USDA Loans: What are They and When can Small Businesses Use Them?

USDA Loans: What Are They and When can Small Businesses Use Them?

The United States Department of Agriculture (USDA) provides loans for small businesses located in rural areas designed to offer these business owners like farmers and ranchers the capital to expand their operations. USDA loans are provided through USDA’s Business and Industry Loans Guarantee Program. USDA loans can be a good option for small businesses typically unable to qualify for a bank or SBA backed loan.

In 2014, USDA announced a $150 million investment fund for small business in rural areas.

The investment was part of the Obama administration’s ‘Made in Rural America’ initiative, designed to help these small businesses ‘innovate’ with a specific emphasis on creating new jobs in rural regions.

Who Is Eligible for USDA Loans?

To qualify for a USDA loan, a business must be in a rural area, which has fewer than 50,000 inhabitants. A business’s head office can be located in a more urban areas, as long as the project that requires funding is in a rural region.

Borrowers must have good credit history and have a tangible balance sheet equity of at least 10% and 20% for startups. Private entity borrowers must be able to demonstrate the loan funds will remain in the United States and the project being financed will create new jobs for rural residents or preserve existing jobs.

What Can USDA Loans Be Used For?

USDA loans can be used for a range of business purposes, including equipment financing, small rural business renovation and modernization, the purchase of commercial buildings, facilities and real estate, the purchase of inventory or supplies, startup costs and working capital, debt refinancing when new jobs will be created through the project and business and industrial acquisitions in a case where the USDA loan will prevent the rural business from closing or will help create or save jobs.

How Much Can Businesses Borrow?

The maximum amount a rural small business can borrow through an USDA loan is typically $10 million. However, this can be higher with certain types of projects. The maximum loan-to-value businesses can borrow is 80% for real estate, 70% for financing equipment and 60% for accounts receivable and inventory.

What Are the Interest Rates on USDA Loans?

Interest rates are typically around 5 to 9% and can be fixed or variable. Interest rates are negotiated between the lender and the borrower and must not exceed rates typically charged on business loans. USDA reviews the interest rates put on the loans to ensure they are not unreasonably high.

Are There Any Fees?

There are three different fees placed on USDA loans. There is an initial guarantee fee of 3%, an annual renewable fee of 0.5% of the outstanding loan amount and bank fees that may be charged, such as application fees, servicing fees, appraisal fees, and more.

What Are the Repayment Terms?

The repayment terms of an USDA loan depend on what the money is being borrowed for. For example, if it is being used for equipment financing, the maximum term is 15 years. The maximum term on real estate is 30 years and for working capital it is 7 years.

Does USDA Provide Mentorship as Well as Credit?

As well as providing the credit necessary for small rural businesses to make capital investments, USDA provides new ranchers and farmers with support and mentorship to help them avoid making costly mistakes. USDA and the national non-profit volunteer network SCORE have partnered to provide new small rural businesses with the tools and resources required to grow and succeed in agri-business.

Experienced mentors provide farmers, ranchers and other small rural businesses with support in new farming and ranching operations. Through secure equipment financing and an effective mentorship program, USDA enables farmers and ranchers to have access to new technology, and empowers them with the knowledge of how to use them, to help expand their business and make it more sustainable.

Where Can Small Rural Businesses Find More Information on USDA Loans and Resources Available?

Earlier this year, the US Secretary of Agriculture Sonny Perdue, announced the launch of a new website which provides farmers and other small rural business owners with access to more resources to help them achieve long-term sustainability. provides farmers, ranchers, agricultural producers and private foresters with education materials, self-service applications, business tools and engagement opportunities to increase their productivity and efficiency, while nurturing relationships with local USDA offices.

Photo via Shutterstock 2 Comments ▼

Gabrielle Pickard-Whitehead Gabrielle Pickard-Whitehead is a professional freelance writer and journalist based in the United Kingdom. Since 2006, Gabrielle has been writing articles, blogs and news pieces for a diverse range of publications and sites. You can read "Gabrielle’s blog here.".

2 Reactions
  1. It is very important to learn a bit more about loans. The more money you have the easier it is to fast track your success.

  2. First off, I have so many questions about that stock photo.

    Secondly, I’m glad they provided mentorship so that these businesses don’t take out huge loans and put themselves in a deeper hole than they were to begin with. Smart move.