SBA & Agency Loans

When it comes to commercial lending, several federal agencies provide financing support to entrepreneurs and small businesses. Agency lending, as it’s known, encompasses any sort of government-backed loan program. In this article, we’ll dive into the big three: SBA, USDA, and FSA.

SBA Loans

What are SBA Loans?

The primary benefit of SBA (Small Business Administration) lending is to provide greater access to capital for small businesses. SBA loans are partially guaranteed by the U.S. government, which allows banks to approve loans that they would normally turn down.

In other words, a borrower won’t necessarily “opt” for it, they will be required to obtain the SBA guarantee if they don’t fit conventional underwriting standards.

Program	Loan Amounts (Up To)	Terms (Up To)	Best For:
Standard SBA 7(a)	$5 million	Up to 25 years for real estate Up to 10 years for equipment	Real estate purchase, renovation, expansion, or construction. Purchase of equipment, fixtures, inventory, leasehold improvements, working capital, debt refinance, starting or purchasing a business.
7(a) Express Loans	$500,000	Same as SBA 7(a) loans. Up to 10 years for Express Lines of Credit	Same as SBA 7(a) loans. SBA Express loans can also be used as a line of credit.
7(a) CAPLines	$5 million	Up to 10 years	Financing the short-term operating capital needs of a business via lines of credit. Available for businesses who make bids on contracts for specific types of work; construction contractors or homebuilders; businesses with seasonal needs such as inventory and staffing; and businesses who generate accounts receivable and/or have inventory.
7(a) Export Express	$500,000	Same as SBA 7(a) Loans Up to 7 years for Export Express lines of credit	Businesses that engage in direct or indirect exporting. Can be used for paying the costs of manufacturing exported goods and buying services or goods for exports. Indirect exporting can include the sale of goods to domestic customers who then export them.
504 Loans (NBC works with a 3rd party – WBD, MBFC)	$5 million	Up to 25 years	Purchase of long-term fixed assets such as machinery and real estate. Can also be used for debt refinance.
504 Energy Public Policy Project	$5.5 million	Up to 25 years	Projects that will result in an energy reduction of at least 10% by the business, or upgrade the plant, equipment, and process with renewable energy sources that generate at least 15% of the entire building’s energy.

Pros of SBA Loans:

• Low fees: SBA puts restrictions on the amount of fees lenders can charge.
• Longer terms: Depending on the use of proceeds, loan terms are up to 25 years.
• Fully amortizing: SBA loans cannot have a balloon payment (most conventional commercial loans come with a balloon payment).
• Lower down payment requirements: In most cases, a down payment as low as 10% is acceptable.

Cons of SBA Loans:

• Time: SBA loans require additional documentation, and depending on the use of proceeds, can require additional work by the borrower, bank, and outside counsel.
• Not all businesses qualify: Real estate investors, non-profit businesses, life insurance carriers, and others are prohibited.
• Collateral is required: Depending on the loan size, the borrower may also need to pledge their home as collateral.
• Higher rates: Rates are usually priced higher than a conventional loan due to the risk involved. 

SBA Loan Eligibility & Requirements

Who Qualifies for SBA Loans?

1. You must be a for-profit business operating in the U.S.
2. You must be a small business as defined by the SBA (fewer than 500 employees).
3. You must have invested equity in your business.
4. You must show the need for financing.

Other Specific Requirements:

Collateral:

• Collateral is required. In most cases, the collateral securing the loan will be what is being purchased with loan proceeds.
• Already-owned assets may be considered as additional collateral.
• Depending on the loan amount, the borrower may need to pledge their home as additional collateral to secure the loan.

Down Payments:

• In most cases, a minimum of 10% will be required for 7(a) loans.
• For 504 loans, it can range from 10% to 20%, depending on the project and business type.

Interest Rates:

• Interest rates for SBA 7(a) loans can be either fixed for the life of the loan but, more commonly, rates are variable and adjust monthly, quarterly, or annually.
• The rates can vary based on the structure of the loan, but they cannot exceed the Wall Street Journal Prime rate* + 6.5%.
• For SBA 504 loans, interest rates are based on market conditions for long-term government debt at the time of application. Typically, rates for 504 loans are lower than conventional commercial loans. Rates are fixed for the life of the loan.

*The Wall Street Journal Prime rate is the base interest rate that banks charge to borrowers. It is the average of the rate that 10 of the largest banks in the U.S. charge to their best customers.

USDA Loans

What are USDA Loans?

The primary benefit of USDA (United States Department of Agriculture) lending is to provide financial assistance, business development, and technical assistance to rural businesses in the United States. These programs help to provide capital, equipment, space, job training, and entrepreneurial skills that can help to start and grow a business. USDA loans are partially guaranteed by the U.S. government, which allows banks to approve loans that they would normally turn down.

Program	Loan Amounts (Up To)	Terms (Up To)	Eligible Uses
Business & Industry (B&I) Loans	$25 million	30 years for real estate 15 years for equipment 7 years for working capital	Business acquisition, construction, expansion, equipment, machinery, startup costs, and working capital. Funds can also be used for debt refinance.
Rural Energy for America Program (REAP) Loans	$25 million	30 years for real estate 15 years for equipment 7 years for working capital	Purchasing and installing renewal energy systems or making energy-efficient improvements. Building energy-efficient facilities, upgrading to energy-efficient equipment, and producing on-farm renewable energy.

Pros of USDA Loans:

• Longer terms: Depending on the use of proceeds, loan terms are up to 30 years.
• Larger loan amounts: Loans can be up to $25 million and can even exceed that amount if certain criteria are met.

