Finance term
USDA Business & Industry (B&I) Loan Guarantee
Also known as: USDA B&I loan, USDA Business & Industry, USDA rural business loan, B&I guaranteed loan
Definition
The USDA Business & Industry (B&I) Loan Guarantee program provides federal guarantees (up to 80% of principal and interest) on loans made by private lenders to rural businesses, enabling access to capital in communities of 50,000 or fewer residents that lack conventional financing options. Authorized under 7 U.S.C. § 1932(a), administered by USDA Rural Development. See rd.usda.gov/programs-services/business-programs/business-industry-loan-guarantees.
Detailed explanation
The USDA Business & Industry (B&I) Loan Guarantee program is the primary federal credit-enhancement tool for rural business financing outside the SBA's programs. Rather than lending directly, USDA Rural Development issues guarantees to approved commercial lenders — banks, credit unions, CDFIs — which then make loans to eligible rural businesses. The guarantee reduces the lender's risk exposure, enabling loans that would not otherwise be made under conventional underwriting standards.
Key program parameters: - **Eligible geography:** Businesses located in rural areas — generally outside cities of 50,000+ population and their contiguous urbanized areas. See the USDA eligibility map at rd.usda.gov. - **Eligible businesses:** For-profit businesses, non-profit businesses (with restrictions), cooperatives, federally recognized tribes, and public entities. New and existing businesses are both eligible. - **Loan purposes:** Business conversion, enlargement, repair, modernization; purchase and development of land, buildings, equipment; supply working capital; startup costs and working capital for new businesses. Ineligible: golf courses, racetracks, casinos, and certain other activities. - **Loan size:** Up to $25M (standard); up to $40M for rural cooperatives processing value-added agricultural commodities. - **Guarantee percentage:** 80% for loans ≤ $5M; 70% for $5M-$10M; 60% for >$10M. - **Interest rates:** Negotiated between lender and borrower — fixed or variable. USDA sets maximum rates. - **Collateral:** Required at 100%+ of loan value. Personal guarantees required from owners with 20%+ equity. - **DSCR:** Typically 1.25× minimum on projected cash flow.
Applications are submitted by the lender (not the business) to the State Rural Development Office. Processing times typically 60-120 days for complete applications. See rd.usda.gov/programs-services/business-programs/business-industry-loan-guarantees for current program rules and lender eligibility.
◈ Worked example
- Rural manufacturer: A metal fabrication shop in a town of 8,000 needs $3M for equipment and facility expansion. A local community bank originates the loan with an 80% USDA B&I guarantee — reducing the bank's net exposure to $600K. The guarantee enables the bank to approve a loan it would have declined under conventional CRE underwriting.
- Guarantee fee: USDA charges an annual guarantee fee of 0.25% on the guaranteed portion. On a $2M loan with 80% guarantee ($1.6M guaranteed), the annual fee is $4,000. This cost is typically passed to the borrower — compare to SBA's annual service fee for equivalent risk pricing.
- USDA B&I vs. SBA 7(a): B&I provides larger maximum loan amounts ($25M vs. SBA 7(a)'s $5M) and serves exclusively rural borrowers. SBA 7(a) serves urban and rural businesses but has stricter size standards. For rural businesses with larger capital needs, B&I may provide better terms and higher loan amounts.
Common questions
The most-asked questions about USDA Business & Industry (B&I) Loan Guarantee — answered straightforwardly.
How do I apply for a USDA B&I loan? +
The B&I program is lender-driven — your lender submits the guarantee application to USDA, not you. Start by contacting community banks, agricultural banks, or CDFIs in your area that are USDA-approved lenders. Your state's USDA Rural Development office (rd.usda.gov) maintains a list of approved lenders. Present a complete business plan, 3 years of financials, and collateral inventory when approaching a lender.
Does my business qualify for a USDA B&I loan if I'm near a city? +
Eligibility depends on the specific census tract and city boundary definitions. USDA uses a mapping tool at rd.usda.gov to determine eligibility by address. Businesses in towns immediately adjacent to large cities may be ineligible if their location is considered part of the urbanized area. Use the USDA eligibility map to confirm before investing time in the application.
What is the difference between a USDA B&I loan and an SBA loan? +
The key differences: (1) Geography — B&I is exclusively for rural areas; SBA 7(a) serves all geographies. (2) Loan size — B&I goes up to $25M; SBA 7(a) caps at $5M. (3) Guarantee — B&I guarantees up to 80%; SBA 7(a) guarantees up to 85% on loans ≤ $150K, 75% above. (4) Application route — both are lender-applied, but USDA State offices process B&I while SBA district offices handle 7(a).
Further reading
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