Many borrowers in rural counties in America have no idea that an attractive option to an SBA loan exists for them – A USDA loan. USDA loans can be used for virtually any rural business. Most view the USDA as an organization that just supports America’s farmers. That’s not true. The USDA will lend money to your high tech SaaS business in South Dakota so long as the city in which your business operates has a population under 50,000. A list of the important USDA bank loan requirements can be found here. The USDA also provides some FAQs about their business and industry loan program here.
For your convenience, we have highlighted a few of the major differences between the USDA bank loan program and the SBA’s 7(a) loan program in the following table:
|USDA Loan||SBA 7a Loan|
|U.S. Business Location||Populations < 50,000||Anywhere|
|Loan Size||$1M - $25M||Up to $5M|
|Guarantee fees||2%||2 - 3.75%|
|Business net worth||10% tangible net worth; 20% for startups.||None|
Note that there is a tangible net worth (“TNW”) on the business with USDA that doesn’t exist with SBA loans. TNW is calculated as All Assets – Intangible Assets (e.g., goodwill and/or intellectual property) – All Liabilities divided by All Assets – Intangible Assets. TNW is the second mostly likely criteria behind the rural population designation (50,000 people or less) that causes a borrower to be denied a USDA loan. Enter your business address here to ascertain USDA rural population test eligibility.
It’s important to note that a borrower can have both an SBA loan and USDA loan. These two powerful loan programs are frequently used together when a borrower with an SBA loan needs more than $5M in funding. As with SBA loans, SBALenders.com can provide you with a list of banks that may provide your business a USDA loan. Just contact us and we will be glad to help at no cost to you.