What Are USDA Business Loans and How Do They Work? | North Avenue Capital

What Are USDA Business Loans and How Do They Work?

USDA Business Loans, formally referred to as USDA Business and Industry loans, are business loans guaranteed by the U.S. Department of Agriculture (USDA) for small businesses, companies, nonprofits, and other organizations in rural communities. 

USDA Business Loans are made by lenders (banks or credit unions) to businesses located in rural locations. They have characteristics similar to a Small Business Administration (SBA) loan, but USDA Business Loans focus solely on promoting small businesses and creating jobs in rural areas. Rural areas make up a whopping 97% of America.  

The USDA Business & Industry (B&I) Loan Program is an asset-based loan program designed to help credit-worthy rural businesses obtain needed credit to grow and create jobs in their local communities. The program bolsters the availability of private credit by guaranteeing loans for businesses in rural areas across the US.  

Who is Eligible for a USDA Business Loan?

Our commercial loan experts at North Avenue Capital (NAC) wanted to share with you how you can qualify for a USDA business loan. NAC is the only specialized commercial lender in the nation that exclusively lends USDA B&I Loans nationwide. It’s all we do. We know what it takes to take the projects through to the finish line. We offer competitive interest rates, flexible terms, and high LTVs.

The USDA sets minimum requirements for businesses to qualify for a business and industry loan, but your lender may require you to meet additional criteria. The USDA’s minimum criteria include:

  • The business must be in a rural area, which is an area other than a city with a population over 50,000 or the urbanized area of that city. You can check your business’s eligibility here with our USDA eligibility map.
  • Must have U.S. citizenship or permanent residency status: This applies to individual borrowers as well as businesses. 
  • Must be an eligible type of borrower which includes for-profit businesses, nonprofits, federally recognized tribes, public bodies, and individuals.
  • Must have sufficient cash flow to support loan repayment.
  • The business and its owners must have a good credit history. 
  •   Must have a tangible balance sheet equity position of:
  • 10% for existing businesses
  • 20% for new businesses
  • 25% for projects with a construction entity
  • 25% to 40% for energy projects
  • Personal and corporate guarantees and collateral are required

You cannot use these loans if you plan to use them for:

  • Line of credit 
  • Agricultural/ farming (exceptions apply) 
  • Lease payments 
  • Guarantee of loans made by other federal agencies 
  • Payment to an owner, close relative, or beneficiary when the owner will remain an owner 
  • Federal tax-exempt obligations 
  • Strict land-only purchases 

In addition, you cannot use these types of loans if you are a(n): 

  • Charitable institution
  • Church or church-controlled organization 
  • Fraternal organizations
  • Lending and investment institution
  • Insurance company
  • Golf course
  • Racetrack or gambling facility

How Does a USDA Loan Work?

You can use a USDA loan for: 

  • Business modernization, development, or repair
  • Commercial real estate purchase, development, or improvement
  • Machinery, equipment, supplies, or inventory purchases
  • Working capital
  •  Integrated agriculture production or processing facilities
  • Debt refinancing when it improves cash flow and creates or saves jobs
  • Business acquisition when the loan will create or save jobs

USDA loan specifics: 

  • You and your lender will negotiate the terms of your USDA business loan, but the USDA does set some specifications on amounts, terms, and fees.
  • NAC lends USDA business loans between $2 to $25 million.
  • USDA business loans are set so that each monthly payment will be the same with no balloon payments. 
  • Interest rates are based on Wall Street Journal Prime, which as of Winter 2020, sits at 3.25%.  We have a variable, quarterly adjusted interest rate based on the waxes and wanes of Prime.  NAC will add anywhere from 1-3% to Prime based on credit, type of loan, risk in the project, etc.  
  •  USDA business loans come with various fees: Initial guarantee fee, Annual renewal fee, and Bank/lender fees. 

Looking to Apply for a USDA Business Loan? 

Our USDA B&I loan specialists at North Avenue Capital, LLC (NAC) will determine if these USDA loans are right for your financing needs.  We have a team of trained individuals to take you through the eligibility process to see if you are eligible. We will let you know what you need to apply for a USDA small business loan, as well as let you know what you are allowed and not allowed to use the funds for in order to be approved for a loan. 

At NAC, we provide capital to empower American business growth. Because NAC is a non-bank, private lender, we can provide our borrowers with the terms that fit their financial needs.  

NAC possesses a genuine interest in partnering with you to enhance your business, create jobs in local communities, and identify opportunities to improve environmental conditions for the next generation of entrepreneurs.  

As one of the only USDA exclusive lenders in the country exclusively focused on USDA Rural Development programs, NAC uses its expertise, capital, and relationships to build businesses, grow local economies, and create jobs in rural America.

Ready to work with one of our USDA business loan specialists?

Visit our USDA business loan pages for more information: USDA B&I loans, Family Entertainment Loans, Healthcare Loans, Hotel & Hospitality Loans, Manufacturing Loans, and Winery and Distillery Loans. 

We serve rural America on a nationwide scale and have strategically placed our office locations spanning across the country to better serve our clientele. Find a location near you in Arkansas, Florida, Georgia, Nevada, Tennessee, and Texas, or contact us today.