Small Business Loans in North Dakota: What Entrepreneurs Need to Know
Securing a small business loan in North Dakota involves navigating both federal and state-specific lending regulations that affect interest rates, repayment terms, and collateral requirements. North Dakota entrepreneurs benefit from several state-backed programs including the Bank of North Dakota's business financing options and the PACE loan program, which offer competitive terms compared to traditional commercial loans.
Before signing any loan agreement, ensure you fully understand all terms and conditions, as North Dakota law provides specific protections for small business borrowers but also enforces strict compliance with loan covenants. Consider consulting with a business attorney to review your loan documents and explain your rights and obligations under North Dakota's commercial lending laws.
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Relevant Documents
Loan Agreement
This is the primary document that outlines the terms of the loan, including the loan amount, interest rate, repayment schedule, and default provisions. It establishes the legal relationship between you as the borrower and the lender.
Personal Guarantee
For many small business loans, lenders require the business owner to personally guarantee the loan. This document makes you personally liable for repaying the debt if your business cannot.
Promissory Note
This document is your written promise to repay the loan according to specific terms. It's often simpler than the full loan agreement but creates a legally binding obligation to repay the borrowed funds.
Security Agreement
If you're offering collateral for the loan, this document identifies the assets being pledged as security and gives the lender rights to those assets if you default on the loan.
Relevant Laws
North Dakota Century Code Chapter 13-04.1 - Money Brokers
This law regulates money brokers and loan originators in North Dakota. Small business owners seeking loans should be aware that legitimate lenders must be licensed under this statute. Before taking out a business loan, verify that your lender is properly licensed to avoid potential predatory lending practices.
North Dakota Century Code Chapter 13-03 - Credit Unions
This statute governs credit unions in North Dakota, which can be excellent sources of small business loans. Credit unions often offer more favorable terms than traditional banks for small businesses. The law outlines membership requirements and lending practices that credit unions must follow.
North Dakota Century Code Chapter 47-14 - Interest and Usury
This law establishes interest rate limitations in North Dakota. For business loans, there is generally no interest rate cap if the loan exceeds $35,000. However, for smaller loans, usury limits may apply. Understanding these regulations is crucial to ensure your loan terms are legally compliant.
North Dakota Century Code Chapter 41-09 - Secured Transactions (UCC Article 9)
This law governs secured transactions in North Dakota, including business loans where collateral is pledged. If you're using business assets as collateral for your loan, this statute outlines the rights and responsibilities of both lenders and borrowers regarding the security interest in your property.
North Dakota Small Business Development Centers Program
While not a law per se, this state-supported program is established by statute and provides free assistance to small businesses seeking financing. The program can help you understand loan options, prepare loan applications, and navigate the legal requirements of business financing in North Dakota.
Regional Variances
North Dakota Small Business Loan Regulations
Fargo offers additional small business loan programs through the Fargo Development Corporation, including a Revolving Loan Fund specifically for businesses in designated renewal areas. These loans often have more favorable terms than standard commercial loans and may be used in conjunction with state-level financing.
Bismarck has established the Bismarck Vision Fund which provides gap financing for small businesses. The city has specific requirements for job creation and retention that differ from state-level programs, typically requiring businesses to create or retain one job for every $35,000 borrowed.
Grand Forks offers the Growth Fund loan program with unique interest rate structures based on the city's economic development priorities. The city also provides property tax exemptions for businesses that take out certain types of improvement loans, which is not available in other North Dakota jurisdictions.
Minot has special loan provisions for businesses affected by the 2011 flood through the MAGIC Fund. These loans have extended repayment terms and lower interest rates compared to standard North Dakota small business loans. Additionally, Minot offers microloans under $10,000 with simplified application processes not available elsewhere in the state.
Due to the oil industry's impact, Williston has specialized loan programs for businesses in the energy sector and supporting industries. The city has higher collateral requirements than other North Dakota jurisdictions but offers longer grace periods before repayment begins for qualifying businesses.
North Dakota Bank Collateral Requirements
In rural North Dakota counties (those with populations under 10,000), banks may accept agricultural land as collateral at higher valuation ratios than in urban areas. These counties often work with the Bank of North Dakota's Ag PACE program, which has special provisions for rural borrowers not available to urban businesses.
On North Dakota's tribal lands (including Standing Rock, Spirit Lake, Fort Berthold, Turtle Mountain, and Sisseton-Wahpeton), different collateral rules apply due to tribal sovereignty issues. Businesses on tribal land may access specialized loan programs through the Native American Development Centers, but may face challenges using the land itself as collateral due to trust status.
