General, USDA Business & Industry Loans

Getting a USDA-Backed Commercial Loan for Your New Construction Project

Securing capital to launch a new business or expand a current is always a challenge. When funds are needed for a business located in or planned for, a rural area, it typically becomes more difficult. And when credit is to be used for new construction in such areas? Well, “Good luck” is the phrase you would traditionally hear from lenders most often in such cases, at least until recently. Under new regulations rolled out for the USDA Rural Development Program called the OneRD Guarantee Loan Initiative, the USDA has removed regulatory barriers to make it easier for lenders to provide USDA-backed commercial loans for borrowers, including for new construction projects. North Avenue Capital (NAC) is America’s #1 USDA Business & Industry loan leader. We are excited to provide funds for businesses in rural areas to build and scale their operations.

What’s so special about Rural Development Loans?

  • Expand access to credit for rural communities
  • Loan amounts of up to $25 million ($40 million for cooperatives)
  • Reasonable credit and collateral guidelines
  • Comparable and competitive interest rates
  • Lengthy repayment terms (up to 30 years)
  • Flexibility in how funds can be used, including new construction

Notably, many business owners do not fully understand what qualifies as a “rural area.” It is much broader than most imagine. The definition of a rural area is any community, city, or town with fewer than 50,000 residents. This covers about 97% of America. In addition, with these loans, the headquarters of the business entity can be located within a larger city, if the new facility itself is within an eligible rural area. You can use this interactive map to see if your business qualifies.

This broad geographical coverage provides an excellent opportunity for businesses in rural areas seeking a new construction loan and/or capital to expand. Even many areas located immediately outside of an ineligible area may still qualify. The best solution is to work with a lender like NAC who understands the rules and regulations and is familiar with qualifying areas.

Requirements for Loans for New Commercial Construction Projects

When searching for USDA-backed commercial loans for new construction projects, it’s important to understand the credit qualifications. Borrowers must have a good credit history, including a minimum score of 680. Credit utilization must be low, and there must be a record of good payment history. Scores are obtained from the three credit reporting agencies: Equifax, Experian, and TransUnion.

Since these loans are collateral-based, there must be enough collateral present (equipment, cash, fixed assets, real estate, etc.) that can be used to back the loan. Current guidelines require 25% equity for both established businesses and startups. This is one of the most important areas lenders focus on. A sufficient cash flow also must be proven to demonstrate the ability to repay the loan. Every lender has specific qualifications it uses for approving businesses seeking to obtain a loan.

Who qualifies for these loans?

For-profit and nonprofit businesses; public bodies; individuals looking to engage in business; cooperatives; and federally recognized tribes all qualify for OneRD loans. Individuals seeking to obtain a loan for new commercial construction projects must be citizens of the U.S. or reside in the states with permanent residency. Private entities must demonstrate that all funds will remain within the U.S. and that the facility under the loan will provide or save jobs for rural residents of the U.S. This is the foundational purpose of the program.

Funds may not be used for churches or organizations controlled by churches; lines of credit; fraternal organizations; lending, investment, and insurance companies; golf courses or related infrastructure; racetracks or facilities for gambling; owner-occupied and/or rental housing; and other entities.

The funds can be used to enlarge a business, for repairs, conversion, development, or modernization. They can be applied to the purchase and development of buildings, land, and any associated infrastructure for a commercial or industrial property; the purchase and installation of equipment, machinery, inventory, or supplies; debt refinancing; and business and industrial acquisitions, as long as the funds will help maintain operations, create or save jobs.

Making a Difference

This OneRD program is designed to assist rural businesses with the often-difficult goal of obtaining the funds needed to scale and grow. While traditional lenders have their own set of rules, this loan gives credit-worthy rural businesses a great opportunity to make a difference in their communities. This loan program is for businesses only and does not apply to those seeking loans for residential construction, for which there are other USDA programs.

For more information on obtaining a OneRD Loan to assist with your business or new rural commercial construction financing, contact a team member at North Avenue Capital. As the nation’s #1 provider of USDA Rural Development Loans, we have offices in Northeast Florida, Nevada, Arkansas, Georgia, Tennessee, and Texas, and partners in all 50 states to help facilitate loans. Get started, today!

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