ARRA tripled USDA Business Industry loans
The Bank of Holland and its sister bank in Traverse City have been named Lender of the Year in Michigan by the state office of the U.S. Department of Agriculture for making more than $25 million in loans guaranteed by the USDA Rural Development Business and Industry program.
USDA Rural Development officials from Lansing met with Brad Dyksterhouse recently to express their thanks for his work in facilitating the loans for business borrowers in West Michigan and the Traverse City area.
Dyksterhouse was hired one year ago by Lake Michigan Financial Corp. of Holland, which owns Bank of Holland and Bank of Northern Michigan. Bank of Holland has two branches: one in Holland and one in Grand Rapids. The Bank of Northern Michigan has branches in Traverse City and Petoskey.
The Lender of the Year is an informal award by the Lansing USDA Rural Development office, according to Alan Anderson, and had last been given out about 10 years ago.
“We had a banner year in the (Business & Industry Guaranteed Loan) program — it was really a big year for us,” said Anderson, who is an area specialist in the USDA Rural Development office in Traverse City.
Dyksterhouse, according to Anderson, “did so much business with us — more than anybody else this year.”
The federal stimulus act passed in early 2009 made all the difference. “We had additional funding this year through the American Recovery and Reinvestment Act, and, under that program, we were able to reduce some of our fees, waive some of our fees. So we had a lot more funding than we do in some years, and obviously there were some enhancements to the program with those fee reductions,” said Anderson.
“In Michigan, we probably did three times — at least three times — the normal amount of dollar volume in loan guarantees” in the USDA Business & Industry program, he said, for federal fiscal year 2010, which ended Sept. 30. Anderson added that there are other USDA Rural Development loan and grant programs, and “all those areas had big years.”
Normally, the USDA Business & Industry program guarantees 80 percent of the loan made by a bank, but under the ARRA funding, that percentage was increased to 90 percent. There is also a fee charged by USDA, which is normally 2 percent of the guaranteed portion of the loan, but that was 1 percent in FY10. A service fee of one-quarter of 1 percent is normally charged by USDA but that was waived, too.
The USDA Rural Development Business & Industry loan program is similar to the federal Small Business Administration guaranteed loan program, which also was busier this past year due to the ARRA.
Although it is through the U.S. Department of Agriculture, the Business & Industry loan program is not available for purchase of farms or for direct agricultural production.
For farmland or farming investments, the USDA offers assistance through the Farm Service Agency, according to Bobbie Morrison of the USDA office in Lansing. She noted, however, that an individual or cooperative that wants to invest in a food-processing plant may qualify for the B&I loans.
“It’s all about job creation and job retention,” she said.
According to the USDA Rural Development website, the B&I Guaranteed Loan Program is intended to “improve, develop or finance business, industry and employment and improve the economic and environmental climate in rural communities.”
“These loans can be used for nearly any business purpose as long as the business is reasonably healthy and is located in an area the USDA considers rural,” said Dyksterhouse.
Dyksterhouse said he would guess that well over 90 percent of Michigan would be considered rural, in terms of qualifying for the B&I loans.
According to the USDA Rural Development website, the percentage of the guarantee — up to the maximum allowed — is a matter of negotiation between the lender and the USDA. The normal maximum of 80 percent is for loans of $5 million or less; it is 70 percent for loans between $5 million and $10 million, and 60 percent for loans exceeding $10 million.
The total amount of B&I loans to one borrower may not exceed $10 million, although there may be exceptions allowing loans of up to $25 million under certain circumstances, and USDA can even approve guaranteed loans up to $40 million for rural cooperative organizations that process value-added agricultural commodities.
Dyksterhouse said the largest USDA guaranteed B&I loan made by Bank of Holland this year was $9.6 million. About eight separate loans made up the $25 million in B&I loans done this year by the Lake Michigan Financial banks. Together, those loans were “two and a half times the total volume (of USDA B&I loans) done by all banks (in Michigan) the year before,” according to Dyksterhouse.
He said the B&I loans are attractive because the repayment periods are longer than conventional bank loans. “These loans don’t balloon, and that’s been a large fear for a lot of small business clients out there for some time.”