USDA (B&I) Loans
Owner Occupied or Investment Properties
Most Borrowers, Realtors and Loan officers do not know many details on USDA (Business and Industry (“B&I”) Loans.
- Great alternative to SBA 7a loans over $5MM
- Properties Must be Eligible under USDA guidelines
- Loan amounts from $500,000 up to $25 MM
- LTV up to 80%
- Amortization up to 30 years
- Rates Prime + 2.75%
- Almost any type of business qualifies
- Owner Occupied
- Non Owner Occupied
- Investment properties
- NNN lease properties
- Sr Living Facilities
- Gas Stations
- C Stores
- Car Wash
- Others – Call for information
- Debt Service Coverage above 1.20
If your owner-occupied loan is over $5 million, then look to the USDA Business and Industry (B&I) loan guaranty program. This program is similar to the SBA 7(a) program as the government provides a loan guarantee, typically 80%. Loans up to $10 million or more are possible. The program charges a 2% loan guarantee fee that had been recently waived, but until this part of the stimulus program gets extended, the fee is in place. Before getting too excited, run the address of the property through the USDA Website to determine if the location qualifies for the program. All owner-occupied real estate qualifies, as do income properties (although the project is “scored” and job creating/retaining projects generally get priority), although more general-purpose buildings are desired. Underwriting is based on the tax returns for the business that occupies the real estate. The business must show a 1.20x DSCR. LTVs usually top out at 80%. Most B&I loans are floating rate.
The business and industry loan guarantee program guarantees loans by eligible local lenders to businesses to benefit rural areas. The program’s primary purpose is to create and maintain employment and improve the economic and environmental climate in rural communities. This is achieved by expanding the existing private credit structure capability to make and service quality loans to provide lasting community benefits. Administered by the USDA Rural Development, the program typically guarantees losses on up to 80 percent of the original loan amount. Inability to obtain other credit is not a requirement.
Benefits To Businesses
Higher loan amounts (Up to $25 MM), strengthens the loan application, less equity injection, lower interest rates and longer repayment terms assist businesses that may not qualify for conventional lender financing.
Assists a business in providing stability, growth, expansion and rural employment. Provides Financing to both Owner-Occupied Properties and Non-Owner Occupied Investment Properties.
Benefits To Lenders
- Provides lenders with another tool to expand their loan portfolio.
- Improves the economy and quality of life in rural communities.
- Reduces concerns regarding collateral/appraisal issues often found in smaller communities.
- There is an active secondary market for B&I guarantee (e.g. Farmer Mac II).
- The guaranteed portion of the loan is protected against loss by a Federal guarantee.
- The guaranteed portion of the loan does not count against lending limits of the lender.
- B&I guarantees help lenders satisfy Community Reinvestment Act (CRA) requirements.
- Lenders use their own forms, loan documents and security instruments.
- Business and industrial loans can be guaranteed in rural cities up to 50,000 populations. Priority is given to applications for loans in rural communities of 25,000 or less.
- Eligible Borrowers
- Any legal entity, including individuals, public and private organizations and federally recognized Indian tribal groups, may borrow.
- There is no size restriction on the businesses.
- Local economic development organizations and investors can be considered.
- Eligible Loan Purposes
- Business and industrial acquisitions and under certain conditions construction, conversion, expansion, repair, modernization or development costs.
- Purchase Investment Properties to be leased out as well as Owner Occupied Properties
- New construction
- Purchase of equipment, machinery or supplies.
- Startup costs and working capital.
- Processing and marketing facilities.
- Pollution control and abatement.
- Refinancing for viable projects, under certain conditions.
- Purchase of startup cooperative stock for family sized farms where commodities are produced to be processed by the cooperative.
Types of Properties
Almost any type of Commercial use property may qualify including:
- Gas Stations/ C store / Car Wash
- Fast Food
- NNN lease
- Sr Living Facilities
- Many others
Maximum Loan Amount
Loan guarantees are limited to a maximum of $10 million per borrower, although the RBS Administrator can grant up to $25 million.
B&I loans to eligible cooperative organizations may be made in principal amounts up to $40 million under certain conditions.
Loan Guarantee Limits
(Maximum Percentage Applies To The Entire Loan)
- 80% up to $5 million.
- 70% over $5 million to $10 million.
- 60% over $10 million to $25 million.
Collateral – Appraisals
- All collateral must secure the entire loan.
- Repayment must be reasonably assured.
- Personal and corporate guarantees are required.
- A qualified appraisal report is required on property that will serve as collateral.
Loan To Appraised Market Value Ratios
Lenders will discount collateral consistent with sound loan to value policy.
Maximum Repayment Terms
- Working Capital – 7 years.
- Machinery and Equipment – 15 years (or useful life).
- Real Estate – 30 years.
Ineligible Loan Purposes
- Line of Credit.
- Agricultural production which is not part of an integrated business involved in the processing of agricultural products.
- Any project likely to result in the transfer of employment from one area to another.
- Any project involving transfer of ownership, unless this will keep the business from closing, prevent the loss of jobs in an area or provide more jobs.
- Paying off a creditor in excess of the value of the collateral.
- Payment to owners, partners, shareholders or others who retain any ownership in the business.
- Corporations and businesses not at least 51% owned and controlled by U.S. citizens.
- Charitable and educational institutions, religious organizations and affiliated entities and fraternal organizations.
Fees and Costs
A onetime guarantee fee of 2 percent of the guaranteed principal amount is paid by the lender and may be passed on to the borrower. Other typical lender costs may also be incurred.
Borrower Equity Requirements
A minimum of 10 percent tangible balance sheet equity is required at the time of issuing the loan note guarantee. Twenty percent tangible balance sheet equity is required for new businesses. Equity is developed in accordance with general accepted accounting principles. Feasibility studies may be required.
- Interest rates for loans may be fixed or variable.
- The rate is negotiated between the lender and borrower and is similar to those rates customarily charged to other borrowers in similar circumstances.
- A variable rate must be tied to a nationally published rate. Variable rates cannot be adjusted more than quarterly.
- Credit Quality
Lender addresses the business adequacy of equity, cash flow, collateral, history, management and the current status of applicable industry in a written credit analysis.
Financial Statements developed in accordance with generally accepted accounting principles are required. Lenders will service and, if necessary, liquidate the loans (with USDA Rural Development’s concurrence).
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