In Episode 7 of BOOM! The Southeastern Commerce Podcast, Mark Brodziski, Acting Administrator for Rural Business-Cooperative Service at the USDA, joins Michael Berson and Chris Kane of Adams and Reese as we learn more about the USDA’s Business & Industry (B&I) Cares Act Program, which was rolled in late May as part of the CARES Act and how it’s helping rural businesses have access to capital during the COVID-19 crisis.
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Transcript and Show Notes
Christopher Kane: Hello everyone. I’m Chris Kane with Adams and Reese in New Orleans. Welcome to today’s episode. Joining us today is Mark Bordziski and he is the acting administrator for Rural Business Cooperative Services at the USDA and my law partner Michael Berson, who is out of our Alabama and Washington DC offices, who really has been focusing on all things CARES Act and the multiple disciplines that that is carrying.
Today we’re going to focus on USDA’s business and industry CARES Act program and do a deep dive into that and for the opportunities that that program is providing for rural businesses and agricultural producers to supplement their working capital, and really as a response to the economic impacts of the Coronavirus. So we’re looking forward to that discussion. And before we do, Mark, we want to get to know you a little bit and just how you got to where you are as the acting administrator. So with that, where are you from originally Mark?
Mark Bordziski: Thank you Chris. Yes, I’m originally from Wisconsin. A long time employee and work within USDA. Spent most of my career working with the USDA, either the Farmers Home Administration or Rural Development in our Wisconsin field offices.
Christopher Kane: So being from Wisconsin, is it true that there’s a requirement that you have to be a Packers fan?
Mark Bordziski: Ideally a team owner if you can, but yes, you have to be a fan.
Christopher Kane: That’s great. Well, where did you go to college?
Mark Bordziski: I went through part of the University of Wisconsin system in River Falls. It was just near the Twin Cities on the western side of the state. But a definite strong ag school, so enjoyed that start in – I guess heading towards a career.
Christopher Kane: Awesome. Well, how long have you been living in the DC area?
Mark Bordziski: Moved to DC about ten years ago now. We started just on a short-term detail, just working on a couple of projects here while I was still working from our state office in Wisconsin. But enjoyed it. Enjoyed the activities, working at the federal level, a national level. So I joined the Rural Business Cooperative Services as a director of one of our programs. And since then been engaged in some of our renewable energy programs, bio energy programs, additional business programs. Today I’m serving – or now I’m serving as the acting administrator, just due to the vacancy of our administrator position in the interim.
Christopher Kane: Understood. Well, and I also appreciate that right now obviously with the impacts that we’re feeling from the Coronavirus, right now it’s all hands on deck. And particularly for you focusing on USDA’s business and industry CARES Act program. Michael, why don’t you introduce the program a little bit and talk with Mark here about some of the questions that we have specific to the program.
Michael Berson: Thanks Chris and thank you Mark for taking the time to join us today. With the number of businesses across the country, not only over the past few months but historically, especially those in rural communities, they’ve had and continue to have severe and deal with severe economic hardships. In this instance it’s as a direct result of the certain public health and safety measures that have been taken to minimize the public’s exposure to the virus.
Right now what I think we’re seeing is there’s a lack of access to capital, particularly in these rural areas to support businesses in their ongoing operations. And the Business & Industry’s CARES Act Program is designed to really address those needs. And Mark, this is a program from the Rural Business Cooperative Services. Can you give us a little background on the service and kind of its mission and kind of the interplay of how it seeks to assist some of these rural businesses through the Business & Industry’s CARES Act Program?
Mark Bordziski: Certainly, thank you Michael. The Rural Business-Cooperative Service is an agency within the Rural Development mission area. So in the Rural Development mission area we have three agencies, ours, the Rural Business-Cooperative Service, the Rural Utility Service and the Rural Housing Service. We focus—as our name implies—on businesses, rural businesses, cooperatives and technical assistance for cooperatives.
