USDA Business Loans: Not Only for Farmers

The United States Department of Agriculture (USDA) provides loans for small businesses located in rural areas to give businesses capital to expand their operations. For the non-farmer folk or ranchers out there, don’t discount USDA loans because you hear agriculture or rural. There’s more to these loans than you’d think, and since USDA loans come with a wide range of loan amounts, flexible use of funds, competitive interest rates, and long terms, they’re certainly worth considering.

Who Qualifies?

There are 3 main requirements to be eligible for USDA loans:

• Your business must be located in a rural area. But the USDA defines a rural area as an area with a population of 50,000 or fewer residents. That threshold means your business doesn’t have to be out in the boonies to qualify. In fact, your office location doesn’t matter at all—your project just needs to be in a rural area.
• Strong credit score. The USDA itself doesn’t actually make the loans. Banks do the lending through a Business & Industry Loan (B&I Loan) Guarantee Program. And they set a relatively high bar for business owners. Banks usually work with borrowers who have at least a 680 FICO score.
• Tangible balance sheet equity of at least 10% (20% for startups). Things like equipment, real estate, and cash make up tangible equity.

What Can USDA Business Loans Be Used for?

USDA loan can be used on a variety of projects:

• Business modernization, development or repair
• Purchase of commercial real estate, buildings, or other commercial facilities
• Purchase of equipment or machinery
• Purchase of inventory
• Working capital and startup costs
• Debt refinancing when it creates jobs, saves jobs, or improves cash flow
• Business acquisition when the loan helps create or save jobs

USDA Business Loan Amounts, Terms, and Interest Rates

Although you and your lender will negotiate the terms of your USDA B&I Loan, the USDA does set a few specifications:

• Loan Amounts: Most USDA loans are between $200,000 and $5 million but typically don’t exceed $10 million.
• Interest Rates: USDA loan interest rates usually compare closely with SBA loans, typically around 5-9%.
• Terms: Terms vary depending on the project. Real estate loans have a max term of 30 years, equipment loans have a max term of useful life or 15 years, and working capital is 7 years.

USDA business loans aren’t for everyone, but if your project is eligible, these loans are an excellent source of financing for businesses and nonprofits in rural areas. And if you don’t qualify, consider an SBA loan. It’s similar to USDA loans but open to a wider range of small businesses.