While a guarantee may be necessary under certain circumstances and can sometimes foster better loan terms (related to repayment period or interest rate) depending on the bank, often they have up front costs of a 1 to 3.5 percent of the portion guaranteed and have annual fees ranging from 1/8th to 1/4th of a percent on the remaining loan balance. The guarantees may also come with high administrative costs due to extensive reporting requirements. In short, these guarantees can have varying cost-to-benefit ratios and should be thoroughly scrutinized based on your particular circumstances. Make sure to ask for a full breakdown of all associated initial and annual fees.
This program can guarantee up to 80 percent of a bank loan, depending on the loan purpose. A USDA Rural Development feasibility study may be required. General guidelines as to whether a feasibility study is needed include:
USDA will look at each project on a case-by-case basis and make the determination about the feasibility study during the pre-application process.
Further Information: USDA Rural Development, Business, and Cooperative Programs
Contact Information: USDA State Offices
You will have to work through your bank to apply for this type of guarantee. Up to 85 percent of loans of $150,000 and less, and up to 75 percent of loans above $150,000 can be guaranteed for up to 25 years.
Further Information: SBA 7(a) Loan Program
Contact Information: SBA Local Resources