The USDA Rural Development Loan Program is a government-sponsored loan program designed to provide financial assistance for businesses located in rural areas. The program is intended to promote economic growth and job creation in rural areas by providing access to capital that may not be available through traditional lending sources.
USDA Rural Development Business Loans provide a wide range of lending options to help businesses, entrepreneurs, and organizations with funding for things like working capital, business acquisition and expansion, equipment, refinancing, and much more. Interest rates, loan amounts, and terms are highly competitive, even more favorable than popular programs like SBA-7a commercial loans. Although most loans are targeted to areas defined as “rural” (any town or city with a population of 50,000 or fewer), this represents 97% of the America’s geographic territory. You can easily check the eligibility of your address with this interactive map.
Applying for a USDA Rural Development Business Loan, like any commercial loan, may seem like a daunting process, but with proper preparation and a document request checklist, the task can be streamlined and successful. In this article, we will outline the necessary documents and responses that North Avenue Capital loan specialists require for loan consideration.
Business Plan for a USDA Rural Development Loan Program
The business plan is a critical document that provides a detailed description of your business, including your business objectives, marketing strategies, industry analysis, management structure, financial projections, and other pertinent information. A well-prepared business plan demonstrates to the lender that you have thoroughly researched and planned for the success of your business.
Loan Amount & Use of Funds (Outline of Intended Uses)
When applying for a USDA Rural Development Loan, it is crucial to provide a clear and detailed explanation of the intended use of funds. This information will help the lender determine if the loan aligns with the USDA’s guidelines and regulations.
Financial Statements
For an existing business, financial statements are necessary. These statements provide an overview of your company’s financial position and performance. The following financial statements should be prepared according to Generally Accepted Accounting Principles (GAAP):
Balance Sheet (2 Years Historical and Year-to-Date)
P&L Statements (2 Years Historical and Year-to-Date)
Pro Formas (2-3 years)
The balance sheet shows your company’s assets, liabilities, and equity at a specific point in time. Profit and loss statements demonstrate your company’s income and expenses, while pro forma statements provide projected financial statements for the next 2-3 years.
Personal Financial Statements
Personal financial statements provide a comprehensive overview of the personal financial standing of all 20% or more owners of the company. The statements should be dated within the last 30 days and supported with documentation of assets, such as bank statements, W-2s, and tax returns. This information is important to the lender to ensure that the owners have sufficient financial resources to support the business.
Schedule of Debt Historical Projected
The schedule of debt is a list of all outstanding loans and obligations that your business or ownership group currently has, including balances, interest rates, and payment terms. This document helps the lender determine the company’s debt-to-income ratio and the ability to repay the loan.
Collateral
USDA Rural Development Business Loans are collateralized loans for credit-worthy borrowers. Collateral is any tangible asset (cash, bonds, property, etc.) that a borrower pledges as security for a loan. For USDA Rural Development loans, borrowers are required to have sufficient collateral to match the funding amount requested on a 1:1 basis. An estimate and breakdown of proposed collateral are necessary for loan consideration.
Appraisals and Reports
Appraisals are necessary for the lender to evaluate the property or assets that are being pledged as collateral. As standard practice, most lenders discount the value of pledged collateral. North Avenue Capital uses a 20% discount reflecting an 80% LTV ratio.
Depending upon the type of project, loan request, or collateral submitted, other reports may be required, such as a feasibility study to understand the risks of a project or an environmental report to evaluate the potential of the property for a specific use.
Credit Release Forms
Credit release forms are necessary for the lender to obtain credit reports on the borrower and all 20% or more owners. All initial credit pulls by North Avenue Capital are soft pulls, which means they will not impact the credit score of the borrower or owners.
Additional Documents if Available
Additional documents that are available may include purchase sale agreements, construction contracts, and letters of intent, among others. These documents provide additional information about the project and can help the lender evaluate the loan application.
Although applying for a USDA Rural Development Loan requires preparation and a solid understanding of the necessary documents and responses, our Rural Development commercial loan specialists at North Avenue Capital can help walk you through the application process. They can answer all of your questions, help you understand specifically which documents you will need, and ensure that your information is submitted in a timely, organized manner so you can secure your funding in the quickest, easiest way possible.
North Avenue Capital is one of the nation’s top providers of USDA Business Loans, with offices in Florida, Arkansas, Georgia, Tennessee, and Texas. We work with partners in all 50 states and can help clients wherever they are based. Contact us today at (904) 595-2483.
