Business and Industry Guaranteed Loan Program

1
Business and IndustryGuaranteed Loan Program

• USDA
• Rural Business-Cooperative Service
• www.rurdev.usda.gov/rbs

2
Purpose of the Program

• 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.

3
Fiscal Year Obligations and Number of
Loans(Dollars in Thousands)
792
803
591
558
519
905
659
560
327
179
97
4
Business and Industry Guaranteed Loan Program
FY 2003
NH 1
VT 9
ME 7
WA 7


MT 1
ND 12
MA 9
MN
0
10
OR 1
NY 28
WI 15
lt5M
ID 8
SD 5
MI 19
RI 3
WY 15
CT 4
gt5M - 10M
PA 13
IA 13
NJ 3
OH 32
NE 8
IN
DE 8
gt10M - 15M
NV 1
WV
IL 9
MD 2
11
6
VA 8
UT 2
CO 9
CA
gt15M - 20M
KS 8
KY 13
MO 15
74
NC 20
gt20M
TN 12
SC 1
OK 16
NM 5
AZ 6
AR 1
Total Loans 519
GA
AL 2
Total Funds 906,501,963

MS
6
LA 8
TX 16
WP 2
FL
9
AK 22
PR
HI 4
VI
As of September 30, 2003
5
Business and Industry Guaranteed Loan Caseload
As of September 30, 2003
NH 15
ME
VT
WA 40
47
33
MA
ND 49
MT 201
MN
29
NY
72
OR 22
91

WI 57
ID 51
SD 38
MI 67
13
RI
WY 41
CT
24
PA 56
IA 39
NJ 21
OH 87
NE 121
NV 26
IN
DE 14
WV
IL 69
MD
36
51
UT 41
CO 240
VA 24
20
KS 30
KY 70
MO 75
CA
CA 217
NC 145
TN 51
SC 52
OK 46
NM 31
AZ 36
AR 29
GA 55
AL 14
MS
26
AK 73
LA 76
TX 99
WP 12
FL
89
PR 67
HI
56
VI 4
gt
1M - 20M
20M - 40M
gt40M -60M
gt60M - 80M
gt100M - 120M
gt120M - 150M
gt80M - 100M
gt150M - 400M

Total Borrowers 3,088
Total Funds Closed 5,007,939,538
6
Fees/Guarantee

• Guarantee Fee
• Loan Limits
• Percent of Guarantee

7
Borrower

• Any legal entity, Federally recognized tribal
  group, public body or individual.
• Manufacturing, wholesaling, retailing, service
  oriented.

8
Location

• Rural Area - not within the boundaries of a city
  or town with more than 50,000 inhabitants or the
  urbanized area of the city and town.
• http//maps.ers.usda.gov/loanlookup/viewer.htm

9
Loan Purposes

• Most legal purposes -
• Real estate purchase and improvements
• Machinery and equipment
• Working capital
• Integrated ag production/processing facilities
• Debt refinancing and business acquisitions -
  under certain conditions

10
Ineligible

• Charitable institutions.
• Churches or church-controlled organizations.
• Fraternal organizations.
• Lending and investment institutions.
• Insurance companies.
• Businesses engaged in illegal activity.
• Golf courses.

11
Ineligible

• 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.

12
Rates

• Negotiated by the lender and borrower.
• Fixed/Variable/Combination
• Customary

13
Terms

• Maximum terms
• Real estate - 30 years
• Machinery and equipment - the lesser of 15 years
  or useful life
• Working capital - 7 years
• No balloon payments

14
Applications

• Preapplication Determines
• Applicant eligibility
• Project eligibility
• Application requirements
• Application

15
Lender Analysis

• The lender is primarily responsible for
  determining credit quality through
• a written credit and financial
• statement analysis.

16
Collateral

• Sound and sufficient to protect interests of the
  lender and Agency.
• Appropriately discounted.
• BI Guarantee is not collateral.
• Cannot secure unguaranteed portion with
  additional collateral.

