USDA B&I Loan for Senior Housing
In order for your commercial loan to qualify for a guarantee from the U.S. Department of Agriculture, it needs to be located in a rural community. Normally this means a town of fewer than 50,000 people.
However, a great many cities in suburbia have a population of fewer than 50,000 residents, but these suburban cities are far from small rural towns. They sit right next to population centers with hundreds of thousands of people. Therefore they are not the type of small, rural community that needs help getting commercial financing.
To see if a property is eligible for a USDA B&I loan go to the following website and pick the option for Rural Business:
When the page comes up, click “I Accept”. It will take you to a map and you type in the address completely. You have to make sure that the address has a street, city, and zip code. This is essential. It will then bring up a map and tell you automatically if the property is eligible or ineligible.
What does this program do?
This program provides loan guarantees to eligible private lenders to help build essential community facilities in rural areas.
An essential community facility is defined as a facility that provides an essential service to the local community for the orderly development of the community in a primarily rural area and does not include private, commercial, or business undertakings.
Who may apply for this program?
Private lenders may apply for a loan guarantee on loans made to an eligible borrower that is unable to obtain the needed commercial credit on reasonable terms without the guarantee.
- Public bodies
- Community-based non-profit corporations
- Federally-recognized Tribes
What is an eligible area?
Rural areas include any area other than a city or town with a population of greater than 50,000 inhabitants and any urbanized area contiguous and adjacent to that city or town based on the latest U.S. Census Data. Check an eligible rural area.
How may funds be used?
Each year the Agency will reserve funds for projects located in rural areas with a population of not more than 20,000 inhabitants based on the following reservation of funds schedule:
(1) 100% of the first $200,000,000 made available
(2) 50% of the next $200,000,000 made available
(3) 25% of all amounts exceeding $400,000,000 made available
Funds can be used to purchase, construct, and/or improve essential community facilities, purchase equipment, and pay related project expenses.
Examples of essential community facilities include:
- Health care facilities such as hospitals, medical clinics, dental clinics, nursing homes, or assisted living facilities
- Public facilities such as town halls, courthouses, airport hangers or street improvements
- Community support services such as child care centers, community centers, fairgrounds, or transitional housing
- Public safety services such as fire departments, police stations, prisons, police vehicles, fire trucks, public works vehicles or equipment
- Educational services such as museums, libraries, or private schools
- Utility services such as telemedicine or distance learning equipment
Local food systems such as community gardens, food pantries, community kitchens, food banks, food hubs or greenhouses
For a complete list see Code of Federal Regulations 7 CFR 3575.24.
What are the terms of a loan guarantee?
- Maximum guarantee = 80% of the eligible loan (2022)
- One-time guarantee fee = 1.5% of principal loan amount times the % of the guarantee.
- Annual renewal fee = .5% of outstanding principal as of December 31st times % of guarantee.
- Repayment term: useful life of the facility, state statute or 40 years, whichever is less and is negotiated between the lender/borrower, subject to USDA approval.
- Interest rates: fixed or variable as negotiated between the lender/borrower, subject to USDA approval.
- Loan note guarantee issued upon project completion/when conditions are met.
- A combination of guaranteed loans, direct loans, grants, and commercial financing may be used to finance one project if all eligibility and feasibility requirements are met.
- Balloon payments and renewable notes are prohibited.
Are there additional requirements?
- Applicants must have the legal authority to borrow money, obtain security, repay loans, construct, operate, and maintain the proposed facilities.
- Applicants must be unable to finance the project from their own resources and/or through commercial credit at reasonable rates and terms.
- Tax-exempt financing is not eligible for this program.
- Lender responsible for determining credit quality and economic feasibility of proposed loan; adequacy of equity, cash flow, security, history, and management capabilities.
- Facilities must serve a rural area where they are /will be located.
- The project must demonstrate substantial community support.
- Environmental review must be completed/acceptable.
Who will service the loan?
The private lender that makes the loan will service the loan.
How do we get started?
- Lenders: contact your local RD office for details on how to become an approved lender.
- Borrowers: ask your private lender if they participate in USDA Loan Guarantee Programs.
- Applications for this program are accepted year-round.
- Program resources are available online (includes forms needed, guidance, certifications).
Obtaining HUD, Freddie and Fannie, USDA non-recourse financing for Seniors Housing Properties can take longer (3 months to a year) than conventional loans but the benefits often outweigh the delay factor. Please contact us if these loans interest you and we will guide you through the process.
In addition to strong personal credit, the lender will be interested in the following elements when examining a loan request for seniors housing.
- Positive Trend. Nothing scares lenders more than negative sales and earnings trends in a business or its industry. Conversely, a pronounced positive trend is a thing of beauty to a lender. They may look back several years to see how the business performed through past economic cycles.
- Business Plan. Buyers are required to submit a basic business plan for the senior care business they are acquiring. Lenders want to see an intimate understanding of the business and industry. In most cases, a plan calling for modest growth and incremental change is the safest bet.
- Continuity. Commitments by existing managers, key personnel, suppliers, and customers to continue with the new owner represent a reduced risk to a lender.
- Seller Training. Lenders want to see a well-thought-out management transition plan. A training/transition period to the new owner could be anywhere from 1 to 12 months. Be sure to negotiate this point upfront and clearly spell it out in the purchase agreement.
- Seller Financing. When a seller agrees to finance even 10-15% of the deal, (subordinated to the banknote) it shows the lender that the seller is confident in the business under the new buyer’s leadership and it shows commitment from the seller to make the transition work. This condition is commonly imposed by lenders.
Whether you are looking to purchase or refinance an independent or assisted living facility or business, develop a new senior housing facility, or expand your current senior housing business, loans are readily available. Let us guide you through the process and help position you for a successful loan approval.