Rural businesses occasionally need an infusion of capital to start or grow their operations, but frequently run into issues getting funding from traditional lenders. Many lenders may not understand or desire to work with rural businesses due to their perception that the risk of default is higher for borrowers in these areas, the business will not see enough foot traffic, and/or the community will not be able to support it. In order to encourage economic development in rural areas, the United States Department of Agriculture (USDA) offers a government- guaranteed lending initiative called the Rural Development Business and Industry (B&I) Loan program, which guarantees parts of loans for rural businesses. North Avenue Capital (NAC) is America’s leading USDA Business & Industry Loan leader. Following is a look at USDA Rural Development Loans and how to qualify for one:

Investing in the Development of America’s Rural Communities

Many rural communities have suffered from a lack of investment and loss of population as technology has changed how we live our lives. The USDA is seeking to help stabilize these areas through the USDA Rural Development Loan program that encourages lenders to provide large-scale loans to borrowers for a broad range of business uses.

USDA B&I loans are available to both for-profits and nonprofits who want to start a business or are seeking capital to improve their existing businesses. Loan proceeds can be used to buy machinery, equipment, inventory, commercial real estate, and more. USDA B&I loans can even be used for business acquisition or refinancing debt that results in the creation of jobs or that saves them.

One of the great benefits of USDA Rural Development Loans are the generous loan limits which range from $1 million to $25 million. This provides exceptional opportunity for an entrepreneur to secure significant funding for a business in a geographic location where they might not have been able to, otherwise. This capital also tends to go further than it would in more heavily populated suburban and urban areas. Maximum loan guarantees generally follow the same basic terms: 80% for loans under $5 million, 70% for loans between $5 million – $10 million, and 60% for loans over $10 million.

Loan terms depend upon intended use and range from 7 years for working capital to 15 years or useful life for machinery and equipment to 30 years for real estate. Interest rates are attractive, tied to the current prime rate at closing + 1-3%. Loans are fully amortized and interest-only payments can be scheduled in the first 3 years.

How to Qualify for a USDA Rural Development B&I Loan

USDA Rural Development B&I Loans are available for both new and existing businesses that can meet the minimum qualifying criteria set forth by the USDA. The types of businesses that are eligible to apply for a loan include:

  • For-profit and nonprofit businesses
  • Individuals, partnerships and co-ops
  • Publicly traded companies
  • Public bodies
  • Federally recognized Native American tribes

A qualifying business must be located in a rural area that falls under the USDA’s population maximum. Loans are only made available for businesses in communities that have 50,000 or fewer residents. Notably, in the United States, this constitutes about 97% of the country, including many communities directly adjacent to large metropolitan areas. In addition, companies can be headquartered in larger metros, as long as the business itself is located in a qualifying area. Business owners can easily see if their address qualifies by looking at NAC’s USDA loan eligibility map.

Once a business is determined as being eligible to apply, the owner(s) must meet the following requirements:

  • Have U.S. citizenship or permanent resident status (at least 51% of the business has to be owned by someone with either status).
  • Be able to show realistic, sufficient cash flow to repay the loan
  • Have a good credit history (a score of 680 or higher with a good payment history and low credit utilization)
  • Have collateral to securitize the loan equal to or greater than the loan amount. (This can include land, equipment or other fixed assets.)
  • Upon loan closing / project completion,       have a tangible balance sheet equity position of at least 10% for an existing business, 20% for a new one, and 25% for construction projects. (Tangible assets include bank accounts, property, equipment, buildings and any other items that can be liquidated less the intangible assets, such as customer lists, amortized loan costs, licenses, trademarks, patents and proprietary rights.)
  • Provide personal and/or corporate guarantees
  • Complete a feasibility study by an independent consultant for a new business
  • Relevant insurance (hazard, flood, life, worker’s comp, etc.) may also be required

While USDA Business & Industry (B&I) Loans are designed to help empower credit-worthy businesses, qualifying for a rural development loan can be easier than you think, especially with the assistance of an experienced direct lender like North Avenue Capital. USDA B&I Loans are similar to SBA 7a Commercial Loans but with benefits that can outweigh those of SBA loans. North Avenue Capital can help you investigate the feasibility of a USDA loan for your business plans and help you apply for one.

Contact North Avenue Capital to Find Out About USDA Rural Development Business Loans

At North Avenue Capital, we have assisted many business owners apply and close USDA-backed USDA Business and Industry Loans that helped them achieve their dreams and goals. We understand how these loans benefit employers and employees, who are living in rural areas and want to make a difference in their communities. We have offices in Northeast Florida, Nevada, Arkansas, Georgia, Tennessee and Texas, and are able to partner with lenders in all 50 states and US territories. Get in touch with us today to learn more about how we can help you with qualifying for a USDA B&I Loan.