Bi Loan Guarantee Public

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Bi Loan Guarantee Public

  1. 1. BUSINESS AND INDUSTRY GUARANTEED LOAN PROGRAM USDA Rural Business-Cooperative Service
  2. 2. THE B&I PROGRAM <ul><li>Improve, develop, or finance business, industry, and employment, and improve the economic and environmental climate in rural communities. </li></ul><ul><li>Bolster the existing private credit structure through the guarantee of quality loans that will provide lasting community benefits. </li></ul>
  3. 3. ELIGIBLE LENDERS <ul><li>Any Federal or State chartered and regulated lender. Including: </li></ul><ul><li>Commercial Banks </li></ul><ul><li>Savings and Loan </li></ul><ul><li>Credit Unions </li></ul><ul><li>Farm Credit </li></ul>
  4. 4. LOAN GUARANTEE LIMITS <ul><li>$0 - $5 Million 80% Guarantee </li></ul><ul><li>$5 Million - $10 Million 70% Guarantee </li></ul><ul><li>$10 Million - $25 Million 60% Guarantee </li></ul>
  5. 5. COST OF THE PROGRAM <ul><li>Guarantee Fee – </li></ul><ul><li>2% of the Guaranteed Portion of the original Loan Amount. </li></ul><ul><li>Due at Loan Closing. </li></ul><ul><li>Lender’s Annual Renewal Fee – </li></ul><ul><li>¼% of the Guaranteed Portion of the remaining balance. </li></ul><ul><li>Due every January 31 st . </li></ul>
  6. 6. BORROWER ELIGIBILITY <ul><li>Any Corporation, Partnership, Sole Proprietor, Co-op, LLC, Indian Tribe, Public Body engaged in a business. </li></ul><ul><li>Organized either on a for profit or nonprofit basis. </li></ul><ul><li>In a rural area - not within the boundaries of a city of 50,000 or more, or located in adjacent urbanized areas. </li></ul><ul><li>51 percent owned by U.S. Citizens or persons admitted for permanent residence. </li></ul>
  7. 7. INELIGIBLE BORROWERS <ul><li>Charitable institutions. </li></ul><ul><li>Churches or church-controlled organizations. </li></ul><ul><li>Fraternal organizations. </li></ul><ul><li>Lending and investment institutions. </li></ul><ul><li>Insurance companies. </li></ul><ul><li>Businesses engaged in illegal activity. </li></ul>
  8. 8. INELIGIBLE BORROWERS <ul><li>Golf Courses and Race Tracks. </li></ul><ul><li>Owner-occupied housing. </li></ul><ul><li>Businesses with Government employees or military personnel as directors, officers, or owners (20 percent or more control). </li></ul><ul><li>Businesses with more than 10 percent of gross revenue from gambling. </li></ul>
  9. 9. ELIGIBLE LOAN PURPOSES <ul><li>Acquire Land and Buildings used for business. </li></ul><ul><li>New construction and improvements. </li></ul><ul><li>Machinery and equipment purchases. </li></ul><ul><li>Inventory or working capital. </li></ul><ul><li>Favorable debt refinancing or </li></ul><ul><li> business acquisitions. </li></ul><ul><li>Start a new business. </li></ul>
  10. 10. INELIGIBLE LOAN PURPOSES <ul><li>Lines of credit. </li></ul><ul><li>Lease payments. </li></ul><ul><li>Payment of delinquent obligations. </li></ul><ul><li>Distribution or payment to an owner, beneficiary, or a close relative. </li></ul>
  11. 11. INELIGIBLE LOAN PURPOSES <ul><li>Relocation of jobs outside their existing community. </li></ul><ul><li>Agriculture production that is not integrated with processing - other exceptions. </li></ul><ul><li>Loans with direct or indirect conflicts of interest. </li></ul><ul><li>Collateralize other obligations. </li></ul>
  12. 12. LOAN TERMS <ul><li>Maximum repayment terms for: </li></ul><ul><ul><li>Real estate - 30 years. </li></ul></ul><ul><ul><li>Machinery and equipment - the lesser of 15 years or its useful life. </li></ul></ul><ul><ul><li>Working capital - 7 years. </li></ul></ul><ul><li>No balloon payments allowed . </li></ul>
  13. 13. COLLATERAL <ul><li>Sound and sufficient to protect interests of the Lender and Agency. </li></ul><ul><li>Appropriately discounted to reflect </li></ul><ul><li>recovery values. </li></ul><ul><li>Junior liens can be considered. </li></ul><ul><li>Must have same collateral for the guaranteed and non-guaranteed portions. </li></ul>
  14. 14. EQUITY BASED ON GAAP <ul><li>Tangible Balance Sheet Equity – </li></ul><ul><li>Minimum of 10 percent for existing businesses. </li></ul><ul><li>Minimum of 20 percent for new businesses. </li></ul><ul><li>Will require more for riskier or specialized businesses. </li></ul><ul><li>Intangibles – such as goodwill, organizational costs, loan fees, patents, trademarks, and R&D are not included. </li></ul>
  15. 15. CREDIT ANALYSIS <ul><li>Lender analysis - </li></ul><ul><li>Address borrower’s management ability, repayment ability, credit history, location, competition, personal guarantees, collateral and other important aspects. </li></ul><ul><li>Financial Statements - past 3 years historic and 2 years of projections supported by a feasible </li></ul><ul><li>business plan. </li></ul><ul><li>Compile ratios and compare to industry standards. </li></ul>
  16. 16. ISSUING THE GUARANTEE <ul><li>Lender certification - </li></ul><ul><li>No material adverse changes in borrower’s condition. </li></ul><ul><li>All conditions of the Commitment have been met - equity, insurance, personal guarantees, liens perfected, etc. </li></ul><ul><li>Loan has been properly closed. </li></ul><ul><li>Settlement Statement . </li></ul>

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