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Content provided by the Catalog of Federal Domestic Assistance
10.768 Business and Industry Loans

FEDERAL AGENCY:

RURAL BUSINESS-COOPERATIVE SERVICE, DEPARTMENT OF AGRICULTURE

AUTHORIZATION:

Consolidated Farm and Rural Development Act, as amended, Section 310B, Public Law 92-419, 7 U.S.C. 1932.
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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.
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Guaranteed/Insured Loans.
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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.

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APPLICATION AND AWARD PROCESS:
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.

FINANCIAL INFORMATION:

Account Identification:   12-4155-0-3-452; 12-1902-0-1-452; 12-0400-0-1-452.

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:  
No Data Available.

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PROGRAM ACCOMPLISHMENTS:
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:  
See Regional Agency Offices. Regional Agency Offices: http://www.rd.usda.gov/contact-us/state-offices.

Headquarters Office:  
B&I Processing Branch U.S. Department of Agriculture Rural Business-Cooperative Service 1400 Independence Ave SW, Stop 3224, Washington, District of Columbia 20250-3224 Phone: 202-690-4103

Web Site Address:  
http://www.rd.usda.gov/programs-services/business-industry-loan-guarantees

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.

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