The USDA or the United States Department of Agriculture gives commercial loans to small businesses in rural areas to develop their operations. The USDA commercial loan is for business owners like ranchers and farmers who can’t qualify for SBA or bank-backed loans.
So, if you find this program to be the right choice for your business, it’s time to get into action and apply for the same. However, the eligibility requirements for this loan can be different since they are used to revive the rural economy in the country.
The eligibility conditions include:
Ability to Repay the Debt
Before lending money, the third-party lenders offering USDA commercial or B&I loans will check your ability to repay the loan amount. There should be a realistic figure to support your claim for timely repayments. A debt service coverage ratio or DSCR of 1.25x or higher is preferred.
Strong Credit Rating
The commercial loans under the USDA B&I program are offered through lending institutions or banks. These lenders require you to submit a personal credit score as a strong indication of your sound financial stability.
A credit score in the range of 680 or more is the minimum criteria. Though, when other factors come into play, the approval rates may not entirely depend on the high credit scores.
If you are looking to launch a startup in your rural community, you may be asked to submit a feasibility study report prepared by a recognized and independent consultant. The approval chances of this report depend on the strength of your business plan.
Business in a Rural Location
The business location in a rural community is a major eligibility requirement for USDA commercial loan. For this purpose, you can understand a rural location as an area other than a city or town having more than 50,000 inhabitants. Such areas fall under eligible rural regions for USDA loans.
Every proprietor, partner, and shareholder with more than 20% ownership rights in the business has to provide their personal and corporate guarantees for USDA B&I loans.
Tangible Balance Sheet Equity
As per the requirements of USDA business and industry loans, it is critical for the business to have tangible balance sheet equity of 10% or higher for an existing business. This position should be at 20% or higher for startups and new companies.
Strong Collateral For Loan
Apart from your personal guarantee and strong credit standing, the lender will ask for collateral as well for a USDA commercial loan. The value of collateral should equal the amount of loan, though it may not be the same as the assets financed through the loan.
In a startup business with low cash flow or lack of strong credit scores, you can submit a business plan with robust financial projections to get the loan. You can determine your eligibility by consulting the lender before applying for a loan. USDA takes 30-60 days for reviewing the applications, and funding may come in 1-3 months accordingly.
Before you apply for a USDA B&I loan through a third-party lender, understand the above eligibility requirements to ensure the success of your application.