The Business and Industry (B & I) loan program oversees the United States Department of Agriculture (USDA or the Agency) guarantees loans qualified lenders to benefit rural businesses. For the right projects, community banks can get a 80% guarantee for loans up to $ 5 million, 70% guarantee for loans between $ 5 million and $ 10 million and a 60% guarantee for loans between $ 10 million and $ 25 million. The B & I guaranteed loan program allows lenders to increase their loan portfolio, get lack responsibility, increase the income of participating in the secondary market, providing loans to smaller communities with traditionally lower collateral values and loan extensions above the legal lending limits of.
For each loan, lenders submit a detailed application to the responsible agency office in the state where the project is located. Approval or denial decisions generally take several weeks. Projects eligible for funding B & I including acquisitions, commercial real estate purchase, startup costs and working capital, machinery and equipment purchase and refinance some.
On 17 December 2008, the USDA published its interim order relating to B & I loan program in the Federal Register. Effective October 1, 2009, the new rule is designed to optimize applications, speed up approval marks responsibility process and increase the types of eligible projects. The agency finally decided to abandon the new rule, and instead focus on working within the existing legal framework for improving the B & I loan program.
Under the previous rule, the B & I loan program requires lenders to collect burdensome application and to deal with the long approval time lines and limited features loans. For example, a corporate lender complaint has been laborious guarantee application. For each loan under the earlier rules, B & I lenders had to submit to on-site organization all underwriting and approval of loans their instruments, at least three B & I forms a draft loan agreement, a copy of the loan origination and service policies and procedures and information on the history of lending experience and their relationship with regulators. The agency also received guarantees “priority scoring” basis, which gave loans in especially rural areas with compelling purposes priority over other things loans carried lower “score”. An approval or denial decision for lower credit score could take months of application submission.
The USDA aims to reduce these drawbacks with the revised rule. The new rule seeks to streamline the original application. Lenders must apply to participate in the guaranteed loan program by submitting background information, such as descriptions of lending history and experience, policies and procedures and documentation relating to regulatory compliance (7 CFR 5001.9). While lenders had to submit to the old rule, they are now permitted to submit summaries instead of copies of their policies and procedures (§5001.9 (a) (1)). When approved by the Agency, lenders will no longer submit this background information when applying for loan guarantees (§5001.9 (b) (4)). The revised rule also reduces the number of guarantee schemes, application forms (§ 5001.12 (a)) and excludes the draft loan agreement (§5001.34). In addition to simplifying the application process, the new rule seeks to reduce warranty approval mark timeline.
Two changes aim to accelerate the approval process of responsibility. The agency has spent its “priority scoring” system in favor of a simpler first-come-first-serve approach (§5001.103 (f) (1)). In addition, the agency has created a preferred lender program (Plp) (§5001.9 (d)). The benefits of getting Plp position ten days of approval or denial decision (§5001.11 (c)), with less responsibility application package (§5001.12 (b)) and a chance to get the desired position in more than one state with a single PLP application ( §5001.9 (d) (2)). In addition, to streamline the application process, the agency has introduced several new features loans to B & I loan program.
B & I guarantees can now be issued for more uses and purposes. Under the previous regulations, credit lines were eligible. Credit lines are now eligible when used for annual operating expenses / business, debts advanced for the current operating cycle, scheduled not delinquent term borrower debt or closing costs (§5001.103 (b) (2) (xix)). Projects involving Leasehold improvements and the purchase of mixed-use commercial and residential buildings are also now eligible for B & I guarantees (§5001.103 (b) (2) (XVIII, xx)). Another new feature removes the prohibition that interest rates do not change more frequently than quarterly, and allows lenders to set variable rate that adjusts as often as daily (§5001.31 (a)). These innovations allow lenders to get valuable B & I ensure that projects that were previously ineligible.
Although these features are now available to lenders, some revision of the rule is less clear and useful tools have been removed. For example, the Agency has replaced the proposed cash equity criterion with debt-tangible capital ratio strong reference (§5001.6 (c)), but has not managed to define this calculation, other than to refer to GAAP. Additionally rule eliminate, limit the power of the Agency to issue a 90% guarantee. Again, the agency eventually decided to abandon the new rule, and instead focus on working within the existing legal framework for improving the B & I loan program.