USDA Rural Development Loan: Right Financing Fit for Your Project?

The United States economy may be on an upward trend after a year of pandemic shutdowns. The Wall Street Journal reports that by mid-2021, the U.S. economy is expected to reach its pre-pandemic peak.

GDP growth is projected at 3.7 percent in the fourth quarter compared to a year earlier, notes the report. The economy will expand 2.4 percent in 2022, and growth is likely to average 2.6 percent a year through 2025, according to the Congressional Budget Office.

The pandemic relief bill, now in Congress, will affect the speed and durability of the recovery. But with growth in the forecast, businesses may be looking forward to expansion, acquisition and investment.

The USDA has revamped its slate of government-guaranteed loan programs, known as USDA OneRD. The purpose of these programs is enabling businesses and entrepreneurs to work with private lenders, such as Stearns Bank, to invest in rural businesses and grassroots rural economic development.

The four lending programs are:

• Business and Industry Loan Guarantee Program
• Rural Energy for America Guaranteed Loan Program
• Water and Waste Disposal Guaranteed Loan Program
• Community Facilities Guaranteed Loan Program

Each of these programs promotes vitality of rural communities, job creation and economic growth.

The USDA defines rural as “any area, other than a city or town that has a population of greater than 50,000 inhabitants, and the urbanized area contiguous and adjacent to such a city or town.” The USDA provides an interactive map to determine eligible locations.

Government regulations and eligibility for programs like USDA OneRD may appear restrictive. Stearns Bank advises developers, investors and business owners to contact a lender about these programs and discuss the array of financing options. Stearns Bank will consult with the borrower, learn about the details and goals of the project, and collaborate on a financing solution.

As a USDA-designated multi-state lender, Stearns Bank has a direct connection at the national level of the USDA offices in Washington, D.C. This means Stearns Bank can advocate for the borrower and manage the loan approval process more quickly and efficiently. This process sidesteps delays at the local or state level, resulting in funding delivered on time and under deadline.

Government programs are notoriously complex and detailed. One error in the loan application or supporting documentation can result in delays. Stearns Bank’s personal service and experience with USDA programs can anticipate problems, take corrective action, and keep your loan application on a glide path to approval.

Many types of projects and business financing needs can be considered for a USDA loan. Two programs under USDA OneRD are expected to be in demand through the anticipated recovery:

Business & Industry Loan
Guarantee Program

The Business & Industry loan program promotes rural economic development and job creation by offering loan guarantees to lenders for loans to rural businesses. The target for this loan program includes for-profit or non-profit businesses, cooperatives, federally recognized Native American tribes, public bodies, and individuals engaged or proposing to engage in a business.

This program targets a broad group of developers, investors and businesses. Stearns Bank recommends that prospective borrowers contact a lender to discuss their project and financing needs. Conferring with an experienced lender can save hours of sorting through red tape and complex eligibility requirements.

If your project is eligible for a USDA loan, Stearns Bank can start the process immediately, drawing on its USDA relationship and multi-state lender designation. If a standard commercial loan is appropriate, the Stearns Bank lending team will consult with the borrower, carefully review their needs and goals, and develop a customized financing solution.

According to the USDA, a Business & Industry loan can be used for:

• Business conversion, enlargement, repair, modernization or development
• Purchase and development of land, buildings and associated infrastructure for commercial or industrial properties
• Purchase and installation of machinery and equipment, supplies or inventory
• Debt refinancing when such refinancing improves cash flow and creates jobs
• Business and industrial acquisitions when the loan will maintain business operations and create or save jobs

Rural Energy for America Guaranteed Loan Program

The Rural Energy for America (REAP) loan program provides guaranteed loan financing and grant funding to agricultural producers and rural small businesses for renewable energy systems or to make energy efficiency improvements. Agricultural producers may also apply for new energy efficient equipment and new system loans for agricultural production and processing.

Broadly defined, the REAP program is targeted at small businesses in rural areas, and agricultural producers with at least 50 percent of their gross income coming from agricultural operations. Like the Business & Industry program, if a project seems to meet REAP requirements, Stearns Bank encourages borrowers to contact a lender to discuss their project and determine the most appropriate financing.

In general, REAP funds are used for renewable energy systems such as:

• Biomass (biodiesel and ethanol, anaerobic digesters, solid fuels)
• Geothermal for electric generation or direct use
• Hydropower below 30 megawatts
• Hydrogen
• Small and large wind generation
• Small and large solar generation
• Ocean (tidal, current, thermal) generation

Funds may also be used for the purchase, installation and construction of energy efficiency improvements, such as:

• High efficiency heating, ventilation and air conditioning systems (HVAC)
• Insulation
• Lighting
• Cooling or refrigeration units
• Doors and windows
• Electric, solar or gravity pumps for sprinkler pivots
• Switching from a diesel to electric irrigation motor
• Replacement of energy-inefficient equipment

Stearns Bank has a strong legacy in rural business and agricultural lending. Lenders are familiar with the challenges faced by small business owners and rural communities.

As a USDA multi-state lender, Stearns Bank can effectively work with the agency, resulting in a streamlined and hassle-free process leading to final funding. The lending team is committed to personal service, understanding the borrower’s goals and challenges, anticipating problems, and responding with creative solutions. Click below to contact one of our USDA rural development loan experts today.