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Understanding USDA Commercial Loans

  • November 27, 2019

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Understanding USDA Commercial Loans

The United States is generally looked up to as a modernized nation and leader in innovation and technology. Many will associate iconic concepts like the Model T, the man on the moon, the computer, and the iPhone to its prowess in industry and advancement.

It is quite paradoxical that the nation’s industries and technological hubs are mega areas that compose only about 3% of US land. The rest are rural areas.

In recognition of rural America’s potential for spurring the country’s economic growth, the US Department of Agriculture (USDA) launched vital initiatives that include providing guaranteed commercial loans to rural-based businesses.

With this helpful financial assistance within reach, it is essential to know a few basics on how to take advantage of such a capital source for your business.

Located in Rural America

While USDA focuses primarily on agriculture, it also grew to become a strong advocate for the development of rural America. Thus, it invested over 20 billion dollars in supporting more than 40 programs. USDA likewise activated over 6,000 dedicated staff into 470 field offices as its nationwide network for rural development.

A key initiative that came with the USDA’s Rural Development programs is the Business and Industry (B&I) Guaranteed Loan Program. This program ensured that rural communities’ businesses have immediate and simplified access to commercial loans to promote business expansion and the creation of more jobs.

Related: 5 Tips On Making Money Investing In Real Estate

Consequently, the primary requirement to be eligible for the loan is that your business’ location is in a city or town with less than 50,000 people. A quick way to verify if your business’ headquarters qualifies as rural America is to go online and type your business address in the Eligibility Map.

It also follows that as a business owner, you must either be a US citizen or have acquired permanent residency status. Additionally, you must own at least 51% of your business to qualify for the loan. Since the loan requires a guarantee, make sure that the amount of your land or equipment that will serve as your collateral is equal to or more than your intended loan amount.

Loan Purposes

Since the program intends to enhance rural economies by funding business growth and job creation, it targets specific recipients to qualify for its loans.

The USDA identifies eligible businesses as for-profit businesses, nonprofits, cooperatives, federally-recognized tribes, and public bodies. On the other hand, ineligible borrowers include charitable institutions, churches or church-controlled organizations, lending and investment institutions, insurance companies, golf courses, and racetracks or gambling facilities.

One should also know that the USDA defines and qualifies the purposes of its commercial loans. Based on USDA’s list, the business loans could finance the modernization, development, and repair of rural businesses. Likewise, it could fund commercial real estate purchase, development, and improvement.

Eligible borrowers could also use USDA business loans as working capital to purchase machinery, equipment, and supplies. Additionally, the loan could assist in debt refinancing and business acquisition to improve cash flow and save or create more jobs.

Other Considerations

You might be thinking about how the USDA business or commercial loans could be different from another similar-sounding loan. At this point, you might be referring to the US Small Business Administration’s 7(a) Loan Guarantee Program.

Indeed, a quick summary of the 7(a) program shows that the eligibility requirements and the approved purposes of this type of business loan are almost a perfect match to that of the USDA’s program. Incidentally, both agencies share complementary features in terms of their nature, economic development missions, financing programs, expansion, and startup projects.

What sets apart the commercial loans from USDA to that of the SBA, among several things, is their maximum loan size. While the SBA 7(a) program has a maximum of $5 million only, you can sign up for as high as $25 million under the USDA B&I Guaranteed Loan Program. That amount only gets limited, of course, by the percentage of the loan that you can guarantee.

Another consideration is the time it takes to process each kind of loan. Generally, it is easier and faster to get a 7(a) loan compared to a USDA business loan. The former could get you an approved application within two weeks or even immediately, while the latter typically takes one to three months.

There is undoubtedly unfettered support by the US government to its rural economic base. Not only are there focus agencies for rural America’s welfare, but there are a plethora of programs available to bring rural businesses to the forefront.

Therefore, as long as one made the right preparations in applying for and managing a long-term loan, the USDA’s commercial loans are very much worth considering.