If you are trying to make a list out of all the different types of loans available in the United States, you might need a few sheets of paper. Keeping track of all of them can be tough, and don’t worry if you are unfamiliar with USDA business loans.
First off, what is a USDA loan?
USDA stands for the United States Department of Agriculture, and the USDA loan is a type of commercial loans for rural businesses to help create jobs and bolster available credit. The program was designed with the idea of stimulating rural economic growth.
While those are the basics, what else do you need to know about USDA business loans?
Only Certain Entities Qualify
Just because your business is in a rural area, does not mean that you will automatically be eligible for a USDA business loan. There is a substantial chance, but your business must be one of the following:
- Forprofit businesses
- Public bodies
- Certain individuals
- Federally-recognized tribes
You must be able to provide proper paperwork and prove that your business falls within one of those categories. You must also be able to establish a few more factors.
Only Certain Areas Are Eligible
The USDA has pretty strict guidelines as to what classifies as a certain area. A business’ headquarters must be located in a city or town with a population of 50,000 or less.
So while you might be in what you consider to be a rural area, if your population is over 50,000, then your business does not qualify for a commercial loan.
If you’re not sure, you should check with your local government to see if your area qualifies to be part of this commercial loan program.
Loan Amounts Are Pretty Substantial
While loans come in all different sizes, USDA loans usually come in sizes like Starbucks coffee cups do as in big, bigger, and the biggest.
Typically, the loan varies in size, being anywhere from a million dollars all the way up to 25 million dollars. The average loan size is around three million dollars, which is pretty substantial no matter what business you’re in.
Rates and Terms are Fairly Competitive
Prices usually start out with what the Small Business Administration (SBA) offers on their 7(a) loan. The rates are non-negotiable and have been set by lenders themselves.
Terms, on the other hand, offer a bit more flexibility. Here, negotiating with the lender is the norm, and loans for real estate tend to have a 30-year term at liveenhanced.com. At the same time, financing equipment or machinery is usually around 15-years. Make sure you talk to the lender and get exact details of what to expect.
The Loans Themselves Are Also Competitive
As with any other government branch, a yearly budget has to be set, and Congress allocates a certain amount of money to be used for this program each year. More often than not, the money is all dried up before the end of the year. This usually leaves a gap when there is no money at all to be allocated to rural businesses.
So, loans are quite competitive because of their limited supply. If you’re looking at applying for a USDA loan, you must gather everything as quickly as possible to be able to use it at the beginning of the fiscal year.