1. Business and Industry Guaranteed Loan Program RD Instructions 4279-A and B
Fred Kieferle

2. Business and Industry Guaranteed Loan Program
Purpose is to improve, develop, or finance business, industry, and employment, and improve the economic and environmental climate in rural communities
Bolster the existing private credit structure through the guarantee of quality loans that will provide lasting community benefits
Not intended for marginal or substandard loans or relief of lenders having such loans
The purpose of the B&I program is to …
It is not intended for businesses with substandard or marginal credit. The program is for loans that banks would normally make with exceptions below:
It is a tool for lenders to offer rates and terms that are beyond their normal lending policy with extended terms, fixed rates, etc. to improve applicant’s cash flow.
May not be able to do these loans without the Guarantee.
See RD Instruction for more on the B&I Program.
The B&I program is administered through 3 separate RD Instructions:
4279-A, General
4279-B, B&I Processing
4287-B, B&I Servicing

3. Rural Area Definition
Rural area definition: any area other than a city or town that has a population of greater than 50,000 inhabitants and any urbanized area contiguous and adjacent to such city or town.

4. Program Delivery
The B&I program is delivered through a system of 47 State Offices.

5. Lenders
Traditional Lenders - Federal or State chartered banks, Farm Credit Bank, Savings & Loans
Other Lenders - legal authority, sufficient experience and financial strength to operate a successful lending program
All lenders must have adequate experience and expertise to make, secure, service, and collect B&I loans
If a lending institution is not considered a traditional lender, they must apply to the State Office of the state where they wish to conduct business and provide the information contained in (b). If they propose to conduct business in multiple States they may submit the request to the National Office and provide copies to each State involved.
If the lender’s ability to make, secure, service and collect loans is questioned, additional information may be requested from the lender including portfolio information, bank underwriting policy, resumes of loan officers, etc., to make the necessary determination.
UL of May 6, 2004, released a copy of the MOU dated November 12, 2003, with NAGGL which represents a strong partnership with an association that has a mutual goal of providing sustainable economic and business opportunities in rural America. The MOU provides members a forum for providing constructive feed back to the Agency. We have agreed to participate in the NAGGL annual conferences to provide updates on the program and training to members. To become more familiar with NAGGL access their website at
See RD Instruction 4279-A, Section

6. Borrower
Any legal entity, Federally recognized tribal group, public body or individual
Manufacturing, wholesaling, retailing, service oriented
Cooperative, corporation, partnership, etc.
U.S. Citizens or 51% ownership, legally admitted for permanent residence.
See RD Instruction

7. Ineligible Borrowers/Purposes
Charitable institutions
Churches or church-controlled organizations
Fraternal organizations
Lending and investment institutions
Insurance companies
Businesses engaged in illegal activity
Golf courses
Complete list located in RD Instruction 4279-B, Section

8. Ineligible Borrowers/Purposes Cont’d
Lines of credit
Lease payments
Guarantee loans made by other Federal agencies
Distribution or payment to an owner, beneficiary, or a close relative of the owner, when owner will remain an owner
Federal tax-exempt obligations
Loans with direct or indirect conflicts of interest
Payment to owner issue arises when a developer is the borrower or stockholder and plans to construct the project and recoup a developer fee. Project costs only are eligible, no profit can be realized.

9. Loan Purposes Real estate purchase and improvements
Machinery and equipment
Working capital
Debt refinancing and business acquisitions - under certain conditions
Example of integrated ag production/processing and limits of $1 million or 50% of total loan whichever is less.
Discuss debt refinancing circumstances
improve cash flow and create new or save existing jobs AND (for existing lender debt)
current for last 12 months (w/o forgiveness) AND
better rates and terms
< 50% of total loan.
Business acquisitions ONLY if loss of jobs or closure will occur.
Coop Stock Purchase Program – Individual farmers/ranchers to invest in a NEW cooperative (as recognized by State Law) organized to process commodity produced by members. Cooperative must be supported by favorable feasibility study. (AN 3872, )
For loans in excess of $1 million and more than 50 NEW employees, Form must be submitted immediately. Caution to not inflate numbers and don’t underestimate. Be realistic. DOL clearance must be obtained to determine eligibility. (AN 3849, )
See RD Instruction

