USDA B&I Loan FAQ
At B&ISavvy we want to match you with the best lender for your loan, but we also want to help you understand B&I loans. We know that there’s a lot to learn, and it can all be a bit overwhelming! On this page you can find answers to many of the common questions borrowers have about B&I loans.
For a broad background on B&I loans, you can check out our B&I Loans, B&I Lenders, and B&I Interest Rates pages.
A B&I loan can be used in a variety of ways, with valid uses of proceeds including:
– Real Estate purchase
– Business purchase
– Construction
– Equipment purchase
– Debt refinance
B&I loans cannot be used for real estate investment, either commercial or residential. If a B&I loan is used to purchase real estate, it must be with the primary goal of operating a business on the premises. However, the owner may still rent out up to 49% of the property.
B&I loans can generally be used for any kind of for-profit business. Some common uses of B&I loans include:
– Retail
– Restaurants
– Hotels/Motels/B&Bs
– Gas Stations
– Convenience Stores
– Storage Facilities
B&I loans are meant for business and industry use only, and as such can’t be used for farming/agricultural purposes. However, they can be used for businesses that process/use agricultural products.
Due to the lower risk of B&I loans, lenders are more willing to give them out. This often makes them more attainable, and on better terms, than conventional loans. Additionally, B&I loans are fully amortized and available at terms of up to 40 years, meaning security in the loan and a lower monthly payment.
USDA B&I loans, SBA 7(a) loans, and SBA 504 loans are all good options for small business loans, as they have high attainability and favorable terms. However, USDA B&I loans can be larger than 7(a) loans (which are capped at $5 million), and their loan process is simpler and quicker than that of 504 loans. Additionally, their maximum term is longer than that of both 7(a) and 504 loans (40 years for B&I loans vs. 25 years for the other two), meaning a lower monthly payment. As such, for those in rural areas who are eligible for them, B&I loans are a popular option.
Cash flow is a term used in the commercial loan industry. In the case of B&I loans, it refers to a business’s net income plus depreciation, interest, and rent costs. These extra values, which can be found on a business’s tax form, are added back to the business’s income to give a more complete idea of the size of loan the business can pay back.
Generally, a business (depending on the purpose of the loan, either the business being purchased or the business of the person getting the loan) must have at least enough cash flow to pay back the loan, plus a little extra. The most common metric for calculating this is the cash flow ratio, found by dividing the annual cash flow by the annual loan payment. The target cash flow ratio of most banks is 1.2.
However, this is not a hard and fast rule, as a cash flow ratio below 1.2 can still work. This is especially true if the loan proceeds are going toward buying a business. A business may be sold to an owner who will be better at running it, raising cash flow, or who will cut costs, raising the cash flow ratio.
Even if the loan is being used for something other than a business purchase, though, a lower cash flow ratio can still work. It all depends on finding the right lender – and luckily, B&ISavvy can help.
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