There Is No 1.25x Rule in USDA B&I. What Replaces It Is Stricter.
Rural food processing plant.
Summary
7 CFR Part 5001 sets no general minimum debt service coverage ratio for USDA Business and Industry loans. The only numeric floor that applies to B&I sits in the refinancing rule: an existing business whose loan is mostly refinancing must show at least 1.1x historical coverage on the proposed debt service, or at least 1.0x on its current income statement as proof of recovery. The 1.25x figure that circulates as "the USDA requirement" is lender policy.
What replaces a fixed floor is stricter in practice. USDA defines coverage as EBITDA less reasonably expected replacement capital expenditures, divided by annual principal and interest, which is tighter than SBA's EBITDA test. It requires global historical and projected coverage analysis, substantiated projections and, for loans over $1 million to a new business, an independent feasibility study. And it measures the lender against a prudent-lender standard at loss claim, where negligent origination can reduce the guarantee to nothing.
The stakes are rising. In February 2026, the Rural Business-Cooperative Service reported more than $1 billion of delinquent loans and about $300 million of repurchases and losses over the prior year. On our refinancing case, a processor showing 1.28x on plain EBITDA falls to 1.09x on USDA's definition and fails the 1.1x test until the amortization is extended.
Written for lenders, borrowers and advisers preparing or reviewing B&I applications. 20 minute read.
Key figures
1.1x. Minimum historical coverage on proposed debt service for B&I loans to existing businesses where refinancing is the majority purpose; the only numeric DSCR floor that applies to B&I. Source: 7 CFR 5001.102(d)(4)(iii). As amended September 30, 2024.
EBITDA less capex. USDA's coverage numerator deducts reasonably expected replacement capital expenditures, unlike SBA's EBITDA test. Source: 7 CFR 5001.3. Current as of October 2026.
$1 million. Loan size above which an independent feasibility study is mandatory for a new business. Source: 7 CFR 5001.306(a)(3)(i). Current as of October 2026.
85 and 80 percent. FY2026 B&I guarantee on loans under $5 million and from $5 million to $25 million, with a 3.0 percent guarantee fee and 0.55 percent annual retention fee. Source: 91 FR 11272. Published March 9, 2026.
3 years. Longest permitted wait before the first full principal and interest payment, on a maximum term of 40 years with no balloons. Source: 7 CFR 5001.402. Current as of October 2026.
More than $1 billion. Delinquent loans in the Rural Business-Cooperative Service guaranteed portfolio, with about $300 million of repurchases and losses in the prior year. Source: RBCS Administrator's letter to lenders. February 18, 2026.
USDA does not set a coverage floor for most B&I loans. It sets a stricter definition, demands substantiated projections, and holds the lender to a prudent-lender standard when the loan fails.
Ask a lender what coverage USDA requires on a Business and Industry loan and you will usually hear 1.25x. The number is defensible. The attribution is not.
Nowhere in 7 CFR Part 5001, the OneRD rule that has governed B&I guarantees since October 1, 2020, does 1.25x appear. The rule defines debt service coverage, requires lenders to analyze it historically and on projections, and sets a numeric floor in only one B&I situation: loans that mostly refinance existing debt. Everywhere else it asks the lender to judge whether the credit factors, "considered in combination, ensure guaranteed loan repayment." USDA's own lender checklist points lenders to the refinancing provision "for Agency required minimum debt service coverage ratios," which is a fair way of saying there are none elsewhere.
The absence of a number is not leniency. A fixed floor gives a lender something to point to. A judgment standard gives USDA something to examine. When a guaranteed loan fails, the question at loss claim is whether the lender did what "a reasonably prudent lender would perform in originating its own portfolio of loans that are not guaranteed," and a negligent origination finding can reduce the guarantee to nothing. In most B&I files we have read, and a fair number we have supported, the coverage analysis is written for approval. It should be written for the loss claim.
This piece sets out what Part 5001 actually requires on coverage, feasibility studies and projections, separates rule from convention, and works through two cases: an existing processor refinancing its debt, and a new business that needs a feasibility study. Our companion pieces on what to do when coverage fails and on stress testing cover the structural fixes and the downside cases. This one is about the rule those fixes have to satisfy.
