NSAC's Blog
Loan Guarantees Link Food Hubs with Consumer Markets
May 1, 2014
On Wednesday, April 30, USDA’s Rural Business–Cooperative Service issued a notice with additional details relating to the availability of federal loan guarantees through the Local and Regional Food Enterprise provision of the Business and Industry (B&I) Guaranteed Loan Program.
The B&I program helps improve, develop, or finance businesses and employment in rural areas by bolstering the existing private credit market through federal guarantees. The B&I local and regional food enterprise set-aside provides loan guarantees for specifically for farm and food enterprises.
Changes in the 2008 Farm Bill and reaffirmed in the 2014 Farm Bill ensure that a minimum of five percent of B&I funding goes to loans 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. Loan guarantees are available through the program year-round.
For more information on the B&I program and the Local and Regional Food Enterprise provision in particular, see part 1 and part 2 our recent series on B&I success stories.
Placing Food Facilities Near Large Consumer Markets
Today’s notice clarifies that, in addition to B&I projects located in rural areas, USDA will consider loan guarantee proposals from food aggregation and distribution enterprises that are located in non-rural areas, so long as those entities meet certain criteria. This allows aggregation and distribution facilities to be located nearer to the ultimate consumer market, thereby improving the economics of the business and increasing economic returns to the farmers supplying the market.
The change thus aims to address the concurrent goals of expanding markets for locally and regionally produced food and increasing rural and farm income. In addition, the new notice also ties the option for a non-rural facility location to the goal of increasing food access in poor areas.
According to the USDA notice:
For the purpose of this provision, projects that are physically located in an urban area are eligible for priority funding if the project provides a clear benefit to an underserved community by increasing that underserved community’s access to affordable, healthy, locally, or regionally produced foods. For example, an aggregation and distribution center that is physically located in an urban area would be eligible for priority funding if a meaningful portion of the aggregated product is made available to consumers at grocery retail establishments located within the underserved community or to food banks, schools, or other institutions serving low-income populations, thus providing a benefit to the underserved community. An aggregation and distribution center in an urban area would not be eligible for priority funding under the provision if it distributes all of its food to high-end markets. When there is a tie in priority scoring, projects that serve underserved communities will be funded over those that do not serve underserved communities.
NSAC applauds USDA for enhancing the program in this manner. We believe it will result in more farmers and related rural food businesses being assisted by connecting them to growing consumer markets for local and regionally produced food products. We will continue to help publicize the loan guarantee program and hope to write about more success stories in the future, including some that take advantage of this new option.
Background
B&I 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.
Like the 2008 Farm Bill, the 2014 Farm Bill direct USDA to use no less than five percent of the annual appropriation for the B&I program to fund local and regional food enterprise loan guarantees. 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.
Across projects, priority is 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 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.
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.
Categories: Grants and Programs, Local & Regional Food Systems, Rural Development