To
assist public, private, or cooperative organizations (profit or
nonprofit), Indian tribes or individuals in rural areas to obtain
quality loans for the purpose of improving, developing or financing
business, industry, and employment and improving the economic and
environmental climate in rural communities including pollution abatement
and control.
TYPES
OF ASSISTANCE:
Direct Loans. Place Cursor Here for Definition
Guaranteed/Insured Loans. Place Cursor Here for Definition
USES
AND USE RESTRICTIONS:
Direct
loans may be extended for: (a) modernization, development costs;
(b) purchasing and development of land, easements, rights-of-way,
buildings, facilities, leases or materials; purchasing equipment,
leasehold improvements, machinery and supplies; and (d) pollution
control and abatement. Maximum loan size is $10 million and maximum
time allowable for final maturity is limited to 30 years for land
and buildings, the usable life of machinery and equipment purchased
with loan funds, not to exceed 15 years, and 7 years for working
capital. Interest rates for direct loans change quarterly and are
equal to the prime interest rate in effect on the day the change
is announced. Loans may not be made (a) to pay off a creditor in
excess of the value of the collateral; (b) for distribution or payment
to the owner, partners, shareholders, or beneficiaries of the applicant
or members of their families when such persons shall retain any
portion of their equity in the business; (c) for projects involving
agricultural production; (d) for the transfer of ownership of a
business unless the loan will keep the business from closing, or
prevent the loss of employment opportunities in the area, or provide
expanded job opportunities; (e) for financing community antenna
television services or facilities; (f) for charitable and educational
institutions, churches, fraternal organizations, hotels, motels,
tourist homes, convention centers, tourist, recreation or amusement
facilities, lending and investment institutions and insurance companies;
(g) for any legitimate business activity where more than 10 percent
of the annual gross income is derived from legalized gambling; and
(h) for any project which is likely to result in the transfer of
business or employment from one area to another or cause production
which exceeds demand. Guaranteed loans may be extended for: (a)
modernization, development costs; (b) purchasing and development
of land, easements, rights-of-way, buildings, facilities, leases
or materials; (c) purchasing equipment, leasehold improvements,
machinery and supplies; (d) projects involving agricultural production,
when not eligible for Farm Service Agency farmer program assistance
and when it is part of an integrated business also involved in the
processing of agricultural products and the agricultural production
portion of the loan does not exceed the lessor of 50 percent of
the total loan or $1 million; and (e) pollution control and abatement.
Maximum loan size is $25 million and maximum time allowable for
final maturity is limited to 30 years for land and buildings, the
usable life of machinery and equipment purchased with loan funds,
not to exceed 15 years, and 7 years for working capital. Interest
rates for guaranteed loans are negotiated between the lender and
the borrower. For loans of $5 million or less, the maximum percentage
of guarantee is 80 percent. For loans over $5 million but not over
$10 million, the maximum percentage of guarantee is 70 percent.
For loans in excess of $10 million up to $25 million, the maximum
percentage of guarantee is 60 percent. Losses on principal advanced,
including protective advances, and accrued interest, may be guaranteed
by the Agency, but the maximum loss paid by RBS will never exceed
the original principal plus accrued interest. Loans may not be made
for: (a) distribution or payment to the owner, partners, shareholders,
or beneficiaries of the applicant or members of their families when
such persons shall retain any portion of their equity in the business;
(b) the transfer of ownership of a business unless the loan will
keep the business from closing, or prevent the loss of employment
opportunities in the area, or provide expanded job opportunities;
(c) the guarantee of lease payments; (d) charitable institutions,
churches, fraternal organizations, lending and investment institutions
and insurance companies; (e) any legitimate business activity where
more than 10 percent of the annual gross income is derived from
legalized gambling; (f) the guarantee of loans made by other Federal
agencies except those made by Banks for Cooperatives, Federal Land
Bank or Production Credit Associations; (g) golf courses; (h) racetracks
where individual prizes are awarded in the amount of $500 or more;
(i) owner-occupied housing; (j) projects eligible for the Rural
Rental Housing and Rural Cooperative Housing loans under sections
515, 521, and 538 of the Housing Act of 1949, as amended; and (k)
any project which is likely to result in the transfer of business
or employment from one area to another or cause production which
exceeds demand. Interested parties should contact the Rural Business-Cooperative
Service (RBS) or the nearest Rural Development State Office which
administers the programs at the local level.
ELIGIBILITY
REQUIREMENTS:
Applicant
Eligibility: An applicant may be a cooperative,
corporation, partnership, trust, or other legal entity organized
and operated on a profit or nonprofit basis; an Indian tribe; a
municipality, county, or other political subdivision of a State;
or individuals in rural areas. Applicants for direct loans must
be located in one of the fifty States, Puerto Rico, Virgin Islands,
Guam, American Samoa, or the Commonwealth of the Northern Mariana
Islands, in rural areas other than a city, having a population of
fifty thousand or more and its immediately adjacent urbanized and
urbanizing area with a population density of more than one hundred
persons per square mile, as determined by the Secretary of Agriculture
according to the latest decennial census of the United States. In
addition to the eligible locations for direct loans, applicants
for guaranteed loans may also be located in the Republic of Palau,
the Federated States of Micronesia, and the Republic of the Marshall
Islands. Preference is given to loans in open country, rural communities
and towns with populations of 25,000 or less, and, on applications
of equal priority, to veterans. Applicants must be U.S. citizens
or reside in the U.S. after being legally admitted for permanent
residence and, if corporations, at least 51 percent owned by such
individuals.
