Benefits of Rural Development Business and Industrial Loan

A rural development business and industrial loan is a loan issued by the United States Department of Agriculture. Individuals, tribal entities and local organizations can use the loans to develop and improve local businesses.Ultimately, the rural development business and industrial loans are designed to facilitate economic improvement in rural communities. Because different communities have different needs, no two loans are quite alike, but they all follow the same basic structure and they all have similar benefits.

Who Qualifies for Rural Development Business and Industrial Loans

The loans are available to individuals, for-profit and non-profit organizations, public bodies and federally recognized Native American tribal groups. If the applicant is an individual, he or she must be either a US citizen or a permanent resident. if the applicant is an organization, at least 51 percent of it's owners must fit the above requirement. In order to qualify, applicants must reside outside an urban area with a population of 50,000 or more. They also can't reside near any areas where the population is more then 100 people per square mile.

Using Rural Development Business and Industrial Loans

As with other federal loans, Rural Development Business and Industrial Loans can only be used for certain specific purposes. In this case, the borrower must use the loan to either establish a business or support an existing business that aims to achieve certain goals. This includes providing employment, improving local economic or environmental climate, promoting the conservation of natural resources, constructing and developing renewable sources or any combination of the four. Borrowers get considerable leeway in how they go about achieving those goals, but they have to show USDA that their methods will achieve those results.

Benefits of Rural Development Business and Industrial Loans

The USDA issued rural development business and industrial loans have a number of benefits compared to similar private loans. First and foremost, the loans are partially guaranteed by the federal government. If the borrower defaults, the government will assume the debt obligations--in other words, the borrower won't be responsible for replaying the portion of the loan that is under federal guarantee. The federal government will guarantee 80% of the loan if it's value is under $5 million, 70% if the loan is between $5 and $10 million, and 60% for loans greater then $10 million.

Another benefit of rural development business and industrial loans is that the credit score, income and other financial requirements aren't as strict as they are with most private loans. Borrowers don't necessarily need to have good credit, and they can apply even if they had problems repaying loans in the past.

Another important benefit of rural development business and industrial loans is the way the interest rates are adjusted. Borrowers can choose between having fixed interest rates and variable interest rates. The former remains the same until the loan is repaid while the latter are adjusted depending on the economic conditions. If the borrower chooses a variable interest rate have some advantages over borrowers who have a private loan with variable interest rate. Every change is subject to USDA's review, ensuring that they aren't shifted excessively. Furthermore, there must be no more then four adjustments per year. This makes it easier for borrowers to deal with changes to their variable interest rates, giving them a measure of security that private loans with variable interest rates can't provide.