USDA Eases Biofuel Loan Terms

Nov 15, 2009 12:00 PM, BY JONATHAN WEGNER

CASH FLOW AND JOBS ARE A MAJOR PRIORITY.

Although last year dealt major blows to many biofuel producers and the banks that financed their expansion, newly expanded USDA loan guarantee programs are helping forge a turnaround for the industry.

In August, the Obama administration announced that $1.7 billion in American Recovery and Investment Act funds would be made available for purposes of the USDA Rural Development's Business and Industry Guaranteed Loan Program. As those funds have gradually become available, biofuel producers and others in the agricultural sector that were hit hard by last year's wild commodity price swings have begun qualifying for better loan terms and expanded working capital.

Under the program, businesses may obtain loan guarantees for working capital refinancing, machinery and equipment, real estate and construction, business development and expansion. USDA Rural Development also has indicated it will consider loan term adjustments as part of a comprehensive business stabilization strategy, including adjustments in interest rates, principal reduction and loan terms.

Refinancing existing debt previously only qualified for USDA loan guarantees where the refinanced portion of any loan was more than half of the total amount of the loan. USDA appears to have acknowledged that the banks and cash-strapped companies were unlikely to reach acceptable terms under those requirements, given the economic climate.

Now, USDA has begun working with borrowers and lenders on a case-by-case basis to provide necessary financing, where such loans will improve cash flow and create new or save existing jobs. As always, lenders have the primary responsibility for the successful completion of the loan application, and the new flexibility does not remove the other application and underwriting requirements. These include appraisals, business plan submission and other required disclosures.

BORROWERS MAY QUALIFY for a number of loan options that could increase cash flow, depending on the circumstances. Loan restructuring tools include forbearance of principal payments for up to 12 months or more, extended loan terms, debt write-downs, interest forgiveness, suspension of dividends otherwise payable to investors and higher guarantee limits.

The program allows for a maximum loan amount of $25 million, although certain cooperatives that process value-added agricultural commodities like ethanol or other biofuels may qualify for loans of up to $40 million. Moreover, the program guarantees up to 90% of the loan for amounts of $10 million or less if certain criteria are met. For purposes of working capital refinancing, the loan term can extend up to seven years, and fees are reduced from the normal 2% with a 0.25% annual renewal fee to just 1% with no renewal fees.

For more information on these new options, contact your state or local USDA representatives. Although the USDA has indicated applications will be processed as rapidly as possible, the process can take several months. As such, interested lenders and creditors should begin the process early to ensure access to program funding, which expires on Sept. 30, 2010.

Working together, lenders can help distressed borrowers seeking to revitalize their business to obtain the best terms available and ensure the resurgence of rural industry.

Jonathan Wegner is an attorney at Baird Holm LLP, whose practice focuses on banking, securities and other corporate law issues.

Get Copyright ClearanceWant to use this article? Click here for options!
© 2010 Penton Media, Inc.


Acceptable Use Policy blog comments powered by Disqus

Most Recent Story

Weather

Continuing Education

Click here to view more courses


Accredited for 2 Units CCA Soil/Water Management:

(New Course)
Agronomic Principles and Efficient Chemigation and Fertigation Using Center Pivot/Linear Sprinkler Systems

This online CE course details sound mechanical irrigation design and management practices to allow efficient chemigation and fertigation.

Back to Top

Browse Back Issues

Related Sites