USDA Rural Development Loan Guarantees

United States Department of Agriculture (USDA) Rural Development provides loan guarantees to lenders which help rural individuals and legal entities, both for profit or nonprofit, with their real estate and equipment business-related needs. Rural Development guarantees provide lenders with credit enhancements and additional comfort and also assist with legal lending limits. For borrowers, Rural Development guarantees facilitate a longer-term loan with beneficial interest rates and favorable repayment opportunities.

Guaranteed lending is a top priority within Rural Development's Business Programs. A recent innovative application of the guaranteed loans program has been to assist grain warehousing businesses with tightening borrowing bases due to record grain prices. Elevators and cooperatives mitigate risk and create profit through use of the commodity markets. Due to the significant increase in commodity values, some elevators may lack sufficient borrowing capacity to cover margin calls and be forced to liquidate futures at a loss rather than riding out the price fluctuations.

Elevators and cooperatives are facing unique challenges in creating the borrowing flexibility to finance futures until the sale of the commodity. To help lenders and businesses increase their borrowing power, Rural Development can approve a working capital loan with a seven-year repayment term. This is done by using the remaining balance in the borrowing base, or allowing an increased borrowing base, and any equity in plant, property and equipment.

Lending and borrowing power are increased based on the fact that the guaranteed portion of Rural Development's loan does not count against the lender's legal lending limit. The lender may have a prepayment penalty; whereas, Rural Development does not, so the business can repay the loan any time. Lenders are encouraged to contact Randy Frescoln, USDA Rural Development business program director, at 515.284.4480 for more information about how loan guarantees from Rural Development can help them. Information is also available at www.rurdev.usda.gov/ia.