North Dakota Interest Rate Variations
Cass County has implemented a small business interest rate buy-down program that can reduce interest rates by up to 2% for qualifying businesses, particularly those in manufacturing or technology sectors. This program operates independently from state-level interest rate regulations.
Due to economic volatility related to oil production, Williams County has special provisions allowing for variable interest rate structures that can adjust based on oil prices. These provisions are unique to this region and provide more flexibility than standard fixed-rate loans available elsewhere in North Dakota.
Suggested Compliance Checklist
Prepare Business Documentation
1 days after startingGather all essential business formation documents including articles of incorporation/organization, operating agreement, bylaws, and EIN documentation. These documents establish your business's legal existence and structure, which lenders will require to verify your business is properly formed and in good standing in North Dakota.
Verify Business Licenses and Permits
3 days after startingEnsure your business has all required North Dakota state and local licenses and permits. This may include a general business license, professional licenses, sales tax permit, or industry-specific permits. North Dakota requires different licenses based on your business type, and operating without proper licensing could invalidate your loan agreement.
Prepare Business Financial Statements
7 days after startingCompile comprehensive financial statements including balance sheets, income statements, and cash flow statements for at least the past 2-3 years (if available) and projections for the loan term. North Dakota lenders will scrutinize these to assess your business's financial health and ability to repay the loan.
Develop a Detailed Business Plan
14 days after startingCreate a business plan that outlines your business model, market analysis, competitive advantages, management team, and how the loan funds will be used. Include financial projections that demonstrate your ability to repay the loan. This is crucial for North Dakota lenders to understand your business vision and repayment strategy.
Gather Tax Returns
7 days after startingCollect business and personal tax returns for the past 2-3 years. North Dakota lenders typically require these to verify income and assess tax compliance. Ensure you have filed all required state tax returns with the North Dakota Office of State Tax Commissioner.
Review and Update Insurance Policies
10 days after startingEnsure your business has adequate insurance coverage as required by North Dakota law and potential lender requirements. This may include general liability, property, workers' compensation (if you have employees), and specialized coverage based on your industry. North Dakota requires workers' compensation insurance for businesses with employees.
Prepare Accounts Receivable Aging Report
5 days after startingCreate a current accounts receivable aging report that categorizes outstanding invoices by time periods (e.g., current, 30-60 days, 60-90 days, 90+ days). This helps lenders assess your cash flow and collection practices.
Review Loan Agreement Terms
21 days after startingCarefully review all terms in the loan agreement including interest rate, repayment schedule, prepayment penalties, default provisions, and covenants. North Dakota has usury laws that cap interest rates (typically at 5.5% above the Federal Reserve discount rate for written contracts), so verify the rate complies with state law. Consider having an attorney review the agreement before signing.
Understand the Promissory Note
21 days after startingReview the promissory note which is your written promise to repay the loan. Ensure it accurately reflects the agreed-upon loan amount, interest rate, payment schedule, and consequences of default. In North Dakota, promissory notes are legally binding documents that can be enforced in court.
Consider Personal Guarantee Requirements
21 days after startingDetermine if you need to provide a personal guarantee for the business loan. Most small business loans in North Dakota require this. Understand that by signing a personal guarantee, you're agreeing to be personally liable for the debt if your business cannot repay it, putting your personal assets at risk.
Review Security Agreement
21 days after startingIf providing collateral for the loan, carefully review the security agreement which gives the lender rights to specific business assets if you default. Identify exactly which assets are being pledged and understand the consequences of default. North Dakota follows the Uniform Commercial Code (UCC) regarding secured transactions.
Understand UCC Filing Requirements
28 days after startingIf your loan is secured by business assets, the lender will likely file a UCC Financing Statement with the North Dakota Secretary of State. This public notice establishes the lender's security interest in the specified collateral. Understand which assets are covered and how this might affect future financing.
Finalize Loan Agreement
30 days after startingAfter reviewing all terms and consulting with legal counsel if necessary, sign the final loan agreement. Keep copies of all signed documents for your records. Under North Dakota law, written loan agreements for business purposes are legally binding contracts.
Register with North Dakota Secretary of State
14 days after startingEnsure your business is properly registered with the North Dakota Secretary of State and in good standing. If you're forming a new business to receive the loan, complete the registration process before finalizing the loan. Annual reports must be filed to maintain good standing.