10. Fees, Loan Limits and Percentage of Guarantee
Initial Guarantee Fee – 2 or 3 percent
Annual Renewal Fee %
Loan Limits
$10 Million without Administrator exception (no exceptions in FY ’11 and FY ’12 due to limited funds
$25 Million to any one borrower
$40 Million for rural cooperative organizations
Percent of Guarantee Limits
80 Percent for loans less than $5 million
70 Percent for loans between $5 and $10 million
60 Percent for loans over $10 million
The guarantee fee is typically 2 percent of the guaranteed loan amount. For special high impact business and deteriorating economic factors of the community, a 1 percent guarantee fee can be requested. RD Instruction outlines the criteria for requesting a lower percent of guarantee.
Loan limits - $10 million. Administrator’s exception to increase amount up to $25 million.
Must be a high priority project (See for points) AND
document that loan will not be made AND the project will not be completed if the guarantee is not approved.
All loans over $10 million must be submitted to the State Office in the form of a preapplication and reviewed by the National Office before a full application is encouraged. This reduces the application processing timeframe. New loan limits for preapplication processing.
Maximum Percent of Guarantee AVAILABLE (AN 3870, ):
80% - < $5 million
70% - $5 <> $10 million
60% - > $10 million
Administrator’s exception authority for guarantee up to 90% on loans
< $10 million
Cost overrun loans. D/R, 2nd lien and other
high risk projects; less % guarantee offered.
AN 3870,

11. Loan Structure
Negotiated by the lender and borrower and approved by the Agency
Fixed/Variable/Combination
Reasonable and Customary
Maximum terms
Real estate - 30 years
Machinery and equipment - the lesser of 15 years or useful life
Working capital - 7 years
No balloon payments
Negotiations between lender and borrower are subject to Agency review and approval.
Variable rates must be tied to a published base rate. Adjusted not more often than quarterly. Payments must be adjusted so there are no balloon payments.
One rate for guaranteed; one for unguaranteed. Rate for the guaranteed portion cannot exceed the rate on the unguaranteed portion for the life of the loan.
May address this through establishing floors and ceilings.
Rates should be customary and reasonable and the same as nonguaranteed loans for the same size and purpose.
See RD Instruction

12. Equity Tangible Balance Sheet Equity -
Financial statements prepared in accordance with GAAP, except for the Coop Stock Purchase Program where financial information may be provided that is generally accepted by commercial agricultural lenders
Minimum of 10 percent for existing businesses
Minimum of 20 percent for new businesses
Minimum of percent for energy projects
Intangibles - goodwill, R&D, amortized loan costs, customer lists, etc.
Appraisal surplus not allowed
Subordinated debt is debt not equity
Minimum of 10 percent tangible balance sheet equity will be required for existing businesses at the time the Loan Note guarantee is issued.
Minimum of 20 percent on new businesses.
Current policy requires to accurately calculate tangible balance sheet equity, financial statements should be prepared by a CPA in accordance with GAAP. The calculation of tangible balance sheet equity is NOT a GAAP issue. However, the classification of assets as tangible or intangible IS a GAAP issue. GAAP assists in making the decision of intangible. There are general rules of assets that are intangible (i.e., goodwill, customer lists, organizational costs, etc.) However, certain industries have set standards under GAAP that allow certain assets to be considered tangible.
No appraisal surplus or subordinated debt.
Minimums are just that…Agency may require more based on industry or risk. Startups, hotels, motels tourist, recreational facilities and energy related businesses are identified as higher risk and will require higher equity, new ownership or substantial change in management team.
Example of requiring more. We will talk specifically about biobased manufacturing proposals later.
See RD Instruction (d)

