Rural Development Administration:

Patterns of Use in the Business and Industry Loan Guarantee Program

RCED-92-197: Published: Jul 29, 1992. Publicly Released: Aug 24, 1992.

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John W. Harman
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Pursuant to a congressional request, GAO reviewed the Farmers Home Administration's (FmHA) Business and Industry (B&I) Loan Guarantee Program, focusing on: (1) which states and territories are using the B&I program and why some states are not; (2) types of industries receiving B&I loan guarantees; and (3) how the B&I program has impacted rural development.

GAO found that: (1) of the 50 states and 3 territories included in the B&I program, 26 states and territories did not use any of the funds allocated to guarantee B&I loans in fiscal year (FY) 1991; (2) FmHA staff in state offices active in the B&I program attributed the differences in how FmHA state offices use the program to the different attitudes and philosophies of the state directors; (3) FmHA state office staff in 13 states that did not use the program cited such reasons as competition from other federal and state rural development programs, application costs that may be prohibitive to potential borrowers, and restrictive program regulations; (4) during FY 1989 through FY 1991, 45 percent of the loan funds guaranteed were used by the manufacturing sector, while other industries receiving guaranteed loan funds included retail and wholesale businesses and service industries; (5) 78 percent of the funds backed by B&I guarantees went to established businesses that primarily emphasized retaining existing employment in rural areas; (6) the impact of the B&I program is difficult to measure, because the data that FmHA maintains for monitoring and evaluating the B&I program are sometimes inaccurate and unsuitable for program evaluation; and (7) B&I loan guarantees may not be going to areas where unemployment is most widespread, since in FY 1989 through FY 1991, 61 percent of the loan guarantees went to communities whose unemployment rate was below that of the state's nonmetropolitan rate.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In line with the GAO recommendations, RDA: (1) will remove the restriction on using guaranteed loans for tourism and recreation; and (2) has issued guidance intended to improve the accuracy of the information in its Rural Community Facilities Tracking System.

    Recommendation: The Secretary of Agriculture should direct the Administrator, Rural Development Administration (RDA), to consider revising the regulations to allow the selective use of guarantees for activities related to tourism.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: The agency prepared an administrative notice to all state and district staff describing steps staff should take to more accurately estimate the number of jobs saved and/or created.

    Recommendation: The Secretary of Agriculture should direct the Administrator, RDA, to determine why the agency's information systems contain inaccurate and incomplete data and correct existing problems so that RDA can effectively manage the program.

    Agency Affected: Department of Agriculture


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