USDA Loan Eligibility Guide

USDA Business and Industry, USDA Community Facility, USDA Rural Energy for America Program, SBA Standard 7(a), and SBA 504 Loan Comparison Matrix

January 14, 2021

#Rural Development Loans | #SBA Loans | #Loan Guide

	RD Business & Industry Loan Guarantee	RD Community Facility Loan Guarantee	RD Rural Energy For American Loan Guarantee	SBA Standard 7(a) Loan	SBA 504 Loan
Loan Purpose	Purchase/improve commercial real estate, business acquisitions, machinery, equipment, fixtures, debt refinance, inventory, working capital	Purchase/improve commercial real estate, business acquisitions, machinery, equipment, fixtures, debt refinance, inventory, working capital for essential community facilities	Guaranteed loans and grants to agricultural producers and rural small businesses for renewable energy systems or to make energy efficiency improvements	Purchase/improve commercial real estate, business acquisitions, machinery, equipment, fixtures, debt refinance, inventory, working capital	Purchase, construct or improve commercial real estate, purchase long-term machinery, or debt refinancing as part of a business expansion with new facilities or equipment. Loans are made by Certified Development Companies (CDC) that partner with SBA
Loan Limit	Up to $25 million	Up to $100 million	Up to $25 million	Up to $5 million	Up to $5 million based on most projects. Renewable energy, reduction in energy consumption, and manufacturing up to $5.5 million per project
Guaranty Percentage	80% (Set annually in August/September)	80% (Set annually in August/September)	80% (Set annually in August/September)	85% on loans up to $150,000 75% on loans over $150,000 90% for international trade-export working capital loans Up to 90% for export express	No guarantee–loan has a senior lender loan for 50% of the project, a SBA/CDC subordinate loan of 40%, and borrower equity of 10% (a ‘504’) SBA guarantees the debenture that funds the SBA/CDC loan
Fee on the Guaranty Portion	3% fee on guaranteed portion of loan (Set in August/September) 1% is possible for qualifying loans. Construction loans require an additional 50bp for LNG issuance before C/O is achieved	1.5% fee on guaranteed portion of loan (Set in August/September) Construction loans require an additional 50bp for LNG issuance before C/O is achieved	1% fee on guaranteed portion of loan (Set in August/September) Construction loans require an additional 50bp for LNG issuance before C/O is achieved	2% for loans of $125,000 to $150,000 3% for loans $150,000 to $700,000 3.5% of the guaranteed portion for loans over $700,000 up to $1,000,000. Plus 3.75% of the guaranteed portion over $1,000,000 0.25% for loans with a maturity of 12 months or less. This fee may be passed on to the borrower after loan disbursement	Borrower paid CDC fees included in loan
Renewal Fee	0.50% (50bp)	0.50% (50bp)	0.25% (25bp)	Renewal fees are not permitted. Annual servicing fee charged to lender based on .55% of outstanding principal. This fee may not be passed on to the borrower	Annual service fee range of .642% to .682% for the debenture
Renewal Fee Payment	Can be charged to the borrower	Can be charged to the borrower	Can be charged to the borrower	N/A	N/A
Prohibited Fees	Lender fees must be reasonable Can charge origination fees Broker/packaging fees are not eligible	Lender fees must be reasonable Can charge origination fees Broker/packaging fees are not eligible	Lender fees must be reasonable Can charge origination fees Broker/packaging fees are not eligible	Processing fees, origination fees, application fees, points, brokerage fees, bonus points & other fees are prohibited	All fees are rolled into the CDC debenture
Loan Purpose	Federal or State chartered banks & savings banks, plus farm credit services lenders and approved non-regulated lenders	Federal or State chartered banks & savings banks, plus farm credit services lenders and approved non-regulated lenders	Traditional lenders, Federal or State chartered banks, Farm Credit Banks, other Farm Credit System institutions with direct lending authority, banks for cooperatives, savings and loan associations, mortgage companies that are part of a bank-holding company, and credit unions	Federal and State chartered banks, savings banks, credit unions, and SBA supervised lenders	Banks and other lenders finance the senior lien, CDC authorized by SBA make the debenture loan
Eligible Lenders	For-profit business, cooperatives, individuals & Tribal entities, and non-profit entities with an operating business	Municipalities, Non-profits, Tribal Organizations	Agricultural producers or rural small businesses	For-profit businesses that meet SBA size standards as small	For-profit businesses that meet SBA size standards as small
Eligible Borrower	For-profit business, cooperatives, individuals & Tribal entities, and non-profit entities with an operating business	Municipalities, Non-profits, Tribal Organizations	Agricultural producers or rural small businesses	For-profit businesses that meet SBA size standards as small	For-profit businesses that meet SBA size standards as small
Eligible Area	Rural areas: any area of a State other than a city or town that has a population of greater than 50,000 inhabitants and any urbanized area contiguous and adjacent to such a city or town	Rural areas: any area of a State other than a city or town that has a population of greater than 50,000 inhabitants and any urbanized area contiguous and adjacent to such a city or town	Rural areas: any area of a State other than a city or town that has a population of greater than 50,000 inhabitants and any urbanized area contiguous and adjacent to such a city or town	United States and its protectorates	United States and its protectorates
