Business lending has become increasingly challenging in recent months in tandem with an inflationary economic environment and a steady increase in interest rates. This has made it more difficult for entrepreneurs to access the capital they need to launch new businesses or improve existing ones. However, there is one type of loan that offers exceptional benefits and has continued to gain popularity among savvy entrepreneurs: USDA Rural Development Loans.
What Is a USDA Rural Development Business Loan?
USDA Rural Development Business Loans are a type of government-backed loan specifically designed for, though not entirely restricted to, entrepreneurs and businesses located in rural areas. These loans, part of the USDA’s OneRD Guaranteed Loan Initiative, are backed by the U.S. Department of Agriculture (USDA) and offer a range of benefits to entrepreneurs that make them an attractive option for business borrowing.
The Benefits of USDA Rural Development Business Loans
USDA Rural Development Guaranteed Loans offer multiple benefits to businesses, including:
- Flexible Financing: USDA Business Loans can be used for a wide range of business purposes, including new business acquisition, business expansion, construction, improvement of facilities, equipment purchases, refinancing, and working capital, among many others.
- High Loan Amounts: USDA Business Loan limits are significantly higher than those offered by many other commercial lending programs including those provided through the SBA. Depending upon the specific USDA Loan Guarantee program, loan amounts can extend up to $25 million and even as much as $100 million for some community facilities loans.
Guaranteed loan amounts range from 60% to 80%. Most USDA Business & Industry Loan guarantees that were underwritten by North Avenue Capital in 2022 were for 80%.
- Low Interest Rates: USDA Rural Development Business Loans offer highly-competitive interest rates, making it as easy as possible for entrepreneurs to repay their loans and keep their businesses running smoothly. Rates are set by individual lenders but the USDA guarantees they remain competitive by tying them to the WSJ Prime Rate, plus 1-3%. Rates can be fixed or variable, and if variable, cannot be adjusted more than once per quarter.
- Long Repayment Terms: USDA Business Loans offer long repayment terms ranging from seven to 10 to 15, 30, and even up to 40 years. This can help businesses manage their cash flow and keep monthly payments affordable.
- USDA Business Loans are on a fully amortized schedule, keeping payments stable through the loan’s term and there are no balloon payments that might throw you off down the road.
- No Prepayment Penalties: Businesses have the flexibility to prepay their USDA loans without incurring any penalties.
- Access to Other Rural Development Resources: Businesses that receive USDA Rural Development Guaranteed Business Loans may also be eligible for additional technical and financial assistance through other USDA rural development programs. For example, they offer technical assistance and training to help entrepreneurs build their businesses.
- Broad Geographical Eligibility: Many prospective business investors incorrectly assume that just because the USDA’s Guaranteed Business Loan Program was developed for rural businesses, they may be ineligible for funding. But savvy entrepreneurs know that the USDA’s definition of a “rural area” is “any town, city or community with a population of less than 50,000,” which represents approximately 97% of America’s entire geographical territory. You can easily check to see if you are located in a qualifying area using North Avenue Capital’s interactive map. In addition, a business can be headquartered in a large metro area, as long as the franchise, division, or business itself is located within a qualifying area.
- Reasonable Credit Requirements: USDA Business Loans are collateral-backed loans for credit-worthy rural borrowers. This means that borrowers must be able to back their loan applications with tangible assets (cash, real estate, bonds, inventory, etc.) in an amount equivalent to the funding requested. They must have good credit. “Good” in this case means a minimum credit score of 680 with a good payment history.
- Easy Application: Finally, USDA Rural Development Loans are relatively straightforward to apply for, not unlike traditional commercial loans, making it as painless as possible for entrepreneurs to access the capital they need to start or grow their business.
- Online Pre-Qualification: North Avenue Capital makes it simple as possible for rural entrepreneurs to apply for a USDA Business Loan by providing an easy online pre-qualification form. This form can be completed in just a few steps, and one of our USDA Commercial Loan Specialists will contact you promptly, to answer all of your questions and walk you through the rest of the process.
Savvy Entrepreneurs Know USDA Rural Development Loans Are Hard to Beat
USDA Rural Development Loans offer a wide range of unique benefits that make them an attractive option for savvy entrepreneurs looking to access the capital they need to start or grow their businesses, even, and especially, in today’s economy. With competitive interest rates, attractive terms, broad eligibility requirements, and easy application, these commercial loans are hard to beat.
Contact North Avenue Capital to Lean More About USDA Business Loans
For more information, contact North Avenue Capital. We are USDA Business Loan specialists with offices in Florida, Arkansas, Georgia, Tennessee, and Texas, and partners for USDA loans in all 50 states.