What Part 5001 actually says about coverage
Part 5001 replaced the legacy B&I rules in 7 CFR 4279 and 4287 for applications completed on or after October 1, 2020. It has since been amended four times in ways that matter for credit: in December 2021, in September 2024, in December 2024 and in December 2025. The September 2024 rule, which USDA confirmed in December 2025, made the most substantive changes. It rewrote the financial statement standards, added global and guarantor coverage analysis, tightened the rules on projections, and revised the refinancing coverage test.
The coverage provisions fall into three groups.
What the rule does | Section | Scope | Numeric standard |
Defines DSCR as EBITDA less reasonably expected replacement capex, divided by annual principal and interest | 5001.3 | All OneRD programs | None; definition only |
Requires 1.1x historical on proposed debt service, or 1.0x on the current income statement to show recovery | 5001.102(d)(4)(iii) | B&I, CF and WWD loans to existing businesses where refinancing is the majority purpose | 1.1x or 1.0x |
Requires 1.1x historical, with reserves counted in debt service | 5001.102(d)(5) | CF rural hospital refinancing | 1.1x |
Allows the Agency to reduce minimum equity only if pro formas meet the RMA median for DSCR and three other ratios | 5001.105(d)(5)(ii) | B&I existing businesses | Industry median, not a fixed ratio |
Requires global historical and projected coverage analysis for affiliates and guarantors | 5001.202(a) | All | None |
Requires the lender to structure debt so the borrower has adequate coverage, supported by a cash flow analysis | 5001.202(b)(2)(ii) | All | None |
Guarantees only loans with a reasonable assurance of repayment | 5001.315(b) | All | None |
Includes a minimum DSCR covenant in the loan agreement "when required by the lender or by this part" | 5001.451(b)(3)(xi) | All | Lender-set |
The history explains the gap between rule and folklore. In its July 2020 preamble, USDA described OneRD as using "three minimum project financial conditions" that would establish minimum requirements for coverage, equity and loan-to-value. The codified B&I text that followed contains no general coverage floor, and preamble language describes intent without binding anyone. In 2024 USDA went further, revising the CF hospital refinancing provision because the earlier text "implies an acceptable ratio that is not intended." The agency has been explicit about not setting ratios it does not mean.
Three commonly repeated claims deserve an audit.
"USDA B&I requires 1.25x." False as a statement of the rule. No 1.25x figure appears anywhere in Part 5001 for B&I. It is a common lender covenant and a reasonable credit policy. It is not USDA's.
"B&I always requires a feasibility study." False. An independent study is mandatory only for guaranteed loans over $1,000,000 to a new business. Below that, or for an existing business, USDA may require one when the lender's information is insufficient or the project will significantly affect existing operations.
"B&I requires 20 percent equity." Partially true and misleading. Twenty percent balance sheet equity is one option for most new businesses, which may instead contribute 25 percent of project cost. Existing businesses need 10 percent. New businesses that want the guarantee issued before construction is complete need 25 percent.
A definition stricter than SBA's
Section 5001.3 defines debt service coverage as "earnings before interest, taxes, depreciation, and amortization less reasonably expected replacement capital expenditures divided by the annual debt service (principal and interest payments) of the borrower." SBA defines operating cash flow as EBITDA, with no capex deduction. The difference looks technical. For a capital-intensive borrower it is the whole answer.
The deduction matters most in exactly the businesses B&I finances: processors, manufacturers, energy projects and other operations with equipment that has to be replaced on a schedule. A borrower that spends 15 percent of EBITDA every year keeping its lines running does not have that 15 percent available for debt service, and USDA's definition says so. A file that reports coverage on plain EBITDA has not reported USDA's ratio.
The rule also asks for coverage at two levels. Applications involving affiliates must include "a global credit evaluation and if applicable a global historical and projected debt service coverage analysis," and applications with guarantors must include a global coverage analysis of the guarantors, "including the cash flow of the guarantor(s)." Projections that deviate from historical performance "must be substantiated and documented," and the borrower's projections "should be consistent with their past performance." Since the 2024 amendments, a tax return is not an acceptable financial statement for underwriting.
The only numeric floor: refinancing
Section 5001.102(d)(4)(iii), as revised on September 30, 2024, reads in full: "For loans to existing businesses where debt refinancing is a majority purpose of the guaranteed loan, the borrower must demonstrate historical debt service coverage ratios using proposed debt service requirements of not less than 1.1 times, or the borrower's current financial performance demonstrates it has corrected or recovered from impacts or issues adversely affecting its past financial performance. The debt service coverage ratio computed based on the current income statement must be at least 1:1 to demonstrate correction or recovery."
