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USDA B & I

When most people think of USDA loans they think of farm subsidies and agricultural related products. While providing financial assistance to farmers and ranchers has been the primary mission of the USDA since it was established in recent years, Congress has appropriated product subsidies for loans made to businesses in designated rural communities.
The USDA Business and Industry Loan Guarantee (USDA B&I) product guarantees loans made by Arkansas Capital to businesses to benefit rural areas. The product’s primary purpose is to create and maintain employment and improve the economic and environmental climate in rural Arkansas. Inability to obtain other credit is not a requirement.

Details of a USDA B&I Loan

ELIGIBLE BORROWERS

Any legal entity, including individuals, public and private organizations and federally recognized Indian tribal groups, may qualify. There are no size restrictions on the applicant business.

LOAN PURPOSE

  • Business and industrial acquisitions, construction, conversion, expansion, repair, modernization or development costs.
  • Purchase of equipment, machinery, or supplies.
  • Start-up costs and working capital.
  • Processing and marketing facilities.
  • Pollution control and abatement.
  • Refinancing for viable projects, under certain conditions.

LOAN AMOUNTS

Loan guarantees are limited to a maximum of $10 million per borrower, although the Rural Business-Cooperative Programs Administrator can grant up to $25 million.

INTEREST RATES

Floating rates, up to 3.25% over the Wall Street Journal Prime rate, adjusting every calendar quarter.

TERMS

Up to 30 years, fully amortizing over the life of the loan; no balloon or demand features. The term offered is based upon the use of the loan proceeds. Terms for asset categories are as follows:

  • Real Estate – up to 30 years.
  • Machinery & Equipment – lesser of 15 years of the useful life of the asset

Working Capital – up to 7 years

PREPAYMENT PENALTY

5% for the first five years.

LOAN FEES

A one time USDA Guarantee Fee (see section below) based upon the dollar amount being guaranteed.USDA application packaging fee of $1,000.00Consumer and business credit reports, income tax verification and initial environmental screening – up to $650.00.

Loan fees may be financed in the loan.

Your Good Faith Deposit will be used to offset loan underwriting, as well as packaging and closing expenses. However, appraisals and further environmental expenses are not included in your Good Faith Deposit and are collected separately prior to the engagement of any such professional services.

USDA GUARANTEE FEE

A one-time guarantee fee in the amount of 2% of the guaranteed portion will be paid to the USDA by the lender and will be passed on to the applicant. This guarantee fee amount may be financed in the loan.

COLLATERAL

Loans shall normally be collateralized by assets with discounted values at least equal to the loan amount. In the case of the discounted collateral value being less than the loan amount, this may be acceptable for businesses that are predominately cash flow oriented and demonstrate documented financial history of strong cash flow and profitability.

EQUITY REQUIREMENTS

A minimum of 10% tangible balance sheet equity is required at the time of issuing the loan note guarantee for existing businesses. Twenty percent (20%) tangible balance sheet equity is required for new businesses. Equity is calculated in accordance with general accepted accounting principals (GAAP).

RECOURSE

All principals who own 20% or more of the business are required to provide a full guarantee. Principals and key managers owning less than 20% may be required to provide a guarantee on a case-by-case basis.

When necessary to secure a collateral position, Arkansas Capital Corporation will require the guarantee of a non-owner spouse to the extent of the spouse’s interest in the collateral.The guarantee of affiliated companies may be required based on the percentage of ownership of the affiliate and the borrower’s relationship with the affiliate.

DEBT SERVICE REQUIREMENTS

USDA Guaranteed Loans are for strong healthy companies that are able to demonstrate the ability to repay the loan through either:

  • 1. Historical cash flow of 1.2:1; or
  • 2. Global cash flow of 1.25:1
  • 3. Projected cash flow of 1.25:1 may also be considered

FEASIBILITY STUDIES

May be required by USDA prior to the review and approval of an application.

INELIGIBLE INDUSTRIES AND PURPOSES

  • Investments or investment in speculative real estate.
  • Golf courses or similar recreational facilities
  • Gambling activities
  • Prostitution or activities or a prurient sexual nature
  • Finders, packagers, or loan brokers
  • Illegal drugs or drug paraphernalia
  • Any project likely to result in the transfer of employment from one area to another
  • Any project involving transfer of ownership, unless this will keep the business from closing, prevent the loss of jobs in an area or provide more jobs.
  • Paying off a creditor in excess of the value of the collateral
  • Payment to owners, partners, shareholders, or others who retain any ownership in the business
  • Corporations and businesses not at least 41% owned and controlled by US citizens
  • Charitable and educational institutions, religious organizations and affiliated entities and fraternal organizations
  • Lines of credit

Other Considerations and Requirements

 
 

CASH/EQUITY/ASSET INJECTION

Evidence must be provided by the applicant prior to any loan closing and disbursement.

