Excerpted with permission from Curtis, K. R.*, M. Cowee, A. Acosta, W. Hu, S. Lewis, T. Harris. 2007. Locally Produced Livestock Processing and Marketing Feasibility Assessment. Technical Report UCED 2006/07-13: University Center for Economic Development, Department of Resource Economics, University of Nevada, Reno.
Credit and Loan Options
There are a variety of credit and loan options for start-up businesses. Short-term loans known as development loans are used for start-up and input costs for new businesses. Typically development loans are interest payment only loans for the first three years, and then the cooperative has seven years to repay the principle. The life of the loan is 10 years, and regular inspections occur to insure that the loan is used for input purchases only. Other short-term loans run for three to five years and can be used for the purchase of capital equipment, start-up costs and operational costs. Equipment loans, or lease lines, can be issued for capital equipment under $1 million. These are five-year lines of credit, where loan funds are accessed only when equipment is purchased.
American AgCredit provides intermediate-loans for land purchase, building improvements, and for the purchase of processing equipment. They provide long-term loans for packing and storage facilities, and real estate purchase and improvement.
Bank of the West requires cooperative members/stockholders to hold 51% of the investment risk; however, there are exceptions for start-up organizations. A new business may be able to hold 30% of the investment risk, meaning 70% of the start-up capital is borrowed, if the cooperative agrees to distribute no more than 20% of the gross profits. All remaining profit must be reinvested into the business in order for the owner investment to increase to 51%. Copies of the bylaws and marketing and purchase agreements must accompany the credit application.