13. Collateral
Sound and sufficient to protect interests of the lender and Agency (normally discounted value will be at least equal to the loan amount)
Appropriately discounted
B&I Guarantee is not collateral
Cannot secure unguaranteed portion with additional collateral
Collateral is secondary source of repayment.
Normally, collateral must be sufficient to secure the loan after discounting. Loan may exceed discounted value if strong cash flow. Loan amount MUST NOT exceed the market value/appraised value.
Junior lien is acceptable however prior lien and guaranteed loan may not exceed the discounted value.
Discount appropriately. Specialized collateral will require greater discounting (additional 5% – 10%). The lender’s analysis should use the bank’s standard discounting policy. Obtaining a guarantee should not change the normal discounting policies of the lender.
Unconditional Personal and Corporate Guarantees for those owning greater than 20 percent of the borrower will be required. Guarantees of parent, subsidiaries, or affiliated companies and secured guarantees may also be required. While considered collateral, the value is not considered in determining if the loan is adequately secured. AN 3801, (Page 17)
Collateral is the same for guaranteed portion and unguaranteed portion.
RD Instruction (b)

14. Feasibility Study Economic Market Technical Financial Management
A business plan is NOT a feasibility study.
Generally required for any new business, existing business w/o profitable history, existing business pursuing an independent operation, existing business entering new market or projecting a significant expansion of existing operations.
For any business, the agency can also require that only one certain aspect of a feasibility study be completed for any business (i.e., marketing)
The study should reach a conclusion as to the overall potential success of the business. Industry experts will be used to review feasibility studies for completeness and fairness.
Prepared by an independent qualified professional with a resume to support experience.
RD Instruction AND Appendix A

15. Appraisals
Qualified Appraiser; state certified general appraiser for real estate and improvements
R/E appraisals must meet FIRREA and USPAP standards
Chattel values in accordance with normal banking practices
Certified General Appraisers only.
Real Estate Appraisals must contain all three approaches to value (Cost Approach, Income Approach, and Sales Comparison).
You (lenders) are encouraged to detail the requirements of the appraisal in the engagement letter. And the letter should have a place for the appraiser to sign acknowledging the requirements. UL
Appraisals will be completed by persons with demonstrated experience in completing appraisals for the industry or like industry. Closely review the qualifications of the appraiser. For loans >$100,000 we strongly encourage the use of a State Certified General Appraiser. UL
Real Estate appraisals will be conducted in accordance with USPAP Standards I and II and consider the potential effects from a release or presence of hazardous substances or petroleum products or other environmental hazards on the market value of the collateral.
Chattel Appraisals - simpler and easier: 8 elements 1)existence; 2)ownership; 3)location; 4)number or amount; 5)condition; 6)value; 7)attachment; and 8)perfection. UL Appraiser must still exhibit experience with valuing similar M&E. AN 3798,
Business Enterprise Valuations are NOT appraisals. They will not be accepted.
Appraisals will have at a minimum an administrative review completed by the State Office. UL

16. Planning and Performing Development
Lender responsibilities include:
Design policy
Project control
Review plans and specs.
Use accepted architecture and engineering.
Conform with Federal, state, local codes.
Monitor construction - cost overruns.
Project completed with available funds.
Used for intended purposes in quantity and quality proposed.
The lender is responsible for ensuring the project functions at the level and quality proposed in the application. While there is no absolute requirement to use an independent professional, if after careful review, it is determined that the use of an independent professional is the only means that accepted architectural and engineering practices are followed, one may be required.
The lender is also responsible for monitoring the progress of construction and undertaking the reviews and inspections necessary to ensure that construction conforms to code requirements. Again, the use of an independent professional may be necessary if it appears that is the only method to ensure the requirements are achieved.
See RD Instruction

17. Insurance Hazard Life Worker Compensation Flood Other
Insurance is required. Hazard insurance must be sufficient to avoid the borrower becoming a co-insurer in the event of a loss. The Loan Agreement should contain the appropriate language.
Cover key person life insurance, standard/recommended coverage. Bank’s standard is typically accepted.
See RD Instruction

18. B&I Loan Processing Branch
Fred Kieferle – (202)
Brenda Griffin – (202)
Todd Hubbell – (202)
Lisa Siesennop – (202)

19. Questions?