BIA 80% Loan Guaranty Program
This fund was established by the Indian Financing Act of 1974 to guarantee loans made by private lenders to Indian tribes, Alaska Native groups, Indian-owned corporations, partnerships, cooperative associations, and individual members of tribes or Alaska Natives for up to 80% of the unpaid principal and interest due. In addition, payment of an interest subsidy is also authorized on those loans guaranteed. The interest subsidy is based on need and will be limited to a 3 year period.
Four major changes in the loan guaranty program resulted from the 1984 and 1988 amendments to the Indian Financing Act. The first removed the prohibition on individual Indians and Alaska Natives from receiving guaranteed loans if they were members of or eligible for membership in an organization which was making loans to its members. Even so, it will be necessary for these individuals to apply to their own credit program before applying to the BIA for assistance. The second change increased the loan guaranty limitation on individuals to $500,000. The third change removed the restriction on the sale of guaranteed loans only to financial institutions. The fourth change increased the aggregrate loan limitation for the program from $200 million to $500 million.
Funding authority for the loan guaranty program is dependent upon annual appropriations. Under the recently enacted Federal Credit Reform Act, we are projecting an annual loan guaranty program of approximately $45 million beginning in fiscal year 1992.
Although similar in most cases to the direct loan program, we list again some of the basic parameters that applicants should consider to determine their project's eligibility for a loan guaranty:
ELIGIBILITY REQUIREMENTS: The applicant must be a federally recognized Indian tribe or Alaska Native group; a member of such tribe or group; or an Indian-owned corporation, partnership, or cooperative association.
LOAN PURPOSE: To finance Indian-owned, commercial, industrial, agricultural or business activity organized for profit, provided that eligible Indian ownership constitutes not less than 51% of the business. These loans must benefit the economy of an Indian reservation.
LOAN AMOUNT: No limits for tribes or tribal organizations, while $500,000 limitation on guaranteed loans to individuals and non-tribal organizations.
EQUITY REQUIREMENTS: A minimum of 20% of project funding either cash or unencumbered assets to be used in the proposed business.
EXAMPLE:
Your total needed to start a business = $126,000
YOUR LOAN REQUEST: $ 100,000 YOUR EQUITY CONTRIBUTION: $ 26,000 TOTAL: $ 126,000 $126,000 X 20% = $25,200
Your 20% Equity Contribution of $26,000 is greater than the 20% BIA Requirement of $25,200. Therefore, you would have enough contributed to qualify for the BIA Loan Guaranty Program.
TERMS OF LOAN: The maturity of guaranteed loans is determined by the lenders making the loan based upon the use of the loan proceeds and the repayment capability of the applicant, except that 30 years is the maximum maturity term. Also, policy allows for a variable interest rate for a 80% loan guaranty of 2 3/4% above the New York Prime Rate.
LOAN GUARANTY: The percentage of a loan that is guaranteed is ideally the minimum necessary to obtain financing, but may not exceed 80% of the unpaid principal and interest on the loan.
INTEREST SUBSIDY: An interest subsidy may be granted based upon need for a limited period of time. The amount of subsidy is based upon the difference between the Treasury interest rate for direct loans and the interest rate charged by the lender. For purposes of computing interest subsidies, the BIA's rate will be fixed for the term of the subsidy period.
