Click to watch Mark Maurer go through the purposes and benefits of a USDA loan, or read the transcript below.
Most business owners have experience with conventional bank financing and many may also have experience with one of the SBA loan programs. But few are familiar with the USDA Business & Industry Loan Program. USDA B&I Loans are part of the rural development program designed to develop and expand rural businesses (of all sizes) and to improve the rural economic climate.
Who is eligible?
Now despite its name, the USDA B&I Program is not intended for farm purposes. In fact, traditional farms are not eligible under this program but a wide range of businesses – from manufacturers and wholesalers to construction companies to hospitality and service industries, are eligible. Eligible businesses must be located in an area with a population under 50,000 (there are some exceptions) and meet certain balance sheet equity requirements. And, most entity types are eligible as well; everything from sole-proprietorships to corporations, ESOPs and CO-OPs, non-profits to tribal nations are all eligible under this program.
Loan proceeds can be used for a variety of purposes including:
- The development or purchase of land and buildings
- The purchase of equipment, supplies, or inventory
- Permanent working capital
- The acquisition of a business
- And it can be used to refinance and restructure existing debt
What are the benefits?
So, why would a business utilize a USDA loan? Well, there are several benefits a USDA loan has that are not typically available with conventional financing.
Some of the major benefits include:
- Longer repayment terms
- Full term – fully amortized loans
- And long term fixed interest rates
With a USDA loan, real estate can be financed up to 30 years, equipment – 15 years, and permanent working capital – 7 years. All of these are longer repayment terms than a conventional bank loan. And a longer repayment term means a cash flow friendly/recession-friendly debt structure.
In addition to this longer repayment term, USDA loans are also full term loans meaning all loans are fully amortized. So, as a business owner, you have a committed, long-term debt structure, which enables you to focus on running your business rather than worrying about renegotiating loan terms or making a large balloon payment 5 years into your “20-year loan.”
Additionally, the bank also has the ability to provide your business with a long-term fixed interest rate - fixed for the entire term of the loan … allowing you to protect your business from the risks of interest rate volatility or take advantage of the current low-interest-rate environment.
The USDA B&I Loan Program has assisted businesses of all sizes throughout Wisconsin. Business owners who have utilized this program have said the cash flow–friendly debt structure not only provided their businesses with the staying power and stability to help them through the tough times but also positioned their businesses to thrive even more during the good times.
If you think this program might suit your needs or if you are just curious – give Investors Community Bank a call. We can provide insight and guidance on this program and other potential financing options.