September 12, 2018

Best Practices: Recent Initiatives for Rural America and Small Main Street Businesses

by Victor A. Diaz

In an effort promote stronger businesses and agricultural economies in rural America, the Administration recently introduced a series of new initiatives. In April, the U.S. Department of Agriculture (USDA) and the Small Business Administration (SBA) executed a Memorandum of Understanding (MOU) aimed at enhancing collaboration between the two agencies serving rural and agricultural communities. In July, the SBA announced the 504 Loan Program, Rural Initiative Pilot Program, which permits Certified Development Companies (CDCs) to extend credit in projects located outside their traditional Areas of Operation, provided the projects are located in rural counties in any state within the SBA Region of the CDC. Finally, in August, the SBA announced additional fee relief to lenders and borrowers in connection with loans made to small businesses operating in rural areas.

According to Administrator McMahon, “the USDA and SBA are teaming up to develop actions based on the complementary strengths of the two organizations to promote rural development.” Linda McMahon, USDA Press Release No. 0076.18. The MOU aims to enhance collaboration and coordination between the USDA and SBA. Specifically, such collaboration is intended to improve investment opportunities in rural areas, identify ways to increase the benefits of the Tax Cuts and Job Act of 2017, improve innovation for rural technical assistance providers, and aid rural businesses in providing tools to export products around the world, among other goals. Id.


Under existing regulations, a CDC is required to operate only within its designated Area of Operations, as approved by SBA. Usually, the Area of Operations is the CDC’s state of incorporation. In order to make a loan outside its Area of Operations, the CDC is generally required to submit a request to the Sacramento Loan Processing Center (SLPC) demonstrating it can fulfill its 504 program responsibilities, properly service the loan and maintain satisfactory SBA performance. Additionally, “the CDC must have previously assisted the business to obtain a 504 loan, the existing CDC or CDCs serving the area agree to permit the outside CDC to make the 504 loan, or there is no CDC within the Area of Operations in which the 504 Project is located.” 83 Federal Register 34021, Pages 34021-34022; 13 CFR 120.839. The two-year Rural Initiative Pilot will allow CDCs to make loans involving 504 Projects with an address located in any county classified as “rural” by the U.S. Census Bureau if the 504 Project is located in the same SBA Region in which the CDC is incorporated without having to meet the traditional requirements. For instance, CDCs incorporated in Florida, located in SBA Region IV, will be allowed to extend credit to finance projects in Alabama, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee. The Agency’s goal is to “provide rural small businesses with increased opportunities to access capital and will further the statutory public policy goal of the 504 Loan Program to achieve rural development impact.” Id.


Finally, following its annual review of the fees payable to SBA by 7(a) lenders and borrowers, the Agency announced a reduction in certain fees related to loans made to rural borrowers. Annually, the Agency reviews the appropriateness of the fees charged lenders and borrower to manage the estimated costs of the 7(a) loan program needed to maintain its zero subsidy. For Fiscal Year 2019, there will be no annual servicing fee for 7(a) loans in the amount of $150,000, or less, made to small businesses where the physical address of the operating concern is located in a rural area or a historically underutilized business zone (HUBZone). Additionally, “the upfront guaranty fee will be 0.6667% (66.67 basis points) of the guaranteed portion of the loan. If the loan maturity exceeds 12 months, the Lender may retain no more than 0.1667% (16.67 basis points) of the fee.” SBA Information Notice 5000-180010, 8/14/2018. The SBA uses “Mostly Rural” or “Completely Rural” data from the US Census Bureau to determine whether the small business applicant is located in a rural county. SBA’s financial system (E-Tran) identifies if the business is located in a defined rural area. Similarly, E-Tran can determine if the applicant is located in a HUBZone.


For more information on on recent rural initiatives, contact Victor at  407.618.0694 or at