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1. Who may borrow?

A borrower may be a cooperative organization, corporation, partnership, or other legal entity organized and operated on a profit or nonprofit basis; an Indian tribe on a Federal or State reservation or other Federally recognized tribal group; a public body; or an individual. A borrower must be engaged in or proposing to engage in a business that will:

• Improve the economic or environmental climate
• Promote the conservation, development, and use of water for aquaculture
• Provide employment
• Reduce reliance on nonrenewable energy resources by encouraging the development and construction of solar energy systems and other renewable energy systems

2. How may funds be used?

Loan purposes must be consistent with the general purpose contained in the regulation. They include but are not limited to the following:

• Business and industrial acquisitions when the loan will keep the business from closing, prevent the loss of employment opportunities, or provide expanded job opportunities
• Business conversion, enlargement, repair, modernization, or development
• Purchase and development of land, easements, rights-of-way, buildings, or facilities
• Purchase of equipment, leasehold improvements, machinery, supplies, or inventory

3. What is the percentage of guarantee?

The percentage of guarantee, up to the maximum allowed, is a matter of negotiation between the lender and the Agency. The maximum percentage of guarantee is 80% for loans of $5 million or less, 70% for loans between $5 and $10 million, and 60% for loans exceeding $10 million.

4. What are the loan amounts?

The total amount of agency loans to 1 borrower must not exceed $10 million. The administrator may, at the administrator discretion, grant an exception to the $10 million limit for loans of $25 million under certain circumstances. The secretary may approve guaranteed loans in excess of $25 million, up to $40 million, for rural cooperative organizations that process value-added agricultural commodities.

5. What are the loan terms?

The maximum repayment for loans on real estate will not exceed 30 years; machinery and equipment repayment will not exceed the useful life of the machinery and equipment purchased with loan funds or 15 years, whichever is less; and working capital repayment will not exceed 7 years.

6. What are the interest rates?

The interest rate for the guaranteed loan will be negotiated between the lender and the applicant and may be either fixed or variable as long as it is a legal rate. Interest rates are subject to agency review and approval. The variable interest rate may be adjusted at different intervals during the term of the loan, but the adjustments may not be more often than quarterly.

7. Is collateral required?

Yes. Collateral must have documented value sufficient to protect the interest of the lender and the agency. The discounted collateral value will normally be at least equal to the loan amount. Lenders will discount collateral consistent with sound loan-to-value policy.

8. Annual renewal fee?

The annual renewal fee is paid once a year and is required to maintain the enforceability of the guarantee as to the lender.

The rate of the annual renewal fee (a specified percentage) is established by Rural Development in an annual notice published in the Federal Register, multiplied by the outstanding principal loan balance as of December 31 of each year, multiplied by the percent of guarantee. The rate is the rate in effect at the time the loan is obligated and will remain in effect for the life of the loan.

Annual renewal fees are due on January 31. Payments not received by April 1 are considered delinquent and, at the Agency discretion, may result in cancellation of the guarantee to the lender. Holders' Right will continue in effect as specified in the Loan Note Guarantee and Assignment Guarantee Agreement. Any delinquent annual renewal fees will bear interest at the note rate and will be deducted from any loss payment due to the lender. For loans where the Loan Note Guarantee is issued between October 1 and December 31, the first annual renewal fee payment will be due January 31 of the second year following the date the Loan Note Guarantee was issued.

9. Where should applications be filed?

Complete applications should be sent to the USDA Rural Development State Office for the project location. A list of offices and additional information can be obtained online.