Would you pass up the opportunity to lend to a solid business or community project? What if the loan was backed with an up to 90 percent government guarantee and had extended terms? Even more, what if the operation was an important economic driver in a rural area your bank serves?
Sound great? And yet many banks are missing out on these strong lending opportunities because they aren’t aware of, or don’t understand, three under-utilized USDA lending programs.
The U.S. Department of Agriculture offers lending programs specifically designed with the needs of rural communities in mind. Commercial lenders that serve those communities know there can be unique challenges when providing credit to rural operations. Consider these three often overlooked programs to overcome those obstacles.
In 2020, the USDA streamlined the following programs under the OneRD initiative.
USDA Business & Industry Loan Guarantees
Perhaps the most under-used of all USDA programs, this is a significant tool to support large companies operating in small towns. It is not designed for distressed businesses, but is particularly helpful for large factories or facilities located in towns of 50,000 or less when not connected to a metro area. For example, a manufacturer may need $5 million to expand its facilities. Because of the rural location, the building may only garner a fraction of that during liquidation. These circumstances make many lenders apprehensive about lending the full $5 million.
The B&I program allows banks to extend more credit than they are typically able by providing guarantees up to 80%. Loans maximums can reach $25 million, with the guarantees decreasing on a sliding scale to 60% as the loan amount increases. The loans can have extended terms – up to 30 years on real estate.
Many lenders don’t realize that the B&I program can do things that SBA programs can’t. There are no restrictions on the type of business that can receive a loan – VITAL has helped banks finance commercial rental properties, publicly-traded companies and very large businesses. When a rural business wants to expand, it’s a great time to look at what can be done through the USDA.
Rural Energy for America Program (REAP)
This program provides loan guarantees, direct financing and grant programs to agricultural producers and small businesses located in towns of 50,000 or less for renewable energy systems or to make energy efficiency improvements.
Community Facilities Program
Banks serving towns with 50,000 or fewer residents can utilize the Community Facilities program for government or not-for-profit projects that provide an essential service to the local community. VITAL has worked with rural lenders to finance important community projects like hospitals, healthcare services, county jails, educational facilities and retirement communities.
These projects would typically be financed by revenue or tax-exempt bonds, requiring a vote by taxpayers. The Community Facilities program provides an alternative to using a bonding company, and may streamline the funding process. The USDA offers up to a 90% guarantee for these loans.
Are there opportunities for your bank to use these under-used programs to support local rural development? Leverage our expertise in USDA lending programs for support through every stage of the loan process. Let's start with a conversation about eligibility and application - contact us any time!