The purpose of USDA's Intermediary Relending Program (IRP) is to alleviate poverty and increase economic activity and employment in rural communities. Under the IRP program, loans are provided to local organizations (i.e. Arkansas Capital Relending Corporation - ACRC) for the establishment of revolving loan funds. These revolving loan funds are used to assist with financing business and economic development activity to create or retain jobs in disadvantaged and remote communities.
IRP funding may be used for a number of purposes but to be eligible, the ultimate recipients must be located in a rural area. Under the IRP, a rural area is any area that is not inside a city with a population of 25,000 or more according to the latest decennial census. Some examples of eligible projects are:
Loan amounts are normally limited to a maximum of $150,000 per borrower. In certain situations, it may be increased to $250,000.
A fixed interest rate of 6.0% for the IRP portion of the loan.
Fully amortizing over the life of the loan; no balloon or demand features.
The term offered is based upon the use of the loan proceeds. Terms for asset categories are as follows:
Real Estate - up to 20 years
Machinery & Equipment - lesser of 15 years or the useful life of the asset
Working Capital - up to 7 years
None
None
A Good Faith Deposit will be required to cover any underwriting and closing costs.
None
Loans shall normally be collateralized by assets with discounted values at least equal to the loan amount. In the case of the discounted collateral value being less than the loan amount, this may be acceptable for businesses that are predominately cash flow oriented and demonstrate documented financial history of strong cash flow and profitability.
Adequate equity to complete the applicant's project will be required.
Equity is calculated in accordance with Generally Accepted Accounting Principals (GAAP).
All principals who own 20% or more of the business are required to provide a full guarantee. Principals and key managers owning less than 20% may be required to provide a guarantee on a case-by-case basis.
When necessary to secure a collateral position, USDA will require the guarantee of a non-owner spouse to the extent of the spouse's interest in the collateral.
The guarantee of affiliated companies may be required based upon the percentage of ownership of the affiliate and the borrower's relationship with the affiliate.
USDA IRP Loans are for healthy companies that are able to demonstrate the ability to repay the loan through either
Cash/Equity/Asset Injection: Evidence must be provided by the applicant prior to any loan closing and disbursement.
Subordination/Standby Debt Agreements: Standby creditor must subordinate any lien rights in collateral securing a loan to lender rights in the collateral and agree to take no action against applicant or any collateral securing the Standby Debt with lender's consent.
Real Estate Appraisals: Required for all Real Estate purchased or used as collateral.
Equipment Appraisals: Required to substantiate the value of any used machinery and/or equipment.
Environmental Reports: Required for all Real Estate purchased or used as collateral.
Late Charge: A late charge (not to exceed $100.00) in the amount of five percent (5%) of the amount of any payment which is not made within ten (10) days of the date the payment is due will be collected from the Borrower.
Loan Proceeds: ACC must document that the borrower used the loan proceeds for the approved purposes.
Insurance: Property insurance (fixe and theft, extended coverage and liability) will be required. All personal and real property shall be insured for replacement cost. Insurance coverage for improvements to real property must contain a Mortgagee Clause in favor of lender. Insurance coverage for personal property must contain a Lender's Loss Payable Clause in favor of lender. Additionally, the policy must provide written notice at least 10 days prior of policy cancellation.
Life Insurance: The key principals of the operating company may be required to provide an assignment of life insurance in the amount of the loan.
Flood Insurance: Will be required if the property is located within a flood area.
Workers' Compensation Insurance: Will be required in amounts meeting state law requirements.
Verification of Financial Information: ACC must verify the applicant's last 3 years (unless applicant is a start-up business) of tax returns submitted to IRS via IRS Form 4506-T.
Lease Term: Lease(s), including options, on all business premises where collateral is located should be for as least as long as the term of the loan.
Assignment of Rents: A perfected assignment of all rents paid under a lease between an Eligible Passive Concern (Real Estate Holding Company) and the applicant Operating Company is required.
Landlord's Waiver: Applicant must provide lender access to any leased premises and facilities where collateral is located with an executed Landlord's Waiver.
New Construction: Evidence of compliance with the "National Earthquake Hazards Reduction Program Recommended Provisions for the Development of Seismic Regulations for New Buildings" (NEHRP) or a building code that has substantially equivalent provisions is required.
Do-it-yourself Construction or Installation of Machinery & Equipment: Except under special circumstances, will not be permitted.
Cost Overruns: Applicant must show ability to pay cost overruns, if any.
Lien Waivers: Applicant must provide lien waivers or releases from all materialmen, contractors, and subcontractors involved in any construction.
Franchised Operations: All franchised operations not listed on the Franchise Registry must pass a legal review of the applicant's Franchise Agreement and Franchisor's Disclosure Statement.
Child Support: Certification from applicant that any required child support is no more than 60 days delinquent.
Current Taxes: Applicant must be current on all federal, state, and local taxes, including but not limited to income taxes, payroll taxes, real estate taxes, and sales taxes.
Good Faith Deposits: A Good Faith Deposit (see below schedule) shall be required and applied to the costs associated with credit investigation and underwriting. If approval is not obtained, the Good Faith Deposit shall be refunded (less the cost of credit verification, environmental screening, IRS filing verification and any other out of pocket expenses incurred by ACRC).
$500 Loan Amount of $50,000 and less
$750 Loan Amount of $50,001 to $100,000
$1,000 Loan Amount of $100,001 and over