Table of Contents
- 1 Overview: What are rural small business grants?
- 2 3 qualifications for securing rural small business grants
- 3 3 USDA rural small business grants
- 4 Best practices when applying for a rural business grant
- 5 Apply
Rural areas often get left out in politics. Urban and suburban areas tend to have more voters and more representatives and, as a result, many legislative proposals and economic opportunities favor businesses in areas with more population.
The U.S. Department of Agriculture (USDA) is different. The USDA focuses on assisting small businesses in rural areas. It offers programs to help small business owners learn about business, apply for loan guarantees (similar to what the Small Business Administration, or SBA, offers), and even qualify for grants for rural areas, which this article addresses.
Overview: What are rural small business grants?
A grant is different from a loan in two ways. A grant does not have to be paid back and, usually, there is more tracking of how it is used.
If you get a working capital loan or line of credit from a bank, they will ask what you intend to use the cash for, but likely they would not follow up or put restrictions on the use. USDA business grants are tied to a direct use, and you will need to prove that the money was used for that purpose and not for general operating expenses.
Generally, grant amounts will be less than what your business may be eligible for with a guaranteed loan. If you need more than the grant amount, consider applying for a USDA guaranteed loan as well. A local bank should be able to process the application.
3 qualifications for securing rural small business grants
Be prepared to meet these three qualifications when you get ready to apply for a rural business grant.
1. Be a small business
The USDA doesn’t have strict size standard testing like the SBA does. However, the grant funding is not unlimited, and small businesses and new businesses will have priority. If you can show that you would be considered a small business by the SBA, that would go a long way on your application.
2. Be rural
The USDA is very strict about only choosing businesses that are actually in rural areas for rural business enterprise grants. The agency maintains a map of the U.S. with eligible areas (you can enter in your address on the map here). Generally, rural eligibility is based on population density.
If you’re considering starting a new business, and your location is not available based on the map, you can use it to find a new location that would be available.
3. Have a clear use of the proceeds
Many grants are available only for specific uses. When you apply for the grant, have an itemized list of your intended use of the proceeds and bids for whatever you will be purchasing. The more organized you are, the better. It’s also important to follow up by sticking to the uses you described as closely as you can.
3 USDA rural small business grants
Here are three different types of rural business opportunity grants.
1. Rural Energy for America Program (REAP)
REAP exists to help rural small businesses in two main areas: creating new renewable energy infrastructure and improving the energy efficiency of existing infrastructure. The following describes some key information about the program:
• Grants are available for $20,000 or less, and a grant and loan combination could be available for more than that amount.
• The program is available to rural small businesses and agricultural companies with at least 50% of gross income derived from agricultural operations.
• The program is funded once per year and goes until the funds run out.
• For this program, “rural” is defined as communities with populations of 50,000 or fewer.
• Grants are available for up to 25% of total project costs.
• Grants can be used for renewable energy systems, such as geothermal, wind, and solar, or for energy efficiency improvements, such as doors and windows, insulation, and lighting. See the USDA fact sheet for more eligible uses and contact information.
2. Rural Microentrepreneur Assistance
This one is tricky. It is only a grant in a roundabout way. The grant goes to eligible microloan providers in rural areas with populations of 50,000 or fewer.
Up to $500,000 of the grant can go to provide a revolving microloan fund, with the following required loan terms:
• Maximum loan amount of $50,000
• Fixed interest rate
• Maximum loan to value of 75%
• Maximum loan term of 20 years with a two-year payment deferral
• Borrowers must be in a rural area and have 10 or fewer employees
Additionally, the microloan provider can get grants for up to $205,000 annually to provide technical assistance to rural microenterprises.
Contact your local office to see if there is a provider near you where you may be able to apply for a microloan or technical assistance grant.
3. Value-added producer grants
The value-added producer grant program is a rural business development grant for agricultural producers working on new “value-added” activities. For the program, value-added activities mean creating a new product or working on new marketing opportunities.
Grants of up to $75,000 are available for planning purposes. This includes purchasing a feasibility study or creating a business plan.
Grants of up to $250,000 are available for working capital for “processing and marketing a value added product.” This includes processing costs, marketing and advertising, some inventory, and even some salary expenses.
Note that this program is currently closed since it has used up its 2020 funds. New funds should be available in 2021.
Best practices when applying for a rural business grant
USDA grant applications are notoriously difficult. The application itself is easy enough if you are organized, but the process can be like a three-month, non-stop call with customer service at the cable company.
Know your stats
Before you start the app, make sure you understand if your business will be eligible. It’s not worth the headache of going through everything just to be declined due to a technicality. Any one of the fact sheets I’ve shared in this article has contact information. Call your local office and work through the process to determine whether you’re eligible before you get started.
Prepare a business plan
Create an appealing business plan with rational financial projections before and after you receive grant funds. This will help you explain why you need the grant and how you will put it to good use.
The USDA takes a long time to process things. Sometimes you have to wait for Congress to approve more funds or for approval somewhere else at the federal level. Sometimes you’re just working with someone who has to go through 50 applications at once. Be patient and don’t give up.
Think about using a grant as an add-on
USDA grants often don’t cover full project costs and often are far less than you’d actually need for a project. Consider applying for a grant as an add-on. If you’re looking to build a new location, choose all energy-efficient options and apply for a REAP grant.
If you’re an agricultural company looking to expand, figure out if you can use a value-added producer grant for a portion of your working capital costs. It doesn’t have to be all or nothing.
When it comes down to it, just apply for any grant you think you may be able to get. The only thing you lose is time. If you can have an administrative employee who has free time at work do the application, even better.