But our main focus really is on providing, as you noted, capital or access to capital for rural businesses and economic development projects and opportunities. The business and industry program is one of our foundation programs. About a $1.4 billion program this year that offers guarantees to commercial business loans. And this program, we refer to it as the Business & Industry CARES Act Program is built on that program as a foundation to really help, as you noted, serve and assist rural businesses to recover from the pandemic.
Michael Berson: Thank you Mark. One thing you mentioned as you were talking a second ago was who essentially is the ideal applicant for this program. I think for the first time, I believe agricultural producers may access this program if they’re ineligible for financing from USDA’s Farm Service Agency. Are there any other type of changes or flexibilities that have been included in this new program from the CARES Act?
Mark Bordziski: And you’re right, this is the first time that we really serve broadly agricultural production with the Business & Industry Program. Just on the foundation, kind of the regular program, an ag producer could be eligible for funding under the program. But for loan purposes not related to agriculture. In other words, if a producer was interested in processing, taking their ag products and processing it, adding value for marketing of those products, that could be something we could do with the Business & Industry Program.
With the CARES Act Program we expanded it to include ag production. So now ag producers could apply for the program for assistance without having to be involved in other activities, processing or other business activities. The program itself is available to then all businesses in rural communities. We don’t have size standards. It’s similar to SBA. So we can work with very small businesses, all the way up to large businesses, including publicly traded companies on public stock markets.
So it could be a wide range of types of businesses. We do not restrict or direct funds towards any type of business. But as we noted here, it could include agriculture, does not need to include agriculture. It could be businesses that serve agri businesses or serve producers. But it could be other. We have a lot of manufacturing in our loan portfolio, hotels, recreation, medical, education. So really any industry that has addressed in rural communities, could be a business that’s eligible for this program and for our B&I standard program.
Michael Berson: Mark, I think that’s fantastic and that’s going to be extremely helpful to a lot of these rural businesses and agricultural producers who are really hurting right now. One question that comes up, before we get off the subject of eligibility, is that from time to time there can be confusion on how a rural area is defined. Is there any way you could provide a little more clarify on how this program essentially defines rural areas?
Mark Bordziski: You’re right, that can be a bit complicated. Easiest way to understand what’s rural is with the definition of what’s not. So in our business programs, areas that are not eligible, so not rural, would be a city or community of 50,000 or more. So the core city with a population of 50,000 or greater. And then the area that’s contiguous, urbanized contiguous areas to that city are also ineligible.
So we’re thinking of major metropolitan areas, would not be eligible. To help with it we do have a mapping program available on our website, and I’m sure in here we’ll talk about follow up for additional information. But that’s probably the easiest, is basically a little program we have that a potential – either a lender or a business can just type in their address. And it will indicate if that address is eligible or not eligible as a rural area for these programs.
Michael Berson: Now getting into a little bit more of the specifics, could you provide a little bit of detail on the loan terms and the interest rates and whether or not there are any applicable fees that may go along with some of these loans?
Mark Bordziski: Sure, I can talk about the terms of the loans, the use of the loans. The most important thing to understand is that the use of the loan funds themselves is much more defined than our standard program. So under the Business & Industry CARES Act Program, the use of the loan funds are for working capital. So it’s for basically standard operating expenses for a business. Could include making principal and interest payments on loans. But basically to help fund kind of the shortfall in income from the working capital that a business would have, to recover from the pandemic.
So again, that’s the purpose of the loan and use of the loan funds. The loan itself is a loan. So it’s a loan made by a bank or a commercial lender, and we would guarantee that loan to the bank. The advantage to the business is because of the USDA guarantee, we assume the risk of majority of that loan.
So it’s a 90% guarantee. So the bank is at 10% risk. So that in essence should offer a lower interest rate, one of the better interest rates that a lender could offer. The interest rate itself is negotiated between the lender and the borrower. We do not set what that rate can be. They’ll require that if it’s a variable rate, it must be based on some type of published rate. So it has to be an actively publicly available rate that’s used as a base.