Three features of the test are easy to miss. It applies only when refinancing is the majority purpose. It measures historical cash flow against the proposed debt service, not the debt being retired. And the recovery path lets a borrower whose history is weak qualify on current results at 1.0x, provided the current statements show the problem has been corrected.
The case is illustrative. An existing rural food processor applies for a $6,000,000 B&I loan, three-quarters of which refinances existing debt and the rest of which funds equipment. The lender prices it at 8.50 percent, Prime plus 1.50 percent, on a 20-year amortization. Historical EBITDA is $800,000, and reasonably expected replacement capex is $120,000 a year.
Amortization | Annual debt service | Coverage on plain EBITDA | Coverage on USDA's definition | Meets 1.1x |
20 years | $624,833 | 1.28x | 1.09x | No |
25 years | $579,764 | 1.38x | 1.17x | Yes |
30 years | $553,618 | 1.45x | 1.23x | Yes |
On plain EBITDA, the file looks comfortable at 1.28x, above most banks' policy. On USDA's definition it is 1.09x and fails the one numeric test the rule imposes. The fix is structural. Part 5001 allows a term up to the justified useful life of the collateral, to a maximum of 40 years, with no balloons. Moving to 25 years brings coverage to 1.17x, provided the plant and equipment securing the loan support that life. That is the same lever our companion piece on DSCR failure ranks first, applied under a rule that gives it more room than SBA does.
The guarantee is not free. Because the loan is $5 million or more, the FY2026 guarantee is 80 percent. The 3.0 percent guarantee fee on the guaranteed portion is $144,000, and the 0.55 percent annual retention fee starts at about $26,400.
Projections and the feasibility study
Every B&I application must include projections. Section 5001.303(b)(4)(iii) requires projected balance sheets, income statements and cash flow statements, or a financial model, "starting from the current financial statements through a minimum of two years of the project performing at full operational capacity or stable operations." The projections must be supported by a list of assumptions and must include a pro forma balance sheet at closing. USDA may require projections to the end of the loan term. The current financial statements behind them must be dated within 90 days of the complete application, alongside up to three years of history.
For seasonal borrowers, the lender must include quarterly projected cash flow. Where the borrower wants the loan note guarantee issued before construction is complete, the lender must provide quarterly cash flow through start-up, and USDA charges an additional 0.50 percent fee.
The feasibility study rule is narrower than its reputation. For B&I, the triggers are these:
Situation | Feasibility study | Section |
Guaranteed loan over $1,000,000 to a new business | Required, by an independent qualified consultant acceptable to USDA; scope set by USDA | 5001.306(a)(3)(i) |
Loan of $1,000,000 or less, or an existing business | Discretionary; USDA may require one when information is insufficient or the project will significantly affect existing operations and historic cash flow | 5001.306(a)(3)(ii); 5001.303(c)(4) |
Renewable energy systems and integrated processing equipment | Technical report required | 5001.306(a)(3)(iii) |
Loan of $600,000 or less | Streamlined submission available if USDA finds the information sufficient | 5001.306(b) |
Two definitions make the trigger wider than it first appears. A "new business" includes an existing business that has operated for less than a year, one that has not yet reached full operational capacity or stable operations, and a new enterprise or affiliate of an existing business moving into a new location involving new market or labor areas. An established operator opening a plant in a new region is a new business for this purpose. And a "feasibility study" means a report by an independent qualified consultant, "including an opinion or finding," evaluating economic, market, technical, financial and management feasibility. A business plan written by the borrower is not one.
The study's contents are set by Appendix A to subpart D of Part 5001. USDA publishes that appendix in the electronic CFR only as scanned images, so its full text is not machine-readable. The definition and section 5001.303(c)(4) confirm the five components. The companion appendix in 7 CFR Part 4280 lists sensitivity analysis as a financial factor. In the codified text of Part 5001 we found no express requirement for sensitivity analysis on B&I projections. The nearest provisions are the Community Facilities rule that projections take into account interest rate adjustments under the note, and its 90 percent occupancy cap for assisted living and skilled nursing facilities. B&I also finances senior care, but the 90 percent cap sits in the CF section, not the B&I section. Underwriting a B&I senior care project at no more than 90 percent occupancy is prudent practice, not B&I rule text.
