Program 101

Fact Sheet

Are Applications Being Accepted? YES

What does this program do?
This program bolsters the availability of private credit by guaranteeing loans for rural businesses.

Who may apply for this program?
Lenders with the legal authority, sufficient experience and financial strength to operate a successful lending program. This includes:

  • Federal or state-chartered banks
  • Savings and loans
  • Farm credit banks
  • Credit unions

What kind of businesses qualify for loan guarantees?

Are there restrictions on the borrower?

  • Individual borrowers must be citizens of the United States or reside in the U.S. after being legally admitted for permanent residence.
  • Private-entity borrowers must demonstrate that loan funds will remain in the U.S. and the facility being financed will primarily create new or save existing jobs for rural U.S. residents.

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

Check eligible addresses for Business Programs

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 (1)
  • 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 years

What 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 (2)
  • Reasonable and customary fees are negotiated between the borrower and lender

What are the underwriting and security requirements?

  • The proposed operation must have a realistic repayment ability
  • New enterprises may be asked to obtain a feasibility study by a recognized independent consultant
  • The business and its owners must have a good credit history
  • At loan closing/project completion, the business must have a tangible balance sheet equity position of:
    • 10 percent or more for existing businesses, or
    • 20 percent or more for new businesses.
  • Key person life insurance may be required and the amount negotiated. A decreasing term life insurance is acceptable
  • Personal and corporate guarantees are normally required from all proprietors, partners (except limited partners) and major shareholders (i.e., all those with a 20 percent or greater interest)

How do we get started?

Who can answer questions?
Contact the local office that serves your area.

What governs this program?

  • Loan Processing – Code of Federal Regulations, 7 CFR 4279-A and B
  • Loan Servicing – Code of Federal Regulations, 7 CFR 4287-B
  • This program is authorized by the Consolidated Farm and Rural Development Act

Why does USDA Rural Development do this?
This program improves the economic health of rural communities by increasing access to business capital through loan guarantees that enable commercial lenders to provide affordable financing for businesses in eligible rural areas.

NOTE: Because citations and other information may be subject to change, please always consult the program instructions listed in the section above titled "What Governs this Program?" You may also contact your local office for assistance.

(1) Production agriculture is eligible only if the project is vertically integrated, ineligible for USDA Farm Service Agency (FSA) farm loan guarantees, and agricultural production as part of the loan is both secondary (less than 50 percent of the business) and less than $1 million. Nursery, forestry and aquaculture operations are eligible without these restrictions.

(2) The annual renewal fee is currently one-half of one percent (.5%) of the outstanding principal loan balance as of December 31st. The renewal fee rate is set annually by Rural Development in a notice published in the Federal Register. The rate in effect at the time the loan is made will remain in effect for the life of the loan. Annual renewal fees are due on January 31. Payments not received by April 1 are considered delinquent and, at the Agency discretion, may result in cancellation of the guarantee to the lender. Holders’ rights will continue in effect as specified in the loan note guarantee and assignment guarantee agreement. Any delinquent annual renewal fees will bear interest at the note rate and will be deducted from any loss payment due the lender. For loans where the loan note guarantee is issued between October 1 and December 31, the first annual renewal fee payment will be due January 31 of the second year following the date the loan note guarantee was issued.

Forms & Resources

NOTE: If state-specific forms are not shown above, please refer to the application materials listed below to start the process of applying. Please ensure that your state is selected in the dropdown menu above to find the State Office contact information for this program and speak to a Business Programs Specialist before attempting to fill out any forms or applications. This will save you valuable time in the process.

Preliminary Actions Required

To complete an application for this program, you must be pre-registered with the System for Award Management (SAM) and also have a Data Universal Number System (DUNS) number. Neither of these applications cost money, but they can take time so be sure to get this taken care of right away. If you are already registered with these systems, you do not need to do it again.

