Business and Industry Loan Eligibility Requirements
What kind of businesses qualify for loan guarantees?
– For-Profit Businesses
– Non-Profit Businesses
– Cooperatives
– Federally Recognized Tribes
– Public Bodies
– Individuals
What is an eligible area?
– A city or town with a population of less than 50,000
– The borrowers headquarters may be based within a larger city as long as the project is located in an eligible rural area.
– Projects may be funded anywhere under the Local and Regional Food System Initiative.
Eligible uses include but are not limited to:
– Business expansion
– Purchase & development of land and/or buildings
– Purchase of equipment and machinery
– Supplies or inventory
– Reasonable Closing Costs and Interest Reserve
– Debt refinancing
– Business and industrial acquisitions.
Loan funds MAY NOT be used for:
– Lines of credit
– Owner-occupied housing
– Golf courses
– Racetracks or gambling facilities
– Churches, church-controlled organizations or charitable organizations
– Fraternal organizations
– Agricultural production, with certain exceptions
What collateral is required?
– Collateral must have documented value sufficient to protect the interest of the lender and the Agency. The discounted collateral value will be at least equal to the loan amount. Lenders will discount collateral consistent with sound loan-to-value policy.
– Hazard insurance is required on collateral (equal to the loan amount or depreciated replacement value, whichever is greater).
– An Environmental review in accordance with RD 1970 will be required on all projects.
– This could include an Intergovernmental Review, Phase II or Environmental Assessment depending on the qualities of the project.
– Intangibles can be used for collateral as long as they are not primary collateral.
What are the loan terms?
The Bank will set loan terms appropriate with the use of funds and collateral for the loan. The maximum loan term can be no longer than 40 years including I/O period.
– 80% USDA Guaranty, set and updated annually in August/September.
Other Terms:
– Loans Must be fully amortized, no balloon payments
– Interest Only Payment up to 36 months permitted
– Interest Rate is negotiated with lender, subject to Agency approval
– Rates may be fixed or variable
– Variable Rates May not be adjusted more than Quarterly
What are the applicable fees?
– Guarantee Fee: 3% of the Guaranteed amount. A reduced fee of 1% is available for qualifying projects
– Annual Renewal Fee: Currently 50bp; can be paid by borrower or lender and due 1/31 based on the guaranteed balance as of 12/31 each year.
– Closing Costs: Loan Origination; Title Insurance; Appraisal; Environmental; Attorney Fees; and other customary closing items.
– Broker Fees are not an eligible use of funds in RD5001.
For Lenders Only – For construction loans, a 50BP fee will be assessed to obtain the Loan Note Guarantee prior to completions of construction.
What are the underwriting requirements?
– Feasibility Study: Required on all new projects or expansions in to new verticals. Must be from an independent third party.
– Historical operations must show repayment ability.
– Projected operations must show reasonable and realistic repayment ability. Must include assumptions
– Good Credit Scores from Business and Owners
– Post-Closing Balance Sheet Equity of 10% for existing businesses and 20% for new businesses or 25% for Construction Projects. Note that for existing businesses, owner contributed capital of 10% of total assets is also acceptable. Most business owners will need their CPA to provide a statement showing the amount of owner contributed capital as the “Contributed Capital” account on most Balance Sheets are net of distributions.
– Borrower: 3 years of Balance Sheet and Income Statements as well as Interim Financials current to 90 days, including Debt Schedule.
– Affiliate(s): 3 years of Balance Sheet and Income Statements as well as Interim Financials current to 90 days, including Debt Schedule.
– Personal Guarantor(s): 3 years of Personal Tax Returns as well as Personal Financial Statement current to 60 days. Required on all with 20% or more ownership in the borrower
– Business Guarantor(s): 3 years of Balance Sheet and Income Statements as well as Interim Financials current to 90 days, including Debt Schedule.