Set Up Compliance Calendar
35 days after startingCreate a calendar with important dates for loan payments, financial reporting requirements to the lender, annual business filings with North Dakota, tax deadlines, and license renewals. Missing these deadlines could trigger loan default or compliance issues with state authorities.
Implement Proper Accounting Practices
45 days after startingEstablish or refine accounting systems to track loan proceeds, business expenses, and ensure timely loan payments. North Dakota businesses must maintain accurate financial records for tax purposes and to comply with potential lender reporting requirements.
| Task | Description | Document | Days after starting |
|---|---|---|---|
| Prepare Business Documentation | Gather all essential business formation documents including articles of incorporation/organization, operating agreement, bylaws, and EIN documentation. These documents establish your business's legal existence and structure, which lenders will require to verify your business is properly formed and in good standing in North Dakota. | - | 1 |
| Verify Business Licenses and Permits | Ensure your business has all required North Dakota state and local licenses and permits. This may include a general business license, professional licenses, sales tax permit, or industry-specific permits. North Dakota requires different licenses based on your business type, and operating without proper licensing could invalidate your loan agreement. | - | 3 |
| Prepare Business Financial Statements | Compile comprehensive financial statements including balance sheets, income statements, and cash flow statements for at least the past 2-3 years (if available) and projections for the loan term. North Dakota lenders will scrutinize these to assess your business's financial health and ability to repay the loan. | Business Financial Statements | 7 |
| Develop a Detailed Business Plan | Create a business plan that outlines your business model, market analysis, competitive advantages, management team, and how the loan funds will be used. Include financial projections that demonstrate your ability to repay the loan. This is crucial for North Dakota lenders to understand your business vision and repayment strategy. | Business Plan | 14 |
| Gather Tax Returns | Collect business and personal tax returns for the past 2-3 years. North Dakota lenders typically require these to verify income and assess tax compliance. Ensure you have filed all required state tax returns with the North Dakota Office of State Tax Commissioner. | - | 7 |
| Review and Update Insurance Policies | Ensure your business has adequate insurance coverage as required by North Dakota law and potential lender requirements. This may include general liability, property, workers' compensation (if you have employees), and specialized coverage based on your industry. North Dakota requires workers' compensation insurance for businesses with employees. | Insurance Policies | 10 |
| Prepare Accounts Receivable Aging Report | Create a current accounts receivable aging report that categorizes outstanding invoices by time periods (e.g., current, 30-60 days, 60-90 days, 90+ days). This helps lenders assess your cash flow and collection practices. | Accounts Receivable Aging Report | 5 |
| Review Loan Agreement Terms | Carefully review all terms in the loan agreement including interest rate, repayment schedule, prepayment penalties, default provisions, and covenants. North Dakota has usury laws that cap interest rates (typically at 5.5% above the Federal Reserve discount rate for written contracts), so verify the rate complies with state law. Consider having an attorney review the agreement before signing. | - | 21 |
| Understand the Promissory Note | Review the promissory note which is your written promise to repay the loan. Ensure it accurately reflects the agreed-upon loan amount, interest rate, payment schedule, and consequences of default. In North Dakota, promissory notes are legally binding documents that can be enforced in court. | Promissory Note | 21 |
| Consider Personal Guarantee Requirements | Determine if you need to provide a personal guarantee for the business loan. Most small business loans in North Dakota require this. Understand that by signing a personal guarantee, you're agreeing to be personally liable for the debt if your business cannot repay it, putting your personal assets at risk. | Personal Guarantee | 21 |
| Review Security Agreement | If providing collateral for the loan, carefully review the security agreement which gives the lender rights to specific business assets if you default. Identify exactly which assets are being pledged and understand the consequences of default. North Dakota follows the Uniform Commercial Code (UCC) regarding secured transactions. | Security Agreement | 21 |
| Understand UCC Filing Requirements | If your loan is secured by business assets, the lender will likely file a UCC Financing Statement with the North Dakota Secretary of State. This public notice establishes the lender's security interest in the specified collateral. Understand which assets are covered and how this might affect future financing. | UCC Financing Statement | 28 |
| Finalize Loan Agreement | After reviewing all terms and consulting with legal counsel if necessary, sign the final loan agreement. Keep copies of all signed documents for your records. Under North Dakota law, written loan agreements for business purposes are legally binding contracts. | Loan Agreement | 30 |
| Register with North Dakota Secretary of State | Ensure your business is properly registered with the North Dakota Secretary of State and in good standing. If you're forming a new business to receive the loan, complete the registration process before finalizing the loan. Annual reports must be filed to maintain good standing. | - | 14 |
| Set Up Compliance Calendar | Create a calendar with important dates for loan payments, financial reporting requirements to the lender, annual business filings with North Dakota, tax deadlines, and license renewals. Missing these deadlines could trigger loan default or compliance issues with state authorities. | - | 35 |
| Implement Proper Accounting Practices | Establish or refine accounting systems to track loan proceeds, business expenses, and ensure timely loan payments. North Dakota businesses must maintain accurate financial records for tax purposes and to comply with potential lender reporting requirements. | - | 45 |
Frequently Asked Questions
North Dakota businesses can access several loan types including traditional bank loans, SBA loans (particularly the 7(a) and 504 programs), the Bank of North Dakota's business financing programs (which are unique to the state), microloans through the North Dakota Development Fund, and alternative financing like equipment loans, lines of credit, and merchant cash advances. Each has different requirements, terms, and best-use cases depending on your business needs.
