Business and Industry Guaranteed Loan Program

1. Business and Industry Guaranteed Loan Program

2. What is the B&I Guaranteed Loan Program? • The Business and Industry (B&I) Guaranteed Loan Program is a loan guarantee program designed to assist credit-worthy rural businesses obtain needed credit for most any legal business purpose. • Bolster the existing private credit structure through the guarantee of quality loans that provide lasting community benefits. • Not intended for marginal or substandard loans or relief of lenders having such loans.

3. Not B&I • The Agency does not provide a loan to the borrower. • The lender is our customer, not the borrower. • We do not guarantee marginal or substandard loans. • We do not have grants to start a small business.

4. Business & Industry

5. Business & Industry

6. Eligible Locations • Rural Area – Anywhere except within the boundaries of a city or town with more than 50,000 inhabitants or the urbanized area of that city or town • Eligibility can be determined at the following Web site: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

8. Eligible Borrowers • Any legal entity, including, corporations, partnerships, and cooperative organizations; Federally recognized tribal group, public body; or individual engaged in or proposing to engage in a business • Can assist both for-profit and non-profit entities • All applications are accepted without regard to the availability of credit from any other source

9. Types of Businesses Financed • Manufacturing • Wholesaling • Retailing • Service oriented businesses • Other activities that will provide employment and improve the economic or environmental climate *Project must be in an eligible area.

10. Eligible Non-profits • Obtain the Articles of Incorporation to document eligibility/ineligibility • Must not be for charitable purposes • Non-profits are not eligible for the SBA programs, but may be eligible under the B&I program

11. Loans for Cooperatives • Loans up to $40 million for rural cooperatives that provide for value-added processing of agricultural commodities • Loans up to $25 million for non-rural cooperatives • When the primary purpose of the loan is for a facility to provide value-added processing for agricultural producers that are located within 80 miles of the facility, and • When the primary benefit of the loan will be to provide employment for rural residents

12. Eligible Uses of Funds

13. Eligible Uses of Funds • Real estate purchase and improvements • Construction • Machinery and equipment • Long term working capital • Debt refinancing – under certain conditions • Business expansion • Leasehold improvements

14. Eligible Uses of Funds (cont.) • Agricultural Production is eligible when: • Not eligible for FSA farm loan programs assistance • When part of an integrated business involved in the processing of ag products • The agricultural production portion of the loan must not exceed 50% of the total loan or $5 million, whichever is less • Commercial nurseries, forestry, aquaculture, commercial fishing, and the growing of mushrooms or hydroponics are not considered ag production and are eligible for the program.

15. Eligible Uses of Funds (cont.) • Energy Projects • Grants and loan guarantees are available (B&I and REAP) • Technology must be commercially available • Renewable energy and energy efficiency improvements • Includes solar, wind, geothermal, and digesters

16. Eligible Uses of Funds (cont.) • Local Foods Projects: • Projects that process, distribute, aggregate, store, and/or market locally or regionally produced agricultural food products • These “Food Hub” projects are also eligible in urban areas

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

18. Ineligible Borrowers / Purposes (cont.) • Lines of credit • Lease payments • Guarantees of loans made by other Federal agencies • Distribution of payment to an owner, beneficiary, or a close relative of the owner, when an owner will retain an ownership interest • Federal tax-exempt obligations

19. Ineligible Borrowers / Purposes (cont.) • Race tracks • Cemeteries • R&D projects • Speculative real estate investments • Businesses with more than 10% of revenue from gambling activities • Timeshares, residential trailer parks, housing development sites, apartments, and duplexes

20. Guarantee Fees • Initial Guarantee Fee: 3.00% of the guaranteed portion • Annual Renewal Fee: 0.50% of the guaranteed portion • Lender may pass fees along to borrower and are an eligible use of proceeds. • The guarantee fee is paid at the time the LNG is issued and is an eligible use of loan proceeds. • The amount of the fee is determined by multiplying the total loan amount by the fee rate by the percentage of guarantee.

21. Loan Amount Limits • $50 million guarantor loan limit • High priority projects may get an Administrator exception up to $25 million • Rural cooperative loan could potentially be approved up to $40 million in certain circumstances

22. Percentage of Guarantee • 80% for loans less than $5 million • 70% for loans between $5 and $10 million • 60% for loans over $10 million • Guarantees can be reduced to offset construction risk by the Agency • PA State office can approve requests up to $7.5 million.

23. Loan Terms • The term for a debt refinancing loan may be based on the collateral.

24. Loan Terms (cont.) • Term must be same for the guaranteed and unguaranteed portions of the loan. • No balloon payments • Interest-only period • Interest must be paid at least annually from the date of the promissory note. • First installment of P&I should be scheduled after the facility is operational and has begun to generate income. • Must be due and payable within 3 years from the date of the promissory note and be paid at least annually thereafter

25. Credit Quality • Lender is responsible for conducting a financial analysis that involves examination and interpretation of information to assess a company’s past performance, present condition, and future viability. • Lender must address all of the elements of credit quality in a comprehensive, written credit analysis.

