Local and Regional Food Enterprise Guaranteed Loans
The 2008 Farm Bill creates new loan and loan guarantee authority for local and regional food enterprises through the Business and Industry (B&I) Loan program administered by the Rural Development branch of the USDA. While the authority allows USDA to make or guarantee loans, the B&I program currently is entirely federal guarantees of commercial loans.
The purpose of the B&I program in general is to help improve, develop, or finance businesses and employment in rural areas by bolstering the existing private credit market through federal guarantees. The purpose of the local and regional food subprogram is to support farm and ranch incomes as well as the renewal of local food system infrastructure and community development.
Loans can be used to support and establish enterprises that process, distribute, aggregate, store, and market foods produced either in-state or transported less than 400 miles from the origin of the product. Individuals, cooperatives, cooperative organizations, businesses, and other entities are eligible for these loan guarantees.
Loans may be used for business conversion, enlargement, modernization, purchase and development of land, buildings, facilities, purchase of equipment, machinery, supplies, inventory, and similar purposes, and may also be used for business acquisitions when the loan will keep a business from closing or prevent the loss of employment or expand job opportunities.
Priority will be given to projects that in some way benefit communities that have limited access to affordable and healthy foods and that have a high rate of hunger, food insecurity, or poverty.
The recipient of the loan or loan guarantee is required to inform consumers in some way of the locally- or regionally-produced attribute of the food products.
The maximum loan guarantee is 80 percent for loans of $5 million or less, 70 percent for loans between $5 and $10 million, and 60 percent for loans exceeding $10 million. Generally loans to a single borrower are capped at $10 million, though several exceptions apply.
B&I loans are generally available only in rural areas, which include all areas other than towns of more than 50,000 people and those contiguous or adjacent to urbanized areas. Grants may be made to cooperatives for value-added processing facilities in non-rural areas provided they service agricultural producers within 80 miles of the facility and help improve producer income.
2008 Farm Bill Changes
The 2008 Farm Bill establishes that local and regional food enterprises are eligible for loans and loan guarantees to establish and facilitate the growth of local and regional food markets under the B&I program, defines for the first time in statute what locally or regionally produced means, and reserves at least 5 percent of B&I funding each year for this purpose.
Section 6015 of the Food, Conservation, and Energy Act (FCEA) of 2008 creates the Locally or Regionally Produced Agricultural Food Products program by amending Section 310B(g) of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. Section 1932(g).
Not less than five percent of the annual appropriation for the B&I Loan program is made available by the new farm bill to fund the local and regional food enterprise loan guarantees. Appropriations levels for the B&I program generally allow the program to guarantee about $1 billion in loans, meaning no less than $50 million (5 percent) will be available for local and regional food enterprise loan guarantees. In FY 2009 and 2010, however, the economic stimulus bill provided an additional $2 billion to the program on top of regular appropriations, so for those two years only additional funding was available for local and regional food loans. In FY 2011, $49.7 million was made available for local and regional food enterprises, and $41.1 million is available for FY 2012, due to appropriation cuts.
USDA issued an Administrative Notice on April 18, 2009 outlining the criteria for locally or regionally-produced loan set asides and encouraging outreach about the availability of funds.
USDA issued a notice in the Federal Register on July 24, 2009 announcing the availability of additional B&I funds through the American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”). USDA will accept applications for the special stimulus funding through September 15, 2010. The loan guarantee program supported by the stimulus funds has a reduced initial application fee of one percent, no renewal fee, and an additional emphasis on lending in persistently poor counties with loan guarantees of up to 90 percent.
Loan applications are available from local USDA Service Centers and can be submitted to the USDA Rural Development State Office. Potential borrowers will work directly with their commercial lending source to develop a loan package that can then be submitted as a candidate for the federal guarantee. The guarantee helps banks, credit unions, and other lenders provide loans to businesses that might not otherwise meet their underwriting standards.
Outreach to eligible entities, including processors, wholesalers, distributors, as well as to community and independent bankers, is critical to ensuring this new program is used. The program will thrive if local farm and food groups and business and community development networks, as well as USDA rural development offices, engage in and coordinate publicity and outreach efforts.
Example of a Local and Regional Food Enterprise Guaranteed Loan
In 2010, a locally owned dairy processing facility in Hallam, Nebraska received a $650,000 loan to purchase the property next door to facilitate future expansion to meet growing demand for sustainable, source-verified products.
The processing facility initially will create three jobs with a target market in Lancaster County. In the near future, The company, Prairieland Foods, LLC, plans to produce cheese, yogurt, ice cream and other dairy foods for the local market along with its partner company, Prairieland Dairy, LLC. All the products will be made with locally grown milk.
Rural Development, Business, and Cooperative Programs; Business and Industry Guaranteed Loans website
Rural Development State Offices tool, 1-800-670-6553.