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USDA Guaranteed Loans:
What are they and how could one benefit my business?

If you lead an organisation that is planning the next steps of its growth strategy, have you considered whether your business would be eligible for a loan under the USDA guaranteed loan program?

If you are unsure what the USDA guaranteed loan program is, what types of businesses are eligible and how to begin the application process – not to worry! We explain all of this and more in the article below…

What is a “USDA loan”?

The United States Department for Agriculture (USDA) runs a series of loan programs, varying from personal loans to help Americans secure mortgages in rural locations, to business and community loans that cover a wide variety of use cases. All with the shared aim of enhancing the economic development of rural regions of the country.

Crucially, the USDA does not provide the loans, it instead provides lenders with a guarantee, incentivising them to offer financial products to businesses and individuals in rural areas that have traditionally been underserved. This is why they are known as USDA “guaranteed” loans.

In 2020 the USDA introduced a unified platform for all of its rural development guaranteed loan programs: the One Rural Development (OneRD) Secured Loan Initiative.

What is the USDA One Rural Development Secured Loan initiative?

In short, the OneRD initiative brings together four of the flagship rural development programs.

By unifying them under a single initiative, the USDA has made it easier for lenders to access the programs, introducing a consistent application process across all four program types and reducing barriers to access.

The intended outcome is ultimately to make the process faster and more efficient, encouraging more lenders to become part of the programs and therefore increase the volume of private investment in rural communities across the country.

What are the four flagship rural development programs?

  • Business and Industry (B&I) Loan Program – Finance for rural businesses, supporting job creation and economic development in rural communities
  • Rural Energy for America Program (REAP) – Grants and loans for rural businesses and agricultural producers for renewable energy and energy efficiency projects, promoting sustainability and economic growth in rural areas
  • Community Facilities (CF) Loan Program – Affordable finance for rural communities for essential facilities such as schools, healthcare centers, libraries, and other public services, fostering economic development and improving quality of life
  • Water & Waste Disposal Loan Guarantees – Facilitates access to affordable loans for water and waste infrastructure projects in rural areas, ensuring clean water and sanitation services for communities

Each program has its own eligibility criteria, however the intention is that loans offered under the program contribute to the OneRD initiative’s overall goal of supporting the economic development of rural America.

Who are USDA guaranteed loans for?

The programs operating under the OneRD initiative are aimed most closely at lenders themselves, as the USDA is trying to actively encourage more US lenders to offer loans to businesses and individuals in these areas.

The actual loans however, are for businesses.

The eligibility criteria does differ from program to program, so if you think your business might benefit from one of the loans, it’s worth doing some research on the USDA website, or starting to speak to lenders that offer one of the schemes.

USDA OneRD guaranteed loans can be used for:

  • Business development, growth, modernization, conversion, or repair
  • Purchase and development of land, buildings and associated infrastructure for commercial or industrial use
  • Purchase and installation of machinery, equipment, supplies and inventory
  • Refinancing debt to improve cash flow and create jobs
  • Acquiring businesses or industries where doing so will maintain operations and create or save jobs

But this is not an exhaustive list. If your growth strategy touches on any of these points, it is certainly worth considering a USDA guaranteed loan.

What are the benefits of opting for a USDA guaranteed loan?

In today’s dynamic economic landscape, accessing affordable finance can be a game-changer for both businesses and the communities within which they operate.

The benefits of securing a loan under the USDA OneRD Secured Loan Initiative include:

  • Flexibility – OneRD lenders can tailor their products to your specific requirements; that means whether you’re a small business, a farmer, or a community organization, there will be a USDA lender well-matched to your needs
  • Affordability – OneRD lenders are able to offer loans with competitive interest rates and flexible repayment terms, making it more accessible and sustainable for you to invest in growth and development
  • Impact – The impact of OneRD loans extends far beyond your business; by promoting investment in rural communities, these programs stimulate economic growth, improve infrastructure and create jobs – in your community and beyond

The USDA OneRD Secured Loan Initiative provides many benefits to lenders too, including a reduced risk, as loans are guaranteed by the US Treasury by up to 80% of the loan value, up to $100m, depending on the individual program type.

What are the drawbacks?

The good news is that loans under the OneRD initiative are growing in popularity, meaning more and more rural businesses are benefiting from the additional cash injection facilitated by the scheme.

The bad news is that this popularity can create an administrative delay between the submission of an application and receipt of the guarantee by your lender, from the USDA – and lenders will usually not deploy any funds until they have this. This can delay your growth plans, by limiting your ability to invest in projects right now.

The better news is that there is a solution – interim finance for USDA loans. This works exactly as you would expect, providing an interim solution to your more imminent funding needs while you (and your lender) await the USDA guarantee.

You can find out more about how USDA interim finance bridges the gap, here.

Other drawbacks include:

  • Complex eligibility criteria – The initiative aims to support various borrowers, but navigating the eligibility criteria can be complex. Some borrowers may find themselves excluded due to specific restrictions, limiting access to much-needed cash. You can find out more about the eligibility criteria here
  • Stringent approval processes – Despite efforts to streamline the application process, securing approval for OneRD loans can still be time-consuming, as borrowers must meet strict criteria and provide comprehensive documentation – find out more about the application process here to avoid potential delays and frustrations
  • Limited project scope – While OneRD aims to support a variety of projects, some borrowers may find their specific needs fall outside the program’s scope, restricting opportunities for certain businesses or communities that are seeking financing for specialist projects. You can find more information about eligible OneRD loan uses here
  • Geographic limitations – OneRD primarily targets rural communities, so those outside designated rural regions may struggle to access the program’s benefits, limiting opportunities for growth and development. You can check whether your business is in an eligible location on the USDA’s website

How to apply for a USDA loan

If you think your business could benefit from a loan under one of the OneRD programs, the next step is to find a USDA-approved lender.

  1. Search for a USDA-approved lender and talk to a USDA business loan specialist
    Only USDA approved lenders can offer loans under the OneRD initiative and they must understand all elements of the scheme, plus the variety of finance options available so they can advise you on the best lending vehicle available.
  2. Work with your lender to check eligibility
    This is important to ensure you qualify for the respective program
  3. Submit your loan application
    Once you have been pre-qualified by a lender, they will assume responsibility for coordinating and submitting your application, however understanding what is required by the USDA as part of the application can help expedite the approval process and avoid delays.

As with any loan application, the process can be more complicated and take longer than expected, but your USDA lender should provide you with any of the information you require during the application.

However, if you are in any doubt during any point in the process, reach out to a member of our USDA lending team – they are experts in this area and will be more than happy to help.