Similar to the SBA loan guarantee, the USDA (United States Department of Agriculture) also provides a loan guarantee for small businesses called the B&I or Business & Industry loan program. As one may imagine, this program is more for rural businesses, which by USDA standards is a city or town with fewer than 50,000 residents. Here is a link to a map of eligible rural areas – https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
The process is basically the same as the SBA, where the entrepreneur would prepare a business plan and go to a bank. The lender would look at the project and decide if additional security is needed in the project.
While the USDA loan guarantee program is not nearly as well-known as SBA’s, there are some good reasons to look at it. For starters, the USDA will guarantee a larger loan amount than the SBA – up to $25 million. Another benefit is USDA will provide longer terms on real estate for 30 years, equipment for 15 years, and working capital for 7 years. Last, the USDA’s guarantee is larger than SBA’s.
USDA guarantee portion varies depending on the maximum amount of the loan:
- 80% for loans of $5 million or less
- 70% between $5 million and $10 million
- 60% between $10 million and $25 million
Collateral is required and should be at least the amount of the loan.
The interest rate is not set by USDA and is negotiated between the lender and borrower. The interest may be a fixed or variable rate and cannot be higher than a rate for a loan without a guarantee.
Business eligibility is pretty broad and includes startup or existing business located in a rural area that saves or creates jobs.
There are a few businesses that are not eligible with the common ones, including:
- Golf courses
- Racetracks or gambling facilities
- Lending, investment, and insurance agencies
Funds can be used for a variety of purposes, including:
- Business acquisitions, construction, conversion, expansion, repair, modernization, and development.
- Purchase of machinery, equipment, supplies, and inventory
- Startup costs, leasehold improvements, and working capital.
- Debt refinancing under certain conditions.
Lines of credit are not considered an eligible use of funds.
The initial guarantee fee for a USDA loan is 3% of the principal plus an annual fee of .5%
Expect a response from a USDA application between 30 and 60 days.