The precise implementation of rural formal financial policies is a key to realizing rural revitalization and promoting healthier development of rural households’ livelihood strategies. Based on the micro-survey data of the China Family Panel Studies (CFPS) and applying the sustainable livelihood theory, this paper analyzed the formal loan embedding and rural households’ livelihood strategies by the Simpson index and the M-Logit model and discussed the impacts of formal loan embedding on households’ livelihood choices. Results show that there are three types of livelihood choices for households: agriculture-oriented, entrepreneurship-oriented, and work-oriented. Regardless of whether households have regular loans or not, entrepreneurship-oriented accounts for the lowest share, while work-oriented accounts for the highest share. The shares of entrepreneurship-oriented and work-oriented households with formal loans are higher than those without formal loans, but the share of agriculture-oriented households is lower than those without formal loans. The formal loans of households dominated by agriculture and labor are mainly small loans, while the formal loans of households dominated by entrepreneurship are generally larger. Formal loans significantly promoted the choice of entrepreneurial-oriented or job-oriented livelihood strategies of households, and the promotion effects are more obvious (2.436>1.371). The amount of formal loan significantly promotes the choice of entrepreneurial-oriented livelihood strategies of rural households, but the influence degree of job-oriented livelihood strategy is not obvious. The effect of formal loan on the choice of entrepreneurial oriented livelihood strategy in central and eastern regions is greater, followed by the job-oriented livelihood strategy. In northeast China, households with regular loan tend to choose the agriculture-oriented livelihood strategy, followed by the job-oriented livelihood strategy. In addition, the households’ livelihood strategies are also affected by household head factors, family factors, and community factors to varying degrees. Therefore, to promote households’ livelihood strategy optimization and transformation according to regional differences, this paper suggests: building a multi-level and diversified financial service system and products, increasing agricultural investment through formal loan, refining the classification and preferential policies of “start-up loans”, and taking effective lending measures.