usda commercial mortgage loan

USDA Commercial Mortgage Loan

September 15, 2023

A USDA B&I loan, short for "United States Department of Agriculture Business and Industry Loan," is a type of government-guaranteed loan program administered by the United States Department of Agriculture (USDA). The USDA is a federal agency responsible for promoting agricultural production, protecting natural resources, and ensuring that all Americans have access to safe and nutritious food. In order to help small company owners in rural and underserved areas grow and expand their businesses, the USDA also provides them with access to the cash they require.

USDA business and industry (B&I) loans are government-backed loans made available to small businesses located in areas with a population of 50,000 or fewer residents. The USDA B&I loan program provides loan guarantees to approved banks, credit unions, and other lenders. This lowers the risk for the lenders in making loans, allowing them to offer loans and financing options with advantageous rates and terms of payback.

Here are some key features and purposes of USDA B&I loans:

1. Business Development:

The USDA B&I loans are intended to promote economic development and job creation in rural areas by providing financing to eligible businesses. These loans can be used for various business purposes, such as starting a new business, expanding an existing one, purchasing equipment, refinancing debt, and more.

2. Government Guarantee:

The USDA B&I loans are guaranteed by the United States Department of Agriculture, which means that approved lenders are more willing to extend credit to rural businesses because the government guarantees a portion of the loan amount. This reduces the lender's risk and makes it easier for rural businesses to access financing.

3. Qualification and Eligibility:

Qualifying for a USDA B&I loan involves meeting certain eligibility criteria. Here are the key qualification requirements for USDA B&I loans:

A. Business Location:

Your business must be in a rural area, as defined by the USDA. Generally, rural areas have populations of 50,000 or less. You can check the USDA's Rural Development website or consult with your local USDA office to determine if your business location meets this criterion.

B. Business Type:

The USDA B&I loans are available to a variety of business entities, including individuals, partnerships, corporations, cooperatives, and other legal entities. Nonprofit organizations and public bodies may also qualify under specific circumstances.

C. Loan Use:

You must have a legitimate business purpose for seeking the loan. The USDA B&I loans can be used for various business needs, such as purchasing real estate, machinery, and equipment, working capital, and refinancing debt. The loan purpose should align with job creation or economic development in the rural community.

D. Eligible Activities:

Your business activities should primarily benefit the rural community where it is located. The USDA has specific guidelines regarding eligible and ineligible activities, so it's essential to ensure your business plans align with these requirements.

E. Creditworthiness:

Lenders will assess your creditworthiness to determine your ability to repay the loan. They will review your credit history, financial statements, and other relevant financial information.

F. Collateral:

Collateral is typically required to secure the loan. You'll need to provide assets, such as real estate, equipment, or other valuable property, that can be used as collateral to cover the loan in case of default.

G. Equity Injection:

You may be required to make an equity injection, which is your own financial contribution toward the project. The specific equity requirement can vary based on the lender's policies and the nature of the project.

4. Loan Terms:

Loan terms can vary depending on the intended use of the funds. Generally, the repayment term for real estate loans may be up to 30 years, while equipment and working capital loans typically have shorter terms.

How Much Can Be Borrowed?

Businesses can get a USDA B&I loan with a maximum Loan-To-Value (LTV) based on the available collateral and a total maximum borrowing amount of up to $25 million (under specific circumstances when scoring requirements are satisfied and approved by the USDA National Office):

  • For Commercial Real Estate, the maximum LTV is 80%.
  • Max LTV for Equipment & Machinery is 70%
  • Max LTV for Inventory is 60%

What Are Terms for a USDA B&I Loan?

Commercial real estate contracts may have a maximum length of 30 years. For machinery and equipment, the period is 15 years or for as long as it is useful, whichever is shorter. For working capital, it’s up to 7 years.

Interest rates are determined by the Lender and can be either fixed or variable (or sometimes a combination of both). Based on a range of the loan amount, the USDA will guarantee the lender for a certain proportion of the gross loan amount in the event that the borrower defaults:

  • Loans of $100K-$5 million are 80% guaranteed
  • 70% of $5 million to $10 million loans are guaranteed.
  • Loans greater than $10 million are 60% guaranteed

There is an initial guarantee fee the USDA requires borrowers to pay, currently 3% of the guaranteed amount, as well as an annual renewal fee, currently 0.50% of the outstanding principal balance. Fees are agreed upon between the borrower and lender in a reasonable and usual manner. Existing businesses must have a tangible balance sheet equity position of at least 10%.  The position jumps to 20% for new businesses or start-ups.

Interest Rates:

Interest rates on USDA B&I loans are negotiated between the borrower and the lender, subject to certain guidelines and market conditions.

Job Creation and Economic Impact:

One of the key goals of the USDA B&I loan program is to stimulate rural economic growth by supporting businesses that create jobs and enhance the local economy.

Difference Between USDA B&I and SBA 7(a):

Your institution may have participated in the Small Business Administration's (SBA) express or 7(a) guaranteed loan programs or collaborated with a Certified Development Corporation for an SBA 504 loan. Your group might also have experience with the United States Department of Agriculture's Business and Industry (B&I) loan program. But when should you consider the SBA, or the B&I guarantee?

The first factor to consider is the location. SBA loans are available nationwide, while B&I loans are restricted to cities and towns with populations of less than 50,000. The B&I program's primary goal is to assist creditworthy rural businesses in obtaining necessary credit for qualified business purposes, with a focus on job creation and retention in rural America.

Next, you should assess the intended use of the loan proceeds. If the project involves at least 51% owner-occupied real estate, then the 7(a), 504, or B&I program may be suitable. B&I loans can also be utilized for rental properties in Opportunity Zones, provided they contribute to job creation. For large equipment loans, both the 7(a) and B&I programs offer guarantees. If your borrower requires working capital, funding for company buyouts, or loans without substantial real estate or significant machinery collateral, the 7(a) or express program is more appropriate.

Loan amount is another important consideration. Most 7(a) loans have a maximum limit of approximately $5 million, while 504 loans have a structure that can extend up to $10 million, combining the 504 and the underlying first loan. B&I guaranteed loans, on the other hand, can reach up to $25 million, with the possibility of exceeding this limit in certain cases.

The type of borrowing entity is another critical factor to consider. SBA loans require a for-profit operating company as the borrower. In contrast, B&I loans have a broader range of eligible borrowing entities, including individual investors, non-profits, cooperatives, federally recognized tribes, and public bodies.

Both programs present excellent opportunities to help mitigate the lender's risk in a project and can expand your capabilities to secure deals that may fall outside your usual comfort zone for these types of credits. If you have any questions or need further information about these programs, please don't hesitate to contact us. We have extensive experience working with lenders on both SBA and USDA B&I program underwriting, syndication, and ongoing file management.


It's important to note that USDA B&I loans are typically provided by approved lenders, such as banks and credit unions, and the application process involves working closely with one of these lenders. The USDA's Rural Development office oversees the program and provides guidance to lenders and borrowers throughout the loan application and approval process. You need to find an experienced team to work with all the paperwork. Otherwise, you may not have the opportunity to find loan approval after 3-4 months of hard work. You can contact us at [email protected] for any questions.

Commercial Lending USA has dedicated, knowledgeable business development managers who structure and deliver custom-tailored USDA business and industry loans. They are knowledgeable about USDA lending and will help you comprehend the benefits of the numerous loan and financing options so you can choose what's ideal for your company.

For general inquiries:
* Email: [email protected]
* Phone: +1 (571) 544-6600

By Sam Haq, CEO
Commercial Lending USA

Sam Haq, CEO

Commercial Lending USA

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