Are you looking into business loans options and wondering if USDA loans might be right for you?
USDA loans are one of many options that help business owners with capital to grow and scale their businesses.
Read on to learn about the program and how to qualify for USDA loan options!
1. What is a USDA Eligible Loan?
USDA business loans are guaranteed by the US Department of Agriculture.
This means that when a lender signs a loan, they are protected financially by the backing of the USDA in case the borrower cannot make payments.
The program exists for a variety of business categories, including for-profit businesses, nonprofits, tribes, public bodies, cooperatives, and sole proprietors.
2. Not Just For Farms
While the term USDA might immediately make you think of large, open farms, many types of property can be USDA eligible.
Borrowers are often surprised that their headquarters can be located in a larger city, as long as the project is in an eligible rural area.
The USDA has a handy tool to help you determine if a business property is eligible.
3. Loan Guarantee Percentages
The amount of the loan guaranteed by the USDA varies based on the size of the loan.
For loans of $5 million or less, a maximum of 80% of the loan is guaranteed.
Between $5 million and $10 million, a maximum of 70% of the loan is guaranteed.
For any loan over $10 million, there’s a 60% maximum guarantee with a $25 million cap.
4. Requirements and How To Qualify For USDA Loan
Just as commercial real estate loans and other types of loan programs have requirements, the same is true for USDA loans.
For example, the loan funds may not be used for lines of credit, churches, golf courses, gambling facilities, or lending companies.
As a borrower, you’ll need to be a legal citizen of the U.S. (or a permanent resident) and prove that the funds will remain in the country for the purposes of creating rural U.S. jobs.
6. Collateral and Insurance
USDA business loans do require collateral and hazard insurance is required on the collateral.
This is to protect the lender and the USDA from the borrower defaulting on payments.
Hazard insurance must be equal to the lesser of either the depreciated replacement value or the loan amount.
7. Available For A Variety of Uses
As mentioned above, while USDA business loans have some restrictions on use, they are available for a wide variety of business purposes.
Depending on the circumstances and the type of loan, they can be used for purchasing or developing real estate, improvements, equipment, project expenses, business expansion, and debt refinancing.
Is a USDA Loan Right For You?
Now you’ve got some background information and an understanding of how to qualify for USDA loans.
Keep these 7 points in mind when talking to a lender about your business’ financial situation.
Wondering if you’re USDA eligible? Not sure how to get started with a lender broker? Contact us and we’ll be happy to help answer your questions.
Seedcopa has been helping businesses in the Mainline, Wayne, Exton, and Pottstown areas get the money they need to start, grow, and expand for over thirty years.