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The U.S. Department of Agriculture (USDA) provides various loans to low-income and rural businesses to grow and expand farms, ranches, and agriculture across the U.S.
These loans are not easy to obtain without specific qualifications, but if you meet the eligibility requirements, you can highly benefit from these grants and funds. We have listed the nine best USDA business loans of 2023 down below.
What is a USDA business loan?
The USDA offers loans and grants, known as USDA loans, to small businesses as a part of its rural development initiative. These loans are unique because they offer low-interest rates and longer repayment terms and are very specific in their requirements.
The loan application process is complex, dealing with strict income requirements. Unlike conventional loans, many USDA loans are only available to U.S. citizens, meaning non-citizens, including permanent residents, may not be able to access them. However, the zero-down loan options and loan limits can be crucial to qualifying businesses.
When people talk about USDA business loans, they may also refer to the USDA’s Business and Industry Loan Guarantee Program and USDA B&I programs.
The USDA does not provide the loan. They back the loans through different lenders. It guarantees the lender they will get paid most of the loan balance, even if the borrower defaults.
The USDA is also underwriting homeownership loans through the Single Family Housing Guaranteed Loan Program. While not the same as the business loan types, these crucial loans can help single-family homes with moderate income, helping them meet closing costs and mortgage payments. The home loan program also has credit requirements and income eligibility requirements, but any USDA-eligible families can significantly benefit.
The USDA’s backing guarantee makes the loan program attractive to lenders, yielding better deals for small business borrowers.
What can I use a USDA business loan for?
In short, if approved, you can use a USDA business loan for any business need.
The most common uses are for equipment, inventory, and real estate, but you can also use the working capital funds for business improvement, expansion, advertising, and cash flow. There are some restrictions, such as gambling and churches.
How can I get a USDA business loan?
Typically, it is tough to get a USDA loan because of the specific requirements. These qualifications include that your business needs to be in an eligible rural area, meaning the area needs less than 50,000 residents.
Another qualification is that your business needs to make a certain monthly income. Your business will need to bring in enough money to cover the loan’s monthly payments. You will also need a solid credit history, with a credit score of about 680 or higher.
Collateral is another requirement. For example, you must own real estate or equipment to attain this loan. Your loan amount will directly correspond with the value of your collateral. Without collateral, you cannot secure a USDA business loan.
Lastly, the application process for a USDA loan is exceptionally lengthy. There is usually a three-month application process that is pretty standard. So if you need funding fast, do not consider applying for a USDA loan.
What are the best types of USDA business loans available?
1. Farm Loans
Through the Farm Service Agency, FSA offers loans directly to farm owners and operating loans to family-sized farms and ranches that cannot obtain commercial funds from a bank, Farm Credit Institution, or another lender.
These USDA-backed FSA loans can help with the upfront costs for land, livestock, equipment, feed, seed, and supplies, especially for rural farmers bringing in less than the median income. Loans can also go towards constructing buildings or making farm improvements.
2. Housing Assistance Loans
USDA offers Multifamily Housing loans that assist rural property owners through loans, loan guarantees, and grants that enable owners to develop and rehabilitate properties for low-income, elderly and disabled individuals and families, and domestic farmers.
Multiple loans to choose from have specific requirements and are geared toward property owners and their mission. First-time homebuyers and homeowners can apply for USDA home loans if they fall under household income limits.
3. Rural Development Loan and Grant Assistance
USDA Rural Development creates partnerships with rural communities by funding projects that bring housing, community facilities, business guarantees, utilities, and other services to rural America.
Rural businesses can benefit from these USDA-guaranteed loans because, with their provided technical assistance and financial backing, companies can bring more jobs to these rural areas.
Rural Development works with low-income individuals, State, local, and American Indian Tribal governments, private and non-profit organizations, and user-owned cooperatives.
There are many different loans and grant programs under Rural Development’s loan and grant assistance. If you are a new or existing rural business looking for specific funding, you may qualify for these loans.
4. Beginning Farmers and Ranchers
Again, through the Farmers Service Agency, the USDA loan program provides direct and guaranteed loans to beginning farmers and ranchers who cannot obtain from commercially credited sources such as banks. Annually, the FSA allocates a certain amount of funds towards beginning farmers and ranchers who need assistance.
Under the loan guidelines, you need to meet the exact requirements of a beginner farmer, farmer acreage limitations, and down payment loan.
5. Livestock Insurance
The USDA helps farm producers manage their business risks. The mission of the USDA’s Risk Management Agency, RMA, is to promote, support, and regulate risk management solutions to preserve and strengthen the stability of America’s agricultural economy. The RMA manages the FCIC Federal Crop Insurance Corporation through this mission.
Under this livestock insurance guarantee, a specific list of livestock and produce is covered under this umbrella. As this is not directly a loan per se, this is an added insurance that can be necessary for a new farmer or rancher who has just broken out into the farming industry.
6. Federal State Marketing Improvement Program
This Federal-State Marketing Improvement Program is a matching grant program known as FSMIP. The FSMIP matches funds to State Departments of Agriculture and other appropriate State agencies to assist in exploring new market opportunities for food and agriculture products. This grant also aims to encourage innovation toward improving the efficiency and performance of the marketing system.
7. Specialty Crop Block Grant Program
The Specialty Crop Block Grant Program, SCBP, aims to enhance the competitiveness of specialty crops grown in rural areas. These specialty crops are fruits, vegetables, tree nuts, dried fruits, horticulture, and nursery crops.
Many resources and projects are supported by the SCBP that encourage the production of such crops, and funds are dedicated to these types of businesses that meet the qualifications.
8. The Farmers Market Promotion Program
The Farmers Market Promotion Program, FMPP, funds projects that develop, coordinate, and expand direct producer-to-consumer markets to help increase the accessibility and availability of locally and regionally grown agriculture products.
All applicants must be domestic entities owned and operated within the 50 U.S. states. Some eligible entities for this promotion program are agriculture businesses and cooperatives, community-supported agriculture networks and associations, food councils, economic development corporations, local governments, nonprofit and public benefit corporations, producer networks, and tribal governments.
9. Organic Certification Cost Share Program
The Organic Certification Cost Share Program, OCCSP, provides cost-share assistance to producers and agricultural product managers who obtain or renew their certification under the NOP (National Organic Program).
These certified operations can receive up to 50 percent of their certification fees during the program year. This is not a direct loan or grant but a program to help share certification costs to keep agriculture growing.
The bottom line.
Securing a USDA business loan is not a complex process, but it can be lengthy. Specific requirements need to be met before your application can even be considered. You must gather and prove necessary information about your business to obtain USDA-backed funds.
Still, USDA loans are incredibly beneficial, especially when your primary residence is rural. Other USDA loans include FHA loans, VA loans, and USDA mortgages applicable to urban and suburban areas.
These are also great options. For example, mortgage loans backed by the USDA often have mortgage rates better than many fixed-rate loans from popular mortgage lenders.
For more information on beginning your rural business, stop by Entrepreneur.com today for more professional, finance, and business resources.