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Small Business, Big Skies: Obtaining Financing for a Rural SMB

Published on Oct 18, 2012


Check out 'Small Business, Big Skies: Obtaining Financing for a Rural SMB' at 'Time to Start Up,' the small business blog by BizFilings.
Fresh air, starry night skies, wide open spaces. There's a lot to savor about life away from the hustle and bustle of big cities, but when it comes to starting a business in a rural area, there are also some distinct challenges when it comes to financing. There may not be dozens of banks and other lenders to consider working with, as there are in a bigger city, and less developed infrastructure can pose operational challenges that complicate the prospect of securing investment dollars. The good news is that there are a number of financing programs that specifically support rural businesses, such as U.S. Department of Agriculture's Business & Industry Guaranteed Loan program and the Intermediary Relending program. Business & Industry Loans What is a B&I loan? Just as the U.S. Small Business Administration guarantees loans to small businesses in general - meaning the SBA provides partial protection for a lender in case a small business borrower defaults - the USDA guarantees rural small business loans through the B&I program. The percentage of the guaranty depends on the total amount of the loan: • 80 percent for loans of $5 million or less • 70 percent for loans between $5 million and $10 million • 60 percent for loans in excess of $10 million The maximum guaranteed loan amount is for any single borrower is $10 million, although in certain circumstances loans of up to $25 million are guaranteed. Rural cooperatives that process value-added agricultural commodities may be eligible for loans up to $40 million, while interest rates vary and can be either fixed or variable. Am I eligible? Any for-profit or nonprofit business, federally recognized tribal group, public body or individual may be eligible for a B&I loan, as long as the loan will support an enterprise that provides employment or improves the economy or environment, in particular with regard to water usage and renewable energy generation. Borrowers are typically located in rural areas with populations of 50,000 or less. What can I use the money for? The funds can be used for a wide variety of purposes related to establishing, operating and expanding a business, but the maximum length of the loan varies depending on how you plan to use it: • 30 years for real estate loans • 15 years for machinery and equipment • 7 years for working capital How do I apply? Applications are processed through USDA Rural Development State Offices. A list of offices is available on the USDA website. Intermediary Relending Program What is the IRP? Under this program, certain local organizations become intermediaries between the USDA and small business borrowers by using federal dollars to set up revolving loan funds. Private nonprofits, public agencies, tribal groups and rural cooperatives may be intermediaries. Intermediaries can borrow up to $2 million in an initial financing and up to $1 million subsequently, and provide borrowers with loans up to $250,000. Am I eligible? Any business - including a limited liability corporation, sole proprietorship, partnership or corporation - can apply for IRP funds, provided it is located in a rural area with a population of 25,000 or less. What can I use the money for? IRP funds may be used for a wide variety of purposes, including but not limited to: • Acquisition, construction or repair of a business facility • Real estate purchases • Equipment and supplies • Startup costs • Working capital How do I apply? As with B&I loans, the USDA Rural Development Offices handle applications. In addition to national programs like these, rural businesses can find financing through agencies at the state level. For example, California's Rural Community Assistance Corporation offers short-term small business loans that can be used for working capital and lines of credit, and long-term loans that can be used for real estate and equipment. There may be plenty of differences between entrepreneurs who choose to locate in cities and those who prefer the country, but thanks to financing options like these, both can find success.