SPECIAL ALERT FOR SAM USERS

FOR LENDERS

Frequently Asked Questions (pdf)

Training

Tangible Balance Equity Calculator (docx)

Instructions

Forms

Special Alert for SAM registrants

Last year, we alerted our vendor community to third-party companies offering to help you update information contained within the System for Award Management (www.SAM.gov) website, for a fee. Your SAM registration contains sensitive business information, including your banking information and other sensitive information, so your login and password should not be shared with anyone outside your company. As a reminder, the use of the System for Award Management website is free to use and update, and the Commodity Procurement Staff does not see a reason to pay anyone to provide that service. 

Secondly, we have just become aware of a couple of scam emails that offer to “help companies start the renewal process online” or suggest that “Your Federal Profile is Almost Complete. Immediate Action Required!” In both cases, your free access to SAM.gov will resolve any questions you may have regarding your registration in SAM.gov. As you know, SAM.gov requires an annual recertification and sends out email reminders prior to the expiration, and again, updates should be handled by company employees. Furthermore, if your registration is not complete, you may login to SAM.gov to make that determination for yourself. 

Please remember that SAM.gov is not affiliated with the USDA and is a government-wide website not maintained by our Agency. If you have any questions regarding access or how to use SAM, please contact their help desk at 866-606-8220, option #1.

Engineering

There are no engineering requirements at the national level, however, some states have additional requirements.

Environmental

Rural Development environmental requirements can be found here: RD 1970 Environmental Policies and Procedures. Benefits of the 1970 environmental regulations are described here: 7 CFR 1970 Benefits.

 

Interest Rates

Interest rates are negotiated between the lender and borrower, subject to Agency review. They may be fixed or variable, and variable interest rates may not be adjusted more often than quarterly.

Contacts

Robert Hill
Business Programs Director
(317) 295-5780

Columbia City Area Office
788 West Connexion Way, Suite E.
Columbia City, IN  46725
(260) 244-6266 Ext. 117
Jamie Wilson; jamie.wilson@in.usda.gov
Adams, Allen, DeKalb, Elkhart, Huntington, Kosciusko, LaGrange, Miami, Noble, Steuben, Wabash, Wells, Whitley counties.

North Vernon Area Office
2600 Highway 7 North
North Vernon, IN 47265
(812) 346-3411 Ext. 4169
Jerry Hay; jerry.hay@in.usda.gov
Bartholomew, Clark, Dearborn, Decatur, Floyd, Franklin, Jackson, Jefferson, Jennings, Johnson, Ohio, Ripley, Scott, Shelby, Switzerland,
Washington counties.

Bloomfield Area Office
104 County Road 70 East, Suite C
Bloomfield, IN  47424           
(812) 384-4634 Ext. 150
Deborah Boudreau; deb.boudreau@in.usda.gov
Brown, Clay, Daviess, Greene, Knox, Lawrence, Martin, Monroe, Morgan, Owen, Sullivan, Vigo counties.

Muncie Area Office
3641 North Briarwood Lane
Muncie, IN  47304
(765) 747-5531 Ext. 110
Curtis Johnson; curtis.johnson@in.usda.gov
Blackford, Delaware, Fayette, Grant, Hamilton, Hancock, Henry, Howard, Jay, Madison, Marion, Randolph, Rush, Tipton, Union, Wayne counties.

Crawfordsville Area Office  
2032 Lebanon Road   
Crawfordsville, IN  47933   
(765) 362-0405 Ext. 108   
John Anthrop; john.anthrop@in.usda.gov
Benton, Boone, Clinton, Fountain, Hendricks, Montgomery, Parke, Putnam, Tippecanoe, Vermillion, Warren counties.

Jasper Area Office
1484 Executive Boulevard
Jasper, IN  47546
(812) 482-1171 Ext. 136
Wayne Dubble; wayne.dubble@in.usda.gov
Crawford, Dubois, Gibson, Harrison, Orange, Perry, Pike, Posey, Spencer, Vanderburgh, Warrick counties.

Knox Area Office
1410 South Heaton Street
Knox, IN  46534
(574) 772-3066 Ext.125
Melissa Christiansen: melissa.christiansen@in.usda.gov
Carroll, Cass, Fulton, Jasper, LaPorte, Lake, Marshall, Newton, Porter, Pulaski, St. Joseph, Starke, White counties.