Internet searches for “USDA Loan Guarantee” are on the rise, not surprising given the current conditions of the U.S. economy. To fight inflation, the Federal Reserve has been forced to slowly raise interest rates making it increasingly more challenging for entrepreneurs and commercial business borrowers to secure affordable financing, especially in rural areas where access to capital has always been more difficult to come by. Fortunately, the USDA offers a variety of outstanding loan guarantee programs for rural borrowers as part of its Rural Development Guaranteed Loan Initiative, also known as the OneRD Guaranteed Loan Initiative.
This program provides loan guarantees to lenders to encourage them to make loans to rural businesses. The USDA has removed regulatory barriers to make it easier for lenders to provide USDA-backed commercial loans for borrowers with the goal of creating jobs and increasing prosperity in rural areas across the United States. Even better, the USDA’s definition of “rural” is actually quite broad, making the initiative available to a wide range of commercial borrowers.
What’s so appealing about the USDA’s Loan Guarantee Program?
- Expands access to credit for rural communities
- Broad geographic eligibility as the USDA’s definition of “rural” – any community, city, or town with fewer than 50,000 residents – covers about 97% of America! The headquarters of a business can also be located in a larger metro area, as long the new branch itself is within a qualifying area. Check your address for eligibility, here.
- Loan amounts from $2 million to $25 million ($40 million+ for certain cooperatives and $100 million for community facilities)
- Reasonable credit and collateral guidelines
- Competitive interest rates
- Lengthy repayment terms (up to 30 years)
- Flexibility in how funds can be used
There are three flagship USDA loan guarantee programs for rural business borrowers to consider. These, along with the total funding amounts currently allocated to each program as of Sept. 7, 2022, include:
- Business & Industry Loan Guarantee Program – $1,681,567,618
- Rural Energy For America Loan Guarantee Program – $800,357,143
- Community Facilities Loan Guarantee Program – $500,000,000
Here is an at-a-glance breakdown of the key elements of each program.
USDA Business & Industry (B&I) Guaranteed Loan Program – This is the stalwart of the USDA loan guarantee program for the broadest range of business types including business services, business supplies, manufacturing, industrial, hospitality, entertainment, grocery stores, restaurants, education, automotive, and many more. North Avenue Capital is America’s rural lender. Last year, we closed more than $89 million in loans, bringing our seven-year total to $361 million in loan originations, most within this program that serve so many entrepreneurs.
Loan Amounts: $2 million to $25 million ($40 million for some cooperatives).
Terms: Up to 40 years.
Interest Rates: Can be fixed or variable, tied to the WSJ Prime Rate +1-3%. Rates are set by the lender.
Eligible Borrowers: For-profits, nonprofits, cooperatives, federally recognized tribes, and public bodies, including new or existing businesses.
Geographic Eligibility: Any U.S. town or city with a population of fewer than 50,000. Headquarters may be in a larger metro area, as long as the branch or division is in a qualifying area.
Fund Uses: Business conversion, acquisition, enlargement, repair, modernization, or development; the purchase and development of land, buildings, and associated infrastructure for commercial or industrial properties; purchase and installation of machinery and equipment, supplies, or inventory; debt refinancing.
Credit Requirements: 680 minimum credit score with good payment history.
Collateral Requirement: Tangible assets valued at a discounted amount consistent with established LTV practices sufficient to back the requested funding amount on a 1:1 basis.
Rural Energy for America Guaranteed Loan Program – The REAP program provides guaranteed loan financing to agricultural producers and rural small businesses for renewable energy systems or to make energy efficiency improvements.
Loan Amounts: $2 million to $25 million.
Terms: Up to 40 years.
Interest Rates: Can be fixed or variable, tied to the WSJ Prime Rate +1-3%. Rates established by lender.
Eligible Borrowers: Rural small businesses, and agricultural producers with at least 50% of their gross income coming from agricultural operations.
Geographic Eligibility: Any U.S. town or city with a population of fewer than 50,000. Headquarters may be in a larger metro area, as long as the branch or division is in a qualifying area.
Fund Uses: Funds can be used for renewable energy systems including biomass, geothermal for electric generation or direct use, hydropower below 30 megawatts, hydrogen, wind generation, solar generation, and ocean generation. Funds also can be used for energy-efficient improvements including high-efficiency HVAC systems, insulation, lighting, cooling or refrigeration units, doors and windows, electric, solar or gravity pumps for sprinkler pivots, switching from a diesel to an electric irrigation motor, and replacement of energy-inefficient equipment.
Credit Requirements: 680 minimum credit score with good payment history.
Collateral Requirement: Tangible assets valued at a discounted amount consistent with established LTV practices sufficient to back the requested funding amount on a 1:1 basis.
Community Facilities Guaranteed Loan Program – This program provides loan guarantees to develop more than 100 kinds of essential community facilities in rural areas. An essential community facility is defined as a public improvement, operated on a non-profit basis, needed for the orderly development of a rural community.
Loan Amounts: $2 million to $100 million.
Terms: Up to 40 years.
Interest Rates: Can be fixed or variable, tied to the WSJ Prime Rate +1-3%. Rates established by lender.
Eligible Borrowers: Nonprofit organizations, public bodies, Native American tribes on federal and state reservations, and federally recognized tribes.
Geographic Eligibility: Any U.S. town or city with a population of fewer than 50,000. Facilities must be for public use and serve the rural area where they are/will be located.
Fund Uses: Funds can be used to construct, enlarge, extend or otherwise improve essential community facilities including hospitals, healthcare facilities, and services (labs, clinics, pharmacies, doctor offices, etc.); fire, rescue, and public safety facilities and services; community, public, social, educational, or cultural facilities including community parks and activity centers, transportation facilities (streets, bridges, roads, ports, and airports); utility projects, end-user telecommunications equipment for public safety, medical, or educational purposes; and water infrastructure.
Credit Requirements: 680 minimum credit score with good payment history.
Collateral Requirement: Tangible assets valued at a discounted amount consistent with established LTV practices sufficient to back the requested funding amount on a 1:1 basis.
The USDA’s Rural Development Loan Guarantee program continues to be an unrivaled advantage for businesses and entrepreneurs in rural areas across the nation. North Avenue Capital is America’s rural lender with offices in Northeast Florida, Arkansas, Georgia, Tennessee, and Texas, and partners in all 50 states. We can help you assess your needs and apply for the right kind of loan for your business. Contact NAC today!
