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Wednesday, December 10, 2008

Daily Observation - A New Financing Alternative

Tonight I am writing about an area that I have little knowledge about, other than to know that this loan program exists. I have received the information about the USDA loan program B&I and wanted to share it with you. In the proper locations, rural area with a population less than 50,000 people this is a very viable alternative to SBA Financing.

So below is an an email that I got from an SBA Lender back east that specializes in B&I loans. I know this is an area that I am going to be researching over the holidays and plan to incorporate it into our loan programs that we offer.

The main program that businesses are able to utilize is the Business and Industry Program through the USDA. There are no restrictions except for location; it has to be in a town that has a population less than 50,000. Underwriting is similar to doing an SBA 7(a) loan. Unlike going through the SBA, the bank is able to offer fixed rate options. Amortizations are longer through the USDA (30 years real estate/15 years equipment) which generally is able to provide more cash flow to the borrower. The guarantee fee is 2% of the guaranteed portions. Guarantee %’s are 80% up to $5.0M, 70% up to $10.0M, and 60% up to $20.0M.

Eligible properties and use of funding are start up, expansion, business acquisition, commercial real estate, working capital, equipment inventory and soft costs. A crucial difference between the two programs is that the B&I can be used for non-profits which is strictly forbidden with a traditional SBA Loan. In addition there is no business size restriction, and loan amounts up to $20,000,000.

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