Securing commercial loans for refinance, acquisitions and start-ups can be challenging for any business, let alone those in rural settings. The United States Department of Agriculture (USDA) is committed to supporting life in rural communities across America in a variety of ways including encouraging private investment in rural businesses through its Rural Development Business and Industry (B&I) Commercial Loan Program. The program provides independent , direct lenders like North Avenue Capital, America’s #1 USDA Business & Industry lender, with USDA-backed loan guarantees to help credit-worthy rural businesses access the capital they need to grow and create jobs in their areas. What many may be surprised to learn are the many ways these USDA commercial loans can be used, including for refinance, acquisitions and start-ups.
USDA Business and Industry (B&I) Loans can range from $1 million to $25 million. They offer appealing terms, including fixed or variable rates, 7, 15 or 30-year loan periods depending upon the purpose of the loan, and attractive low interest rates tied to the Wall Street Journal Prime Rate +1-3%. USDA B&I Loans are available to a wide range of non-agricultural businesses in rural areas, defined as communities with 50,000 or fewer residents. This represents about 97% of America. You can check to see if your business sits in one of these areas, here.
USDA B&I loans can be used to purchase real estate, equipment, machinery, and supplies, or meet working capital needs. But it is low interest loans for refinancing, business acquisitions and start-ups that get many businesspersons and rural entrepreneurs excited. In all cases, borrowers must be credit-worthy, possessing a minimum credit-score of 680 and collateral (fixed assets, cash, real estate, equipment etc.) to back the loan amount requested on a 1:1 basis. But these are nominal requirements given the high loan amounts offered and nature of these, and other very similar business loans, including SBA 7a and 504 loans.
USDA Rural Development B&I Loans can be used to refinance a commercial loan under certain conditions. This is great for rural businesses or those headquartered in larger metro areas with physical businesses located in smaller rural communities. Interest rates on commercial loans tend to be higher than other types of loans, and commercial real estate loans typically include various other fees that increase the overall costs of the loans from the onset.
Over time, interest rates may have dropped. Businesses may find themselves needing or desiring to lower their debt costs to improve cash flow and save on operating expenses during challenging periods, or to have more capital to apply to business expansion. In such instances, refinancing debt can be a perfect solution. When using a Rural Development B&I Loan to refinance a commercial loan, the only requirements are that the debt refinancing must improve cash flow while creating or saving jobs.
Eligible uses for USDA Rural Development B&I Loans can not only include things like equipment, machinery, construction, conversion, repair, modernization and development, but also business acquisitions. This includes the purchase and development of land, buildings and associated infrastructure for commercial and/or industrial businesses.
Just as is the case with refinancing, using a rural development loan for a business acquisition is predicated upon the funding being used to help maintain business operations or create or save jobs. As long as this is the case and the potential borrower is credit-worthy and can provide proper collateral to back the loans, then acquiring a business (or a commercial or industrial property associated with one), is a perfectly acceptable use for a B&I Loan.
The USDA Rural Development Program is all about supporting economic development in rural areas by stimulating business creation, and jobs growth. Guaranteeing loans for private lenders through its Business and Industry Loan Program is a key component of this. In some cases, this means backing loans to help assist and grow existing rural businesses. In others, it can be to support business acquisition. To the surprise of many, USDA Rural Development B&I Loans can even be used to fund new business start-ups!
That’s right. Once again, the key is that the launch of a start-up business should support the preservation of quality jobs in a rural area. Provided that this is the case, funding can be used for just about any relevant purpose including the purchase of real estate, equipment, office space, job training and even working capital. It should be noted that in addition to good credit, the completion of a feasibility study by an independent consultant that shows the realistic expectation of business viability is required for new businesses, along with other standard qualifications.
USDA Rural Development Loans provide exceptional opportunities for rural entrepreneurs who wish to sustain or grow their businesses, or even launch new businesses. USDA Commercial B&I Loans can be used for refinancing, acquisitions and start-ups, and are not overly burdensome to secure given reasonable credit worthiness.
North Avenue Capital can help you obtain a USDA Rural Development Business & Industry Loan, just as we do for clients all across the nation. Contact us today to get started with your B&I loan application or to learn more about the USDA’s Rural Development Lending Programs.