Business & Industry Loan Guarantees

With many rural businesses and agricultural producers facing financial challenges as a result of the coronavirus pandemic, the Department of Agriculture announced that it will make available up to $1 billion in loan guarantees for these entities through Farm Service Agency loan programs and through the USDA Business and Industry CARES Act Program. This is a new program that provides working capital loans to help rural businesses prevent, prepare for or respond to the effects of the pandemic.

What does this program do?

What lenders may apply for this program?

• Federal or state-chartered banks.
• Savings and loans.
• Farm credit banks.
• Credit unions.

Who may qualify for these guaranteed loans?

• For-profit businesses.
• Nonprofits.
• Cooperatives.
• Federally-recognized Tribes.
• Public bodies.

What are the borrowing restrictions? 

• Individual borrowers must be citizens of the United States or reside in the U.S. after being legally admitted for permanent residence.
• Private-entity borrowers must demonstrate that loan funds will remain in the U.S. and the facility being financed will primarily create new or save existing jobs for rural U.S. residents.

 What is considered an eligible area?

• Rural areas outside of a city or town with a population of fewer than 50,000 people.
• The borrower’s headquarters may be based within a larger city as long as the project is located in an eligible rural area.
• The lender may be located anywhere in the United States.
• Projects may be funded in rural and urban areas under the Local and Regional Food System Initiative. Check eligible addresses for Business Programs.

How may guaranteed loan funds be used?

• Business conversion, enlargement, repair, modernization or development.
• The purchase and development of land, easements, rights-of-way, buildings or facilities.
• The purchase of equipment, leasehold improvements, machinery, supplies or inventory.
• Debt refinancing when refinancing improves cash flow and creates jobs.
• Business and industrial acquisitions when the loan will maintain business operations and create or save jobs.

What guaranteed loan funds may NOT be used for?

• Lines of credit.
• Owner-occupied and rental housing.
• Golf courses.
• Racetracks or gambling facilities.
• Churches, church-controlled organizations or charitable organizations.
• Fraternal organizations.
• Lending, investment and insurance companies.
• Projects involving more than $1 million and the relocation of 50 or more jobs.
• Agricultural production, with certain exceptions (1).
• Distribution or payment to a beneficiary of the borrower or an individual or entity that will retain an ownership interest in the borrower.

What Collateral Is Required?

• Maximum Discounted Value
• Real Estate: 80 percent of fair market value.
• Equipment: 70 percent of fair market value.
• Inventory: 60 percent of book value (raw inventory and finished goods only).
• Accounts Receivable: 60 percent of book value (less than 90 days).

What is the maximum amount of a loan guarantee?

• 80 percent for loans up to $5 million.
• 70 percent for loans between $5 and $10 million.
• 60 percent for loans exceeding $10 million, up to $25 million maximum.

What are the loan terms?

• Maximum term on real estate is 30 years.
• Maximum term on machinery and equipment is for its useful life or 15 years, whichever is less.
• Maximum term on working capital is not to exceed 7 years. Loans must be fully amortized; balloon payments are not permitted.
• Interest-only payments may be scheduled in the first 3 years.

What are the interest rates?

• Interest rates are negotiated between the lender and borrower, subject to Agency review.
• Rates may be fixed or variable.
• Variable interest rates may not be adjusted more often than quarterly.

What are the underwriting and security requirements?

• The proposed operation must have a realistic repayment ability.
• New enterprises may be asked to obtain a feasibility study by a recognized independent consultant.
• The business and its owners must have a good credit history.
• At loan closing or project completion, the business must have a tangible balance sheet equity position of:
  • 10 percent or more for existing businesses, or
  • 20 percent or more for new businesses.
• Key person life insurance may be required and the amount negotiated. A decreasing term life insurance is acceptable.
• Personal and corporate guarantees are normally required from all proprietors, partners (except limited partners) and major shareholders (all those with a 20 percent or greater interest).

How do we get started?

• Applications are accepted from lenders through USDA local offices year-round.
• Interested borrowers should inquire about the program with their lender.
• Lenders interested in participating in this program should contact the USDA Rural Development Business Programs Director in the state where the project is located.