BUSINESS & INDUSTRY LOAN PROGRAM FREQUENTLY ASKED QUESTIONS
What is the B&I program?
The Business and Industry (B&I) Guaranteed Loan Program is a loan guarantee program designed to assist credit-worthy rural businesses obtain needed credit for most any legal business purpose. The intent is to save and create jobs in rural America.
How is the USDA different from SBA?
The SBA 7(a) and B&I Guaranteed Loan programs are similar in that a loan guarantee is provided, but the programs operate independently. The B&I program is specifically targeted to rural businesses. Rural Development has an extensive field structure of State and Area Offices that work closely with lenders in processing and servicing B&I loans. The lender and borrower work with a specific loan specialist in their State throughout the entire loan process. Other differences include a different fee structure and loan limits.
2. Regulated lenders subject to credit examination and supervision by a Federal or State agency are eligible to participate in the B&I program, including Federal and State-chartered banks,
3. What are eligible uses of loan funds? Loan proceeds may be used for essentially any business purposes, including but not limited to the following: • Business acquisitions, construction, conversion, expansion, repair, modernization and development • Purchase of equipment, machinery, and supplies • Startup costs and working capital • Projects supported by New Markets Tax Credits • Debt refinancing under certain conditions
4. Can funds be used to refinance a loan? The debt refinancing must improve cash flow while creating or saving jobs. If a lender wishes to refinance a loan already in its portfolio, the loan being refinanced must be closed and current for at least the past 12 months and may not exceed 50 percent of the overall loan unless the loan is Federally guaranteed.
5. Are prepayment penalties allowed? Yes, prepayment penalties are allowed.
6. What are the maximum loan terms? Loan terms are negotiated between the lender and borrower but are subject to program maximums that vary with the purpose of the loan. Terms may be blended, as appropriate: • Working Capital - 7 years • Machinery and Equipment - 15 years or useful life, whichever is less • Real Estate - 30 years USDA is an equal opportunity provider, employer and lender.
7. What interest rate structures are allowed? Interest rates for loans may be fixed or variable or a combination of fixed and variable. The rate is negotiated between the lender and the borrower and will not be more than those rates customarily charged to other borrowers in similar circumstances. Variable rates cannot be adjusted more frequently than quarterly.
8. Is the loan required to be fully secured? Collateral must have a documented value sufficient to protect the interest of the lender and the Agency. Lenders must discount collateral consistent with the sound loan-to-value policy outlined in program regulations, and the discounted collateral value must be at least equal to the loan amount.
9. Are Personal Guarantees Required? Generally, unconditional personal and corporate guarantees are required from individuals and entities owning 20 percent or more of the borrowing entity.
10. What are the maximum percentages of guarantee? The maximum percentage of guarantee is based on loan size. The scale of maximum percentages is: • 80 percent guarantee on loans up to and including $5 million • 70 percent guarantee on loans greater than $5 million up to and including $10 million • 60 percent guarantee on loans greater than $10 million A limited amount of guarantee authority for guarantees of up to 90 percent is available for loans of $5 million and less that are high-priority projects.
11. What is the typical size for a B&I loan? Typically, B&I loans range from $200,000 to $5 million, with an average size of about $3 million. There is no minimum loan amount, but loans cannot exceed $10 million without an exception by the Administrator.
12. When is the Loan Note Guarantee issued? The guarantee is issued when the loan is closed and all conditions of the Conditional Commitment, which outlines the terms of the guaranteed loan, have been met. A B&I loan guarantee may be issued prior to completion of construction under certain conditions. Is there an active B&I secondary market? Yes. There is an active secondary market for the guaranteed portion of B&I loans. Many buyers of guaranteed loans under the Small Business Administration (SBA) will also buy the guaranteed USDA is an equal opportunity provider, employer and lender.
13. How does USDA honor the guarantee? The guarantee is supported by the full faith and credit of the United States and is incontestable except under the circumstances of fraud or misrepresentation of which the Lender has actual knowledge at the execution of the guarantee or of which the Lender participates in or condones.
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