| The Business and Industry (B&I) loan program | | | | compliance (7 CFR 5001.9). Although lenders had to |
| administered by the United States Department of | | | | submit this information under the old rule, they are now |
| Agriculture (USDA or Agency) guarantees loans by | | | | permitted to submit summaries instead of copies of |
| qualified lenders to benefit rural businesses. For eligible | | | | their policies and procedures (§5001.9(a)(1)). Once |
| projects, community banks can obtain an 80% | | | | approved by the agency, lenders will no longer have to |
| guarantee for loans up to $5 million, a 70% guarantee | | | | submit this background information when applying for |
| for loans between $5 million and $10 million and a 60% | | | | loan guarantees (§5001.9(b)(4)). The revised rule |
| guarantee for loans between $10 million and $25 million. | | | | also reduces the number of guarantee application |
| The B&I guaranteed loan program allows lenders | | | | forms (§ 5001.12(a)) and eliminates the draft loan |
| to expand their loan portfolio, obtain a deficiency | | | | agreement (§5001.34). In addition to simplifying the |
| guarantee, increase earnings by participating in the | | | | application process, the new rule endeavors to reduce |
| secondary market, make loans in smaller communities | | | | the guarantee approval timeline. |
| with traditionally lower collateral values and extend | | | | Two changes aim to accelerate the guarantee |
| loans above their legal lending limits. | | | | approval process. The Agency has eliminated its |
| For each loan, lenders submit a detailed guarantee | | | | "priority scoring" system in favor of a simpler |
| application to the Agency office in the state where the | | | | first-come-first-serve approach (§5001.103(f)(1)). |
| project is located. Approval or denial decisions | | | | Additionally, the Agency has created a preferred |
| generally take several weeks. Projects eligible for | | | | lender program (PLP) (§5001.9(d)). The benefits of |
| B&I financing include business acquisitions, | | | | obtaining PLP status include a ten day approval or |
| commercial real estate purchases, startup costs and | | | | denial decision (§5001.11(c)), a smaller guarantee |
| working capital, machinery and equipment purchases | | | | application package (§5001.12(b)) and the |
| and some refinances. | | | | opportunity to obtain preferred status in more than one |
| On December 17, 2008, the USDA published a new | | | | state with a single PLP application (§5001.9(d)(2)). |
| interim rule pertaining to the B&I loan program in | | | | In addition to streamlining the application process, the |
| the Federal Register. Effective October 1, 2009, the | | | | Agency has introduced some new loan features to |
| new rule is designed to streamline the application, | | | | the B&I loan program. |
| accelerate the guarantee approval process and | | | | B&I guarantees may now be issued for additional |
| expand the types of eligible projects. The Agency | | | | uses and purposes. Under the previous regulations, |
| ultimately decided to abandon the new rule and instead | | | | lines of credit were ineligible. Lines of credit are now |
| focus on working within the existing regulatory | | | | eligible when used for annual operating/business |
| framework to improve the B&I loan program. | | | | expenses, debts advanced for the current operating |
| Under the previous rule, the B&I loan program | | | | cycle, scheduled non-delinquent term borrower debt or |
| required lenders to compile burdensome applications | | | | closing costs (§5001.103(b)(2)(xix)). Projects |
| and to deal with lengthy approval timelines and limited | | | | involving leasehold improvements and the purchase of |
| loan features. For example, a common lender | | | | mixed use commercial and residential buildings are also |
| complaint has been the laborious guarantee application | | | | now eligible for B&I guarantees |
| process. For every loan under the previous regulations, | | | | (§5001.103(b)(2)(xviii, xx)). Another new feature |
| B&I lenders had to submit to the local Agency all | | | | removes the prohibition that interest rates change no |
| of their underwriting and loan approval documents, at | | | | more often than quarterly, and allows lenders to set a |
| least three B&I application forms, the draft loan | | | | variable rate that adjusts as often as daily |
| agreement, copies of loan origination and servicing | | | | (§5001.31(a)). These new features allow lenders to |
| policies and procedures, and details concerning lending | | | | obtain a valuable B&I guarantee for projects that |
| history, experience and their relationship with regulators. | | | | previously were ineligible. |
| The Agency also awarded guarantees on a "priority | | | | Although these features are now available to lenders, |
| scoring" basis, which gave loans in particularly rural | | | | some revisions to the rule are less clear and useful |
| areas with compelling purposes priority over otherwise | | | | tools have been eliminated. For example, the Agency |
| eligible loans that earned a lower "score". An approval | | | | has replaced the proposed cash equity criterion with a |
| or denial decision for lower scoring loans could take | | | | debt-to-tangible net worth ratio criterion |
| months from the application submission. | | | | (§5001.6(c)), but has failed to define this calculation |
| The USDA aims to reduce these drawbacks with the | | | | other than referring to Generally Accepted Accounting |
| revised rule. The new rule attempts to streamline the | | | | Principles. Additionally, the rule eliminates the Agency's |
| original application process. Lenders must apply to | | | | limited authority to issue 90% guarantees. Again, the |
| participate in the guaranteed loan program by | | | | Agency ultimately decided to abandon the new rule |
| submitting background information such as descriptions | | | | and instead focus on working within the existing |
| of lending history and experience, policy and | | | | regulatory framework to improve the B&I loan |
| procedures and documentation concerning regulatory | | | | program. |