Consider a second illustrative case. A new rural processing business needs a $12,000,000 plant and asks for a $9,000,000 B&I loan, with the guarantee issued before construction is complete. The study is mandatory, because the loan exceeds $1,000,000 and the borrower is a new business. Equity must be 25 percent, $3,000,000, because the guarantee will issue before completion. Interest during construction and start-up runs about $765,000 a year at 8.50 percent. The rule requires interest to be paid at least annually and the first full payment of principal and interest within three years of the note. USDA's February 2026 letter to lenders adds that interest-only periods must be justified with realistic monthly cash flow projections and that principal and interest should begin at the break-even month. Stabilized EBITDA of $1,400,000, less $200,000 of replacement capex, covers 25-year debt service of $869,645 at 1.38x on USDA's definition; on plain EBITDA the same file would show 1.61x.
The gap between those two numbers is the gap between a file written for approval and one written for the loss claim.
Equity, collateral and coverage: three separate tests
Part 5001 treats equity, collateral and repayment capacity as independent requirements, each of which must be met. Strong collateral does not waive the equity floor, and meeting the equity floor does not demonstrate repayment. The lender's job, in the rule's words, is to judge that "the credit factors and guaranteed loan terms and conditions, considered in combination, ensure guaranteed loan repayment."
Equity has hard numbers, set by borrower type in section 5001.105(d). The borrower must meet one test in its tier.
Borrower | Balance sheet equity | Or: investment as share of project cost | Or: owner capital as share of fixed assets |
Existing business | 10 percent, or debt-to-equity of 9 to 1 or less | 10 percent | 10 percent of net fixed assets plus depreciation |
New business with sales contracts covering debt service for the loan term | 10 percent, or 9 to 1 | 10 percent | Not available |
New business requesting the guarantee before construction is complete | 25 percent, or 3 to 1 | 25 percent | Not available |
All other new businesses | 20 percent, or 4 to 1 | 25 percent | Not available |
Equity is measured at closing as cash or earning assets, and excludes appraisal surplus and bargain purchase gains. Subordinated debt counts only for cash that stays in for the life of the loan under a standstill agreement. Under section 5001.205(e)(2)(iv), borrower equity must be injected before any guaranteed loan funds. USDA may raise the minimums for higher-risk projects, such as new businesses using integrated processing systems.
The one place where coverage and equity meet is the reduction test. For an existing business, USDA may lower the equity minimum only if guarantees are obtained and all pro forma statements meet or exceed the industry median quartile, as published in the Risk Management Association's Annual Statement Studies or a similar source, for the current ratio, quick ratio, debt-to-worth ratio and debt service coverage. Strong coverage can lower the equity requirement. Strong equity cannot excuse weak coverage.
Collateral follows the same logic. It must secure the entire loan, with the guaranteed and unguaranteed portions sharing the same collateral and lien priority. Intangible assets cannot be primary collateral. In 2020 USDA dropped the fixed B&I discounts, 70 percent for equipment and 80 percent for real estate, in favor of discounts the lender sets and justifies "consistent with sound loan-to-discounted value practices." No loan-to-value ratio is prescribed. The OCC, in non-binding guidance for community banks published in June 2025, suggested that balance sheet equity should exceed the unguaranteed portion of the loan, which is a sensible check on the lender's own exposure.
Covenants, reporting and the loss claim
The rule's real coverage test happens after closing. Section 5001.451(b)(3) lists what the loan agreement must contain, including limits on dividends and owner compensation, restrictions on asset sales and mergers, and the type and frequency of financial statements. Two items are conditional: a maximum debt-to-net-worth ratio and a minimum debt service coverage ratio, each "when required by the lender or by this part." A draft loan agreement must accompany applications of $600,000 or more. At closing, the lender certifies that the financial criteria in the application and the conditional commitment have been maintained, and that there is "a reasonable prospect" the loan and other project debt will be repaid on time and in full from project cash flow. If the criteria are not maintained, USDA does not issue the guarantee.
Reporting is fixed by rule. The lender must send borrower and guarantor annual financial statements to USDA within 120 days of fiscal year-end, and Agency-acceptable statements are required when the guaranteed balance exceeds $600,000. The lender files semi-annual status reports and must notify USDA within 15 calendar days of a loan agreement violation or a downgrade in its own loan classification. A covenant breach is a non-monetary default. Under section 5001.515, the lender must act "prudently and expeditiously" to cure it, through restructuring if a realistic plan can be developed, or else accelerate and liquidate.
