Debunking Common Myths about USDA Commercial Loans


The United States Department of Agriculture (USDA) introduced its business loan program primarily to boost economic activity and improve business climate among rural areas in the country. By providing loan guarantees, rural entrepreneurs can access funding to grow their ventures and contribute to their local economy.

If you are a
business owner from the countryside who is looking for financing to level up
your venture, you may have heard of USDA commercial loans and the many
misconceptions surrounding them. To help you with the facts, here are some of
these myths and the truth behind each one:

Myth
1: USDA Lends Money Directly to Entrepreneurs

USDA helps rural borrowers secure enough
funding for a variety of business purposes by providing guarantees to reduce
the risk of lending parties. The agency doesn’t lend money directly to business
owners, but rather, partners with lenders and financing entities to provide
loans to entrepreneurs. Given the agency’s guarantee, it will be easier for
rural ventures to obtain loan approval.

Myth
2: USDA Business Loans are for Agribusiness Only

While the agriculture department manages
this financing program, USDA business loans are not strictly for the
agricultural industry alone. This program is open to various business entities
such as individuals, partnerships, cooperatives, non-profit/for-profit
corporations, public organizations or tribal groups from a wide variety of
ventures, such as: 

  • Manufacturing companies
  • Sales industries (wholesale or retail)
  • Service businesses

Myth
3: The Credit Limit for USDA Business Loans is small

USDA commercial
loans offer loan guarantees of up to $25 million, which is significantly much
higher than conventional loans. Note that the most loan limit provided by the
U.S. Small Business Administration (SBA) is $5.5 million only. Given its high
loan limit, USDA loan guarantees are more suitable for projects that require a
sizeable amount of money.

Myth
4: The Loan Purpose for USDA Loan Guarantees is Highly Restrictive

Contrary to this misconception, you can
use USDA loan proceeds for almost all businesses like the following:

  • Business construction, expansion,
    conversion, repair, or development
  • Improvement of commercial property
  • Procurement of business equipment,
    machinery, fixtures, or supplies
  • Business capital for startup or
    expansion
  • Loan refinancing

Myth
5: USDA Business Loans are for Small Businesses Only

USDA loan guarantees have no business
size standard. It can get utilized for both small and large ventures provided
that their facilities are situated in rural areas and meet other loan
requirements.

Myth
6: USDA Commercial Loans Do Not Require Collateral

While other government financing
programs do not require collateral, USDA business loans require rural borrowers
to put up one. The value of the collateral should be at least equal to the
amount of the loan applied for.

Myth
7: Businesses outside Rural Areas Can Seek USDA Loans with the Right Connection

As a general rule, USDA loan guarantees
are for business owners in rural areas. Note, however, that there are two
exemptions to this rule. Cooperative facilities outside rural locations may
avail of the USDA loan program under specific conditions. For instance, the
funds should provide jobs for people in rural areas. Business projects in urban
locations can also secure USDA funding if the business has a role in the
processing, storing, or marketing of agricultural food products that support
the development of rural communities, among others.

Before you make the same mistake and
readily dismiss this government financing initiative as an option, make sure to
learn more about it from credible sources and not through rumors.

About The Author

vipul

Vipul is a professional blogger and online advertiser based out of Bengaluru, India. Always in a quest for new ways to make money, Vipul detail out all possible opportunities that can help anyone to earn passive income online. You can connect on Twitter, Linkedin & Facebook



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