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USDA creates coronavirus loan guarantees for rural businesses and farmers

Loan guarantees assure lenders that the government will pay off a loan if the borrower cannot.

With money from the $2 trillion coronavirus relief package, the USDA said Thursday it would provide up to $1 billion in loan guarantees to help rural businesses and farmers meet their working capital needs during the pandemic. The new program is patterned on the USDA’s existing Business and Industry program but with a higher loan guarantee level and lower requirements for collateral.

Loan guarantees assure lenders that the government will pay off a loan if the borrower cannot.

Agriculture Secretary Sonny Perdue said the new program would offer assurance that the USDA is “a strong supporter of all aspects of the rural economy.”

The USDA did not specify a maximum size for loans eligible for guarantees in the coronavirus program. “Loans must be used as working capital to prevent, prepare for, or respond to the effects of the coronavirus pandemic,” it said on the homepage for the new program. A 90% guarantee is offered on all loans, with a maximum term of 10 years. Borrowers must have collateral equal to the size of the loan. The guarantees are available to rural businesses “and agricultural producers that are not eligible for USDA Farm Service Agency loans.”

In the existing B&I program, the highest guarantee is 80%, on loans of up to $5 million. Guarantees are limited to 60% on loans or more than $10 million, with a maximum loan size of $25 million. Borrowers must have collateral that is at least 20% larger than the loan. Guarantees are available only to rural businesses. Loans can run up to 30 years, but the maximum term for working capital is seven years.

A farm activist deplored the new loan guarantee program as “another end run around the normal rules” on USDA support of agriculture.

Separately, the Farm Service Agency said it would broaden the use of its disaster set-aside loan provision so that it applies to the coronavirus. The provision allows the USDA to delay the payment date on a loan held by a farmer. “FSA recognizes that some customers may need this option to improve their cash flow circumstances in response to the COVID-19 outbreak,” said administrator Richard Fordyce. Usually, the set-aside provision is available only after a natural disaster.

Produced with FERN, non-profit reporting on food, agriculture, and environmental health.
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