NAC B&I Loan Guide

Funding the Flourishing of Rural America An Introduction to USDA Business & Industry Loans

An Introduction to USDA Business & Industry Loans Familiarity is a xture of living in rural America. Navigating backroads is committed to muscle memory, facial recognition is developed over time not by technology, and the most frequent diner order is “the usual.” But there’s another feeling all too familiar to those who live in our country’s less densely populated towns: the shortage of capital. e rural reality is harsh but true: plans crafted on Main Street are less likely to secure backing from Wall Street. Lenders perceive the applications of rural companies as more risky; the prospect of their success, less ironclad. As such, the entrepreneurs, developers, and job creators in these communities have long been at a capital disadvantage – until now. e USDA’s Game-Changer for Rural Business Owners A number of years ago, the USDA crafted a novel solution.e department best known for its regulation and support of agriculture devised a series of plans to strengthen the economies and bolster quality of life in rural areas. In addition to acting as a direct lender, the USDA addressed the underlying concerns of traditional lenders by participating as a guarantor and ultimately easing access to capital in rural markets. Today, USDA Rural Development guarantees a $234 billion portfolio of loans – a massive portfolio few are aware of. Types of USDA Rural Development Loans e little-known program provides loans that fall into three categories: business & industry, community facilities, and energy. Each is designed to address a specic subset of needs that share a common goal: to foster the ourishing of rural America. USDA Business & Industry Loan (B&I) Designed to incentivize nancial backing for the creation of businesses and jobs, USDA B&I Loans are available to for-prot businesses, nonprots, co-ops, tribes, and public bodies in need of funds for qualifying projects in rural communities. Funds may be used for the enlargement, repair, or development of a business, the purchase of land, buildings, facilities, equipment, supplies, or inventory, or the renancing of debt that improves cash ow or creates jobs. What doesn’t qualify? Lines of credit, rental housing, golf courses, churches, and agricultural production. USDA Community Facilities Loan (CF) Unlike the B&I loan, the Community Facilities Loan is not designed for commercial undertakings, but rather, to create facilities that provide essential services to rural communities. Such services can include healthcare, childcare, education, public gatherings, utilities, and food distribution, among others. If a local community needs a certain service to survive and thrive, chances are, a CF loan could fund the construction or improvement of the facility that houses it. USDA Renewable Energy for America Program (REAP) e Renewable Energy for America Program (known as REAP) was established to equip rural small businesses

and agricultural producers with funds for renewable energy systems and energy ecient improvements. Renewable energy systems may include biomass, geothermal, hydropower, hydrogen, or wind power systems, among others. Energy eciency improvements include high eciency heating and cooling, insulation, lighting, windows and doors. Unlike the other programs, REAP is oered to agricultural producers as well as small business owners. Understanding Eligibility: How the USDA Denes ‘Rural’ To qualify for one of the USDA’s loan programs, it pays to get out of town. Actually, it’s required. To dene “rural,” the USDA looks to the Census bureau, which spells it out clearly: a city or town with a population of fewer than 50,000 inhabitants, excluding those adjacent to urbanized areas. In other words: a small town surrounded by small towns. If the criteria sound complex, there’s an easy solution: potential borrowers can plug an address into the USDA’s verication tool to nd out if it qualies. (Scan the adjacent QR code for a direct link). ATale of Two Programs: USDA vs. SBA Make mention of a government-backed business loan, and you’re likely to elicit a consistent response: “Oh, through the SBA?”e misconception is understandable. After all, the USDA B&I program is shamefully underrepresented. But the programs could not be more dierent. From longer terms and higher maximums to substantially lower default rates, the USDA B&I loan program is a more robust option for those who qualify.ose borrowing via an SBA loan could renance under the USDA B&I program. Here’s how the two compare:

Family Entertainment Manufacturing/Production Cold Storage Facilities Qualifying Verticals:

Hotels/Hospitality Marinas/Maritime

Apiaries/Wildlife/Greenhouses Breweries/Wineries/Distilleries

Ag Processing Solar/Energy Oil and Gas/Mining

Charter Schools Pharmaceutical Urgent/Primary Care Commercial & Industrial Real Estate Tenant Property

SBA 7-25 Years Required 100-1500 Depending on Industry

USDA B&I 7-30 Years Not Required Unlimited

Term Owner

Depending on Use

Depending on Use

Occupancy Maximum Employees (Borrower)

$25K $5MM Any

$2MM $25MM

Loan Minimum Loan Maximum Areas Served

Rural Areas with Populations