7 CFR 4279.190 – Business and Industry national COVID-19 Public Health Emergency Loans
(a) Introduction. This section contains regulations for the Business and Industry National COVID-19 Public Health Emergency loan program (B&I CARES Act Program Loans). The purpose of the program is to provide loan guarantees under the authority of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136). These B&I CARES Act Program Loans cover costs to prevent, prepare for, and respond to the coronavirus limited to the amount necessary to address the borrower’s financial needs related to the COVID-19 Public Health Emergency. Consistent with the purposes of the CARES Act, the Agency has determined that the most effective use of these program funds is to support the cost of guaranteed loans to rural businesses to respond to the coronavirus. No B&I CARES Act Program Loan guarantee will be approved after September 30, 2021. All provisions of subparts A and B of this part and subpart B of part 4287 of this chapter apply to B&I CARES Act Program Loans, except as provided in this section. All forms used in connection with a B&I CARES Act Program Loan will be those used with other Business and Industry (B&I) loans, except as provided in this section.
(b) Eligible borrowers. Section 4279.108 of this subpart applies to B&I CARES Act Program Loans. In addition, borrowers must have been in operation on February 15, 2020.
(c) Eligible use of funds. (1) Purpose. The purpose of any B&I CARES Act Program Loan must be to cover costs to prevent, prepare for, and respond to the coronavirus pandemic, limited to the amount necessary to address the borrower’s financial needs related to the COVID-19 Public Health Emergency, in accordance with paragraph (a) of this section. B&I CARES Act Program Loans should not exceed the amount needed to overcome the financial distress or related challenges caused by the COVID-19 Public Health Emergency.
(2) Use of loan proceeds. Notwithstanding the provisions of § 4279.113, B&I CARES Act Program guaranteed loans will be limited to loans for working capital loan purposes in accordance with paragraph (c)(3) of this section. Loan proceeds may be used only to support facilities and business operations in rural areas and the Borrower must have been in operation on February 15, 2020. Loan proceeds must be disbursed through multiple draws on an as-needed monthly basis. Loan proceeds issued in full at loan closing must be evidenced by documented need provided by the lender and with concurrence of the Agency.
(3) Eligible working capital uses. Eligible working capital uses of B&I CARES Act Program Loan funds are limited to:
(i) Wages, salaries, sales commissions to employees, group healthcare benefits, and other employee benefits; owner’s wages and salaries may be considered if these costs are verifiable and constitute historical working capital costs;
(ii) Administrative expenses and administrative service contracts;
(iii) Property insurance, hazard insurance, and other business insurance;
(iv) Principal and interest payments on outstanding debt excluding owner/stockholder debt and related-party debts; payments may include existing Business & Industry loan payments to bring loans current as loan payments to a creditor are a working capital expense;
(v) Rent, payments on leases, and routine maintenance;
(vi) Utilities;
(vii) Inventory, feed, seed, fertilizer and chemicals, livestock (excluding livestock for breeding) and supplies;
(viii) Marketing, shipping, and other expenses incurred through normal business operations or such additional expenses due to challenges directly related to the national COVID-19 Public Health Emergency;
(ix) Taxes; and
(x) Loan costs and essential loan-related expenses.
(4) Ineligible purposes. Notwithstanding the provisions of § 4279.113, the following purposes are ineligible for B&I CARES Act Program guaranteed loans:
(i) Purchase and development of land, buildings, and associated infrastructure for commercial or industrial properties, including expansion or modernization;
(ii) Business acquisitions;
(iii) Leasehold improvements;
(iv) Constructing or equipping facilities;
(v) Purchase of machinery and equipment; and
(vi) Debt refinancing unless such debt refinancing is for debts incurred subsequent to February 15, 2020 for eligible purposes listed in paragraph (c)(3) of this section.
