USDA Loans

United States Department of Agriculture (USDA) Loans
 
USDA Loan proceeds may be used for working capital, machinery and equipment, real estate, and certain types of debt refinancing.
 
One of the key reasons why the USDA program exists is to create jobs in rural communities by providing capital to businesses. If your project creates a lot of jobs, it's likely that your application will carry a top score in the USDA approval process. This will help expedite the approval of the application.

 
Loan Features
 
Term Length and Amortization: USDA term length and amortization depends on the product as well as the underwriting guidelines of the conventional partner. Terms and amortizations can go up to 40 years in some limited circumstances, but are typically between 5 and 30 years.
 
Recourse: USDA Loans are almost always recourse, which means that a personal guaranty for the repayment of the loan is required. Full recourse loans make the sponsors guarantying the loan responsible for any and all shortfalls between the loan balance and sales price in the event of default and foreclosure as well as any applicable legal and ancillary fees.
 
Prepayment Penalty: Prepayment structures can vary greatly, depending on the how the conventional partner structures the loan and what USDA program is guarantying the loan.
 
Lending Areas: USDA guaranties are only available in rural areas (Less than 50,000 population).


 
 
Program Highlights include:
 
No minimum funding amount
Maximum $25 million
No hard deadlines, applications accepted on a rolling basis
Eligibility - Any rural area that has a population of less than 50,000
 
 
Benefits To Businesses
 
Higher loan amounts, strengthens the loan application, less equity injection, lower interest rates and longer repayment terms assist businesses that may not qualify for conventional lender financing.
 
Assists a business in providing stability, growth expansion and rural employment.
 
 
Eligible Borrowers
 
Any legal entity, including individuals, public and private organizations and federally recognized Indian tribal groups, may qualify.
 
There is no size restriction on the businesses.
 
Local economic development organizations and investors can be considered.
 
Business and industrial loans can be guaranteed in rural cities up to 50,000 population. Priority is given to applications for loans in rural communities of 25,000 or less.
 
 
Eligible Loan Purposes
 
Business and industrial acquisitions, construction, conversion, expansion, repair, modernization or development costs.
 
Purchase of equipment, machinery or supplies.
 
Startup costs and working capital.
 
Processing and marketing facilities.
 
Pollution control and abatement.
 
Refinancing for viable projects, under certain conditions.
 
Purchase of startup cooperative stock for family sized farms where commodities are produced to be processed by the cooperative.



 
Ineligible Loan Purposes
 
Line of Credit.
 
Agricultural production which is not part of an integrated business involved in the processing of agricultural products.
 
Any project likely to result in the transfer of employment from one area to another.
 
Any project involving transfer of ownership, unless this will keep the business from closing, prevent the loss of jobs in an area or provide more jobs.
 
Paying off a creditor in excess of the value of the collateral.
 
Payment to owners, partners, shareholders or others who retain any ownership in the business.
Corporations and businesses not at least 51% owned and controlled by U.S. citizens.
 
Charitable and educational institutions, religious organizations and affiliated entities and fraternal organizations.
 
 
Loan and Guarantee Amounts
 
Maximum Loan Amount: Loan Guarantees are limited to a maximum of $25 million.
 
Loan Guarantee Limits Vary: 80% up to $5 million; 70% over $5 million to $10 million, and 60% for $10 million to $25 million.
 
 
Collateral & Appraisals
 
All collateral must secure the entire loan.
 
Repayment must be reasonably assured.
 
Personal and corporate guarantees are required.
 
A qualified appraisal report is required on property that will serve as collateral.
 
Loan To Appraised Market Value Ratios – Lenders will discount collateral consistent with sound loan to value policies and standards.
 
 
Minimum Repayment Terms
 
Working Capital - 7 years.
 
Machinery and Equipment - 15 years (or useful life).
 
Real Estate - 30 years.
 
 
Interest Rates
 
Interest rates for loans may be fixed or variable.
 
The rate is negotiated between the lender and borrower and is similar to those rates customarily charged to other borrowers in similar circumstances.
 
A variable rate must be tied to a nationally published rate.
 
Variable rates cannot be adjusted more than quarterly.
 
 
Fees & Costs
 
A one-time guarantee fee of 3 percent of the guaranteed principal amount is paid by the lender and may be passed on to the borrower.
 
Subject to annual renewal fee of .5% on the unpaid principal balance; guaranteed portion of the loan only.
 
Other typical lender costs may also be incurred.
 
 
Borrower Equity Requirements
 
A minimum of 10 percent tangible balance sheet equity is required at the time of issuing the loan note guarantee for existing businesses.
 
Twenty percent (20%) tangible balance sheet equity is required for new businesses.
 
All financials must be prepared in accordance with general accepted accounting principles.
Feasibility studies may be required.
 
 
Credit Quality
 
Lender addresses the business adequacy of equity, cash flow collateral, history, management and the current status of applicable industry in a written credit analysis.
 
 
Servicing / Liquidation
 
Financial statements developed in accordance with generally accepted accounting principles are required.
 
Lenders will service and, if necessary, liquidate the loans (with USDA Rural Development’s concurrence).
 
 




 
 
 
Provide a Detailed Loan Scenario on our USDA Loan Submission Form  page and we’ll get back to you quickly.
 
Thank you, and we look forward to serving you now and in the future.