The loss claim is where the judgment standard bites. Negligent origination means failing to do what "a reasonably prudent lender would perform in originating its own portfolio of loans that are not guaranteed," and a finding of negligent origination or servicing can reduce a loss claim "up to and including a total reduction." USDA's February 18, 2026 letter to lenders asks for annual credit reviews with covenant testing, the full C-PACE assessment in coverage, and principal and interest beginning at the break-even month. It also reminds lenders that negligent underwriting can lead to removal from the program.
The portfolio explains the tone. Core B&I obligations ran between roughly $860 million and $1.9 billion a year from fiscal 2015 to 2024, according to an economic assessment commissioned by the National Rural Lenders Association and built on USDA data.
Fiscal year | Core B&I obligations | Number of loans | Total subsidy rate |
2015 | $864 million | 309 | 5.11 percent |
2017 | $1,177 million | 354 | 4.01 percent |
2019 | $1,116 million | 284 | 2.32 percent |
2021 | $1,807 million | 328 | Not consistently reported |
2022 | $1,598 million | 240 | 2.01 percent |
2023 | $1,862 million | 279 | 2.14 percent |
2024 | $1,799 million | 176 | 2.38 percent |
The same assessment reports about $501.6 million of loss payments from fiscal 2015 to 2024, concentrated in older loans, with average annual losses of just under $30 million from 2021 to 2024. USDA's own 2026 figures cover a different scope, the whole Rural Business-Cooperative Service portfolio: more than $1 billion of delinquent loans, about $300 million of repurchases and losses over the prior year, and more than $12 billion of active guarantees across more than 775 lenders. The two sets of figures are not directly comparable. Together they point the same way.
The oversight record is long. GAO's 1999 review of B&I losses recommended that USDA clarify when it expects feasibility studies. USDA responded by administrative notice in 2000, and OneRD's 2021 amendments clarified the triggers again. USDA's Inspector General reported in 2021 that 639 existing B&I loans, totaling more than $2.4 billion, had been deferred in response to the pandemic. Feasibility, projections and servicing are where B&I files are examined, because they are where B&I losses have come from.
B&I against 7(a), 504 and conventional lending
B&I is best understood as a lender-judgment program with hard equity rules and situational coverage rules. SBA works the other way around: fixed coverage floors, with equity rules that have tightened since 2025. The comparison below marks each item as rule or convention.
USDA B&I | SBA 7(a) | SBA 504 | Conventional | |
Maximum loan | Rule: $25 million; up to $40 million for certain value-added cooperatives | Rule: $5 million | Rule: $5 million debenture; $5.5 million for manufacturing and energy projects | Convention: legal lending limit and credit policy |
Guarantee | Rule: FY2026 85 percent under $5 million, 80 percent from $5 million to $25 million | Rule: 85 percent up to $150,000; 75 percent above | Rule: debenture fully guaranteed, covering up to 40 percent of project cost | None |
Coverage definition | Rule: EBITDA less reasonably expected replacement capex, over annual principal and interest | Rule: EBITDA over all business debt service, including the new loan | Rule: operating company cash flow | Convention: NOI or EBITDA by bank policy |
Coverage floor in the rule | 1.1x historical for majority-refinancing loans; otherwise none | 1.15x for loans over $350,000; 1.10x for 7(a) Small; 1.25x historical for most acquisitions since October 1, 2026 | 1.15x historical under SOP 50 10 8.1, as reported | None; each bank sets its own |
Coverage in practice | Convention: 1.20x to 1.25x covenants | Convention: lender overlays often 1.25x or more | Convention: bank first lien often 1.20x to 1.25x | Convention: 1.20x to 1.35x |
Equity | Rule: 10 percent existing; 20 percent balance sheet or 25 percent of project cost for most new businesses; 25 percent with a pre-completion guarantee | Rule: 10 percent for start-ups and complete changes of ownership | Rule: 10, 15 or 20 percent | Convention: 20 to 30 percent |
Collateral | Rule: must secure the entire loan; lender-justified discounts | Rule: loans not declined solely for weak collateral | Rule: CDC second lien on project assets | Convention: full coverage at policy advance rates |
Feasibility study | Rule: mandatory over $1 million to a new business; otherwise discretionary | Projections required for start-ups; no codified independent study | Situational | Lender discretion |
Maximum term | Rule: useful life, up to 40 years; no balloons; first full payment within 3 years | Rule: 25 years for real estate; 10 years for most other uses | Rule: 10, 20 or 25-year debentures | Convention: 5 to 10 years with a balloon |
Rate | Rule: negotiated; no higher than the lender's rate on similar non-guaranteed loans | Rule: variable spread caps over the base rate | Rule: debenture fixed at sale | Market |
Fees | Rule: 3.0 percent guarantee fee and 0.55 percent annual fee on the guaranteed portion; 0.50 percent more for a pre-completion guarantee | Rule: tiered fees set annually | Rule: SBA and CDC fees, generally financed | Convention: by policy |
The practical consequence is that B&I suits the borrowers SBA cannot reach: loans above $5 million, rural projects that need terms beyond 25 years or a construction-period guarantee, and capital-intensive businesses whose ramp-up needs up to three years before the first full payment. The price of that flexibility is a heavier file. Where SBA asks whether coverage clears a number, USDA asks whether the lender's analysis would satisfy a prudent lender after the loan has failed.
