Why Do You Need an Independent Agency for a Feasibility Study Before Applying for the Business and Industry (B&I) Guaranteed Loan Program?
The USDA’s Business & Industry Guaranteed Loan Program or B&I Program provides financing to help businesses in rural America expand. These funds can make it possible for companies to access affordable capital through private commercial lenders. One key part of the application process is the feasibility study. Let’s find out when and why applicants need to submit a thorough feasibility study of their project.
What is the B&I Program?
The B&I program offers loan guarantees to lenders for loans made to rural businesses. Both for-profit and non-profit entities may qualify, including corporations, cooperatives, tribes, and public bodies. Funds can be used for working capital, equipment purchases, real estate acquisition, and more.
By guaranteeing a portion of the loan, the B&I program gives lenders more security, allowing them to offer better rates and terms. Borrowers benefit from this affordable, long-term financing that might otherwise be hard to obtain for rural ventures.
What are the Benefits to the Borrower?
Guaranteed B&I loans offer several advantages over conventional business loans:
● Lower interest rates and fees
● Longer repayment terms of up to 40 years
● Flexible credit policies that focus on cash flow
● Financing for up to 80% of project cost
● Last but not least, the ability to consolidate existing debt
These benefits improve cash flow for borrowers and make financing more accessible for rural businesses.
What is a Feasibility Study?
A feasibility study is an analysis of a business or project idea to determine its likelihood of success. The study should evaluate the market, technical details, financial projections, and management capabilities. It aims to identify strengths and weaknesses in the business plan. This helps lenders and applicants make informed decisions about the risks, investment needs, and realistic outcomes.
When is a Feasibility Study Required for the B&I Program?
For B&I guaranteed loans over $1 million to a new business, a feasibility study is required! Also, For loans to existing businesses where the technical feasibility, market feasibility, or economic viability of the project is unclear, a feasibility study may be required.
For B&I guaranteed loans under $1 million, the USDA may require a feasibility study on certain projects at its discretion. Factors that would necessitate the completion of a feasibility study are if there is insufficient information to determine the technical feasibility or economic viability of the project, or if the project will significantly affect the operations of a borrower who is an existing business and its historic cash flow. Startups, recent loss-making businesses, and additional locations/expansions relying on new markets are additional examples of cases where a study may be required.
Who Prepares the Feasibility Study?
To avoid any conflicts of interest, an independent third-party consultant must develop the feasibility study. These specialists have recognized expertise in analyzing the particular industry and type of project.
Potential analysts could include industry association experts, university agricultural economists, SBDC consultants, specialized CPAs, or other professionals with niche credentials. They should have an impartial perspective.
Why an Independent Agency for Feasibility Study?
The objectivity of an external consultant validates the feasibility study’s findings and recommendations. With an independent analysis, lenders and USDA can trust the information when deciding whether to approve the loan request. Applicants also benefit from evidence-based planning.
The USDA’s requirement for an independent agency to conduct a feasibility study for the B&I Loan Guarantee Program is crucial in ensuring the program’s success and effectiveness. The main argument behind this requirement is that an independent agency can provide objective and unbiased analysis of loan applications, thereby reducing the risk of potential fraud or misrepresentation.
Research conducted by GAO (Government Accountability Office) supports this claim, stating that “the use of third-party experts can help ensure that decisions about loan guarantees are based on sound information.” By having an independent agency assess the feasibility of loan applications, there is a higher likelihood of accurately determining whether a project has the potential for long-term success.
Data also supports the need for an independent agency when assessing feasibility studies. According to USDA reports, loans guaranteed under their various programs experienced higher default rates compared to those not guaranteed by USDA assistance. This highlights the importance of rigorous evaluations performed by external entities specialized in assessing financial viability and market potential.
In short, requiring an independent agency to conduct feasibility studies within the B&I Loan Guarantee Program is a necessary safeguard against fraudulence and ensures the responsible allocation of taxpayer funds. Supported by research findings from organizations like GAO and backed up with real-life examples and data comparisons between guaranteed versus non-guaranteed loans, this requirement contributes significantly toward maintaining integrity within the program while maximizing its overall success rate.
August Brown Can Help!
As a boutique consulting firm, August Brown specializes in conducting feasibility studies across various industries. In the B&I loan program, we have a track record of assisting businesses with securing funds.
Under the B&I loan program, August Brown has been instrumental in helping companies secure funds. Their comprehensive feasibility studies provide potential investors or lenders with evidence of market demand, financial projections, and a realistic budget and timeline. This valuable information strengthens the case for funding approval, increasing the chances of getting the project off the ground.
August Brown’s dedication to quality, unmatched analytical rigor, and depth of insight have made them a trusted partner for businesses seeking financial support. Our expertise in conducting feasibility studies and track record of success makes us a reliable choice for companies looking to secure funds under the B&I loan program. Contact us to discuss your project today!
With a B&I guaranteed loan, the feasibility study creates accountability on both sides, reduces risk, and sets clear expectations. It provides valuable insights to all stakeholders on the business concept’s practical potential. For rural companies accessing this affordable financing, the independent perspective gives confidence in moving forward and helps ensure a wise investment in the community.