NAC B&I Loan Guide

Funding the Flourishing of Rural America An Introduction to USDA B&I Loans

Familiarity is a xture of living in rural America. Navigating backroads is committed to muscle memory, facial recognition is developed over time not by technology, and the most frequent diner order is “the usual.” But there’s another feeling all too familiar to those who live in our country’s less densely populated towns: the shortage of capital. e rural reality is harsh but true: plans crafted on Main Street are less likely to secure backing from Wall Street. Lenders perceive the applications of rural companies as more risky; the prospect of their success, less ironclad. As such, the entrepreneurs, developers, and job creators in these communities have long been at a capital disadvantage – until now. e USDA’s Game-Changer for Rural Business Owners A number of years ago, the USDA crafted a novel solution.e department best known for its regulation and support of agriculture devised a series of plans to strengthen the economies and bolster quality of life in rural areas. In addition to acting as a direct lender, the USDA addressed the underlying concerns of traditional lenders by participating as a guarantor and ultimately easing access to capital in rural markets. Today, USDA Rural Development guarantees a $216 billion portfolio of loans – a massive portfolio few are aware of. Types of USDA Rural Development Loans e little-known program provides loans that fall into three categories: business & industry, community facilities, and energy. Each is designed to address a specic subset of needs that share a common goal: to foster the ourishing of rural America. USDA Business & Industry Loan Designed to incentivize nancial backing for the creation of businesses and jobs, USDA B&I Loans are available to for-prot businesses, nonprots, co-ops, tribes, and public bodies in need of funds for qualifying projects in rural communities. Funds may be used for the enlargement, repair, or development of a business, the purchase of land, buildings, facilities, equipment, supplies, or inventory, or the renancing of debt that improves cash ow or creates jobs. What doesn’t qualify? Lines of credit, rental housing, golf courses, churches, and agricultural production. USDA Community Facilities Loan (CF) Unlike the B&I loan, the Community Facilities Loan is not designed for commercial undertakings, but rather, to create facilities that provide essential services to rural communities. Such services can include healthcare, childcare, education, public gatherings, utilities, and food distribution, among others. If a local community needs a certain service to survive and thrive, chances are, a CF loan could fund the construction or improvement of the facility that houses it. USDA REAP Loan e Rural Energy for America Program (known as REAP) was established to equip rural small businesses and agricultural producers with funds for renewable energy systems and energy ecient improvements. Renewable

energy systems may include biomass, geothermal, hydropower, hydrogen, or wind power systems, among others. Energy eciency improvements include high eciency heating and cooling, insulation, lighting, windows and doors. Unlike the other programs, REAP is oered to agricultural producers as well as small business owners. Understanding Eligibility: How the USDA Denes ‘Rural’ To qualify for one of the USDA’s loan programs, it pays to get out of town. Actually, it’s required. To dene “rural,” the USDA looks to the Census bureau, which spells it out clearly: a city or town with a population of fewer than 50,000 inhabitants, excluding those adjacent to urbanized areas. In other words: a small town surrounded by small towns. If the criteria sound complex, there’s an easy solution: potential borrowers can plug an address into the USDA’s verication tool to nd out if it qualies. (Scan the adjacent QR code for a direct link). ATale of Two Programs: USDA vs. SBA Make mention of a government-backed business loan, and you’re likely to elicit a consistent response: “Oh, through the SBA?”e misconception is understandable. After all, the USDA B&I program is shamefully underrepresented. But the programs could not be more dierent. From longer terms and higher maximums to substantially lower default rates, the USDA B&I loan program is a more robust option for those who qualify.ose borrowing via an SBA loan could renance under the USDA B&I program. Here’s how the two compare:

Family Entertainment Manufacturing/Production Self-Storage/Cold Storage Facilities Qualifying Verticals:

Hotels/Hospitality Marinas/Maritime

Apiaries/Wildlife/Greenhouses Breweries/Wineries/Distilleries Ag Processing Solar/ Energy Oil and Gas/Mining Charter Schools Pharmaceutical/Urgent Care/Primary Care Commercial & Industrial Real Estate/Tenant Property

SBA 7-25 Years Required 100-1500 Depending on Industry

USDA B&I 7-30 Years Not Required Unlimited

Term Owner

Depending on Use

Depending on Use

Occupancy Maximum Employees (Borrower)

$25K $5MM Any

$1MM $25MM

Loan Minimum Loan Maximum Areas Served

Rural Areas with Populations <50K

As distinct as the USDA B&I loan program is from comparable SBA oerings, its contrast with traditional lending is even more stark.e USDA is equipped to handle loans that would have smaller banks running for the hills. And unlike traditional loans that feature a call or bullet every 3 to 5 years, USDA B&I loans have neither, nor do they have balloon payments. Real Estate purchases amortize over 30 years, with a maximum LTV ratio of 80% (compared to 65-70% at most traditional banks). And for those nancing machinery and equipment, the USDA program beats typical amortization by a multiple of ve, oering a full 15 years compared to just 3-7.

Securing a B&I Loan:Where to Begin &What to Expect Because USDA B&I loans are serviced through private lenders, the application process begins just like any other: by identifying a reputable lender. But unlike traditional loans, the USDA loan qualication process requires specialized knowledge, so selecting a lender who specializes in USDA Rural Development loans is key. A reputable lender will oer competitive rates – typically 1-3% above the Market Prime Rate at closing. Exact rates are negotiated directly between the borrower and the lender, not set by the USDA, and can be xed or variable. Borrowers are required to maintain collateral in the form of land, equipment, or other xed assets with a value equal to or greater than the loan amount. Each B&I loan application is submitted to the USDA by the lender, after which the USDA typically approves or denies applications within 45 to 60 days. Typically, the application and approval process takes between 2 and 3 months from beginning to end. Transforming Capital into Condence USDA B&I loans are fueling innovation, creating jobs, and enabling essential services in communities across America. For example, the program’s backing has breathed new life into one of Lake Michigan’s most treasured resorts, launched an engineering renaissance in rural Illinois, and empowered a third generation of beekeepers in Georgia to take their products national. By reducing the barriers to rural lending, the USDA is empowering lenders to fuel entrepreneurship, developers, and job creation with two essential resources: competitively priced capital and long-awaited condence.

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The Trusted Lender to Rural America’s Growing Businesses Business & Industry Loans $1MM - $25MM Loan Amounts Populations of 50,000 or Fewer

Traditional banks don’t understand Rural America. We do.

Our customers are innovative entrepreneurs, discerning business owners, and generous employers.ey’re market-savvy professionals who customers can’t do without – and typical lenders can’t understand.

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Commercial Real Estate

Manufacturing

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Defining Rural : 97% of America.

Our customers are often surprised to hear that we only lend to rural businesses — and even more surprised to discover they’ve actually been operating one. 97% of the geographic USA is considered rural. Find out if your address qualies in 10 seconds. SEE IF YOU QUALIFY

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