How we verified this article. Regulatory requirements were checked against 7 CFR Part 5001 and the RD Staff Instructions. FY 2026 guarantee percentages and fees were checked against USDA Rural Development and the FY 2026 Federal Register notice cited above. This article is reviewed when USDA publishes new fiscal-year guidance, annual fee notices or regulatory changes — not merely re-dated.
This article is for general educational purposes and is not legal, financial or lending advice. USDA rules, fiscal-year guarantee percentages and fees may change. Borrowers should confirm current requirements and transaction-specific terms with their participating lender and USDA Rural Development.
President, Wert-Berater, Inc. — independent feasibility study consultants since 1998. 4,000+ engagements completed across all 50 states and internationally, evaluating $41.2 billion in project value for SBA, USDA, EB-5, conventional, and institutional financing decisions. Fiduciary duty runs to the lender and agency in every engagement.
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