(5) Agricultural production. The provisions of § 4279.113(q) do not apply to B&I CARES Act Program Loans. Loans for working capital to support agricultural production, including independent agricultural production, is an eligible use of funds when the applicant’s loan request exceeds the maximum loan available through FSA guaranteed loan programs or the applicant’s request is otherwise ineligible for FSA loans. The Agency should verify ineligibility for FSA loan programs. Agricultural producers must be located in a rural area as defined in 7 CFR 4279.108(c) unless they meet the requirements provided for under 7 CFR 4279.113(y).
(d) Loan amount limits. (1) The provisions of § 4279.119(a) do not apply to B&I CARES Act Program Loans. The total amount of B&I and B&I CARES Act Program Loans to one borrower (including the guaranteed and unguaranteed portions, the outstanding principal and interest balance of any existing B&I guaranteed loans, and the new loan request) cannot exceed $25 million. There is no minimum threshold for B&I CARES Act Program loans.
(2) The amount of the B&I CARES Act Program Loan shall be based on a cash flow analysis and must not be greater than the amount needed to address challenges caused by the COVID-19 emergency, including those related to inventory and production costs, so that the business is reestablished on a successful basis. Losses and business operating expenses that were adequately paid by insurance or by loans or grants from other sources will not be covered by B&I CARES Act Program Loans. The B&I CARES Act Program Loans may be used to supplement insurance payments or assistance from other sources when the insurance coverage or other assistance is insufficient. The amount of the B&I CARES Act Program loan will be reduced by any SBA Paycheck Protection Program (PPP) loans received by the borrower.
(3) The maximum loan amount of the B&I CARES Act Program Loan for working capital purposes may not exceed 12 times the borrower’s total average monthly costs of eligible working capital loan purposes less the total amount of covered loans received under the provisions of sections 1102 and 1110(a)(2) of the CARES Act and other Federal emergency assistance received. Annual tax returns may be utilized to calculate the maximum loan amount under the B&I CARES Act Program. It is the Agency’s preference to review the last three full years of operations to calculate average working capital expenses for the borrower. If three years of financial information is not available, then actual working capital expenses for the business duration may be evaluated. Borrowers, who have not been in operation for a full year may estimate an average monthly cost of eligible working capital based on available historical months as long as they were in operation as of February 15, 2020.
(4) Borrowers receiving B&I CARES Act Program Loans in an amount less than the maximum loan amount in accordance with paragraph (d)(3) of this section, may apply for subsequent loans under this section up to an accumulative amount of B&I CARES Act Program loans not to exceed the maximum loan amount.
(e) Percentage of guarantee. The provisions of § 4279.119(b) do not apply to B&I CARES Act Program Loans. The percentage of guarantee is 90 percent.
(f) Guarantee fee. The provisions of § 4279.120(a) do not apply to B&I CARES Act Program Loans. The guarantee fee for the B&I CARES Act Program Loans shall be two (2) percent. The guarantee fee is paid at the time the Loan Note Guarantee is issued and may be included as an eligible use of guaranteed loan proceeds. The amount of the guarantee fee is determined by multiplying the total loan amount by the guarantee fee rate by the percentage of guarantee.
(g) Annual renewal fee. Notwithstanding the provisions of § 4279.120(b), the annual renewal fee for B&I CARES Act Program Loans shall be one half of one (0.5) percent (50 basis points.)
(h) Loan terms. Notwithstanding the provisions of § 4279.126, the maximum allowable repayment term of loans for working capital purposes is 10 years. Loan repayment may defer principal payments or principal and interest payments for a period up to 12 months from loan closing and may extend deferral of principal payments up to a total of three years with a maximum repayment term of 10 years from the date of loan closing. B&I CARES Act Program Loans must be paid in full since the B&I CARES Act Program provides no loan forgiveness.
(i) Credit quality. Notwithstanding the provisions of § 4279.131(a), the lender’s evaluation of the borrower’s repayment ability shall include an emphasis on the borrower’s successful financial history and on the borrower’s 2019 financial performance, present condition, and future viability.
