USDA Rural Development Business Loans are a valuable financing option for small businesses located in rural areas. These loans, which are backed by the U.S. Department of Agriculture (USDA), are designed to promote economic development and job creation in rural communities. If you're considering applying for a USDA Rural Development Business Loan, you likely have some questions about the process. Here are answers to 10 frequently asked questions about USDA Rural Development Business Loans.
1. What types of businesses are eligible for a USDA Rural Development Business Loan?
To be eligible for a USDA Rural Development Business Loan, your business must be located in a rural area, as defined by the USDA: a town with a population of less than 50,000. The good news is that this generous figure represents 97% of the geographic U.S. You can use our USDA Geographic Eligibility Map to quickly see if your address qualifies. Additionally, your business must be engaged in an industry that is eligible for USDA financing. Some examples include manufacturing, retail, and healthcare but the list is extremely large with a variety of programs designed specifically for different types of business borrowing including USDA Business & Industry Loans, Community Facilities Loans, Meat Processing Loans, Solar Energy Loans, Healthcare Loans, and more.
2. How much can I borrow with a USDA Rural Development Business Loan?
The amount you can borrow with a USDA Rural Development Business Loan will depend on several factors, including your type of business, the needs of your business, your creditworthiness, and the availability of funds. Generally, you can borrow from up to $25 million with a USDA Rural Development Business Loan, although some loan amounts, such as those for community facilities can be as high as $100 million.
3. What can I use a USDA Rural Development Business Loan for?
You can use a USDA Rural Development Business Loan for a variety of business purposes, including purchasing land, buildings, and equipment; constructing, improving, or expanding facilities; and refinancing existing debt. You cannot use a USDA Rural Development Business Loan for personal expenses, to pay off consumer debt, or for a residential or USDA Home Loan.
4. What are the interest rates on USDA Rural Development Business Loans?
The interest rate on a USDA Rural Development Business Loan will depend on several factors, including the term of the loan, the creditworthiness of the borrower, and market conditions.
USDA Rural Development Business Loans generally have lower interest rates than traditional commercial loans, and they also may have a longer repayment period.
Interest rates for B&I Loans can be fixed or variable and are tied to the WSJ Prime Rate +1-3%. Terms can range from seven to 10 to 15, 30, and even up to 40 years. Loan guarantee percentages are set by lenders. North Avenue Capital provided an 80% loan guarantee for most B&I loans it underwrote in 2022.
5. Is there a down payment requirement for a USDA Rural Development Business Loan?
There is no down payment requirement for a USDA Rural Development Business Loan. However, you are required to provide collateral, tangible assets such as real estate or equipment, to secure the loan in an amount equivalent to the loan amount requested.
6. What kind of credit is required for a USDA Rural Development Business Loan?
To qualify for A USDA Rural Development Business Loan, borrowers must have a minimum credit score of 680 and a good credit history reflecting timely payments.
7. How do I apply for a USDA Rural Development Business Loan?
To apply for a USDA Rural Development Business Loan, you will need to complete an application and be prepared to provide various financial and personal documents. This may include tax returns, financial statements, a business plan, and personal identification. You should first talk with a USDA Rural Development Business Loan specialist to discuss your financing needs and the specifics of your business.
8. How long does it take to get a USDA Rural Development Business Loan?
The process of getting a USDA Rural Development Business Loan can take several months, as it involves a thorough review of your application and supporting documents. It's important to start the application process as early as possible to ensure that you have sufficient time to complete it.
9. Are there any fees associated with a USDA Rural Development Business Loan?
There may be fees associated with a USDA Rural Development Business Loan, including an application fee, an origination fee, and a guarantee fee. These fees may be payable upfront or may be rolled into the loan amount.
10. Can I get a USDA Rural Development Business Loan if I have bad credit?
Having bad credit or a lack of credit can make it more difficult to get a USDA Rural Development Business Loan, as lenders will typically consider your credit score when determining your creditworthiness. That said, there are other potential remedies that may be considered, such as personal guarantees. It is always best to talk with a specialist, first.
For more information about the USDA Rural Development Business Loans, contact North Avenue Capital today. One of our loan specialists can assess your business needs, find the right loan program for your business, and assist with the application process. We have offices in Florida, Arkansas, Georgia, Tennessee, and Texas, and partners for USDA loans in all 50 states.