Find Out How To Get a USDA Small Business Loan

Small Business Loan Request Letter Find Out How To Get a USDA Small Business Loan

How To Secure a USDA Small Business Loan

Small business loans are crucial for growing businesses. They can help you fund startup costs, operating expenses, and equipment purchases. If you operate a business in a rural area, you should consider the U.S. Department of Agriculture (USDA) small business loan. In this guide, you will learn all the details about USDA loans, including the requirements and the application process.

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What Are USDA Small Business Loans?

USDA offers several funding programs for rural businesses. If you operate a small business, you can benefit from the USDA Business and Industry (B&I) Loan Program.

The USDA loans work similarly to the Small Business Administration (SBA) loans. This government agency doesn’t offer loans directly. Instead, it guarantees a portion of the loan to make funding accessible for small businesses. The loans are offered by lenders, for instance, credit unions and banks.

What Can You Use USDA Loans For?

Checking the acceptable ways to use a loan can help you determine if the loan will meet your needs and budget. Below is an outline of what you can spend USDA loans on:

  • Upgrading your small business
  • Financing debt if it enhances cash flow and job retainment
  • Purchasing or installing business machinery and equipment
  • Funding the working capital
  • Developing and improving commercial real estate
  • Funding production in agricultural facilities
  • Acquiring a business to create or save jobs

How Do You Qualify for a USDA Small Business Loan?

USDA loans are open to startups and established businesses. While the USDA maintains a set of minimum eligibility requirements, lenders can have additional conditions that you need to meet. Here are the USDA requirements that you and your business must meet:

  • Operate in a rural area—According to the USDA, a rural area is any area that is not a city with more than 50,000 inhabitants or that city’s urbanized area. The headquarters can be located elsewhere, but the project must be in a rural area
  • Be a permanent U.S. resident or citizen for individual borrowers
  • Have enough cash flow for loan repayment
  • Have a good credit history for both the business and owners
  • Put a collateral
  • Have a feasibility study report from an independent consultant (for new businesses)
  • Provide personal and corporate guarantees
  • Be an eligible borrower, such as a cooperative, federally recognized tribe, non-profit organization, individual, for-profit business, or a public body
  • Have a tangible equity position on your balance sheet—20% for new enterprises, 10% for established businesses, and 25–40% for energy projects
  • Have different types of insurances, for instance, worker’s compensation

Besides the USDA requirements, you must meet the eligibility criteria for the specific lender, which could mean the following:

  • A personal minimum credit score of 600
  • Business yearly revenue of at least $100,000
  • At least two years of business operation

USDA Small Business Loan Terms

When seeking USDA funding, you should discuss the loan terms with your lender. USDA only offers some specifications on loan amounts and terms.

When it comes to loan amounts, there is no set minimum, but the maximum is $10 million. The average amount is about $3 million.

Although you should negotiate the loan terms with your chosen lender, the USDA outlines the maximum terms based on the intended use, as follows:

Loan UseMaximum Term
Working capitalSeven years
Real estate30 years
Machinery and equipment purchases15 years

USDA allows lenders to set interest rates, and they can be fixed, variable, or a combination.

How To Apply for USDA Small Business Loans

If you meet the eligibility criteria, there are three crucial steps you should follow to apply for USDA small business loans:

  1. Consult a B&I loan program specialist at your local USDA office
  2. Find and approach a participating lender
  3. Fill out the pre-application forms and submit your documents to the lender

Once you submit your documents, the lender will forward them to the USDA. If the USDA finds you eligible, you will have a meeting with both the USDA and your lender to find out if the project is acceptable. If it is, you must submit the full application to the USDA. You should find out the outcome of your application in 30 to 60 days.

What Documents Are Required for Application?

As part of your loan application, you have to submit several personal and business documents, such as:

  • A business plan
  • Real estate appraisal
  • Credit reports (for the business and all owners)
  • Business owners’ resumes
  • Guarantors’ financial statements (personal or business)
  • Profit and loss statement not older than 90 days
  • Pro forma balance sheet projected for loan closing
  • Employment positions created by the business
  • Financial statement forecasts for next two years
  • Viability assessment by an independent consultant (for new enterprises)

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After understanding how small business loans work, you need to explain to the lender why you need the funds.

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  1. Create a DoNotPay account
  2. Select the Business Loan Request Letter feature
  3. Answer a brief questionnaire and upload your documents

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