(j) Collateral. B&I CARES Act Program loans must be adequately secured. Notwithstanding the provisions of § 4279.131(b), loan-to-value discounting by the lender is not required for B&I CARES Act Program Loans for working capital purposes. The value of the collateral (fair market value) must be equal to or greater than the loan amount.
(k) Capital/equity. Notwithstanding the provisions of § 4279.131(d), the business must meet one of the following requirements at loan closing:
(1) A minimum of 10 percent balance sheet equity or tangible balance sheet equity (including subordinated debt when subject to a standstill agreement); or a maximum debt-to-balance sheet equity ratio of 9 to 1.
(2) A Borrower investment of equity or other funds into the project equal to 10 percent or more of total eligible project costs, (such investment may include grants or subordinated debt when subject to a standstill agreement). Additional sources of matching funds may be derived from other loan funds; however, such funds must be in the form of cash. In-kind contributions are not eligible to meet equity requirements; or
(3) The balance sheet equity or tangible balance sheet equity includes owner-contributed capital of 10 percent or more of total fixed assets (net total fixed assets plus depreciation).
(l) Appraisals. Notwithstanding the provisions of § 4279.144, appraisals of real estate and chattel collateral are required when the amount of the loan exceeds $1,000,000, unless the chattel is newly acquired equipment and the value is supported by a bill of sale. The Agency will accept appraisals older than 1 year but completed within 2 years of the application date. Lenders may provide an updated appraisal in lieu of a new complete appraisal when the original appraisal is more than 2 years old. All appraisals of real estate must be compliant with Uniform Standards of Professional Appraisal Practices (USPAP) requirements and reflect the current market value of the collateral as required by § 4279.144(a). To protect lenders, appraisers and Agency staff during the COVID-19 pandemic, an interior or on-site inspection of the collateral is not required if an assumption can be made by the appraiser on a reasonable basis or is based on previous inspections and condition reports completed by the lender or third party for the collateral.
(m) Filing preapplications and applications. Applications are to be received and processed in the State Office in the State where the business is located. Funds will be maintained in a National Office Reserve account. The Agency will consider applications in the order they are received by the Agency on a first come, first served basis. Priority scoring will not be needed initially, however towards the end of the funding period the Agency will need to assign priority points for the limited remaining funds and for this purpose the Agency will score and compare an application to other pending applications that are competing for funding in accordance with 7 CFR 4279.166.
(1) B&I CARES Act Program Loan borrowers with existing B&I loans do not need to resubmit their historical financial statements that have been previously submitted through routine loan servicing actions.
(2) Loans for working capital are classified as categorical exclusions for purposes of the Agency’s environmental review policies and procedures in accordance with 7 CFR part 1970. These actions normally do not require an applicant to submit environmental documentation with the application. However, based on the review of the project description, the Agency may request additional environmental documentation from the applicant at any time, specifically if the Agency determines that extraordinary circumstances may exist.
(3) Notwithstanding the provisions of § 4279.161(b), a draft loan agreement is not required, a business plan or feasibility study is not required, and lenders may substitute and rely on the borrower’s tax returns when financial statements prepared in accordance with GAAP are not available from the borrower. Agricultural producers’ financial records must meet the industry’s standard accounting practices.
(4) A lender or borrower may combine applications for a B&I CARES Act Program loan for working capital with an application for B&I appropriated fiscal year funds. State Offices are allowed to use the same lender’s analysis for each request. The existing Conditional Commitment template can be used for B&I CARES Act Program loans and deletion of certain provisions that do not impact the borrower or credit quality can be removed. Business Program Directors are encouraged to contact the National Office Program Processing Division with any questions regarding borrower eligibility, use of B&I loan proceeds, calculations of the loan amount or borrower equity, and any other questions related to a specific project. The provisions of this section do not apply to applications for B&I appropriated fiscal year funds.