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USDA Business and Industry Loan Guarantee Program review

Government-backed loans of up to $25,000,000 for rural businesses — including nonprofits.

Run a business or a project in a town with a population of 50,000 or fewer? Consider applying for a loan through the USDA Business and Industry (B&I) Loan Guarantee Program.

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Details

Max. Amount$25,000,000
Loan TermUp to 360 months
Min. Credit Score700
APRVaries by lender
RequirementsMust be located or have a project in an area with a population of 50,000 or less, good personal credit, strong revenue, tangible business equity of at least 20% for new businesses and 10% for established businesses, collateral with hazard insurance, personal guarantee from everyone with 20% equity or more, have an eligible project.

Your USDA loan could be eligible for forgiveness

Farmers and ranchers from socially disadvantaged groups can qualify for forgiveness on all USDA-issued and USDA-backed loans issued before 2021, as part of the American Rescue Plan Act. The stimulus bill defines "socially disadvantaged groups" as groups where members face racial or ethnic prejudice because of their identities as members of that group.

Eligible farmers and ranchers can get up to 120% forgiveness, based on their loan balance on January 1, 2021. Check with the Farm Service Agency for more details on how to apply as this program rolls out.

First, am I eligible?

Like the Small Business Administration program, USDA loans come with a long list of requirements. While specifics can vary by lender, the USDA sets the minimum.

Businesses and owners must have an eligible project and meet the following requirements, at a minimum:

  • Funding for an eligible project in a town with 50,000 or fewer residents.
  • Good or excellent credit and a strong credit history.
  • Enough consistent revenue to repay the loan
  • Proof that you’re a for profit, nonprofit, cooperative, federally recognized tripe, public body or sole proprietorship.
  • Tangible balance sheet equity of at least 20% for new businesses and 10% for existing businesses, including the USDA loan.
  • Provide a personal guarantee from anyone who owns more than 20% of the business.
  • Provide collateral with hazard insurance.

Some business owners might also be asked to take out a life insurance policy.

Farmers and other agribusinesses generally aren’t eligible for USDA B&I Loan Guarantees.

What is the USDA B&I Loan Guarantee Program?

USDA B&I Loan Guarantees back secured term loans from banks, credit unions and other financial institutions with the aim of encouraging economic development in rural areas. By backing your loan, the USDA legally promises to cover a percentage of the loan if the business defaults. This opens up financing to business owners that might not be able to qualify for a loan on their own.

How much can my business borrow?

Loan amounts vary by lender but typically range from $200,000 to $5 million. Some loans are as high as $25 million.

How much you qualify for depends on the value of business assets you’re using as collateral:

  • Real estate. Borrow up to 80% of its fair market value.
  • Equipment. Borrow up to 70% of its fair market value.
  • Inventory. Borrow up to 60% of its book value.
  • Accounts receivable. Borrow up to 60% of its book value.

How much does the USDA B&I program guarantee?

The more you borrow, the less the USDA guarantees.

  • $10 million and , the USDA guarantees 60% of it.
  • If your loan is between $5 million and $10 million, the USDA guarantees 70% of it.
  • 80% of it.

Anyone with more than 20% of equity in your business is required to personally guarantee whichever percentage the USDA can’t.

What are the loan terms?

Loan terms also vary, this time depending on how your business plans on using the funds.

  • Real estate loans come with terms up to .
  • Equipment loans come with terms up to 15 years or the life of the equipment, whichever is less.
  • Working capital loans come with terms up to seven years.

USDA B&I loans are amortized, meaning that repayments are the same amount each month. The USDA doesn’t permit balloon payments on its B&I loans, so your business won’t have to pay one large amount at the end — which is common for mortgages and equipment loans.

How much does it cost?

The USDA doesn’t advertise guidelines for interest rates, though government-backed business loans tend to come with highly competitive rates. Rates can be fixed or variable, with variable rates changing up to four times a year.

On top of interest, USDA B&I loans come with fees:

  • Guarantee fee. Equal to 3% of the amount the USDA backs, paid when you take out the loan.
  • Annual renewal fee. Equal to 0.5% of your loan balance each year.

Your lender might also charge an origination fee, a prepayment penalty and other fees. Carefully read any agreement so that you know what you could expect.

Other USDA business financing programs

The USDA offers two other loan programs that can provide your business with direct financing if you’re a lender and indirect financing if you’re another type of business.

Intermediary Relending Program

This program provides low-interest loans to rural nonprofits, cooperatives, public agencies and tribes that provide financing to businesses in the community — called intermediaries.

