Understanding the terms of a USDA B&I loan – from loan amount and down payment to collateral and prepayment penalties – helps borrowers know what to expect before starting the process. Here’s a breakdown of each term.
Loan Amount
B&I loans range up to $25 million, making them the largest widely available government-guaranteed small business loan program available. Loans at or below $10 million follow the standard approval process. Above that threshold, USDA administrator approval is required, which adds a layer of review but rarely prevents larger deals from getting done.
Down Payment
The standard minimum down payment is 10%, and that’s what most B&I loans close at. Lenders may ask for more if the deal carries additional risk — weaker cash flow, less experienced borrowers, or limited collateral can all push the requirement higher.
Interest Rate
B&I loans offer both variable and fixed rate options. Variable rates float with the prime rate and typically land between Prime + 1.0 and Prime + 3.0 — the exact spread depends on the loan’s risk profile and the lender’s assessment. Fixed rates lock in for a set period (most commonly five years) before converting to variable. Fixed rates offer payment predictability but may start higher than a variable rate, especially when rates are expected to decline. For a deeper look at how B&I rates work, see our Interest Rates page.
Term
The USDA allows B&I loan terms of up to 40 years, though in practice lenders follow more conservative norms based on the use of proceeds. Real estate loans typically carry terms of up to 30 years, while non-real-estate loans – including business acquisitions and equipment – typically carry terms of up to 10 years. These maximums reflect the useful economic life of the underlying assets and are the terms most borrowers can expect.
Collateral
B&I loans must be fully collateralized, meaning the value of the pledged collateral – after applying a discount rate – needs to cover the full loan amount. For loans involving commercial real estate, the property itself typically provides most or all of the required collateral value. When the available collateral isn’t sufficient, lenders may require supplemental collateral such as a life insurance policy assigned to the lender or a lien on the borrower’s personal real estate.
Personal Guarantee
All owners with more than 20% ownership in the business are required to personally guarantee a B&I loan. This means they’re on the hook personally if the business can’t make payments. In addition, anyone who doesn’t have an ownership stake but exercises significant day-to-day control over the business – a general manager, for instance – may also be required to provide a guarantee.
Amortization
B&I loans are fully amortized, meaning the loan is paid down to zero over the full term through regular, equal payments – no balloon payment at the end. This is a significant advantage over conventional commercial loans, which commonly use a shorter amortization schedule than the loan term. With conventional loans, the borrower often faces a large lump-sum balloon payment at maturity or must refinance, creating uncertainty. Full amortization eliminates that risk.
Prepayment Penalty
Most commercial loans include a prepayment penalty – a fee charged if the borrower pays off or refinances the loan before a specified period ends. B&I loans are no exception: prepayment penalties are usually required, and the specifics are negotiated between borrower and lender. Unlike SBA 7(a) loans, which follow a standardized declining penalty structure (5%, 3%, 1% over three years), B&I penalties follow conventional norms and vary from lender to lender. If prepayment flexibility matters to you, it’s worth discussing upfront.