The repayment terms can be up to ten years. So it’s a little bit longer than what we would have for a standard working capital loan. We also have provisions that enable the lender to defer payments on the loan. We could set the first interest payment for one year after the original loan. So it could be no interest payments for a year. And then beyond that year the principal payments could be deferred an additional two years. So for a total of three year initial period, they could be interest only and then start making principal interest payments with the full loan being paid over the remaining of those ten year term. The actual terms are also negotiated between the lender and the business.
Michael Berson: Thank you Mark. This sounds like really a fantastic opportunity to help rural businesses kind of bridge that gap, so to speak. What about collateral? Is collateral required? And if so, what types of collateral may be required?
Mark Bordziski: Right, the loans do have to be secured. Knowing that you are working with businesses that are stressed, needing cash for working capital, we’re trying to be as flexible as possible on collateral. So we are allowing lenders to show, like, a second lien position. Let’s say if a business has real estate or equipment, maybe that’s financing their senior debt, their normal financing with the bank. The B&I CARES Act Program could use that same collateral if there’s equity or value above the collateral compared to the outstanding debt, that could be the collateral available for the B&I working capital loan.
It also could be other, inventory, receivables. So generally collateral that may be a little bit more discounted or not have the value for lending under a standard loan would be something that could be utilized for the B&I CARES Act Program. Again, we’re trying to be as flexible as possible. We’re also flexible as to the valuation of that collateral. So if the business or the lender completed an appraisal on the property within the last two years, we could use that appraisal without having to update it. If the appraisal has a little bit more age than two years, rather than running a full appraisal, we would ask that the lender simply update the value of that appraisal.
So again, trying to remove some of the barriers on some of the time that would require to process a loan. Looking at speeding up the evaluation process for collateral.
Michael Berson: So Mark, what would next steps be if a business is interested in this program and how they would go about applying for it?
Mark Bordziski: So the actual application is through a lender. From the agency’s perspective, our client is the bank, and the bank would then work with the business or the borrower. The borrower would start of course with either their current lender or a new lender that’s interested in the loan and providing the finances that they need. Working through the bank then submitting an application to our agency for the guarantee. Banks that are eligible for the program include any bank that has a federal or state charter, credit unions, savings and loans. And on the ag side the Farm Credit institutions are also eligible as lenders.
So a lender that’s not currently involved in our programs simply needs to submit an application on behalf of a borrower. And we can work forward with that. We have ability for non-bank lenders also to qualify, such as a CDFI or a non-depository institution. But those institutions would have to apply first to become a lender under our program. But a bank, a credit union, simply they’re eligible and can submit an application on behalf of a business.
Christopher Kane: Mark, how are we seeing the lender participation? Are we seeing a healthy group of lenders participating in the program?
Mark Bordziski: Well, from our standard program we have almost 700 lenders involved in our B&I Program. With the rollout of the B&I CARES Act we’ve been actively outreaching, engaging with lenders and lender organizations. Just within the last three weeks or so, since we published the rules for this program, we’ve spoke to over 2000 lenders about this program. So there is a lot of interest in utilizing this program to help serve rural businesses.
We also have a lot of interest on the ag production side. So the Farm Credits and the rural lenders that are involved in the FSA, the Farm Service Agency loans are also interested in this to help out with their programs. So we’re also reaching out to the lenders that typically would work with the Farm Service Administration, could also be eligible for the B&I CARES Act Program for ag production loans.
Christopher Kane: And that’s helpful because obviously that’s ultimately the juice that needs to get squeezed, if you will, to make the lemonade and make the program work. That’s great to hear that there’s a healthy interest. Let me ask you this, one of the areas that we’re talking to a lot of our clients with is looking at loan comparisons and looking at available loans that you could possibly mix and match. Whether they be SBA loans or ag loans or other private options. Each of our states for the most part have some sort of small business loan guarantee program. Are there any restrictions related to utilization of other loan programs or incentives that would be an excluding factor for you to participate in this program?
