# Presentation: 128077

## United States Department of AgricultureRural DevelopmentBusiness and Industry Loan Guarantees

-      OBJECTIVES
- To improve, develop or finance business, industry and employment by bolstering the private credit structure through the guarantee of quality loans which will provide lasting community benefits in rural areas.
-      ELIGIBLITY REQUIREMENTS
- 50,000 population		U.S. Citizenship	                     No test for credit elsewhere
-      ELIGIBLE LENDERS
- Farm Credit Bank/Farm Credit System direct lender	Any Federal-State-chartered bank
- Mortgage company (part of a bank-holding company)	Bank for Cooperatives
- Credit Unions (subject to NCUA or state supervision)	Savings and Loan Association
- National Rural Utilities Cooperative Finance Corporation
- Insurance companies that are regulated by a National insurance regulatory agency or state
-      CERTIFIED LENDER PROGRAM
- Lenders of proven ability may qualify for the Certified Lender Program, in an effort to expedite loan approval.  Lenders must meet eligibility criteria.  Certified Lender status may be granted for up to five years.  In many cases, a complete guarantee application from a Certified Lender need only consist of the application form, proposed loan agreement, environmental questionnaire and credit analysis.
-      GUARANTEE
- An obligation supported by the full faith and credit of the United States.  Initial guarantee fee   payable when issued, generally at the rate of 2% of the guaranteed principal amount; plus an annual renewal fee (rate established yearly in a Federal Register Notice – FY’06 is 1⁄4% on guaranteed principal).  Maximum of the guaranteed advanced or assumed by the borrower and any interest due thereon.  Guarantee limits are generally eighty percent for loans up to $5,000,000 and seventy percent for loans between $5,000,001 and $10,000,000.
-      ELIGIBLE APPLICANTS
- Individual				Cooperative
- Legal Entity (profit or non-profit)			Partnership
- Federally-or state- recognized Indian Tribe or tribal group		Corporation
-      ELIGIBLE LOAN PURPOSES
- Generally, any business purpose; _EXCEPT_ the following:
- Payment to owner who will retain an interest		Tax-exempt obligations
- Transfer of employment areas			Golf courses or racetracks
- Charitable, religious, or fraternal organizations		Overproduction
- Lending, investment, or insurance institutions		Illegal activities
- Government or military personnel owning 20% or more		Line of Credit
- Guarantee of lease payments
- Loans made by other Federal agencies
- Businesses deriving >10% gross revenues from gambling
- Residential housing, _except_ with healthcare or assisted living
- Agricultural production, _except_ that which is part of an integrated business involved in the processing of agricultural products

##      RATES AND TERMS

-      RATES AND TERMS
-        Negotiated between lender and applicant	                       Encourage utilization of secondary market
-        Fixed and/or variable		                       Rate on guaranteed portion cannot 			                       		                       exceed that on unguaranteed
-        Terms are for useful life of the collateral or:
-              Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  maximum of 30 years
-              Machinery and equipment  . . . . . . . . . . . . . . . . . . . . . .  maximum of 15 years
-              Working Capital  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  maximum of 7 years
-      CREDIT QUALITY
-         Lender is responsible for determining credit quality and a thorough analysis will be documented:
- 		Cash Flow – sound, with reasonable assured repayment.
- 		Collateral   – sufficient to protect interests of lender/Government.
- 		                  – sound loan-to-value policy, although may be less than normal with strong historical 			    cash.
- 		                  – lien priorities will be the same for both guaranteed and unguaranteed portions.
- 		Industry     – current status and outlook for the industry and associated regulatory climate.
- 		Equity        – sufficient investment by owners to provide creditors with reasonable protection.
- 		                  – ability to survive normal economic downturn.
- 			 – ten percent minimum tangible balance sheet equity for existing businesses, and 			    twenty percent for new businesses.
- 	Management – adequately trained and experienced.
-      FINANCIAL STATEMENTS AND REPORTING
- 	  Lender will determine the type and frequency, _**except**_ that:
- 		Annual statements prepared by an accountant in accordance with generally accepted accounting     		principles (GAAP) will be required.
- 		Annual audited statements may be required for loan balances exceeding $3 million.
-      APPRIAISALS
- 	  Lender is responsible for assuring that values are adequate.  Real estate appraisals will comply with 	  FIRREA and the appropriate guidelines of Standards 1 & 2 of USPAP.  Personal property will be 	  evaluated using generally accepted methods and normal banking practices.
- OTHER
- 	Key person life insurance may be required.
- 	Personal and corporate guarantees will be required of those with twenty percent or greater ownership 	interest or those providing significant revenues to the applicant.
- 	Feasibility studies by qualified independent parties may be required for start-ups or significant 	changes in operations.
- 	Lender and borrower are responsible for design, construction, contract documents and compliance 	with Equal Employment Opportunity and Americans with Disability Act.
- 	Lender is responsible for informing the Government of any controversial environmental issues 	associated with a project.
- 	Lender must retain al least five percent of the loan and it must be unguaranteed.
- 	Lender is responsible for servicing the entire loan.

