by Jeff Deiss, Business Program Director, USDA
Rural Development, Portland, Oregon
 Jeff Deiss, Business & Cooperative Program Director: USDA Rural Development, Oregon State Office |
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Much is being written and discussed about how to
re-engineer SBA guaranteed loan programs to help lenders respond to the "credit
squeeze" on Main Street.
In testimony before Congress, the Independent
Community Bankers of America called for a "Super SBA 7(a) loan program",
involving streamlined, expedited delivery of 95% guarantees for business
loans up to $500,000, with reduced fees.
The Coleman Report recently compiled 20
suggestions for Obama's SBA, including more flexibility in allowable
interest rates, larger loans, and increased guarantee percentages
Congress itself is now mulling over the
outlines of a new SBA guaranteed loan product that could provide up to many
of the features mentioned above.
All of these ideas and developments are worthwhile
and encouraging. But as anyone who has been involved in government programs
knows, the development and roll-out of new programs takes time and once
completed, the end product inevitably contains unforeseen pitfalls and surprises
that take time to identify and correct.
Given the urgency of the current economic
situation, can lenders and business borrowers really afford to wait for a
"dream" guaranteed loan program?
What if there is already a Federal guaranteed loan
product that offers many of the sought-after features? One that is tested,
well-understood, and currently available to address the guaranteed lending needs
of the "credit squeeze"?
USDA Rural Development's Business & Industry (B&I)
guaranteed loan program is just such a product. Consider some of its features:
B&I provides 80% guarantees on loans up to $5
million (and 70% on loans of $5-10 million).
B&I offers a "One-Doc" program similar to the
old SBA "Low-Doc" model for loans up to $600,000.
B&I guarantee fees are relatively inexpensive
-- generally 1.6% (based on 2% of the guaranteed amount of the loan,
typically 2% of 80%).
B&I charges a once-a-year (rather than
monthly) renewal fee of 0.25% of the guaranteed principal as of 12/31 -- a
fee that, though paid by the lender, may be passed on to the borrower.
B&I allows lenders to use any published index
and does not cap the spread, allowing the lender and borrower to negotiate
the interest rate (though variable rates cannot reset more often than
quarterly).
Piggyback financing is not necessarily
prohibited.
Rural Development does its own lender reviews,
and there is no lender charge associated with this.
B&I underwriting decisions are generally made
at the state-level, allowing lenders to interact directly with their Federal
counterparts. Local delivery can mean that the Federal underwriter has
increased awareness of local economic conditions and a greater sensitivity
to extenuating circumstances.
Of course, no guaranteed loan program yet is
perfect, and the B&I program does come with limitations:
Only businesses located in rural areas can
qualify. (However, "rural" typically means outside of Census defined
"Metropolitan Statistical Areas", leaving plenty of non-metro territory for
B&I lending.)
B&I's "tangible balance sheet equity" rule
sometimes disqualifies long-standing businesses.
New construction projects are sometimes
subject to extensive environmental scrutiny.
The speed and quality of the B&I program's
delivery varies from state-to-state.
Nevertheless, lenders looking for an immediate
answer to the twin riders of the current credit squeeze apocalypse -- risk
management and capital management -- should consider taking another look at the
B&I program.
In FY2008, B&I program activity exceed $1.4
billion nationwide, the highest level ever for the program. There is some
indication that the stimulus bill may triple the B&I program's funding levels.
In Oregon, we are now promoting a "Rural Rebound"
product to help rural lenders and businesses cope with the credit squeeze. Other
states around the country are just as active and committed to helping rural
businesses weather the economic downturn.
The opportunity to explore the B&I program has
never been greater.
For details, check out RD-Oregon's B&I web site at
B&I web site at ***
You can find your state's local B&I representative
by going to
Jeff Deiss is the Business Programs Director in
Oregon for USDA Rural Development. He can be reached at 503-414-3367 or