USDA is making available up to $1 billion in loan guarantees to help rural businesses meet their working capital needs during the coronavirus pandemic. Business & Industry CARES Act Program
One RD Guarantee
Beginning Oct. 1, 2020, this program will be streamlined under the OneRD Guarantee Loan Initiative. For more information, visit www.rd.usda.gov/onerdguarantee
What does this program do?
This program offers loan guarantees to rural businesses.
What lenders may apply for this program?
Lenders need the legal authority, financial strength and sufficient experience to operate a successful lending program. This includes:
- Federal or state-chartered banks.
- Savings and loans.
- Farm credit banks.
- Credit unions.
Who may qualify for these guaranteed loans?
- For-profit businesses.
- Nonprofits.
- Cooperatives.
- Federally-recognized Tribes.
- Public bodies.
What are the borrowing restrictions?
- 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 considered an eligible area?
- Rural areas outside of a city or town with a population of fewer than 50,000 people.
- 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 in the United States.
- 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 guaranteed loan funds be used?
Eligible uses include (but are not limited to):
- Business conversion, enlargement, repair, modernization or development.
- The purchase and development of land, easements, rights-of-way, buildings or facilities.
- The purchase of equipment, leasehold improvements, machinery, supplies or inventory.
- Debt refinancing when refinancing improves cash flow and creates jobs.
- Business and industrial acquisitions when the loan will maintain business operations and create or save jobs.
What guaranteed loan funds may NOT be used for?
- Lines of credit.
- Owner-occupied and rental 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 Discounted Value
- 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 up to $5 million.
- 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 for its useful life or 15 years, whichever is less.
- Maximum term on working capital is 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, currently 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 or 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 (all those with a 20 percent or greater interest).
How do we get started?
- Applications are accepted from lenders through USDA local offices year-round.
- Interested borrowers should inquire about the program with their lender.
- Lenders interested in participating in this program should contact the USDA Rural Development Business Programs Director in the state where the project is located.
Who can answer my questions?
Contact the local office that serves your area.
What law 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. This enables commercial lenders to provide affordable financing for rural businesses.
NOTE: Because information on this page may change, please always consult the program instructions listed in the section above titled “What law 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 (0.5%) 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’s 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.