What this means if you are building the file
Compute coverage on USDA's definition, and say so. Deduct reasonably expected replacement capex from EBITDA, state the capex assumption and its basis, and show plain EBITDA coverage beside it so the reader sees the difference. Run it historically and on projections, and globally for affiliates and guarantors.
Name the source of every coverage number. Write "Part 5001 contains no general minimum DSCR; the 1.1x and 1.0x tests apply to majority-refinancing loans." Label any 1.20x or 1.25x as lender policy or a conditional commitment term.
Test the refinancing floor first. If refinancing is the majority purpose, show historical coverage on the proposed debt service against 1.1x, or document the recovery path with current statements at 1.0x or better. If it fails, use the term the collateral's useful life supports before reaching for anything else.
Substantiate every departure from history. Projections that improve on past performance need evidence in the file, not in the narrative. Use Agency-acceptable financial statements; tax returns no longer qualify.
Budget for the study and the equity tier. A new business borrowing more than $1 million needs an independent feasibility study and 20 to 25 percent equity, injected before any guaranteed funds. An existing operator expanding into a new market may be a new business for this purpose.
Add sensitivity analysis voluntarily. The rule does not require it for B&I. The loss-claim standard rewards it, because a prudent lender tests the case before relying on it. Our companion piece on stress testing sets out the calibration we use.
Write the covenant package for servicing. Set the coverage covenant, the testing date and the reporting calendar so the lender can test within USDA's 120-day window and notify within 15 days of a breach.
An independent feasibility study is the document USDA reads to decide whether the projections deserve belief. Done properly, it carries the capex-adjusted coverage, the substantiated assumptions and the downside cases into the file, which is also where a loss-claim review will look for them. That is the work behind our USDA feasibility studies.
Current as of November 3, 2026
This analysis reflects 7 CFR Part 5001 as amended through December 11, 2025, including the September 30, 2024 rule that USDA confirmed on December 12, 2025, and the FY2026 fee and guarantee notice published March 9, 2026. The electronic CFR showed Title 7 up to date as of October 22, 2026 when we reviewed subpart D. Quotations from other subparts were checked against a mirror of the electronic CFR carrying the same amendment history.
Two items are pending. A fifth OneRD final rule, RIN 0572-AC66, appears on the Unified Agenda with a target date of July 2026 and a deregulatory designation. We found no published text as of this writing; if it appears, it may change the provisions discussed here. A July 6, 2026 paperwork notice for the OneRD information collection is not a rule.
Appendix A to subpart D, which sets out the feasibility study components, is published only as scanned images, and our description of it relies on the definition and the companion appendix in Part 4280. USDA's internal instruction for Part 5001, dated July 10, 2025, still shows some superseded wording, including an older version of the refinancing test; we cite the codified regulation, not the instruction. Portfolio figures for fiscal 2015 to 2024 come from an assessment commissioned by the National Rural Lenders Association using USDA data, and the 2026 figures from the RBCS Administrator's letter. Case figures are illustrative and use the assumptions stated in the text. We refresh this piece when USDA amends Part 5001 or publishes a new fee notice.
Questions lenders and borrowers actually ask
What is the minimum DSCR for a USDA B&I loan?
