By: Riley Risto, Senior Vice President – Business Development Officer at Gulf Coast Small Business Lending
While SBA loans continue to be the most popular and well-known option for helping small businesses obtain financing for commercial real estate and equipment purchases, small business acquisitions, and working capital needs; another, lesser-known program exists to assist businesses in rural communities – the USDA B&I Loan.
General information about USDA B&I loans
Under the Rural Development umbrella of the US Department of Agriculture sits a relatively obscure, but effective, means for obtaining financing if you’re looking to expand your business into a designated rural area (see link for eligibility map). You might be surprised at how many areas in the U.S. are designated as “rural” for loan eligibility purposes!
The USDA authorizes and allocates funds to each state through a network of field offices, for the purpose of encouraging investment in underserved rural communities, by way of loan guarantees. In a public/private partnership with financial institutions, this program improves the economic health of rural communities by increasing access to business capital through loan guarantees; an ideal way to leverage public funds against private institutional credit standards. The net effect is more money being made available to rural businesses, enhancing the quality of life for those communities and the people that live and work there. That doesn’t mean that anyone can get approved. Credit factors to be analyzed include, but are not limited to, character, capacity, capital, collateral, and other conditions.
You may be wondering if the USDA B&I loan is right for you.
Let me begin by saying that, functionally, this loan option is very similar to an SBA loan with some exceptions, for example:
- USDA B&I loans are made available to a larger pool of candidates, including non-profits and tribal entities, for the purpose of maintaining or creating jobs.
- USDA B&I loans must be fully secured against discounted collateral, which means funds being used for goodwill are not eligible.
- The USDA B&I loan has a max term of 40 years on real estate, whereas SBA loans are limited to 25 years.
- The field office must give final approval to any B&I loan. There is no delegated approval authority given to financial institutions. For this reason, it’s a good idea to pre-screen your project with a USDA field office and a knowledgeable lender. You can reach me or another experienced Gulf Coast Small Business Lending professional here.
- USDA B&I loans are currently available to U.S. citizens and permanent residents of the U.S., whereas only U.S. citizens qualify for SBA loans. This, of course, is subject to change, but for now, the B&I loan program is a source of funding for those running up against a procedural SBA roadblock.
- The maximum SBA loan guarantee is $3.75 million. USDA B&I loans have a much higher maximum, but with increasing approval authority required beyond $5MM.
Here is what you’ll need to get started.
For a new business you will need a thorough business plan and two years of monthly projections with detailed assumptions. This can seem like a daunting task, but the more thought and effort you put into this, the better your chances of approval. Each USDA state field office only has a limited pool of funds allocated to it for each fiscal year, which stretches from October 1st to September 30th. Once the budget is gone, applicants will need to wait for the next congressional funding authorization and USDA allocation. If you’re approaching the end of a fiscal year, try to time your application to coincide with the reauthorization, by pre-screening your project as soon as possible. Having a feasibility study already completed may also be helpful, depending on the scope of the project.
The USDA’s main objective with the limited B&I funding pool is to both save and create rural jobs. As you think through the elements of your business plan, pay special attention to, and give ample space for explaining how your project will create or save jobs in your rural community. For an existing business, a detailed business plan is not necessarily required, however, it’s still a good idea to include a letter of explanation addressing how funds will assist in creating or saving rural jobs. Reach out to us (https://gulfcoastsba.com/our-people/) for a list of other documents needed to get pre-screened.
What is the typical timeline for a USDA loan request?
As with all government guaranteed loan applications, you need to be organized and responsive to lender requests. The document burden for these loans is such that “only the strong survive,” so be patient and buckle in for the long haul. Picking the right lending partner to assist is of paramount importance, of course. Make sure your lender has experience in closing USDA B&I loans and is equipped to help you navigate all the requirements for getting to the finish line.
From a timing perspective, it’s important to understand that most USDA B&I loan projects take 3–6 months, sometimes longer for construction and development projects. Much of this is beyond your control or the lender’s, especially during times of economic shifts when preparing for volatility becomes essential for both borrowers and lenders. The added layer of approval authority, securing the USDA guarantee, and working with third-party vendors in remote rural areas, make these loans just a little more difficult than SBA loans.
About Riley Risto
Riley Risto has been in finance since 1995, commercial lending since 2004. He graduated from the University of Utah with a BA in 1999 and from BYU in 2006 with an MBA. He has worked in small community banks, super regionals, and national banks and has a broad understanding of finance, accounting, and economics. Riley enjoys close personal relationships with his brokers and clients and provides value-added service in every deal that he funds. Riley lives with his wife, Melanie, and 6 kids in the Wasatch Mountains of Utah and enjoys travel, reading, and a host of outdoor activities.