USDA Loan Program Reduces Rural Business Failure Rate

Enterprises that received support through Rural Development’s Business and Industry Guaranteed Loan Program have a much higher survival rate than businesses that did not participate in the program, a new study shows.

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Rural enterprises that receive loans through a USDA Rural Development program are less likely to fail than businesses that don’t receive such loans, a new study finds.

The USDA Economic Research Service examined businesses that received loans from the Business and Industry (B&I) Guaranteed Loan Program, the largest business-loan program at USDA.

The study found that two years after receiving a loan, recipients were 90 percent less likely to fail than a similar group of businesses that didn’t participate in the loan program. The effect of the loans tapered a bit over time, but six years after the loan, recipients were still 72 percent less likely to fail than the control group.

The study suggests that the guaranteed loan program is achieving its goals of saving and creating jobs and stimulating rural economies.

The loan-guarantees increase the amount of lending that private financial institutions are willing to make in rural areas.

The B&I program provides guaranteed loans in rural areas in partnership with private-sector lenders. By reducing lenders’ risk, the program encourages them to provide more generous terms or larger principal amounts, or to approve loans to rural businesses that they otherwise would not make.

In 2017, the loan program was responsible for $892 million in lending to rural businesses. The study used data from a 23-year period:

The study estimated business survival rates between 1990 and 2013 for B&I loan recipients and a comparison group of non-recipients similar to loan recipients based on several key factors that affect business survival, including business location, industry, age, and employment size. The analysis excluded startup businesses with no employment history because the number of employees prior to receipt of a B&I loan was needed to identify the comparison group. On average, B&I recipients and the group of similar non-recipients had about 12 employees, and B&I recipient businesses were about 6 years old at the time of receiving a B&I loan.

Current funding for USDA’s Building and Industry loan program expires on September 30, along with other programs included in the annual farm bill appropriations. The House version of the 2020 farm bill contains $1.2 billion in loan-guarantee support. The Senate has not yet taken up farm bill appropriations.\

Bryce Oates contributed to this story.

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