17
Appraisals

• Qualified Appraiser.
• R/E appraisals must meet FIRREA and USPAP
  standards.
• Loan origination and servicing actions.

18
Feasibility Study

• Economic
• Market
• Technical
• Financial
• Management

19
Insurance

• Hazard
• Life
• Worker Compensation
• Flood
• Other

20
Equity

• Tangible Balance Sheet Equity -
• Financial statements.
• Minimum of 10 percent for existing businesses.
• Minimum of 20 percent for new businesses.
• Intangibles - goodwill, RD, amortized loan
  costs, customer lists, etc.
• Appraisal surplus not allowed
• Subordinated debt is debt not equity.

21
Agency Analysis

• Moodys Financial Analyst software
• State Loan Committee and National Office
  Executive Loan Committee
• Administrator Exceptions

22
Conditional Commitment

• Agency requirements.
• All conditions must be met.
• Dont let it expire.

23
Planning and Performing Development

• Lender responsibilities include
• Design policy
• Project control

24
The Guarantee

• Comprehensive lender certification -
• No material adverse changes in borrowers
  financial condition.
• All conditions of Conditional Commitment have
  been met - equity, insurance, personal
  guarantees, liens perfected, etc.
• Loan has been properly closed.
• Settlement Statement.
• Closing Balance Sheet.

25
Servicing

• Due Diligence
• Financial Statements
• Reporting

26
Servicing

• Collateral inspections
• Agency visit
• Borrower visit

27
Servicing

• Default
• estimated loss
• final report of loss
• Agency notification
• Plan to Cure
• Repurchase

28
Final Loss Claims

• Collateral
• lien position
• type/condition
• Use of Proceeds
• Review and compare actual disbursements to
  approved use of funds
• Planning and Performing Development
• construction monitoring
• performance bond insurance.

29
Final Loss Claims

• Appraisals
• Qualifications
• Financial Statement Analysis
• Acting in a non-prudent manner may
• affect the final loss paid.

30
BI Portfolio Delinquency Status Excluding
Bankruptcy As of September 30, 2002
7.69
NH
6.06

ME 8.33

VT
WA 3.45
MT 3.30
ND 6.98
MA
MN 5.80
3.70

OR 9.52
WI 10.42
NY 8.14
ID
SD 7.70
MI 7.90
RI 7.14
WY
CT
9.09
PA 18.87
IA
NJ 11.76
OH 20
IN 29.17
IL 14.06
NE 4.55
DE
NV 3.45
WV 8.34
MD
UT 11.37
5.0
CO 1.96
VA 14.29
MO 5.80
KS
KY 8.07
CA 1.49
NC 6.14
TN 11.32
AZ 9.38
AR 25.71
OK 7.69
SC 25
NM 10.34
GA 30.36
AL 16.67
MS 11.53
LA
AK 4.41
17.11
WP 25
TX 22.32
FL 13.64
PR 33.75
HI 5.18
VI

gt 9 - 12 percent
1 - 3 percent
gt 3 6 percent
gt 6 9 percent
gt 12 percent
States appearing in white have zero BI
Guaranteed Loan Program Delinquencies. National
Delinquency Average 10.29.

31
Secondary Market

• Lenders are encouraged to utilize the secondary
  market and pass the interest-rate savings to the
  borrower.

32
Program Audit

• Farm Credit Administration
• Office of Inspector General

33
Initiatives

• Recent
• Future

34

• Debi Raygor
• USDA, Rural Business-Cooperative Service
• 1400 Independence Ave., SW, STOP 3224
• Washington, DC 20250-3224
• debi.raygor_at_usda.gov [phone]
• John Guthmiller, Program Director
• USDA, Rural Business-Cooperative Service
• PO Box 850
• Bozeman, MT 59771
• john.guthmiller_at_mt.usda.gov [phone]