In recent years, many SBA lenders have gained an increased familiarity with the flagship USDA lending program, the Business & Industry Loan Program (B&I). This program offers lenders who operate in rural areas another option to provide customers competitive financing packages for businesses that make a positive economic impact. Some of the key benefits (unavailable through most guaranteed loan programs) include the flexibility for lenders to authorize larger loan amounts, issue longer terms and provide alternative fixed rate options.
While participation in the B&I Program has slowly increased, the USDA has several other valuable options that lenders should consider exploring. The two programs this article focuses on are the Community Facilities Guaranteed Loan Program (CF) and the Rural Energy for America Program (REAP).
Community Facilities Guaranteed Loan Program
The major difference between the more common B&I Program and The Community Facilities Program is that the CF Program was established to help develop community amenities in rural areas. CF targets municipalities, non-profits and federally recognized tribes to help build or improve local buildings such as hospitals, schools, utility services and many other public facilities that a rural area might need. The Program offers a pathway to new borrowers that many banks may not consider and provides added benefits that cannot be accessed through the B&I Program. CF offers a higher guarantee (up to 90%), lower guarantee fee (1%), up to a 40-year term and, in some instances, an accompanying direct loan from the USDA. Key eligibility requirements include:
- Facilities must serve the public in the area in which they are located
- Projects must have substantial community support
- Projects must benefit a restricted rural area of less than 20,000 residents
Rural Energy for America Program
Similarly, the REAP Loan Program has a specific aim. Loans approved through this guaranteed program target agriculture and rural small businesses that are interested in making energy efficient improvements. Funds can be used to develop power generation systems including biomass, geothermal, hydrogen and most commonly wind and solar generation. The Program can also provide funds for energy efficient facility improvements such as lighting, HVAC and doors or windows. REAP also offers a higher guaranteed percentage than B&I (up to 85%) and a lower guarantee fee (1%). Key eligibility requirements include:
- Applicants must fund at least 25% of the total project
- A technical report supporting energy savings or production must be completed
- The business must be considered “small” (REAP uses SBA size standards)
- The place of business must be located in a rural area of less than 50,000 residents
Lenders with extensive knowledge across the various government guaranteed loan options that exist can compete more effectively within their market. Familiarity and utilization of the SBA and USDA’s main programs, can help mitigate risk while creating a strong base of customers and increased profitability for the lender.
For questions, please contact Windsor’s loan eligibility experts at [email protected].
About Windsor Advantage, LLC
Windsor Advantage provides banks and credit unions with a comprehensive outsourced SBA 7(a) and USDA lending platform.
Since 2010, Windsor has processed more than $2.0 billion in government guaranteed loans and currently services a portfolio in excess of $1.1 billion (as of May 31, 2018) for more than 80 lenders nationwide. With over 150 years of collective government guaranteed lending experience, cutting-edge technology and rigid controls, Windsor Advantage is uniquely qualified to assist clients with implementing a thoughtful and profitable lending initiative.
Windsor Advantage has a team of 26 professionals with offices in Chicago, Illinois; Indianapolis, Indiana; and Charleston, South Carolina. For more information, please contact Andrew Sheaffer at (312) 248-8530.
About the Author: Will manages Windsor’s Credit & Structure department. This includes interfacing with lenders and other referral sources to ensure eligibility and the most efficient structure for each transaction. Will has helped fund over $1.5 billion in SBA and USDA loans. Prior to joining Windsor in 2012, Will worked as an analyst at Bank of America Merrill Lynch.