What You Need to Know About USDA Business Loans

USDA business loans

Just like with USDA home mortgages, if your small business is located in a rural area, you can get a USDA loan. This loan is ideal for rural small businesses that do not qualify for other loans and you get it through the USDA Business and Industry (B&I) Program. The loans have lower interest rates and a longer payment term than conventional bank loans.

How to Qualify for USDA Business Loan

If you want to get a loan from the USDA, you should go through a financial institution such as a bank. The main eligibility requirements for a B&I loan are:

Good credit history – banks usually work with people who have a credit score that is at least 680. To find out what your credit score is, you should order a free credit report online. Is your business up and running? It should have a nice business credit score.

Business must be in rural area – according to the USDA, a rural area is one with fewer than fifty thousand residents. Your business office can be in an urban area as long as the project you need money for is in a rural area.

Tangible balance sheet equity – the equity on your balance sheet should be at least 20 percent for startups or 10 percent for businesses that are up and running at loan closing. Tangible equity includes cash, real estate, and equipment.

Other than meeting the above requirements, you must be the majority owner of your business if you are a permanent resident or US citizen. On the other hand, military or government employees should not own more than 20% of their businesses.

What Can You Use a USDA Business Loan for?

You can use your USDA business loan for the following purposes:

–          Buying supplies or inventory

–          Modernizing, converting, and renovating your business

–          Refinancing debt when you want to create new jobs with your project

–          Buying buildings, commercial real estate, or other commercial facilities

–          Buying machinery, equipment, or other commercial leasehold improvements

–          Working capital and startup costs

–          Industrial and business acquisitions that will keep your business from closing

Where to Apply for USDA Business Loans

Not all banks offer USDA loans. If you already have a business checking account with a good local bank, you should ask if they give USDA loans. The downside of taking out this loan is that it can take up to three months for the application and funding procedure to complete.

When you apply for the loan, the lender will tender a pre-application form with your loan request and business description to the USDA for approval. If you are eligible, the USDA will send somebody to meet with the lender and you at the site of your project. Your lender will submit a full loan application if your project is deemed feasible.

Your application needs to have supplemental documentation like environmental studies and credit reports.

Other USDA Grant and Loan Programs

The B&I loan program is the main program for small businesses, but it is not the only one. The agency also has other programs that you can apply for, including:

Rural business development grant – if you have a nonprofit organization, you should apply for a grant through this program.

Rural microentrepreneur assistance programs – these micro loans are available for for-profit companies with fewer than ten employees and nonprofit rural businesses.

Microentrepreneur

If you need capital for your rural business, you should apply for a USDA loan. The loan has a longer repayment term and low rates of interest. If you want to apply for this loan, you should contact the local USDA office.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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