General, USDA Business & Industry Loans

Financing a Start-Up in a Rural Location

Financing a Start-Up in a Rural Location

Starting a business is the dream of countless numbers of enterprising and ambitious, prospective entrepreneurs. It begins with a great idea — identifying a problem and a solution that fulfills the needs of a certain group of customers. It can be a new concept or build upon an existing product or service. Once conceived, it is followed by two essential steps — developing a business plan and securing funding. Obtaining commercial financing for a start-up business can be a challenge in any circumstance, and, in a rural location, traditionally, the options have been even more limited. That’s why USDA Business & Industry (B&I) Loans are such a valuable resource for entrepreneurs in rural areas. They make financing a start-up in a rural location more feasible than ever before with significantly increased accessibility and more favorable terms for future business owners. Read on to learn more about financing your start-up with a USDA Business & Industry (B&I) Loan.

Securing Funding for a Start-Up: Overcome an Obstacle by Knowing Where to Look
If you’ve never owned a business, starting one for the first time can be as nerve-wracking, as it is exciting. American ingenuity lends itself to a never-ending stream of great business ideas and millions dreaming of working for themselves one day. Far and away, the biggest hurdle faced by many is where to find the funding to turn their dreams into reality. Some may be able to secure capital from friends and family, others from angel investors or venture capitalists. But most tend to turn toward banks and loans offered through sources like the Small Business Administration (SBA). Those considering this route, and certainly those considering opening a business in a rural area, should really do their homework and examine the USDA’s Rural Development Business and Industry (B&I) Commercial Loan Program.

Financial Help for Rural Start-Ups
Also known as the OneRD Guarantee Loan Initiative, the program is designed to help credit-worthy rural businesses access the capital they need to grow, create, and save jobs in their areas. The program works by the USDA providing loan guarantees to commercial lenders, which encourages them to lend more to rural borrowers. North Avenue Capital is America’s #1 USDA Business & Industry Loan direct lender. We deployed more than $130 million of capital funding into rural America, in 2020 alone.

Benefits of USDA B&I Loans for Start-Ups
So, what makes USDA B&I Loans so great for start-ups? The answer is the same things that make them so great for all kinds of commercial lending purposes, including new business launches, acquisitions, franchise openings, business expansions, and even refinancing.

One of the most exciting things about these loans, which are like SBA 7(a) and 504 loans but with higher loan limits and more favorable terms, is their widespread availability. While they are called “Rural Development Loans,” the USDA’s definition of “rural” is broader than what most people assume: “any town or city with 50,000 or fewer residents.” This represents approximately 97% of the geographic U.S. This can include suburbs of much larger neighboring metro areas. In addition, a business can have headquarters in a larger city, if the actual business, franchise, or division is in a rural area. You can check to see if your business sits in one of these qualifying areas using this handy interactive map.

USDA B&I funding amounts range from $2 million to $25 million, and even up to $40 million for certain rural co-ops. By contrast, SBA 7(a) and 504 Loans only offer up to $5 million. Terms of the loans can range from seven, 15, or 30 years, depending upon the purpose of the loan. Highly competitive interest rates are tied to the Wall Street Journal Prime Rate.

What Kinds of Start-Up Businesses Can Use OneRD B&I Loans?
No matter what kind of start-up you might have in mind, the OneRD B&I Loans are likely within the realm of eligibility. Examples include retail operations (merchants, shops, grocery stores, etc.), hospitality businesses (hotels, motels), business services (legal, financial, technological, travel, shipping, etc.), restaurants, entertainment venues, manufacturing plants, healthcare facilities, contracting companies, personal care services (fitness studios, nail and beauty salons), franchises, and much more! Both for-profit and nonprofit organizations are eligible, and funding can be used for everything from purchasing real estate to paying franchise fees, acquiring machinery, supplies, or using it as working capital for operations.

Qualifying Your Start-up for a Rural Development B&I Loan
It should be noted that Rural Development B&I Loans are collateral-backed loans for credit-worthy rural borrowers. That is, borrowers should possess a minimum credit score of 680, have a good payment history and collateral (cash, fixed assets, real estate, etc., valued using standard methodologies) to back the loan amount requested on a 1:1 basis.

As is the case with any start-up, and most commercial loans generally, borrowers must provide a business plan and feasibility study that describes their products, services, and potential new company in detail. It should include information about their industry, operations, finances, and a market analysis that showcases a realistic plan for being able to repay the loan. You can read more about qualifications for USDA B&I Loans, here.

Contact North Avenue Capital to Learn More About Financing Your Start-up with USDA Rural Development (OneRD) B&I Loan
If you’ve been dreaming of opening a business of your own or are interested in growing an existing one, contact one of our lending experts at North Avenue Capital. We can help you learn more about the USDA’s incredible B&I Loan program and walk you through the application process once you’re ready. Get the capital you need to build the business of your dreams. We have offices in Northeast Florida, Arkansas, Georgia, Tennessee, and Texas and partners for USDA loans in all 50 states.

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