Maximum Loan Term	40 years: Subject to prudent lending and USDA concurrence	40 years: Subject to prudent lending and USDA concurrence	40 years: Subject to prudent lending and USDA concurrence	Real estate – 25 years Working capital & fixed assets – 10 years	Real estate – 25 years Equipment – 10 years
Interest Rate	Interest rate must be ‘reasonable,’ and can adjust with any published rate but no more frequently than quarterly	Interest rate must be ‘reasonable,’ and can adjust with any published rate but no more frequently than quarterly	Interest rate must be ‘reasonable,’ and can adjust with any published rate but no more frequently than quarterly	Maximum adjustable rate of base rate + 2.75% for loans with maturities of 7-years or more, base + 2.25% for loans with maturities less than 7-years Additional 1% for loans of $50,000 or less. Additional 2% for loans of $25,000 or less Fixed rate maximums published periodically	Lender–customary commercial loan terms CDC–fixed rate for the term of the loan
Prepayment	Cannot be prohibited. Lender may charge customary prepayment penalties	Cannot be prohibited. Lender may charge customary prepayment penalties	Cannot be prohibited. Lender may charge customary prepayment penalties	A subsidy recoupment fee is charged for 1st 3 years for loan maturities of 15 years or longer	Declining penalty over ten years of the loan term
Equity Requirement	10% balance sheet equity, project equity, or owner contributed capital for existing business 20% balance sheet equity for new business 25% balance project for new construction projects	Based on lender discretion	A financial contribution in the project of not less than 25% of total eligible project costs	Start-up businesses and business acquisition need a minimum of 10% equity injection, otherwise, limited minimum equity requirements	Minimum of 10%–up to 20% equity depending on the age of the business and type of property being financed
Guarantors	Guarantees from any person or entity owning 20% or more of the borrower entity	None usually	Except for passive investors, guarantees from any person or entity owning 20% or more of the borrower entity	Guarantees from any person or entity owning 20% or more of the borrower entity, and any others deemed critical by lender/SBA	Guarantees from any person or entity owning 20% or more of the borrower entity, and any others deemed critical by lender/SBA
Collateral Requirements	Collateral, on a discounted basis, must be at least equal to the loan amount. Lender can set appropriate collateral discounts as long as they are based on prudent lending.	Loan does not have to be fully secured	Collateral, on a discounted basis, must be at least equal to the loan amount. Lender can set appropriate collateral discounts as long as they are based on prudent lending.	1st lien on assets being financed for all loans over $25,000; Lenders follow their own policy for loans $25,000 up to and including $350,000, but must take a lien on applicant’s (business) fixed assets For loans over $350,000 a lien on applicant’s business assets and personal real estate of the principals until loan is fully secured	SBA has second lien on the project being financed behind third party lender’s first
Business Size Standards	None	None	Agricultural producers must derive 50% or greater of their gross income from agricultural products	Limited to SBA defined “small business” based on their North American Industry Classification System (NAICS) code, annual revenues or number of employees	Limited to SBA defined “small business” based on their NAICS code, annual revenues or number of employees
Servicing Requirements	Semi-annual lender reporting online Annual lender visits Borrower site visits as needed	Semi-annual lender reporting online Annual lender visits Borrower site visits as needed	Semi-annual lender reporting online Annual lender visits Borrower site visits as needed	Monthly lender reporting online	CDC provides quarterly reporting online
Applications	Applications delivered to local RD staff	Applications delivered to local RD staff	Applications delivered to local RD staff	Lender submits all applications electronically	CDC submits all applications electronically
Other Items	Loans in excess of $10 million, will go to NOLA for approval. Secondary market sale of guarantees can be sold to a number of entities at the discretion of the lender.	New businesses will require a financial feasibility study. See Appendix B in the 5001 for more information.	For a renewable energy system project in which a residence is closely associated with the borrower, the borrower must demonstrate that 51% or greater of the energy to be generated will benefit the borrower’s business operation. Secondary market sale of guarantees can be sold to a number of entities at the discretion of the lender	For-profit businesses only. Borrower must occupy at least 51% of the subject property for real estate loans Secondary market sale of guarantees are made through a sole-source fiscal transfer agent	For-profit businesses only. Borrower must occupy at least 51% of the subject property for real estate loans Create or retain one job per $65,000 guaranteed by the SBA, or one job per $100,000 for small manufacturers

About Me

I have originated, underwritten, and managed USDA B&I and CF loans for 8 years. I obtained a MBA from Valdosta State University in 2012 and have more than 11 years of banking experience. In my free time I like to work on my farm, golf, and spend time with my wife and two kids (1 & 3).

Follow Me:

Linked-In