USDA Earmarks $150 Million for Rural Businesses

by QuickBooks

2 min read

Small town (or even no town) America, listen up: Uncle Sam has up to $150 million ready to invest in your rural business.

As part of the White House Rural Council’s “Made in Rural America” initiative, U.S. Department of Agriculture (USDA) Secretary Tom Vilsack recently announced the creation of a $150 million investment fund, which is essentially a venture capital fund to help create jobs and grow businesses in rural parts of the country.

Instead of a loan or loan guarantee, the new Rural Business Investment Program (RBIP) lets the USDA facilitate private equity investments in agriculture-related businesses by licensing Rural Business Investment Companies (RBICs), which in turn invest in rural businesses.

To qualify, David Sandretti, a director of legislative and public affairs with the USDA Rural Development office, says businesses must be located in a rural area, defined as “any area of a state not in a city or town that has a population of more than 50,000 inhabitants, according to the latest decennial census of the United States, or in the urbanized area contiguous and adjacent to a city or town that has a population of more than 50,000 inhabitants, and any area that has been determined to be ‘rural in character’ by the undersecretary for rural development, or as otherwise identified in this definition.”

To be considered a small business by the USDA, generally speaking, a business must not have a net worth exceeding $6 million on the date of the financing and not have more than $2 million in net income for the preceding two years (A complete definition can be found in 13 CFR 121.201.)

With those two conditions being met, virtually any business can be considered, Sandretti says. “Every licensed RBIC will have its own unique investment model to determine which businesses it will fund and under what terms and conditions,” he adds.

Each RBIC will base its funding decisions — including what part of an enterprise’s life cycle  it will invest in, as well as consideration of profitability and other financial metrics — on its own investment model. The RBICs may also establish their own processes for managing deal flow, considering portfolio diversification, evaluating and mitigating associated risk, and determining timelines.

Eight Farm Credit institutions, part of the Farm Credit system, a nationwide network of banks and lending associations specifically chartered to serve agriculture and the U.S. rural economy, will provide initial investments in the RBIC fund: AgStar Financial Services (Mankato, Minn.), AgriBank (St. Paul, Minn.), Capital Farm Credit (Bryan, Texas), CoBank (Denver); Farm Credit Bank of Texas (Austin, Texas), Farm Credit Services of America (Omaha, Neb.), Farm Credit Mid-America (Louisville, Ky.), and United Farm Credit Service (Willmar, Minn.). The fund will be managed by Advantage Capital Partners.

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