26. Credit Quality (cont.) • Lender’s analysis must include a written discussion: • Repayment ability with a cash-flow analysis • History of debt repayment • Borrower’s management • Necessity of any debt refinancing • Credit reports of the borrower, principals, and any parent affiliate or subsidiary

27. Credit Quality (cont.) • Lender’s analysis must also include: • Spreads of the financial statements and discussion of the 3 years of historical balance sheets and income statements (for existing businesses) and 2 years of projected balance sheets, income statements, and cash flow statements • With appropriate ratios • Comparisons with industrial standards • Common-sized

28. Collateral • Collateral values should be discounted to acceptable advance rates consistent with the lender’s credit policy guidelines • Customary Agency advance rates: • A maximum of 80% of current fair market value will be given to real estate • A maximum of 70% of cost or current fair market value will be given to machinery, equipment, and furniture and fixtures • A maximum of 60% of book value will be assigned to acceptable inventory and accounts receivable

29. Tangible Balance Sheet Equity (TBSE) • Minimum of 10% for existing businesses • Minimum of 20% for new businesses. • Minimum range of 25-40% for energy project • Calculated by: Tangible Assets–Total Liabilities / Tangible Assets

30. TBSE (cont.) • Lender must certify that the equity requirement was determined, based on a balance sheet prepared in accordance with GAAP, and met, as of the date the guaranteed loan was closed, giving effect to the entirety of the loan in the calculation, whether or not the loan itself is fully advanced. • A copy of the loan closing balance sheet must be included with the lender’s certification. • Must reflect the loan’s post-closing/post-construction status • Must take into account any new assets and any new debt • Must be dated the date the loan was closed

31. Personal & Corporate Guarantees • Full, unconditional guarantees are required from those owning 20% or more interest in the borrower, unless the loan approval official grants an exception. • Partial guarantees at least equal to each owner’s percentage of interest in the borrower times the loan amount may be required when the guarantors’ percentages equal 100% so that the loan is fully guaranteed. • Debt Collection Improvement Act

32. Financial Statements • Lender will determine the type and frequency of submission of financial statements by the borrower and any guarantors. • At a minimum, annual financial statements prepared by an accountant in accordance with GAAP are required.

33. Feasibility Studies • Required for new businesses • May be required for existing businesses when: • the project will significantly affect the borrower’s operations • cash flow from the existing facility is not sufficient to service the new debt • Must be prepared by a qualified independent consultant acceptable to the Agency

34. How Does a Lender Apply? • Lender contacts RBS staff early in the approval process. Referred to B&I underwriter • Provides a term sheet / lender write-up for our initial review • RBS will provide Agency forms and a checklist detailing information needed for an application • Lender approves the loan, subject to the Agency guarantee • Lender submits their underwriting documentation, with our forms

35. Application Process • Lender’s underwriting and loan approval documents, including: • Loan description and summary • Appraisals • Credit reports (personal and business) • Financial statements with analysis. Three years historical, interim, and two full years projected • Business plans and/or feasibility study • Pro forma balance sheet • Guarantor(s) information

36. Application Checklist • Items needed for all applications • Additional items needed for RE collateral or purchase • Additional items needed for construction

37. Needed for All

38. Add for RE Collateral

39. Add for Construction

40. Evaluation of Application

41. Timeframe for processing • Applications that do not involve construction and do not have environmental concerns are normally processed within a couple of weeks of receiving the complete application. • Projects involving construction take longer, normally a couple months minimum.

42. Agency Review

43. Evaluation of Application

44. Approved • Provide the lender with the closing package, including the Conditional Commitment. • Once the lender receives the closing package, the loan may be closed. • If the lender needs to close the loan before our approval, interim financing may be considered.

45. Items Required to Issue the LNG • Lender’s Agreement (4279-4) must be signed by lender, unless a valid Lender’s Agreement already exists. • Unconditional Guarantee (4279-14) must be signed by all guarantors. • Guaranteed Loan Closing Report (1980-19) must be completed and signed by lender. • Assurance Regarding Felony Conviction or Tax Delinquent Status for Corporate Applicants (AD3031) must be completed by the lender and borrower.

46. Items Required to Issue the LNG (cont.) • Lender certification (4279.181) • Copy of the Settlement Sheet • Copy of the executed Promissory Note(s) • Copy of the executed loan agreement • Borrower(s) loan closing balance sheet demonstrating required tangible balance sheet equity • Guarantee fee • Any other items required in the Conditional Commitment

47. Secondary Market • Lenders can sell all or part of the guaranteed portion of the loan to holders on the secondary market or retain the entire loan. • Lenders are encouraged to utilize the secondary market and pass the interest-rate savings to the borrower. • Lenders may charge servicing fees to holders. • Holders may reassign the unpaid guaranteed portion in the complete block it was sold – it cannot be subdivided or further split.

48. Participation • Lenders may obtain participation in the loan under its normal operating procedures. • Lender must retain title to the notes and interest in the collateral. • Lender is required to hold a minimum of 5% of the total loan amount in its own portfolio. The amount must be of the unguaranteed portion of the loans and cannot be participated to another.

49. Leveraging • The USDA B&I Guaranteed loan can be combined with other State and Federal loan and grant programs. • The Banking on Business Program can help assist meeting tangible balance sheet requirements.

50. B&I / SBA7(a) Comparison