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AbstraktMarketing2024-08-05 13:34:492024-08-05 13:34:52Understanding the Role of Credit Scores in USDA Loan RequirementsTypes of USDA Loans: Which One Is Right for You?
If you own a small to medium-sized business in a rural area, securing adequate funding is often difficult. Thankfully, USDA business loans were created to help businesses capitalize on government funding opportunities. Navigating the guidelines of a commercial USDA loan can be tricky, so we’ve created a helpful guide to understanding the characteristics of each loan type.
Important Things to Know About USDA Loans
For decades, the United States Department of Agriculture (USDA) has offered financial incentives to rural businesses and commercial properties to help create jobs and stimulate rural economies. These commercial loans are an excellent option for rural businesses that may not qualify for traditional bank financing. By providing access to capital and resources, USDA loans help create opportunities in rural communities nationwide.
How Do USDA Loans Work?
In their simplest form, USDA commercial loans offer loan guarantees and grants to individuals, businesses, cooperatives, farmers and ranchers, public bodies, non-profit corporations, Native American tribes, and private companies in rural communities. With this extra financing, businesses can purchase equipment and land, receive assistance with constructing or expanding facilities, and more.
Unlike conventional loans, USDA loans are insured by the U.S. government and are typically serviced by a third party. Rural businesses can apply for loans with participating banks, credit unions, and non-bank lenders or in some cases directly from the USDA. Once an application is submitted, it typically takes between 30 and 60 days for a decision to be made by the USDA. To meet USDA eligibility standards, businesses must prove specific criteria regarding location, size, and industry. Most importantly, the business must be adequately classified as rural. As a rule of thumb, most communities with populations of less than 50,000 qualify. However, to be sure, email your business address to Madison One for eligibility confirmation.
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How to Use a USDA Loan
As established, businesses can use their USDA commercial loans on multiple things, like purchasing land and construction expenses. However, this is only a fraction of the benefits USDA loans provide. These loans are great for:
- Working Capital
- Inventory Purchases
- Refinancing Existing Debt
- Expanding an Existing Business
Are you ready to secure a USDA Commercial Loan?
Let a Madison One CUSO expert help determine your eligibility.
The Types of USDA Commercial Loans
Depending on your business type and financing needs, you could be eligible for the following USDA loans: Business and Industry loans, Food Supply Chain loans, Rural Energy for America loans, and 9003 loans.
USDA Business and Industry (B&I) Loans
B&I financing is perfect for nonprofit and for-profit businesses to fund job creation products in rural areas with competitive lending terms. These loans have competitive interest rates and long repayment terms, making them more affordable than traditional financing options.
With a USDA B&I loan, business owners can borrow up to $25 million for 7 to 40 years. To qualify, borrowers must be a for-profit, nonprofit, federally-recognized Tribe, public body, or individual located in the U.S. Additionally, the party must plan to use their loan funds in a rural area of less than 50,000 inhabitants.
B&I Loans apply to multiple industries, such as, but not limited to the following:
- Hospitals
- Assisted Living Facilities
- Manufacturing
- Heavy Equipment
- Hospitality
- Mining
USDA Food Supply Chain Loans
To help stabilize the food supply chain, the USDA has set aside nearly $1 billion in funds for food supply businesses to adequately process, manufacture, store, transport, and distribute food products. While most USDA loan programs limit businesses to rural areas, the USDA Food Supply Chain Guaranteed Loan Program has no geographic restrictions.
Additionally, this initiative guarantees loans up to $40 million, with terms as long as 40 years. With these flexible guidelines, this program is highly favorable for most borrowers.
USDA Rural Energy for America Program (REAP) Loans
While installing renewable energy systems like solar-powered equipment is a great incentive for rural businesses to cut costs, financing such a large and complex project may be difficult. To alleviate this problem and compete with unfavorable loan terms from conventional lenders, the USDA created the REAP program to help businesses borrow up to $25 million for 10 to 40 years.
While most applicants must qualify as a small rural business in a town with fewer than 50,000 residents, any agricultural producer can apply for a USDA REAP loan. Plus, REAP loans can be combined with B&I loans to maximize funding for up to $50 million.
Along with solar equipment and projects, REAP loans can apply to some of the following systems:
- Wind
- Biomass
- Geothermal
- Hydrogen
- Hydropower
- Ocean
- HVAC
- Manufacturing Equipment
- Lighting
- Insulation
USDA 9003 Loans
Qualifying businesses attempting to break into the new or emerging sustainable tech industries can apply for the USDA 9003 program to fund new facilities or rid themselves of existing debt. The Section 9003 program, otherwise known as the Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program, was created by the USDA to help these companies flourish.
With up to $250 million available in funding, almost any entity or individual involved in these technologies can apply for USDA 9003 financing. Like the Food Supply Chain and REAP loans, there are few geographical requirements in place—the only defining requirement is that the borrower’s project must be located in the U.S. Additionally, the federal government will only guarantee up to 80% of eligible project costs.
Eligible borrowers can use these funds for many biobased projects, like development, construction, or retrofit services for biorefineries and other manufacturing facilities.
Finance Your Company’s Future With Madison One CUSO
Madison One CUSO is the best choice for businesses seeking to finance their future. As a partially credit union-owned company, we’re not limited to industry or location, and we serve any business throughout the U.S. Our experienced team of loan experts is dedicated to helping our customers navigate the complex financing process and finding the best options for their business growth and development.
Discover which USDA Commercial Loan is best for you and speak with one of our business loan experts today.
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