Part 5001 sets no general minimum. The only numeric floor that applies to B&I is for loans to existing businesses where refinancing is the majority purpose: at least 1.1x historical coverage on the proposed debt service, or at least 1.0x on the current income statement to show recovery. A 1.20x or 1.25x minimum is lender policy or a term of the conditional commitment.
How does USDA calculate DSCR?
As EBITDA less reasonably expected replacement capital expenditures, divided by annual principal and interest. That is stricter than SBA's EBITDA-based test, and the difference can decide a capital-intensive file.
When does a B&I loan require a feasibility study?
An independent feasibility study is mandatory for guaranteed loans over $1 million to a new business, including an existing operator expanding into a new market or labor area. Otherwise USDA may require one when the lender's information is insufficient or the project will significantly affect the borrower's existing operations.
How much equity does a B&I borrower need?
Ten percent for an existing business. For most new businesses, 20 percent balance sheet equity or 25 percent of project cost. Twenty-five percent if the guarantee is to be issued before construction is complete. Equity must be cash or earning assets and must be injected before any guaranteed funds.
Does USDA require sensitivity analysis on B&I projections?
Not in the codified B&I text we reviewed. Projections must run through at least two years of stable operations and be substantiated where they depart from history. Sensitivity analysis is still prudent, because the loss-claim standard asks what a prudent lender would have done.
What is the longest term and interest-only period on a B&I loan?
The justified useful life of the collateral, up to 40 years, with no balloons outside servicing. Interest must be paid at least annually, and the first full principal and interest payment must start within three years of the note.
What happens if a B&I borrower breaches its coverage covenant?
It is a non-monetary default. The lender must notify USDA within 15 calendar days and act prudently to cure it, by restructuring if a realistic plan exists or otherwise by acceleration and liquidation. Negligent servicing can reduce the lender's loss claim.
Sources:
7 CFR Part 5001, OneRD Guaranteed Loan Regulation, including 5001.3, 5001.9, 5001.102, 5001.105, 5001.202, 5001.205, 5001.303, 5001.304, 5001.306, 5001.315, 5001.401, 5001.402, 5001.406, 5001.407, 5001.451, 5001.452, 5001.454, 5001.502, 5001.504, 5001.515 and 5001.521. Electronic CFR, up to date as of October 22, 2026.
OneRD Guaranteed Loan Regulation, final rule, 85 FR 42494. July 14, 2020; effective October 1, 2020.
OneRD Guaranteed Loan Regulation, correction, 85 FR 62196. October 2, 2020.
OneRD Guaranteed Loan Regulation, final rule, 86 FR 70349. December 10, 2021.
OneRD Guaranteed Loan Regulation, corrections, 87 FR 7367. February 9, 2022.
OneRD Guarantee Loan, final rule, 89 FR 79698. September 30, 2024.
OneRD Guaranteed Loan Regulation, corrections, 89 FR 97477. December 9, 2024.
OneRD Guaranteed Loan Regulation, technical amendments, 90 FR 57351. December 11, 2025.
OneRD Guarantee Loan Regulation, confirmation of final rule, Federal Register Doc. 2025-22660. December 12, 2025.
OneRD annual notice of guarantee fee rates, periodic retention fee rates and loan guarantee percentages for FY2026, 91 FR 11272. March 9, 2026.
Unified Agenda, OneRD Guarantee Loan, Round 5, RIN 0572-AC66.
7 CFR Part 4280, Subpart B, Appendix D.
USDA Rural Development, RD Instruction 5001. July 10, 2025.
USDA Rural Development, B&I Lender Complete Application Checklist, and Standardized Conditional Commitment for B&I and REAP.
Rural Business-Cooperative Service, Administrator's letter to all lenders. February 18, 2026.
U.S. Department of Agriculture, FY2026 Explanatory Notes, Rural Business-Cooperative Service.
U.S. Government Accountability Office, report RCED-99-249 on B&I guaranteed loan losses. 1999.
USDA Office of Inspector General, COVID-19 Business and Industry guaranteed loan modifications. September 2021.
Office of the Comptroller of the Currency, Community Developments Insights. June 2025. Non-binding.
13 CFR Part 120 and SBA SOP 50 10 8 and 8.1, for the SBA comparison.
Summit LLC for the National Rural Lenders Association, B&I economic assessment, House Agriculture Committee testimony. September 18, 2025. Secondary; industry-commissioned, built on USDA data.
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