Yes, most lenders in North Dakota will require a business plan, especially for new businesses or significant loan amounts. Your business plan should include financial projections, market analysis, and clear explanation of how the loan funds will be used. The North Dakota Small Business Development Centers offer free assistance with business plan development specifically designed to meet lender requirements.
You'll typically need: business formation documents (articles of incorporation, LLC operating agreement, etc.), business licenses and permits, tax returns (business and personal), financial statements (balance sheets, profit & loss statements), bank statements, collateral documentation, personal financial statements for all owners with 20%+ ownership, and a detailed business plan. North Dakota-specific requirements might include state tax compliance verification and, for certain industries, specific state licensing documentation.
Yes, personal guarantees are commonly required for small business loans in North Dakota, especially for newer businesses. This means you're personally liable for repaying the loan if your business cannot. However, some SBA loans and Bank of North Dakota programs may offer reduced guarantee requirements. Be aware that signing a personal guarantee puts your personal assets at risk, so carefully review the terms with a financial advisor before proceeding.
Interest rates for North Dakota small business loans typically range from 3% to 10% for traditional bank loans and SBA loans, depending on your credit profile, business history, and market conditions. The Bank of North Dakota often offers competitive rates compared to national averages. Alternative lenders may charge significantly higher rates (10-30%). North Dakota usury laws cap interest rates, but most business loans are exempt from these caps, so carefully review all terms before signing.
Yes, North Dakota has specific programs for Native American entrepreneurs. The North Dakota Indian Business Development Fund provides financing specifically for Native-owned businesses. Additionally, the SBA's 8(a) Business Development program offers advantages to Native-owned businesses. The North Dakota Native American Development Fund also provides loans and technical assistance. These programs often feature more favorable terms and dedicated support services.
If you default on a business loan in North Dakota, the lender can pursue collection actions including seizing collateral, filing lawsuits to obtain judgments against your business (and you personally if you provided a personal guarantee), garnishing business accounts, and potentially forcing bankruptcy. North Dakota follows standard UCC procedures for secured transactions. Communication with your lender at the first sign of trouble is crucial, as many offer workout options before pursuing legal remedies.
While not legally required, having an attorney review your loan documents is highly recommended. Business loan agreements contain complex terms regarding default provisions, collateral, personal guarantees, and covenants that can significantly impact your business and personal finances. North Dakota has specific state laws that may affect loan enforcement. An attorney can identify unfavorable terms, explain obligations, and potentially negotiate better terms before you sign binding agreements.
Yes, North Dakota offers unique loan programs through the Bank of North Dakota (BND), the nation's only state-owned bank. These include the PACE (Partnership in Assisting Community Expansion) program, Flex PACE for small businesses, the Beginning Entrepreneur Loan Guarantee, and various agriculture-focused programs. The North Dakota Development Fund also provides gap financing specifically for North Dakota businesses. These programs often feature more favorable terms than conventional financing options.
Your business credit score significantly impacts loan approval and terms in North Dakota. Lenders typically review both business and personal credit scores, especially for small businesses. Higher scores (generally above 680) qualify you for better interest rates and terms. North Dakota lenders, including the Bank of North Dakota, follow standard credit evaluation practices. If your business is new or has limited credit history, lenders will place more emphasis on your personal credit score and may require additional collateral.