A wide variety of business types are eligible for B&I financing, including hotels, gas stations/convenience stores, nursing homes, shopping centers, office condos and mini-storage facilities. Some ineligible businesses include golf courses, gambling facilities, traditional agricultural production facilities, charitable institutions, churches or housing.

Loan terms

B&I's structural requirements are probably the reason people consider the program challenging. USDA B&I loans have to be secured. The maximum loan-to-value ratios vary depending on whether real estate, accounts receivable and inventory, or machinery/equipment is financed.

With certain exceptions, the total amount of agency-guaranteed loans to one borrower cannot exceed $10 million. Prior SBA loans do not count toward that limit. Borrowers must meet a tangible net-worth requirement. This helps provide assurance that the project will be successful and that the owners are financially vested in the project and business.

For existing businesses, a minimum of 10-percent tangible balance-sheet equity is required. With startup businesses, a minimum of 20-percent tangible balance sheet equity is needed, given the higher risk. Personal and corporate guarantees are also typically required.

On startups or major expansions, borrowers usually must provide a feasibility study conducted by a qualified independent consultant. This study must address economic, market, technical, financial and management feasibility.

Loans secured by real estate can be amortized for more than 30 years. There are no call dates or balloon payments, which is a clear advantage for borrowers who do not want to worry about refinancing risks.

Other structural terms such as rates, fees and prepayment penalties are negotiated with the lender. Interest rates can be either fixed or floating. Many of these government-backed loans are eventually sold to investors. So pricing and structure are critical to the bank's ability to earn a premium on the loan. Lenders are expected to service the loans, however.

Although most lenders -- including national and state-chartered banks, farm credit-system banks, and savings-and-loan associations -- are eligible to extend B&I loans, brokers might want to work with a bank that has a track record of underwriting, packaging and processing these loans. You should work with a lender that understands the program, that has a relationship with the state USDA Rural Development office and that will devote the time necessary to package and present the loan request. Not every loan request in a rural area will qualify for a B&I loan.

In these times of tightened credit terms and capital restraints, the B&I loan program can be a viable potential financing vehicle for rural-based borrowers. If borrowers are organized in their record-keeping and willing to work within the program's requirements, it should be no more cumbersome than applying for an SBA loan.

Ultimately, all parties serve to benefit. The eligible borrowers benefit from being granted a loan they might not otherwise obtain, usually at more-favorable terms than a conventional loan.

Brokers benefit from having happy clients who are now more likely to refer other business to them.

The bank gets a portion of its loan repayment guaranteed by the U.S. government.

And communities benefit from the infusion of capital dollars, retention of jobs and the potential for enhanced local business and industry.

Irene M. Barton is a marketing assistant with Community South Bank, a preferred U.S. Small Business Association lender with a national presence. She has spent more than 16 years in the commercial lending industry. Reach her at (770) 444-9190 or ibarton@communitysouthlending.com. Debra Nesbitt, first vice president and USDA Business and Industry specialist for Community South, has nearly 20 years of financial-industry experience. Reach her at (704) 759-3685 or dnesbitt@communitysouthlending.com. Visit www.communitysouthlending.com for additional information.

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