Intermediaries can get up to $2 million on the first loan and up to $1 million for subsequent loans up to a combined $15 million. The USDA fixes interest rates at 1%, and loan terms can last as long as . Intermediaries can also make interest-only repayments for the first three years.

Eligible small businesses in turn can borrow up to $250,000 or up to 75% of their project’s cost, whichever is less. The intermediary sets rates and terms.

Rural Economic Development Loan & Grant Program

This program offers zero-interest loans and grants to rural utility organizations. In turn, the organizations provide interest-free funding to local businesses to increase and maintain levels of employment in those areas. The utility organization repays the USDA as the businesses pay off the loan.

Utility organizations can borrow up to $2 million and get up to $300,000 in grants. They can use up to 10% of the grant funds to cover operating expenses, and they have 10 years to pay back the USDA loan.

Here’s what it looks like for small businesses:

  • Interest — 0% for first-time borrowers, potentially more for repeat borrowers
  • Loan amount — Up to 80% of project costs
  • Repayment — Can defer loans for up to two years

What are the benefits of the USDA B&I Loan Guarantee Program?

  • Competitive rates.Loans are backed by the government, collateral and personal guarantees. With less risk of default, lenders can offer lower rates.
  • Large amounts of financing. Your business can get up to in funds through a B&I Loan Guarantee.
  • Less competitive than SBA loans. Small businesses are often located in ineligible areas, narrowing the pool of applicants.
  • Startup friendly. Use a B&I loan to start a new business or grow an existing one.

What to watch out for

  • Restricted uses. The USDA publishes a long list of ineligible uses, including agricultural projects, golf courses and more.
  • Long, complicated application. As with other government-backed loans, these come with lots of paperwork and can take months from start to finish.
  • Difficult to qualify. Most US businesses aren’t located or involved in projects in areas of fewer than 50,000 residents.

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How to apply for a USDA B&I Loan Guarantee

After you’ve confirmed your business is eligible, you’re ready to find a lender. Start by reaching out to your local USDA office for participating banks, credit unions and other financial institutions.

To find your local USDA office:

  1. Go to the USDA Rural Development website.
  2. Click Contact Us in the main navigation bar.
  3. Select State Offices in the left navigation bar.
  4. Find your state by scrolling down or using the search function.

Tell your local USDA office that you’re interested in applying for a loan through the B&I program. If your business sounds like it might qualify, the office typically sets up a meeting for you to meet with a lender.

In your first meeting with the lender, you’ll discuss whether your business is eligible. After you get the green light, you apply for the USDA B&I Loan Guarantee, and your lender reviews your application and paperwork. If your application is accepted, your local USDA office typically offers a conditional commitment to back the loan.

From there, the lender and the USDA work together to underwrite your loan, asking for documentation — and lots of it. The USDA guarantees your loan after you submit your signed loan documents.

What documents will I need?

On top of the standard business bank statements and tax returns, your business might be required to complete one or all of the following forms:

What types of projects can my business finance?

Use your approved funds for a wide range of projects to grow your business:

  • Buy or develop land.
  • Buy or maintain equipment.
  • Purchase inventory or supplies.
  • Buy a new business if it creates jobs.
  • Refinance business debt.

Ineligible projects

Before applying, check your business against the exhaustive list that includes projects related to:

  • Agriculture (with some exceptions)
  • Golf courses
  • Churches and church-run organizations
  • Race tracks
  • Casinos or gambling facilities
  • Owner-occupied housing
  • Insurance
  • Lending
  • Investments
  • Fraternal organizations
  • More than $1 million and relocating 50 or more jobs
  • Payment to a person or entity that profits from your business
  • Payment to a person or entity that has ownership in your business, like a parent company

3 alternatives to the USDA business loan programs

  1. SBA loans. The Small Business Administration offers several government-guaranteed loan programs with varying requirements your business might fit. The application process is just as intense — if not more — and there’s more competition too.
  2. FSA loans. If you’ve got a farm, the USDA’s Farm Service Agency provides government-backed loans specifically for agricultural businesses. It also has specific programs for new farmers and ranchers, women, minorities, tribes and youths.
  3. Aggie Bonds. Many states offer low-cost loan programs to help new farmers and other agricultural businesses buy land, buildings, equipment and livestock.

Bottom line

Businesses located or involved in rural areas might benefit from the USDA B&I Loan Guarantees. The USDA’s loans are typically less difficult to qualify for than SBA loans, because there’s less competition. But the application is as long and involved as any other government loan.

If your business needs funds now — or even in the next few weeks — consider other financing options. Read our comprehensive guide to business loans to learn about how these loans work.

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