Mark Bordziski: Not in the sense of other loans would make a business ineligible for this program. But in the sense of eligibility or the amount of loan one would be eligible for might be impacted. Again, the purpose of the loan is to help recover from the pandemic, to look at the cash shortfall. So if a business received an SBA payroll protection program loan or a disaster loan, those loans would be deducted from the maximum that a business would be eligible for. But they still would be eligible for the Business & Industry CARES Act Program.
As far as partnering with, they could. So if a – let’s say a business needed some activity, financing activities, that the B&I CARES Act cannot fund, maybe refinancing or some longer term capital purchases that are not eligible within the B&I CARES Act, then we could work with other programs to put together a financial package. Similarly with – on the ag production side, the Farm Service Administration. So FSA clearly provides financing for ag production. If the business is eligible for FSA, if the producer is eligible for FSA, they need to go that route.
However, if the amount of the loan they need exceeds the amount that FSA could lend, then they’re eligible for the B&I CARES Act Program. In that case could come 100% to the B&I CARES Act. Or at their option they could choose to blend the two. There are some advantages to the FSA program, and there are some advantages to the B&I CARES Act Program. So when looking at those programs as to how best use the funds would be really up to the borrower and up to the lender to work forward.
Christopher Kane: Along those lines, I understand the program has allocated $1 billion, is that correct?
Mark Bordziski: The program has – yeah, can support up to $1 billion in loan activity, yes.
Christopher Kane: Yeah, where are we in terms of – one of the – again, another concern, as our clients are nearing deadlines for certain loan options and the timeframes play out, explain again if you don’t mind the window that we’re in and confirm that there’s enough liquidity to support the loan program right now in terms of allocation. Does that make sense?
Mark Bordziski: Certainly. So first of all, as far as the funds available, have about $1 billion. We introduced regulations to run the program on the 22nd of May, so a couple of weeks ago, we opened up applications at the same time. We are receiving applications. It’s been a slow start in the sense of a couple of applications coming in early. But that’s starting to pick up a little bit from some of the lenders. But the actual funds will be available as long as we have funding. So we’ll continue to process applications as long as the funds are available.
We’re holding all funds kind of in a national pool, and then we’ll process the applications basically in the order received. Now the applications themselves will be submitted by lenders to our field office structure. So rural development has a state office in every state, and that office then is responsible for receiving and processing these loan applications. They’ll be working with our national office on the timing of awarding and funding the project or the applications rolling forward.
While we are receiving applications, there is plenty of funds available at the rate of – we’re starting to see a little up tick. But we don’t expect that it’s going to be an immediate deadline. We should have funding available to work through projects. We have some pretty strong lenders, active lenders in the standard business and industry program that are working with us on potential projects. But even their workload is (inaudible) go through. We know many lenders are still trying to wrap up their SBA, the payroll protection program loans and other activities that’s slowing this down, is what we hear a little bit. So we expect that the funds will be available to serve for quite a while yet for any needs immediate.
Christopher Kane: Well, yeah, that makes sense. When you look at – there’s nothing ordinary about the times we live in, and certainly about the pandemic and the disaster, economic disaster that has been caused by it. But from a disaster perspective, and my practice got my first taste in disaster recovery work after Hurricane Katrina and Rita. In that instance I think it was about 160,000 loans deployed, $10.9 billion worth of disaster recovery through the SBA. And we learned a lot from that.
Now of course the government with its private partners, which as you just mentioned is really in my opinion the key component. The lender participating in how we’re deploying the money quickly and making it available. The work that you guys have done in your agency and across other government agencies to deploy the disaster recovery dollars and programs, I think to the tune of over $600, $700 billion through disaster loan programs, to the tune of I think 4.5, 5 million loans, is just – in the time period is absolutely incredible. And I think it’s lost in the shuffle because of the natural tendency that people want answers right away and need to make decisions that are very important.
