5 Things to Know Before Before Submitting to the USDA Loan Committee

Due to the complexity of the USDA process, one of Madison One’s main referral sources is other lenders that are unable to close the loan. Choosing Madison One will help ensure it gets done right the first time.

Learn the five essential steps we recommend before submitting a loan application to the USDA National Office Loan Committee.

1. The Importance of Working With a Reputable Lender

Before submitting a loan application to the USDA, a borrower must partner with a reputable lender that has a strong relationship with the agency. Many lenders fail to offer well-structured loan packages and encounter plenty of servicing issues, which tarnishes the relationship between the servicer and the USDA. However, a lender with a proven track record for success is favorable to the agency and more likely to push essential projects to success.

As you’re vetting potential lenders, ask if they have experience with:

Navigating Strict Regulations – Understanding USDA loan regulations means understanding every potential scenario a borrower might face. Thanks to years of repetition, the best lenders have the expertise to interpret these regulations.
Making a Flexible Loan Policy – Successful lenders in the “OneRD era,” one of the USDA suite of loans, understand that having a flexible loan policy will allow them to take full advantage of the OneRD regulations to maximize loan terms and collateral discounting. USDA will follow a bank’s internal underwriting standards so it’s best to be flexible.
Lending Nationwide – Many lenders are limited to only doing work within one or two states. A preferable lender is certified to work within all 50 states and US territories.

2. The Role of a USDA Loan Specialist

A lender should discuss the details of the project with a certified USDA specialist prior to a loan advancing to the National Loan Committee. By prioritizing an open line of communication, borrowers and lenders can address and resolve any questions and concerns one final time.

Additionally, because USDA specialists present the proposal to the loan committee, they are often loaded with dozens of loans to work on at a particular time. Communicating any concerns pushes the borrower’s case to the forefront and addresses any concerns the specialist has so they can adequately answer them in the presence of the loan committee.

How Specialists Operate in the Tiered Approach

The USDA loan application process operates in three stages: initial submission, passing through the state, and then being approved via the National Office. Each state operates within a specific approval authority; however, for loans above the slated approval authority, a credit committee oversees loan approval.

These loan specialists, based out of the National Office, subsequently work with the state and the lender to get the loan to the proper credit committee and ensure the process goes as smoothly as possible.

3. How the USDA Loan Deal Scoring System Works

For borrowers to get funding, they must adhere to a particular scoring system the USDA uses. In 2024, businesses must meet a 20-point minimum to receive funding. Referral services must understand how the agency prioritizes projects that it considers to have the most impact, which includes criteria such as:

Geography – The more rural the area, the more points are awarded.
Distressed Communities – Borrowers with projects in high poverty or high unemployment areas will benefit from a higher scoring application.
Lender – The lender also impacts scoring, as the Agency considers the interest rate charged to the borrower or percentage of the loan being funded with USDA funding.

These factors, along with employee count and payscale, are just a few of the roughly 15 different ways that the USDA assesses and awards points.

Madison One expertly understands the deal scoring system. Our team undergoes extensive discussions with USDA loanspecialists on topics like the borrower’s history and justifications to ensure businesses receive points. Partner with us today.

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4. The Importance of a Detailed Loan Summary

When submitting to the National Committee, ensure that the service provider puts together an excellent loan summary that is as detailed, yet concise as possible. This summary gives the USDA a picture of the loan, what the funds are to be used for, and which components of the “five C’s of credit” (character, capacity, capital, collateral, or conditions) are to be considered.

With so many loans to review, most committee members only read the loan summary before making a decision, so every word counts. The loan summary should have elements like:

An Emphasized List of Projections – The project’s anticipated projections should be stressed to The Committee so that a better argument can be made for an interest-only (I/O) period. Monthly cash flow projections for the requested I/O period would go a long way in helping The Committee accept this request.
Intangible Assets – Intangible assets can and should be included on the balance sheet to calculate balance sheet equity.
Details of Collateral – The current USDA Committee will tend to give more weight toward the collateral in its credit analysis.

Knowing significant details, including what justifications a borrower should use, how changes in business expenses impact cash flows in the future, and why a longer I/O period is necessary, ensures your loan is processed in a timely manner with few changes to the request

5. When to Order an Environmental Report

Finally, when funding a project involving any type of construction, lenders must scope out the environmental process and secure an environmental report before submitting a loan to the National Office Loan Committee. Many lenders mistakenly fail to consider that the national office won’t forward applications to the loan committee until the environmental process is complete, which could take between four to six months to complete, regardless of loan size or conditions.

To further complicate things, some lenders and borrowers with adequate clearance but lacking an environmental report experience pushback from the USDA after submission. However, lenders with a strong collaboration with support staff at the National Office, like Madison One, can reach out to the representative on the borrower’s behalf and save lots of time and money on everyone’s behalf. This makes having a strong relationship with a reputable lender—and by extension, the right committee support staff even more imperative.

Need More Resources on Applying for a USDA Loan?

Do you need to learn more about the impact of government-guaranteed loans, how to determine your USDA loan eligibility, or even the importance of SBA loans? Madison One CUSO has you covered. We are an experienced group of credit unions and professionals dedicated to helping struggling small and rural borrowers secure government-guaranteed lending and simplifying the complex, time-intensive loan application process.

With our robust track record, Madison One champions the success of our borrowers, making us the lender of choice for those seeking reliability and expert navigation. Connect with us today and propel your business to new heights.