What is a Business & Industry Loan and Does Your Business Qualify?
Written by: Kristy Welsh
Last Updated: August 1, 2017
If your business is located in a rural community, you may qualify for a special type of loan. The U.S. Department of Agriculture (USDA) maintains a Business and Industry (B&I) Guaranteed Loan Program. The USDA provides guarantees of up to 80 percent of a loan made by a commercial lender.
The Rural Business-Cooperative Service (RBS) is one of three agencies within USDA responsible for administering various economic development programs to rural communities in the United States. Because these three agencies are closely aligned, they are commonly referred to as the USDA Rural Development, Business & Cooperative Programs.
The mission of the RBS is "to enhance the quality of life for rural Americans by providing leadership in building competitive businesses including sustainable cooperatives that can prosper in the global marketplace."
They meet these goals by:
- Investing financial resources and providing technical assistance to businesses and cooperatives located in rural communities.
- Establishing strategic alliances and partnerships that leverage public, private, and cooperative resources to create jobs and stimulate rural economic activity.
In addition to supporting rural business, economic, and cooperative development, the Agency has become increasingly involved in renewable energy and value-added agriculture since the enactment of the 2002 Farm Bill. Here are the guidelines set by the Rural Business Cooperative Service (RBS) to determine whether your business is considered an eligible small business for a Business & Industry (B & I) loan.
How is Rural Area Determined?
Normally, projects seeking a B&I guaranteed loan need to be located in eligible rural areas, which include all areas other than cities or towns larger than 50,000 people and the contiguous and adjacent urbanized area of such cities or towns.
Impact on Local Jobs
RBS begins determining eligibility for a B & I loan based on your loan request’s impact on jobs in the rural community. RBS priorities are, in order from highest to lowest, as follows:
- Saving existing jobs.
- Expanding existing businesses.
- New plant location or new business start-up.
- Business which will generate little or no permanent employment other than the entrepreneur.
Quality of Loan
RBS looks for quality loans that will support a stable employment source. The factors that RBS reviews to determine loan quality include:
- Equity: 10 to 25 percent down may be required at the loan closing, depending upon the risk factors presented by your request.
- Profitability: Your application should show historic cash flow adequate to service the debt.
- Management: Management must demonstrate experience in the industry and competence in production, marketing, finance and personnel management.
- Collateral: Collateral must be sufficient to secure the loan.
- Guarantees: Personal guarantees from owners, major stockholders and/or partners are required.
Use of Proceeds from a B&I Loan
This loan can be used for:
- Working Capital
- Machinery and Equipment
- Buildings and Real Estate
- Certain Types of Debt Refinancing
Your B & I loan request will be considered ineligible if you intend to use proceeds to:
- Relocate jobs or expand a business where an excess of supply of the goods or services already exists.
- Pay any distribution to an owner or beneficiary who will continue in the business.
- Transfer the ownership of a business unless the transfer is necessary to keep the business from closing, or if it will expand job opportunities.
- Pay off creditor in excess of value of collateral.
- Assist government employees and military personnel owning 20 percent or more of the business.
- Finance any illegal business activity.
- Finance any line of credit.
- Finance agricultural production with the exception of specialized crops such as forestry, commercial nurseries, aquaculture, hydroponics, mushrooms or commercial custom feed lots.
If your business falls within one of the following categories, it is ineligible for a B & I loan.
- Lending and investment institution or insurance company.
- Charitable or educational institution.
- Church, church-sponsored or fraternal organization.
- Community antenna television service or facility.
- Business establishment when more than 10 percent of annual gross revenue comes from legalized gambling activities, such as a racetrack.
- Golf course.
Like all SBA loans, you will need to go to through your local bank or financial institution to apply for a B&I loan. If you have any questions, go to the SBA.gov website.