Much like the Small Business Administration, the U.S. Department of Agriculture manages a number of programs to help certain types of American businesses grow. USDA business loans are a great option for organizations that don’t qualify or aren’t a good fit for a traditional commercial or SBA loan.
USDA business loan guarantee program
The most popular USDA business loan program is known as the Business and Industry Loan Guarantee, or B&I loan. Like most SBA loans, B&I loans are subsidized, but not directly paid for, by the federal government. Instead, a business applies for a B&I loan through a participating financial institution, and the USDA insures that institution against much of the financial risk if the borrower defaults. This opens up opportunities for small businesses in rural communities to access credit.
Who is eligible for USDA business loans?
Under the B&I loan program, only businesses meeting certain qualifications are eligible. Some of these involve the size and credit history of the company much like SBA loans, but one key difference involves location.
B&I loan applicants must be located in a rural area of the U.S. as defined by the USDA. In general, the USDA considers “any area other than a city or town with a population of greater than 50,000 inhabitants” a rural area eligible for the B&I program. A business may also be eligible if its headquarters is based in a more populated area, but it is seeking funding specifically for a project in another location recognized as rural. The lending institution that provides the funding, however, may be based anywhere in the U.S.
How USDA business loans may be used
Businesses receiving B&I loans may use the financing for a variety of projects. Eligible uses for the loan, according to the USDA, include but are not limited to:
- Business conversion, enlargement, repair, modernization, or development
- Purchase of land, equipment, or inventory
- Debt refinancing that improves cash flow and creates or saves jobs
- Business acquisitions when the loan will create or save jobs
Like SBA loans, B&I loans must adhere to strict underwriting and collateral requirements before the USDA accepts them. That includes detailed proposals for why the business needs the program and how it intends to use and repay the funds. The business and its owners need to have solid credit histories as well as proof of equity in the company. Some recently established businesses may even need to obtain a feasibility study from an independent consultant to demonstrate creditworthiness.
Finding the right USDA business loan partner
If you’re interested in pursuing a USDA business loan, the first step is to talk to an experience financial partner. Your business needs your full-time attention and you need to be able to rely on the skills and expertise of a lending team that is familiar with the ins and outs of USDA programs. The specialized financing team at First Business Bank has specific expertise in USDA, SBA, Asset-based Lending, Accounts Receivable Financing, and Equipment Finance solutions. We have worked to secure millions of dollars in funding for rural businesses around the country over the last several years and continue to support these communities with the help of USDA programs.