FY2021 USDA Guarantee Rate and Fee Structure

The major changes from the current fee structure for each of the programs lie in the B&I and CF programs. The B&I Program is deviating from the tiered loan guaranty percentage system to a flat percentage of 80% up to $25,000,000. This provides additional risk mitigation for banks and lending institutions for larger projects such as manufacturing which have historically required loans over $10MM. The old tiered system greatly reduced the number of lenders with the comfort and ability to take on the additional risk with a lower Guaranty of 60%.

The changes to the CF program are much larger and benefit the USDA more than the changes to the B&I program. The decrease in the total Guarantee of these loans from 90% to 80% will shift most of the loan making from this program to the B&I program where eligible. These changes benefit the USDA from a risk perspective and remove those benefits from the bank.

Fee for Issuance of Loan Note Guarantee Prior to Construction Completion

This is a new fee for the USDA which cannot be passed on to the borrower and must be paid by the Bank to the USDA to issue the LNG before project completion. If the lending institution is comfortable with funding the loan through construction, the fee done not have to be paid.

In reality, this fee will be passed on to the borrower through higher origination fees or higher interest rates. Most lending institutions will do what is necessary to protect their interests. In most lending institutions I have worked with or brokered loans to, the loan origination fee charged by the bank is a variable object and used to shore up many changes in loan fees. Loan origination fee will likely be increased by 50BP to absorb this new fee for construction projects.

Old/Current Breakdown of Fees

Old/Current B&I Tiers: