The USDA's Business and Industry (B&I) Loan Guarantee Program is designed to enhance the economic health of rural communities by supporting the development and expansion of businesses. By providing loan guarantees to lenders, the program facilitates access to capital for rural businesses, thereby promoting job creation and economic growth.
Key Features of the B&I Loan Guarantee Program:
Loan Guarantee Percentage: For loans approved in Fiscal Year 2025, the USDA offers an 80% guarantee to lenders, thereby reducing their risk exposure and encouraging lending to rural businesses.
Eligible Uses of Funds: Loan funds can be utilized for various purposes, including:
Business conversion, enlargement, repair, modernization, or development.
Purchasing and developing land, buildings, and associated infrastructure.
Acquiring equipment, machinery, supplies, or inventory.
Debt refinancing when it improves cash flow and creates or saves jobs.
Developing recreational and tourist facilities, educational facilities, certain community projects, pollution control, and some energy projects.
Loan Terms: The loan term is determined based on the use of funds, the useful economic life of the assets being financed, and the borrower’s repayment ability, with a maximum term of up to 40 years.
Collateral Requirements: Collateral must have a documented value sufficient to protect the interests of the lender and the USDA. Lenders will discount collateral consistent with sound loan-to-value policies, ensuring that the discounted collateral value is at least equal to the loan amount. Hazard insurance is required on collateral equal to the loan amount or depreciated replacement value, whichever is less.
Benefits to Lenders and Borrowers:
For Lenders: The program reduces credit risk through the federal guarantee, lowers capital reserve requirements due to the preferred risk weight of guaranteed loans, and offers opportunities for profitability through fees, interest, and potential secondary market sales.
For Borrowers: Businesses can benefit from better pricing and terms than typically offered with conventional loans. Loans are fully amortized without calls or balloon repayment structures, and longer terms can reduce additional loan fees.
The B&I Loan Guarantee Program is a valuable tool for fostering economic development in rural areas, providing essential support to businesses that contribute to the vitality and sustainability of these communities.
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