General, USDA Business & Industry Loans, USDA Community Facilities Loans, USDA REAP Loans

Understanding the 5 Cs of Credit for USDA OneRD Loans

Ready to understand the 5 Cs of Credit for USDA OneRD Loans? The 5 Cs are crucial for lenders across America, especially North Avenue Capital, NAC.

For many small businesses and nonprofit organizations, obtaining credit can be a critical next step for growth, expansion, acquisition, and establishment. However, navigating the market to find a loan suited to the intricacies of your business means encountering hurdles and meeting eligibility criteria specific to each capital source. 

One viable option involves exploring government-backed loans provided by the United States Department of Agriculture (USDA). These business loans are particularly tailored for businesses and nonprofits situated in rural areas of the U.S. 

While many major banks and private lenders tend to target businesses located in more densely populated regions, the USDA does not. The USDA operates a program known as the USDA Rural Development Program, exclusively catering to rural America. This is precisely the loan program toward which North Avenue Capital directs its lending efforts.

When seeking credit from the USDA, applicants undergo evaluation based on five crucial factors. These are commonly referred to as the “5 Cs of Credit,” and they work to help to determine their creditworthiness. North Avenue Capital has customized these credit requirements to align with our perception of an ideal borrower. These criteria are in collaboration with the USDA.

USDA Rural Development Loan Program, commonly referred to as USDA OneRD, provides a wide range of commercial lending options. These options are for businesses, startups, nonprofits, and public bodies. These government-guaranteed loans fund working capital, business acquisition and expansion, equipment, refinancing, etc. Understanding the five factors the USDA and NAC use to evaluate a loan application. This can help you prepare a stronger application. In turn, this will improve your chances of securing financing for your business.


1. Character

What significance does a borrower’s character hold in determining eligibility? For NAC, this facet is arguably the most pivotal ‘C’ of Credit. A borrower’s character encompasses their reputation and past performance. NAC evaluates the borrower’s credit history, references, management and financial track record, and overall integrity. USDA OneRD loans frequently offer terms and amortizations extending up to 30 to 40 years. Cultivating a durable, favorable relationship aligns closely with our organizational ethos and business philosophy.


2. Capacity

Capacity deals with the borrower’s ability to repay the loan. Lenders will look at contributing factors such as your income, debt-to-income ratio, and cash flow. It’s important to have a realistic repayment plan in place and to demonstrate that you have the capacity to make payments on time. NAC needs a thorough plan on how the borrower will service the debt. 


3. Capital

This addresses the borrower’s assets and net worth. Lenders will look at your existing assets and liabilities, as well as your equity position. It’s important to have a strong balance sheet and to show that you have adequate collateral to secure the loan.


4. Collateral

USDA loans are collateral-backed loans. Collateral includes the assets that are used to secure the loan. Lenders will want to know that they can recoup their investment in the event of default, so it’s important to have adequate collateral and to be able to demonstrate its value.


5. Conditions

This refers to the purpose of the loan and the economic conditions that may impact the borrower’s ability to repay. Lenders will want to know how the loan will be used and how it will benefit the borrower’s business or organization. It’s important to have a clear and compelling business plan that outlines the purpose of the loan and how it will be repaid. If you need assistance writing a business plan, the loan experts at North Avenue Capital can help. They have even created an easy seven-step plan to follow.  

Understanding the 5 Cs of Credit can help you prepare a stronger loan application and improve your chances of securing financing from the USDA. By demonstrating your character, capacity, capital, collateral, and conditions, you can show that you are a responsible borrower who is committed to success. With the right preparation and solid understanding of these factors, you can secure the financing you need to grow your business or nonprofit entity.

North Avenue Capital (NAC) is a specialized commercial lender. NAC exclusively lends through the USDA Rural Development Loan Program or USDA OneRD Program, making its team members experts in the USDA loan application process. If your business or organization needs funding, contact an NAC loan specialist today and let our team help you.  

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