Harnessing the Power of the USDA Business and Industry Guaranteed Loan Program
Updated: Jul 10
The USDA Business and Industry Guaranteed Loan Program is a loan guarantee program that helps businesses obtain startup or growth funding. The program is administered by the U.S. Department of Agriculture (USDA) Rural Development.
The USDA Business and Industry Guaranteed Loan Program can be a valuable resource for businesses that are unable to obtain financing from traditional sources.
The program provides a guarantee to lenders, which reduces the risk of the loan. This can make it easier for businesses to obtain financing and can help them to get the funding they need to grow their business.
What may surprise many is the breadth of the program’s applicability. While USDA programs are often associated with farming and agriculture, the B&I program covers a diverse range of business types, including manufacturing, retail, and service industries, among others. The guaranteed loans can be used for various business purposes such as modernizing equipment, refinancing debts, and even financing startup costs in some situations. The program also covers both new and existing businesses, making it an accessible tool for a wide range of enterprises.
Furthermore, the loan amounts can be substantial. As of my last training cut-off in September 2021, the USDA can guarantee loans up to $25 million, and even higher in some instances. This level of financial backing can provide the critical support necessary for businesses to make significant investments, scale their operations, or initiate major projects. This program thus represents an underutilized opportunity for businesses in rural areas to access financial resources typically more readily available in urban regions.
To be eligible for the USDA Business and Industry Guaranteed Loan Program, businesses must meet the following requirements:
The business must be located in a rural area.
The business must be for-profit.
The business must have a sound business plan.
The business must be able to repay the loan.
The USDA Business and Industry Guaranteed Loan Program can provide loans up to $25 million. The amount of the loan will depend on the needs of the business and the ability of the business to repay the loan.
Initial Guarantee Fee
3% of the guaranteed amount
Guarantee Retention Fee
0.5% of the guaranteed portion of the outstanding principal balance, paid annually
Loan Origination Fees
Negotiated between borrower and lender
Reduced Fee for Qualifying Projects
1% of the guaranteed amount
Source: USDA Rural Development Department
B&I Loan Program for Foreign Businesses
The USDA Business and Industry (B&I) Guaranteed Loan Program can serve as an invaluable resource for foreign companies looking to establish their operations in the United States, particularly in rural areas. As the program's primary purpose is to improve economic conditions in these areas, it may extend financial assistance to businesses that might otherwise struggle to secure financing due to lack of US credit history and cash flow.
One of the primary challenges foreign companies often encounter when entering the US market is obtaining financing for their operations. Traditional lenders, such as banks, often consider these businesses as high risk due to the absence of a US-based credit history. These companies may also lack the cash flow records typically required by lenders to demonstrate repayment capacity. The B&I Guaranteed Loan Program can help alleviate these issues by providing loan guarantees that can cover a significant percentage of a loan's value. This guarantee can mitigate the perceived risk for lenders, thereby making them more willing to extend credit to foreign companies.
This program thus facilitates foreign companies' access to essential funding required for business purposes such as acquisition, conversion, enlargement, repair, or modernization of business facilities and projects. It can also be used to finance the purchase of equipment, machinery, supplies, or inventory, as well as for startup costs and working capital, providing a comprehensive solution to their financing needs.
As always, businesses need to meet the program's eligibility criteria, which include operating in eligible rural areas and contributing to the economic improvement of the region. However, if a foreign company's plans align with these requirements, the USDA B&I Guaranteed Loan Program could be a significant steppingstone towards establishing a successful operation in the United States.
The interest rates on USDA Business and Industry Guaranteed Loans are set by the lender. The interest rates are typically competitive with other loan options. The rates are typically based on Wall Street Journal (WSJ) Prime Rate (https://www.bankrate.com/rates/interest-rates/wall-street-prime-rate/) plus 1.5 to 3%.
The repayment terms on USDA Business and Industry Guaranteed Loans are typically 10 to 20 years. The repayment terms can be longer or shorter, depending on the needs of the business.
How to Apply
To apply for a USDA Business and Industry Guaranteed Loan, businesses must contact a lender that participates in the program. The lender will review the business's application and determine if the business is eligible for a loan. If the business is approved for a loan, the lender will issue the loan and the USDA will guarantee a portion of the loan.
The USDA Business and Industry Guaranteed Loan Program can be a valuable resource for businesses that are looking for startup or growth funding. The program provides a guarantee to lenders, which reduces the risk of the loan. This can make it easier for businesses to obtain financing and can help them to get the funding they need to grow their business.
Here are some additional tips for businesses that are considering applying for a USDA Business and Industry Guaranteed Loan:
Do your research: Before you apply for a loan, make sure you understand the program requirements and the terms of the loan.
Get organized: When you apply for a loan, you will need to provide a lot of documentation. Make sure you have all of the required documentation organized and ready to submit.
Be prepared to answer questions: When you apply for a loan, the lender will ask you questions about your business and your financial situation. Be prepared to answer these questions in a clear and concise way.
Choose an experienced lender: Given the complexity of the approval process, it's crucial to work with a lender who is well-versed with the intricacies of the USDA Business and Industry Guaranteed Loan Program. An experienced lender can guide you through the process and ensure all requirements are met, thereby improving the chances of loan approval.
Engage a professional consulting firm: The loan application process can be daunting and complicated. A professional consulting firm with experience in USDA loans can provide valuable guidance, help you navigate the process, and provide an unbiased opinion. They can assist with the preparation of essential elements such as feasibility studies, business plans, and financial statements, thereby reducing the likelihood of errors and delays in the loan approval process.
The USDA Business and Industry Guaranteed Loan Program can be a great way for businesses to obtain startup or growth funding. Remember, a successful application requires thorough preparation and a deep understanding of the program's parameters. By following these steps, you can increase your chances of being approved for a USDA Business and Industry Guaranteed Loan.