Founded by Abraham Lincoln in 1862, USDA is a federal agency that is responsible to oversee farming, ranching, and forestry industries as well as regulating aspects of food quality and safety and nutrition labeling. The USDA stands for U.S. Department of Agriculture. Not only this, but the agency provides economic assistance to rural businesses. 

Through USDA rural development loan programs, the agency provides loans for small businesses located in rural areas so that they get capital to expand their operations. The agency even supports the startups that work for rural developments. The objective of the agency is to bolster the availability of private credit for rural businesses. 

To date, the USDA has helped many rural business owners to set up, expand and operate their businesses. And things have worked great in their favor. However, many business owners are still not comfortable or hesitate to apply for this loan option. There are many questions in their minds regarding the same. 

In this post, we will discuss some common questions asked by business owners regarding USDA rural development loans. You can even connect with Royale Capital’s experts to understand these things in detail. 

What are the uses of USDA rural development loans? 

Not one or two, but you can use a USDA rural development loan for your business in different ways. With the loan amount, you can modernize, develop or repair things or your overall business. You can purchase commercial real estate, buildings, or other commercial facilities, equipment, or machinery and inventory. Other than this, you can use the amount as working capital and startup costs as well as for debt refinancing. 

Who is eligible for USDA rural development loans?

The 3 major requirements to qualify for USDA rural development loans are:

Business location should be a rural area 

An area with a population of 50,000 or fewer residents is defined by USDA as a rural area. It’s not necessary that your business has to be located in a defined rural area. But, the thing is your business should cater to this rural area or the people of this rural area. 

Credit score should be strong 

USDA is not a direct lender for rural development loans. They work through banks and other lenders, who define the required credit scores for the business owners. Usually, they set a relatively high bar. With Royale Capital, the credit score might not be a very big issue for you. We check the other factors as well. 

Tangible balance sheet equity 

The tangible equity of a business includes things like equipment, real estate, and cash. If the tangible balance sheet equity is at least 10%, you are eligible for a USDA rural development loan. The percentage might change for the startup rural business owners. Talking about the types of business, cooperatives, non-profit organizations, for-profit businesses, public bodies, individuals, and federally recognized tribes are eligible.

What’s the average loan amount provided under the USDA rural business loan program?

The average loan amount varies from $200,000 to $5 million. On average, the loan amount is $3 million. This is considered to be a large loan that you might receive easily and quickly. Both processing and approval aren’t very complicated, especially if you work with Royale Capital’s experts. Sometimes, a loan of up to $10 million becomes eligible under the program. But, this loan amount includes many exceptions. And these exceptions are approved only by the Administrator. The lender might need more than the standard time to process this loan amount. 

What are the interest rates and terms of the USDA rural business loans?

Here, the lender is the decision-maker. Both the interest rates and terms are decided by the lender. Typically, the interest rates are very similar to the 7(a)-loan product offered by SBA.

As already said, the interest rates are defined by the lenders. Therefore, you can negotiate with them and reduce the rates. At Royale Capital, the interest rates on USDA rural development loans are very affordable. Also, there are chances of negotiation. 

Talking about the loan terms, the maximum term is 30 years for real estate, 15 years for financing on equipment, and 7 years for working capital. For other usages of the loan amount, the lenders will define accordingly. 

Do USDA rural development loans require collateral?

Yes, the USDA rural development loans require collateral and personal guarantees. The collateral is required to protect the interest of the lender and the USDA agency. They won’t risk the amount without any collateral. 

It is said that the collateral should be equal to the loan amount for you to become eligible. In case the collateral is not worth it or there is no collateral, the lender might include strict terms and conditions or increase the interest rates. 

Talking about the personal guarantees, they are required from owners, partners, and any shareholders with 20% or more ownership interest in the business. The personal guarantee implies that you are personally liable for the loan. If you cannot repay the amount from your business, the personal assets will be used by the lender and the agency. 

Is there any restriction to use the USDA rural development loan amount?

Yes. Like every other loan, there are some restrictions associated with USDA rural development loans. It means you cannot use the loan amount at some places or for some business-related works. If you try to use the loan amount for non-permitted reasons, you might not be eligible. Your business proposal will not be accepted. 

The list of things is:

  • Fraternal organizations
  • Lending, investment, and insurance companies
  • Projects that involve more than $1 million along with the relocation of 50 or more jobs
  • Agricultural production, with certain exceptions
  • Lines of credit
  • Owner-occupied housing
  • Golf courses
  • Racetracks or gambling facilities
  • Churches, church-controlled organizations, or charitable organizations

Contact Royale Capital 

If you got the answers to all the questions related to USDA rural development loans, contact Royale Capital. We will help you process the application easily and quickly and increase the chances of loan approval. Also, you will get the loan amount at competitive interest rates.