Beneficiary
Eligibility: Beneficiaries include cooperatives,
corporations, partnerships, trust or legal entities organized
and operated for profit or nonprofit, Federally recognized Indian
Tribal Governments and individuals in rural areas of less than
50,000 population.
Credentials/Documentation:
Evidence of legal capacity, economic feasibility and financial
responsibility relative to the activity for which assistance is
requested. This program is excluded from coverage under OMB Circular
No. A-87.
Pre-application
Coordination: This program is eligible for coverage
under E.O. 12372, "Intergovernmental Review of Federal Programs."
An applicant should consult the office or official designated as
the single point of contact in his or her State for more information
on the process the State requires to be followed in applying for
assistance, if the State has selected the program for review. All
preapplication letters must be coordinated fully with appropriate
State agencies in keeping with E.O. 12372, "Intergovernmental Review
of Federal Programs," in a manner that will assure maximum support
of the State's strategies for development of its rural areas. The
application form as furnished by the Federal agency must be used
for this program. An environmental assessment is required and an
environmental impact statement may be required for this program.
This program is excluded from coverage under OMB Circular No. A-102.
Application
Procedure: Part A of Form FMHA 449-1 is used
for direct loans and Form 4279-1 is used for guaranteed loans
and filed at the Rural Development State Office. These programs
are excluded from coverage under OMB Circular No. A-110.
Award
Procedure: Applications are forwarded to the
Rural Development State Director for review and final approval.
Deadlines:
Not applicable.
Range
of Approval/Disapproval Time: From 60 to 120
days.
Appeals:
If an application is denied, the reasons for denial are fully
stated. The lender or applicant may individually or jointly request
mediation or an appeal hearing by the National Appeals Staff within
30 days provided the request is in writing. The requestor and
State Director are notified of the decision by the Hearing Officer.
Renewals:
Not applicable.
ASSISTANCE
CONSIDERATIONS:
Formula
and Matching Requirements: Matching funds are
not required. For existing businesses, applicants are required to
provide a minimum of 10 percent tangible balance sheet equity for
guaranteed and direct loans. For new businesses, at least 20 percent
is required for guaranteed loans. For direct loans, new businesses
and those businesses which cannot offer personal or corporate guarantees,
or for energy- related businesses, 20-25 percent equity is required.
Feasibility studies are normally required. Exceptions to the feasibility
study requirement may be made to businesses with adequate financial
history.
Length
and Time Phasing of Assistance: The letter
of conditions for the direct loan and the Conditional Commitment
for the guaranteed loan specifies the time limit for the use of
funds. The Loan Note Guarantee for a guaranteed loan will be issued
when all of the requirements of the Conditional Commitment have
been or will be met.
POST
ASSISTANCE REQUIREMENTS:
Reports:
Each guaranteed lender will be required to monitor and report to
RBS on actual performance during the construction of each project
financed, in whole or in part, with RBS assistance. When the project
is in operation, field visits will be made and customary financial
statements provided as determined by the guaranteed lender and RBS.
Audits:
Independent accountant audited financial statements prepared in
accordance with Generally Accepted Accounting Principles are required
annually for direct loans with a total principal and interest
balance of more than $1 million. Independent accountant compiled
or reviewed financial statements prepared in accordance with Generally
Accepted Accounting Principles are required annually for guaranteed
loans and for direct loans with a principal and interest balance
of less than $ 1 million. RBS may require audited statements for
guaranteed loans in excess of $3 million.
Records:
Records and accounts must be maintained to reflect the operations
of the project.
Obligations:
(Direct Loans) FY 01 $30,211,000; FY 02 est $50,000,000; and FY
03 est Not available. (Guaranteed Loans) FY 01 $948,482,000; FY
02 est $2,922,112,196; and FY 03 $1,000,000,000.
Range
and Average of Financial Assistance:
$35,000 to $10 million for direct loans; $35,000 to $25 million
for guaranteed loans $559,471 (average size) for B&I direct
loans; $1,836,853 (average size) for B&I guaranteed loans.
There were 46 direct loans made in fiscal year 2001. It is estimated
that 56 direct loans will be made in fiscal year 2002. There were
559 guarantees made in fiscal year 2001. It is estimated that there
will be 1,088 guarantees made in fiscal year 2002.
REGULATIONS,
GUIDELINES, AND LITERATURE:
Direct Loans: 7 CFR Part 1980-E, Section 1980.401 through 1980.500.
Guaranteed Loans: 7 CFR Part 4279-A, Section 4279.1 through 4279.100,
Part 4279-B, Section 4279.101 through 4279.200, and Part 4287-B,
Section 4287.101 through 4279.200.
INFORMATION
CONTACTS:
Regional
or Local Office: Consult your local telephone
directory for appropriate Rural Development State Office listed
in Appendix IV of the Catalog.
Headquarters
Office: Administrator, Rural Business-Cooperative
Service, Department of Agriculture, Washington, DC. 20250-3201.
Telephone: (202) 690-4730. Fax: (202) 690-4737.
Web
Site Address: http://www.rurdev.usda.gov
EXAMPLES
OF FUNDED PROJECTS:
Loans made and guaranteed by RBS have been in order to assist a
wide variety of manufacturing, retail, wholesale, and service businesses.
Some recent loans and loan guarantees have assisted an agribusiness
in expanding its service area, helped a radio station begin operations,
provided access to capital for a catfish farm, assisted a textile
firm in modernizing and expanding its operations, and provided working
capital and financing for machinery and equipment for a printing
company.
CRITERIA
FOR SELECTING PROPOSALS:
(1) Those projects that will save existing jobs, (2) improve existing
business and industry, (3) create the greatest number of permanent
jobs, (4) contribute to the overall economic stability of rural
areas.
