How to Qualify for a USDA Funding
- April 28, 2021
- Written by : REIL Capital
With most traditional funding, any business may apply and general qualifications for that business may include: tax returns, profit and loss statements, balance sheets, and a few others.
On the opposite end of the spectrum, USDA funding is offered. Not every business is accepted, nor can every business apply.
Here we will discuss the USDA Business and Industry Funding Guarantee Program and its many specific qualifications unlike traditional funding in the following categories: location, property, credit, and income.
What is USDA Funding?
USDA, or United States Department of Agriculture, funding is a special program that provides credit to rural businesses.
For personal use, this way of funding grants an affordable mortgage option for purchasing a home in a rural area; for business and industry use, this way of funding is used to expand businesses, purchase land, equipment, buildings, or facilities, and refinance debt.
How Do USDA Loans Work?
USDA funding got its name from the guarantor, the United States Department of Agriculture.
Although we do not directly provide the funding, we are able to broker the funding and guide you throughout the process, making things quick, easy, and transparent. The USDA does not directly offer this type of funding either; instead they offer mortgages provided by the lender.
Both parties enjoy their role in the process, and therefore we canâ€™t have one without the other.
When it comes to your business, monthly payments for USDA funding are typically limited to a specific percentage of your monthly income, and other monthly payments canâ€™t exceed a different specific percentage of your monthly income.
Documentation Necessary for USDA Funding
Depending on the lender or bank chosen, needed documentation for USDA funding will change. At REIL Capital, we require the following:
- Completed USDA funding application
- Three months of business bank statements
- Three years of business tax returns
- Three years of personal tax returns
- Business profit and loss statements
- Business balance sheet
Qualifications for USDA Funding
Qualifications for USDA funding will vary between lenders. Here are the qualifications we, REIL Capital, set for our business owners:
- $100,000 minimum in annual revenue
- Three or more years in business
- Debt-Service Coverage Ratio of 1.25x
- Credit score of at least 680
- Business score of 145 or higher
- Documented collateral of at least 80% of the funding value
Eligibility Requirements for USDA Funding
There are a few minimum qualifications that all applicants must meet, and in addition to those, a few more requirements are listed:
Credit Requirements for USDA Funding
Typically lenders begin with a minimum of a 640 credit score and work up from there. If your business does not meet this qualification, it is very likely that your lender will work with you to determine other or alternative options.
At REIL Capital, are very flexible and accept most businesses even with poor credit. If you apply for USDA funding with us, you wonâ€™t be disappointed.
Income Requirements for USDA Funding
It is very common and almost expected nowadays, for your lender to look at your debt-to-income ratio. It is best to have a debt-to-income ratio of 50% or lower.
The reason for this requirement is to give your lender an opportunity to review what money management habits youâ€™ve formed, how often you need or request capital, and how reliable you are when it comes to repayments.
Location and Property Requirements for USDA Funding
To be granted USDA funding, you must be a U.S. citizen, non-citizen national, or Qualified Alien.
In addition, the program is only available to businesses in rural areas, meaning that they are located in a city with a population of under 50,000 people. To check the eligibility of your property, visit USDA.gov.
USDA Loan Benefits
Before choosing, it is wise to know not only all of the funding options to pick from, but more importantly how each option affects and/or benefits you and your business.
The US Department of Agriculture explains, â€œprovisions within the jurisdiction of the U.S. Department of Agriculture (USDA) will reduce hunger across the country, strengthen the food supply chain, invest in rural America, and provide long awaited support to underserved, socially disadvantaged farmers.â€
To continue, weâ€™ve pieced together a few significant benefits we have seen with business owners:
- Collateral: Collateral can be used to secure funding; if your business does not meet all of the qualifications and requirements, then offering collateral, or a financial cushion, as a way to prove your reliability at the time(s) of repayment.
- Multi-purpose: This kind of funding is multi-purpose. Many businesses use USDA funding for the following: business expansion, purchase of equipment, purchase of land, buildings or facilities, and debt refinancing.
- Terms, rates, and payments: With us here at REIL Capital, we make sure you reap more benefits than you would with another lender. We provide namely affordable monthly payments, longer payment terms, and lower interest rates, making this type of funding perfect for a wide range of businesses.
FAQ on USDA Funding
What are the typical rates associated with USDA funding?
Rates will vary between lenders, however with us, we offer rates from 6% to 9%.
What kind of payment terms are offered for USDA funding?
Longer payment terms are typically offered for USDA funding. Our experts explain that the term of the loan varies from 7 to 30 years depending on the purpose of the funding.
How much capital can I expect to gain with USDA funding?
â€œThe maximum loan amount is generally up to $10 million, but you can receive up to $25 million on an exception basis from a USDA Administration,â€ according to our financial specialists.
What kind of businesses should apply for USDA funding?
Perfect for an agricultural business or those that have collateral that can be used as security. However, you donâ€™t have to work in the agricultural industry to secure a USDA loan; eligibility is based on other requirements.
If you are interested in finding out more about how USDA Business and Industry funding can help you and your business, please complete our free, no-commitment application to check your eligibility.
Following this, you will be paired with one of our expert USDA lenders to guide you through the process.