The USDA Business and Innovation Program: What is it and which are the top lenders?
Access to capital is often a crucial catalyst in accelerating the growth of a business, so naturally anything that increases the availability of these funds is good news for business leaders.
Fortunately, the United States Department of Agriculture operates a series of loan programs that promotes collaboration between lenders and US businesses, with the ultimate aim of enhancing the economic development of rural regions of the country.
In 2020, the USDA introduced a unified platform for all of these programs: the One Rural Development (OneRD) Secured Loan Initiative.
What is the One Rural Development (OneRD) Secured Loan Initiative?
The One RD loan program is designed to support the economic development of rural areas of the country by improving the availability and affordability of business finance options.
Loans that are offered by partner lenders of the program feature favorable terms and conditions such as low interest rates and longer repayment periods, making it easier for businesses in these areas to secure funding.
This support is particularly beneficial to smaller businesses and community projects that may not have significant cash reserves, but where an injection of capital could make a real difference.
What is the USDA Business & Innovation (B&I) Loan Program?
The USDA Business & Industry (B&I) Loan Program is one of the four flagship programs that sits beneath the banner of the OneRD Secured Loan Initiative. It is aimed specifically at supporting businesses and as such, is focused on the creation and maintenance of employment and the knock-on impact that business investment has on local areas.
Similarly to the other USDA secured loans, the USDA provides a guarantee to lenders of USDA B&I loans. From a lender’s perspective, this reduces their risk exposure and makes it more attractive for them to invest in these businesses. From a business’s perspective, it gives them more readily available and affordable access to loans of up to $25m.
How can a USDA Business & Innovation loan be used?
A B&I loan can be used for a variety of purposes, so if you think your business might be eligible, it’s always worth getting in touch with a lender or speaking to a USDA loan expert, such as Growth Lending.
Some commons reasons that a business might secure a B&I loan include:
- Business conversion, enlargement, repair, modernization, or development – Financing for expanding or upgrading business operations
- Purchase and development of land, buildings, and facilities – Acquiring real estate for business purposes and constructing or renovating facilities
- Machinery, equipment and supplies – Buying necessary machinery and equipment for business operations, as well as other essential supplies
- Working capital – Providing funds for day-to-day operational needs
- Debt refinancing – Refinancing existing debt to improve cash flow or stabilize business operations
- Business and industrial acquisitions – Acquiring an existing business to ensure its continuity or to expand operations
What are the benefits of a USDA Business & Industry loan?
Aside from the obvious growth benefits associated with raising funds, B&I loans offer borrowers additional positives:
- Easier access to capital
The USDA B&I loan program provides access to funding that might otherwise be unavailable, especially in rural areas where traditional lenders might be hesitant to invest - Favorable loan terms
The reduced risk to lenders because of the government guarantee means that borrowers are more likely to secure favorable terms such as competitive interest rates and longer repayment periods (up to 30 years for real estate, 15 years for machinery and equipment, and 7 years for working capital), both reducing monthly payments and improving cash flow - Flexible use of funds
A B&I loan can be used for various purposes including purchasing land, buildings, equipment, and supplies, as well as for business modernization, debt refinancing, working capital and even business acquisitions - Growth and development
Funds can be used to expand and upgrade existing businesses, enhancing productivity and competitiveness and by supporting local businesses, the program helps create jobs and stimulate economic growth in rural areas, contributing to the overall well-being of the community. - Stabilization of operations
Because a B&I loan can be used to refinance existing debt and/or raise working capital, businesses can use the investment to improve their financial stability and better manage day-to-day expenses
What are the drawbacks of a USDA Business & Industry loan?
While the USDA Business and Industry (B&I) Loan Program offers many benefits, there are some drawbacks that borrowers should consider:
- Complex application process
The application process can be complex and time-consuming, requiring extensive documentation including detailed business plans and comprehensive financial statements and projections. This can be challenging to navigate for those unfamiliar with the process. - Lengthy approval time
Due to the thorough review processes conducted by both the lender and the USDA, approval can take several months, which might not be suitable for businesses needing immediate funding. In these instances however, specialist USDA bridge finance providers can provide a short term loan which bridges the gap between application and approval – find out more about these loans here - Collateral requirements
USDA B&I loans often require collateral, which might include business assets, real estate, or personal assets of the business owner. This requirement can be a barrier for businesses without sufficient collateral to pledge - Ongoing compliance and reporting
Borrowers must comply with ongoing reporting requirements, including providing regular financial statements and performance reports to the USDA and the lender. This can be burdensome for some businesses, especially small ones with limited administrative resources
What are the key characteristics of the USDA B&I Loan Program?
Eligibility:
- The program is available to businesses located in rural areas, defined as regions with populations under 50,000 – You can find out whether your business falls into this category using this eligibility map
- Eligible applicants include individuals, corporations, cooperatives, partnerships, non-profits, and federally recognized tribes
Loan terms:
- The maximum loan amount is generally $25 million, though larger loans may be considered with the USDA’s approval
- Loan terms depend on the use of funds, typically up to 30 years for real estate, up to 15 years for equipment, and up to 7 years for working capital
- Interest rates are negotiated between the lender and the borrower and can be either fixed or variable.
Top lenders for USDA Business and Innovation guaranteed loans:
1. Greater Nevada Credit Union
Greater Nevada Credit Union offers USDA supported loans under both the B&I and REAP programs and cite better terms and rates as just some of the benefits of a USDA business loan. GNCU aims its support at farmers, ranchers, non-profits and more.
Visit website.
2. X-Caliber Rural Capital
X-Caliber Rural Capital (XRC) is dedicated to providing funding to support the health and development of rural areas.
The loans they offer through the USDA’s OneRD Guarantee Loan Initiative include:
- Business and Industry Guaranteed Loan Program (B&I)
- Rural Energy for America Guaranteed Loan Program (REAP)
- Community Facilities Guaranteed Loan Program (CF)
- Water and Waste Disposal Guaranteed Loan Program (WEP)
Visit website.
3. Live Oak Banking Company
Live Oak also supports a number of the programs under the USDA Guarantee Initiative, including:
- Business and Industry Guaranteed Loan Program (B&I)
- Rural Energy for America Guaranteed Loan Program (REAP)
- Community Facilities Guaranteed Loan Program (CF)
- Water and Waste Disposal Guaranteed Loan Program (WEP)
- USDA 9003 Program
Live Oak is committed to supporting rural America with flexible loan options, deep knowledge of the various USDA loan programs and a commitment to exceptional customer service.
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4. North Avenue Capital, LLC
North Avenue Capital defines its customers as innovative entrepreneurs, discerning business owners and generous employers. Businesses that typical lenders can’t understand.
The lender prides itself on serving 97% of America and its USDA loans start from $2m.
Visit website.
5. Pathward, National Association
As of February 2023, Pathward was recognized by the USDA as the number one lender for rural development projects.
The lender offers a variety of loans under USDA-backed programs, including the B&I and REAP initiatives.
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6. Cogent Bank
Cogent Bank offers both USDA and Small Business Administration (SBA) loans and focuses on the following use cases:
- Business modernization, development or repair
- Commercial real estate purchase, development or improvement
- Machinery, equipment, supplies or inventory purchase(s)
- Working capital
- Integrated agriculture production or processing facilities
- Debt refinancing when it improves cash flow and creates jobs
- Business acquisition when the loan will create or save jobs
Visit website.
Still not sure where to start? Get in touch with one of our lending experts, who will be happy to help guide you on your growth journey.