Cons of USDA Loans:

• Time: USDA loans require additional documentation and, depending on the use of proceeds, can require additional work by the borrower, bank, and outside counsel.
• Not all businesses qualify: Owner-occupied and rental housing, golf courses, gambling facilities, churches, and others are prohibited.
• Collateral: Collateral is required.
• Geographic restrictions: Business must be located in an approved geographic location.
• Down payments: Down payments and/or equity injections are higher (25% in most cases).

USDA Loan Eligibility & Requirements

Who Qualifies for USDA Loans?

The business must be located in a rural area – generally defined as a city/town with a population of less than 50,000. Check eligibility map here.

Both for-profit and non-profit businesses qualify, as do cooperatives, federally recognized tribes, public bodies, and individuals looking to start a business. Individual borrowers must be citizens of the United States or reside in the U.S. after being legally admitted for permanent residence. You must also demonstrate that the loan funds will remain in the U.S. and that the loan will create new or save existing jobs for rural U.S. residents.

Other Specific Requirements:

Collateral:

• Collateral is required: In most cases, the collateral securing the loan will be what is being purchased with loan proceeds.
• Already-owned assets may be considered as additional collateral.

Down Payments:

• In most cases, a minimum of 25% will be required, depending on the loan type.

Uses/Purpose:

• Must be in an area that is considered rural (in a city or town with a population of less than 50,000).
• Can be used for business acquisition, construction, expansion, equipment, machinery, startup costs, and working capital.
• Investment properties such as retail or office lease facilities are eligible.

Loan Sizes:

• Loans can range in size up to $25 million.

Loan Term:

• The maximum term of the loan depends on the use of proceeds, but typically it’s up to 30 years for real estate, up to 15 years for equipment and up to 7 years for working capital.

Interest Rates:

Interest rates are typically negotiated between the lender and the borrower and can be fixed or variable.

FSA Loans

What are FSA Loans?

The primary benefit of FSA (Farm Service Agency) lending is to provide funds to farmers to start, maintain or strengthen a farm or ranch. They provide an essential gateway into agricultural production by financing the costs of operating a farm. FSA loans are partially guaranteed by the U.S. government, which allows banks to approve loans that they would normally turn down.

Program	Loan Amounts (Up To)	Terms (Up To)	Best For:
Farm Ownership	$2,236,000 (amount adjusted annual based on inflation)	40 years	Purchase farmland, construct or repair buildings and other fixtures, or to refinance debt.
Operating	$2,236,000 (amount adjusted annually based on inflation)	7 years	Purchase livestock, farm equipment, feed, seed, fuel, farm chemicals, insurance, and other operating expenses. Lines of credit are available under this program.

Pros of FSA Loans:

• Fixed interest rates.
• Longer terms: Depending on the loan type, loan terms can be up to 40 years.
• Fully amortizing: FSA loans cannot have a balloon payment (most conventional commercial loans come with a balloon payment).
• Lower down payment requirements: In some cases, a down payment as low as 5% is acceptable.

Cons of FSA Loans:

• Time: FSA loans require additional documentation, and depending on the use of proceeds, can require additional work by the borrower, bank, and outside counsel.
• Managerial ability: The owner of the farm will need to show sufficient managerial ability as determined by the FSA.
• Collateral is required: In almost all cases, this will consist of the farm/ranch and the equipment.

FSA Operating/Farm Ownership:

Uses/Purpose:

• Operating loans: Purchase livestock, farm equipment, feed, seed, fuel, farm chemicals, insurance, and other operating expenses. Operating loans also may be used to pay for minor improvements to buildings, costs associated with land and water development, family living expenses, and to refinance debt under certain conditions. These loans may be structured as term loans or lines of credit depending upon the purpose and intended term of the loan.
• Farm Ownership loans: Purchase farmland, construct or repair buildings and other fixtures, develop farmland to promote soil and water conservation, or refinance debt.

Loan Sizes:

• For both Operating and Farm Ownership loans, the maximum loan amount is $2,236,000 (amount adjusted annually based on inflation).

Equity Injection

• As low as 5%.

Collateral:

• Collateral is required and typically consists of the assets of the farm.

Loan Term:

• Operating loans: Varies, but it cannot exceed seven years.
• Farm Ownership loans: Up to 40 years.
• Interest rates are typically fixed.

Agency Lending Application Process

How to Apply for Agency Lending Loans:

Overall, the process works like a normal loan, where you will first meet with a banker to discuss your needs. If it fits an agency lending program, your banker will work with the agency lending specialist to get the required documentation needed to move the loan forward. When all documentation has been received, the agency lending specialist will work directly with the government agency to get the loan approved.

Loan Documentation Needed:

• Personal tax returns
• Personal financial statement
• Business tax returns (unless you’re a startup)
• Business financial statements (unless you’re a startup)
• Business plan
• Financial projections
• Owner resumes
• Business documents (operating agreement, EIN form, articles of organization/incorporation, etc.)
• Additional documents will be needed, but the banker and agency lending specialist will work with you to navigate the application process.

Loan Processing Time:

• For SBA loans: NBC is a Preferred Lender and has delegated authority, which means faster turnaround times than a non-delegated lender can offer.
• For USDA loans: When a complete application has been submitted, lenders can expect a response within 30-60 days, but response times can vary based on the complexity and scope of the project.
• For FSA loans: When a complete application has been submitted, the FSA will review the application to determine whether all required forms and documents have been submitted and provide written notification of any missing items to the lender within five (5) days. They will then provide written notification to the lender within five (5) days of receiving all forms and documents that the application is complete.

FAQs

More Resources

• USDA
  • Business & Industry Loan Guarantees
  • Business Programs
  • Business & Industry Loan Program Frequently Asked Questions (PDF)
  • Top 10 Reasons to Choose a USDA B&I Guaranteed Loan this Year (PDF)

» For more information about the business lending process, check out our Guide to Business Lending.