Meat Processor Financial Assistance

Small Meat Processors August 26, 2013|Print

 

Five Financial Assistance Programs that Work

 

Many financial assistance programs at the state and federal levels will not work for small meat processors. If we had a dollar for every program out there that we were told could help small meat processors, well... we could buy a lot of bratwurst. While assistance programs do change from time to time, the five programs listed below are the only ones we found that work reliably for small meat processors.
 

1) Tax Increment Financing (TIF)

This program allows local area governments to provide loans and grants to, or make accommodating infrastructure improvements for, local businesses up to the amount of increased tax revenue expected over 10-20 years resulting from commercial/industrial building or expansion. Meat plants receive these funds by requesting them from, and entirely at the discretion of, local city councils and mayors. Some plants have received tens of thousands of dollars through TIF. These funds have been used both indirectly towards accommodating town infrastructure and directly towards construction costs.
Further Information: CDFA TIF Resource Library
Contact Information: Contact your local township and/or county


 

2) Tax Abatement

Separate from TIF, counties and towns can agree to abate taxes for a new or expanding business. This too is entirely at the discretion of the local council members or county supervisors. It generally helps to have good projections about your business’ economic impact and good standing in the community. The bottom line is: if you don’t ask, you won’t get anything.

 

Contact Information: Contact your local township and/or county


 

3) The Rural Economic Development Loan and Grant (“Red Leg”)

This program has considerable history of use by small meat lockers. A significant number of lockers have been built or renovated over the years with these funds. The program is in essence a zero percent interest loan for 10 years, but the loan can only be accessed through a local rural electrical or telephone cooperative. Through a lien on its own assets, the co-op applies to borrow money from the federal government for the sub-applicant business. If successful in its application, the co-op passes the money on to the sub-applicant business. The maximum loan amount is presently $750,000. Successful applicants typically only finance between 5 and 17 percent of a project with this type of loan and never more than 50 percent, according to the Iowa Area Development Group. Applications from businesses in communities of fewer than 2,500 people are more favorably considered. The co-op can charge up to 1 percent per year to finance its own administrative costs. Rather unusually and usefully, payment on principal may be deferred for up to a year for an existing business and up to two years for a new business. You must apply for this program through your local Rural Electrical or Telephone Co-op.

 

Contact Information: Contact your local rural electric and/or telephone co-op


 

4) Rural Energy for America Program (REAP) aka Section 9007 of the Farm Bill)

This program will work only for existing plants. You must have an existing facility or equipment that you are making more energy efficient in order to qualify for a grant, and grants will only cover up to 25 percent of the cost of the eligible portions of renovation. For renovations over $200,000, a feasibility study is required and detailed business financial need must be demonstrated. The kind of Feasibility Study needed for this grant can cost up to $30,000, and it can be difficult to “prove” financial need when there is someone who will likely loan you the money. Discussions with USDA about this issue revealed it to be a rather “gray” area. $50,000 appears to be a realistic grant cap for this program.
Here’s a tip on how the Section 9007 program works: Grant monies can only be spent once but loan guarantee funds can be used over and over again. So, Congress encourages the USDA to push the loan guarantee portion of the program. If a company applies for only a grant, the application is held and judged once annually at the national level with all of the other applications. But if a company applies for a grant and a loan guarantee, the decision to allocate funds can be made at the local level, and in a rapid manner to assure that the loan guarantee funds are used. A company is virtually assured a grant if all of their paperwork is in order and if funds are available when they apply for both a grant and a loan guarantee.
Every application will need a professional energy audit. Contact your local electrical service provider to see if they can either perform such an audit or recommend someone else in your area.

 

Contact information: USDA Rural Development


 

5) The Small Business Administration’s (SBA) Certified Development Corporation (“504”) Loan Program

Commonly referred to as “504 Loans”, this program basically provides partially-subsidized and guaranteed loans where your local lender covers up to 50 percent of the project costs, the SBA covers up to 40 percent, and you must put in at least 10 percent. The local bank is put in a senior collateral position, which means that if you default on the loan, they collect on collateral up to the amount you owe them before the SBA. The SBA portion of the loan is usually below market rate, and the local bank is generally happy to be in a senior collateral position with only 50 percent of the investment. The loan can be amortized over 10 or 20 years, but the fees associated with the loan that equal 3 percent of the SBA portion are a drawback. Three percent of $500,000 is $15,000. While this amount is probably not a deal breaker, it is something worth weighing before enrolling in the program. If the offset on SBA interest vs. the market rate is significant, then it works out well. This reiterates the need for locker owner-operators to develop a firm understanding of their financials. To access this loan program, you will need to work with your lender and an SBDC.

 

Contact Information: U.S. Small Business Administration- CDC/504 Program


 

USDA Rural Development Programs for Local Food Initiatives

USDA's Rural Development program has 40 loan and grant programs, and of these, 12 can be used to support local food initiatives.

This short (7 slides) presentation, given by USDA Rural Development Deputy Undersecretary Cheryl Cook, January 20, 2010, as part of a USDA-FSIS webinar on mobile slaughter units, explains the basics of these programs.

Click here for the presentation.
 

Other Loan Guarantee Programs