Bolstering private credit to help finance local and regional food businesses in rural areas
Access to capital is important for all small businesses, including those working to help get more locally and regionally produced food into rural communities, schools, and markets. The Local and Regional Food Enterprise provision of the Business and Industry (B&I) loan program caters specifically to those latter entrepreneurs. The B&I program helps guarantee 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.
Learn More About the B&I Loan Program:
- Program Basics: Learn more about how this program works
- Eligibility: Find out who can utilize this program
- The Program in Action: Read success stories from those who have used this program
- How to Apply and Program Resources: Learn more about the application process and where to find more information
- Program History, Funding, and Farm Bill Changes: Learn about important policy changes and funding levels provided by the Farm Bill
- En español: Para más información de programas de desarrollo rural, contacte la oficina del estado o visite la página web del RD
The U.S. Department of Agriculture’s (USDA) Rural Business Service administers the B&I program, which aims to develop or improve businesses and employment in rural areas by bolstering the existing private credit market through federal guarantees on business loans. Each year, a minimum of five percent of total annual B&I funding is dedicated to local and regional food enterprise development. This includes the construction of food processing, aggregation, and distribution facilities, as well as food hubs.
Federal loan guarantees are available through the program year-round. The guarantee helps banks, credit unions, community development financial institutions, and other lenders provide loans to businesses that might not otherwise meet their underwriting standards. For example, a business might not meet other lenders’ standards because it is an emerging and not fully tested market, or the entrepreneur has a limited previous track record in that specific industry or enterprise.
Priority within the Local and Regional Food Enterprise set-aside 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 recipient of the loan guarantee is required to inform consumers in some way of the locally- or regionally-produced attribute of the food products.
The maximum B&I 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.
The following borrows are eligible for this program:
- Cooperative organizations
- Corporations, partnerships, or other legal entities organized and operated on a profit or nonprofit basis
- Native American Tribes on a federal or state reservation, or other federally recognized tribal organization
- A public body
- An individual
For all B&I loan guarantees, a borrower must be engaged in or proposing to engage in a business that will provide employment and improve the economic or environmental climate.
Loans may be used for a variety of purposes, including but not limited to:
- Business conversion, enlargement, or modernization
- Purchase and development of land, buildings, facilities
- Purchase of equipment, machinery, supplies, inventory, and similar purposes
- For business acquisitions when the loan will keep a business from closing or prevent the loss of employment or expand job opportunities
B&I loans are not made to farmers to purchase farmland or produce crops.
B&I loans are generally available in rural areas, which include all areas other than towns of more than 50,000 people and those contiguous or adjacent to urbanized areas. However, in 2014 USDA clarified that, in addition to strictly rural projects, food aggregation and distribution enterprises that are located in non-rural areas are also eligible to receive loan guarantees. These enterprises were deemed eligible so long as they meet certain criteria, including selling a portion of the product in underserved communities. This expansion allows aggregation and distribution facilities to be located closer to consumer markets, thereby improving the economics of the business and increasing economic returns to the farmers supplying the market and the surrounding community.
More information about the B&I local food set-aside and urban eligibility, including some example scenarios on how the program can be use for related projects can be found here.
Since Congress first established the B&I program in 2008, USDA has invested more than $250 million in local and regional food enterprise development through B&I loan guarantees. These loan guarantees have helped more than 150 businesses create hundreds of new jobs in rural America.
The B&I loan program has been used to:
- Establish a potato packaging facility for organic potatoes grown in the San Luis Valley of Colorado, an area with many potato farmers, but no local processing capacity.
- Help a farmer-owned business set up an aggregation, processing, and distribution facility for local produce in rural central Iowa, allowing the business to expand from corn to asparagus as well as apples from six Iowa orchards.
- Assist a coop grocery in North Carolina in expanding to become a local food hub and kitchen serving an area with limited food choices.
Read more about how the B&I program has helped grow local food enterprises via the National Sustainable Agriculture Coalition’s (NSAC) blog:
- Loan Guarantee Helps Rural Co-op, Foodways Thrive
- Iowan Food Business Takes Root with USDA Loan Guarantee
How to Apply and Program Resources
Loan applications are available from your local Rural Development state office.
Potential borrowers will work directly with their commercial lenders to develop a loan package that can then be submitted to the USDA Rural Development state office where the business is located. USDA will then meet with all parties – the loan recipient and the lender—to determine project acceptability.
For more information on the program, visit USDA’s B&I webpage. Additional information can be found on NSAC’s Local and Regional Food Systems Blog for those interested in learning more about how this program and others are helping to support rural economic development through the development and expansion of local/regional food markets.
Program History, Funding, and Farm Bill Changes
The 2008 Farm Bill first established the local food enterprise set-aside within the B&I Guarantee Loan Program, however, the program was not finalized until June 2016. The 2018 Farm Bill reauthorizes the B&I program through 2023, including the Local and Regional Food Enterprise set-aside, without changes.
As a discretionary program, the funding level for the program is determined each year by Congress in the annual agricultural appropriations bill. Appropriations levels for the B&I program generally allow the program to guarantee between $800 million and $1 billion in loans, meaning no less than $40 million (5 percent) a year is generally available for local and regional food enterprise loan guarantees.
The chart below shows how much funding has been made available for local and regional food enterprise development through the B&I program in recent years. Future funding cannot be projected as funding levels will be determined annually by Congress, though there is a strong expectation that significant funding will continue to be available in future years.
Business and Industry Loan Guarantee Program’s Local and Regional Food Enterprise Provision’s Recent Funding
|Fiscal Year||Recent Funding Levels (millions)|
For the most current information on program funding levels, please see NSAC’s Annual Appropriations Chart.
Section 6413 of the Agriculture Improvement Act of 2018 amends Section 310B(a)(2)(A) of the Consolidated Farm and Rural Development Act, to be codified at 7 U.S.C. 1932(g).
Last updated in July 2019.