##  PRIORITIES

	 	As it becomes necessary to establish priorities among competing projects, the following will be 	considered:

			Persistent poverty
			High unemployment
			 “High-impact” businesses
			Long-term population decline
			Leveraging other sources of financing
			Cities and towns under 25,000 population
			Pricing loans based on the secondary market
			Empowerment Zone and Enterprise Communities
			Requests for guarantees of less than the maximum
			Natural disaster or structural changes in local economic base

 EXAMPLES OF B & I LOANS IN MAINE

			Bed & Breakfast	        Hockey Arena	Septic & Sludge Processor
			Grocery Store	        Sandwich Shop	Medical Office Building	
			Blueberry Processor	        Yacht Builder	Restaurant & Brewpub
			Wood Products Mfr.	        Freight Transporter	Industrial Coatings Applicator
			Commercial Greenhouse     Nursing Home	Aviation, Parts & Service
			Supermarket	        Truck Sales	Food Supplier
			Heavy Construction              Real Estate Holding	Non-Owner Occupied

ADVANTAGES OF A GUARANTEE
		To the borrower:
			Credit availability
			“Hands-on” technical assistance with the application
			Credit on more favorable terms, including the possibility of long-term fixed rates
		To the lender:
			Negotiated rates
			Reduces risk/exposure
			Guarantee does not count against lending limits
			Enhanced return when sold in the secondary market
			Enables smaller banks to finance on a broader scale
		To the community:
			Tax dollars
			Job creation
			Economic development
INQUIRIES
United States Department of Agriculture
Rural Development
967 Illinois Avenue, Suite 4
PO Box 405
Bangor, ME  04402-0405
TEL:  (207) 990-9168
TDD/TTY:  (207) 942-7331
E-Mail: rbs.info@me.usda.gov
Website:  www.rurdev.usda.gov
Rural Development is an Equal Opportunity Lender, Provider, and Employer
									10/05

- 	 	As it becomes necessary to establish priorities among competing projects, the following will be 	considered:
- 			Persistent poverty
- 			High unemployment
- 			 “High-impact” businesses
- 			Long-term population decline
- 			Leveraging other sources of financing
- 			Cities and towns under 25,000 population
- 			Pricing loans based on the secondary market
- 			Empowerment Zone and Enterprise Communities
- 			Requests for guarantees of less than the maximum
- 			Natural disaster or structural changes in local economic base
-  EXAMPLES OF B & I LOANS IN MAINE
- 			Bed & Breakfast	        Hockey Arena	Septic & Sludge Processor
- 			Grocery Store	        Sandwich Shop	Medical Office Building
- 			Blueberry Processor	        Yacht Builder	Restaurant & Brewpub
- 			Wood Products Mfr.	        Freight Transporter	Industrial Coatings Applicator
- 			Commercial Greenhouse     Nursing Home	Aviation, Parts & Service
- 			Supermarket	        Truck Sales	Food Supplier
- 			Heavy Construction              Real Estate Holding	Non-Owner Occupied
- ADVANTAGES OF A GUARANTEE
- 		To the borrower:
- 			Credit availability
- 			“Hands-on” technical assistance with the application
- 			Credit on more favorable terms, including the possibility of long-term fixed rates
- 		To the lender:
- 			Negotiated rates
- 			Reduces risk/exposure
- 			Guarantee does not count against lending limits
- 			Enhanced return when sold in the secondary market
- 			Enables smaller banks to finance on a broader scale
- 		To the community:
- 			Tax dollars
- 			Job creation
- 			Economic development
- INQUIRIES
- United States Department of Agriculture
- Rural Development
- 967 Illinois Avenue, Suite 4
- PO Box 405
- Bangor, ME  04402-0405
- TEL:  (207) 990-9168
- TDD/TTY:  (207) 942-7331
- E-Mail: _[rbs.info@me.usda.gov](mailto:rbs.info@me.usda.gov)_
**Website:  www.rurdev.usda.gov**
- Rural Development is an Equal Opportunity Lender, Provider, and Employer
- 									10/05

## SECONDARY MARKET

**PATRICK T. DIXON**
- Carty & Company, Inc.
- 6263 Popular Avenue, Suite 800
- Memphis, TN 38119
- Tel: (901) 767-8940 or 1-800-767-8940
- Fax: (901) 766-6730
- WEBSITE: _[www.cartyco.com](http://www.cartyco.com/)_
**DANNY M. GRAY**
- Coastal Securities, Inc.
- 5555 San Felipe, 22nd Floor
- Houston, TX 77056
- Tel: 1-888-558-8868 or 1-800-489-3232
- Fax: (713) 435-4544
- E-Mail: _[dmg@CoastalSecurities.com](mailto:dmg@CoastalSecurities.com)_
**WILLIAM E. SHELTON, IV**
- Vining-Sparks IBG
- 6077 Primacy Parkway
- Memphis, TN 38119
- Tel: (901) 766-3101 or 1-800-786-1272
- Fax: (901) 766-3321
- WEBSITE: _www.viningsparks.com_

**PATRICK KERRIGAN**
- Farmer Mac
- Federal Agricultural Mortgage Corporation
- 919 18th Street NW, Suite 200
- Washington, DC 20006
- Tel: (202) 872-7700 or 1-800-TRY-FARM
- Fax: (202) 872-7713
- E-Mail: _[patrick_kerrigan@farmermac.com](mailto:patrick_kerrigan@farmermac.com)_
- RATES: _[www.farmermac.com](http://www.farmermac.com/)_
**MARK MEIHOFER**
- Morgan-Keegan & Company, Inc.
- Morgan-Keegan Tower
- 50 North Front Street
- Memphis, TN 38103
- Tel: (901) 529-3714 or 1-800-366-7426
- Fax: (901) 579-4202
- E-Mail: _[mark.meihofer@morgankeegan.com](mailto:mark.meihofer@morgankeegan.com)_
**MICHAEL THOMAS**
- United States Arbitrage Finance II
- 3340 Peachtree Road, Suite 1410
- Atlanta, Georgia  30326
- Tel. 1-877-USAF-002
- Fax (404) 365-2050
- WEBSITE: _www.usaf2.com_