USDA Loans

What does this program do?

This program bolsters the availability of private credit by guaranteeing loans for rural businesses.

What kind of businesses qualify for loan guarantees?

  • For-profit businesses
  • Nonprofits
  • Cooperatives
  • Federally-recognized Tribes
  • Public bodies
  • Individuals

What is an eligible area?

  • Any area other than a city or town with a population of greater than 50,000 inhabitants and the urbanized area of that city or town
  • The borrower’s headquarters may be based within a larger city as long as the project  is located in an eligible rural area
  • The lender may be located anywhere
  • Projects may be funded in rural and urban areas under the Local and Regional Food System Initiative

How may funds be used?

Eligible uses include but are not limited to:

  • Business conversion, enlargement, repair, modernization or development
  • Purchase and development of land, easements, rights-of-way, buildings or facilities
  • Purchase of equipment, leasehold improvements, machinery, supplies or inventory
  • Debt refinancing when refinancing improves cash flow and creates or saves jobs
  • Business and industrial acquisitions when the loan will create or save jobs

Guaranteed 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
  • Lending, investment and insurance companies
  • Projects involving more than $1 million and the relocation of 50 or more jobs
  • Agricultural production, with certain exceptions
  • Distribution or payment to a beneficiary of the borrower or an individual or entity that will retain an ownership interest in the borrower

What Collateral Is Required?

Collateral must have documented value sufficient to protect the interest of the lender and the Agency. The discounted collateral value must 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 less).

Maximum Advance Rates
Real Estate: 80 percent of fair market value
Equipment: 70 percent of fair market value
Inventory: 60 percent of book value (raw inventory and finished goods only)
Accounts Receivable:  60 percent of book value (less than 90 days)

What is the maximum amount of a loan guarantee?

  • 80 percent for loans of $5 million or less
  • 70 percent for loans between $5 and $10 million
  • 60 percent for loans exceeding $10 million, up to $25 million maximum

What are the loan terms?

  • Maximum term on real estate is 30 years
  • Maximum term on machinery and equipment is its useful life or 15 years, whichever is less
  • Maximum term on working capital not to exceed 7 years
  • Loans must be fully amortized; balloon payments are not permitted
  • Interest-only payments may be scheduled in the first 3 yearsWhat are the interest rates?
  • Interest rates are negotiated between the lender and borrower, subject to Agency review
  • Rates may be fixed or variable
  • Variable interest rates may not be adjusted more often than quarterly

What are the applicable fees?

  • There is an initial guarantee fee equal to 3 percent of the guaranteed amount
  • There is an annual renewal fee, currently 0.5 percent of outstanding principal
  • Reasonable and customary fees are negotiated between the borrower and lender

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