SUBORDINATION/STANDBY DEBT AGREEMENTS

Standby creditor must subordinate any lien rights in collateral securing a loan to the lender’s rights in the collateral and agree to take no action against applicant or any collateral securing the Standby Debt without lender’s consent.

REAL ESTATE APPRAISALS

Required for all Real Estate purchased or used as collateral.

EQUIPMENT APPRAISALS

Required to substantiate the value of any used machinery and/or equipment.

ENVIRONMENTAL REPORTS

Required for all Real Estate purchased or used as collateral.

LATE CHARGE

A late charge (not to exceed $100) in the amount of five percent (5%) of the amount of any payment which is not made within ten (10) days of the date the payment is due will be collected from the Borrower.

LOAN PROCEEDS

Arkansas Capital must document that the borrower used the loan proceeds for the approved purposes.

INSURANCE

Property insurance (fire and theft, extended coverage and liability) will be required. All personal and real property shall be insured for replacement cost. Insurance coverage for improvements to real property must contain a Mortgagee Clause in favor of lender. Insurance coverage for personal property must contain a Lender’s Loss Payable Clause in favor of lender. Additionally, the policy must provide written notice at least 10 days prior of policy cancellation.

LIFE INSURANCE

The key principals of the operating company may be required to provide an assignment of life insurance in the amount of the loan.

FLOOD INSURANCE

Will be required if the property is located within a flood area.

WORKERS’ COMPENSATION INSURANCE

Will be required in amounts meeting state law requirements.

VERIFICATION OF FINANCIAL INFORMATION

Arkansas Capital must verify the applicant’s last 3 years (unless applicant is a start-up business) of tax returns submitted to IRS via IRS Form 4506-T.

LEASE TERM

Lease(s), including options, on all business premises where collateral is located should be for as least as long as the term of the loan.

ASSIGNMENT OF RENTS

A perfected assignment of all rents paid under a lease between an Eligible Passive Concern (Real Estate Holding Company) and the applicant Operating Company is required.

LANDLORD’S WAIVER

Applicant must provide lender access to any leased premises and facilities where collateral is located with an executed Landlord’s Waiver.

NEW CONSTRUCTION

Evidence of compliance with the “National Earthquake Hazards Reduction Program Recommended Provisions for the Development of Seismic Regulations for New Buildings” (NEHRP) or a building code that has substantially equivalent provisions is required.

DO-IT-YOURSELF

Construction or Installation of Machinery & Equipment: Except under special circumstances, will not be permitted.

COST OVERRUNS

Applicant must show ability to pay cost overruns, if any.

LIEN WAIVERS

Applicant must provide lien waivers or releases from all materialmen, contractors, and subcontractors involved in any construction.

OCCUPANCY

• Existing Real Estate Improvements occupy at least 51% of the property.
• New Construction occupy at least 60% of the property.

FRANCHISED OPERATIONS

All franchised operations not listed on the Franchise Registry must pass a legal review of the applicant’s Franchise Agreement and Franchisor’s Disclosure Statement.

CHILD SUPPORT

Certification from applicant that any required child support is no more than 60 days delinquent.

CURRENT TAXES

Applicant must be current on all federal, state, and local taxes, including but not limited to income taxes, payroll taxes, real estate taxes, and sales taxes.

GOOD FAITH DEPOSITS

A Good Faith Deposit (see below schedule) shall be required and applied to Six Bridges Capital Corporation’s processing fee and other costs associated with credit investigation and underwriting. If approval is not obtained, the Good Faith Deposit shall be refunded (less the cost of credit verification, environmental screening, IRS filing verification and any other out of pocket expenses incurred by 6BCC).
• $2,500 SBA 504 Debentures of $500,000 and less
• $3,500 SBA 504 Debentures of $500,001 to $999,000
• $5,000 SBA 504 Debentures of $1,000,000 and over

IMMIGRATION LAWS

Neither the Borrower nor Operating Company has been determined by the Secretary of Homeland Security or the Attorney General to have engaged in a pattern or practice of hiring an alien, recruiting an alien or referring an alien for a fee for employment in the United States, knowing that the person is an unauthorized alien.