You just mentioned something that’s important and I want to go back to it just briefly. You’d mentioned that you’re seeing a little bit, I wouldn’t call it lender fatigue, but the private partner side of this, right, the lender’s just experiences putting out however many millions of loans now that we’re up to in a pretty short period of time. That program is going to require some significant back end work as well. And then you have the customers that are sitting there and they’re trying to figure out, okay, what happens after now? Like, a 24 week period if you’re in the PPP loan program or if you’re looking at other loan facilities, the obligations required there. This program seems to have some long-term flexibility that is interesting to me. Can you explain a little more on that, I call it lender fatigue? And that’s probably not the right word, but how this loan particularly and the length of it’s going to allow for some flexibility perhaps down the road.
Mark Bordziski: Sure. That’s two questions, but I think they’re both – they’re related. In the sense that the – especially the SBA payroll protection program loans, whereas the lender role and activity, you referred to the back end. And really that’s what they’re really focusing on now is the processing of. Not so much the obtaining the loan approval, but it’s executing the loan, dispersing loan funds and the tracking associated with that. And that’s where they’re now investing a lot of their time and effort to basically be the same staff that would prepare information to submit applications for this program, for the B&I CARES Act Program.
So there’s something – many of the lenders are focusing on kind of finishing up what they have with the PPP loans first and then engaging a little bit more with the B&I CARES Act Program. And I’d say that it’s related to kind of the longer term flexibility with this program in a sense that we intentionally set up the use of the funds for the B&I CARES Act Program with some flexibility. We kept it as broad as to – for using funds basically to fill in that shortfall of working capital for businesses.
But we tried to keep that as open, as flexible as possible. We did not set a deadline as to when funds have to be used. Again, that was intentional. Because it’s going to vary depending on the industry, the recovery, the economic environment that the business is in as to what their economics look like and what their cash flow needs are. So we’re trying to keep that as flexible as we can.
Also the – I’m going to say the paperwork from the sense of the lender, borrower/lender perspective on drawing funds. Again, we’re also trying to keep that pretty light. It’s the eligibility and writing up the loan upfront is really based on a projected financial need of the business. And we’re trying to just keep it simply to just monitoring cash flow. So a business can show what their cash inflow is, what their cash outflow is. And basically that difference is really the shortfall that is supported with the B&I CARES Act Program funding from that loan. So there’s the kind of back office work on both from the borrower’s perspective and the lender. It should be a little bit lighter than what’s under the payroll protection program and provide some flexibility to the business as they’re drawing funds.
Christopher Kane: Well Mark, thanks. This has been extraordinarily helpful, and I know there’s a lot of information on the B&I CARES Act Program. Before we conclude, could you let us know where our listeners can go find some more information and to access it perhaps maybe on the web?
Mark Bordziski: Absolutely. RD.USDA.gov. So RD as in Rural Development.USDA.gov. And I’m there – we have all our programs, program sites, just simply selecting the business programs and then drilling into the B&I CARES Act Program. And of course if a business or a lender is interested in other programs, those are all available through that website. And almost every one of our web pages at the bottom of it has the links to the eligibility maps and some of the other tools that we have available to help determine eligibility and help businesses and lenders kind of work through some of those efforts.
There’s also a “contact us” button that you can drill into and find our offices and contacts throughout the country, based on either our national location or state offices. And again, all that is off of the RD.USDA.gov.
Christopher Kane: Well thanks Mark, and I’ll close with this question. It’s an easy one I promise. Both Michael and I found ourselves in DC frequently and hope to be up there soon when things open up and can be safe enough. But if we’re up there, what is your go to place you’d send us to go grab a bite to eat for dinner?
Mark Bordziski: Oh, wow. In DC, that is not an easy question {laughs}.
Christopher Kane: There’s plenty out there.
Mark Bordziski: Plenty of options, you bet. A little tough right now, except for the sidewalk cafes. But yes, we’ll get there very soon we hope.
Christopher Kane: Yeah, absolutely. Well, when we do, hopefully we can join you up there and again, thank you for your time Mark and Michael for being on the program today. We look forward to seeing everybody on our next episode. Stay tuned and thanks for listening.