The U.S. Department of Agriculture’s (USDA) new Food Supply Chain Loan Program (FSC) is not only strengthening America’s food supply chain, but also leveling the playing field to create a fairer, more equitable and efficient food supply system.
How Covid-19 Intensified Problems with America’s Food Supply Chain
Over the past two years, chaos caused by the COVID-19 pandemic and other issues, exposed weaknesses throughout the country’s supply chains, chief among them, its food supply chain. Some problems were already known to exist prior to the pandemic, including bottlenecks in the center of the food system caused by an for food processing, aggregation, manufacturing, storage, transportation, wholesaling and distribution. These weak points were further exposed as the Coronavirus pandemic played out.
One example of this is in the beef industry, where four large beef processing companies, often called the “Big Four”, – Tyson Foods, Cargill, JBS and Marfrig – control about 85% of feedlot cattle in the U.S. Although consolidation in the beef industry has been faster than that of poultry and pork suppliers, similar trends exist across these and other food market verticals. Indeed, consolidation is a universal market trend.
During the COVID-19 outbreak, shutdowns caused backlogs of live animals, sinking prices paid by large processors for livestock. At the same time, inventory shortages at grocery stores driven by both a slowdown in processing and panic buying, drove up the price of meat for consumers. As a result, the largest processors were able to pay less for livestock and charge more for meat. A few large companies did great, while many smaller suppliers, processors, packers and consumers felt the pain. Similar market dynamics played out across industries and caused the government to respond.
Creating a Stronger, More Resilient and Fair Food Supply Chain with USDA Food Supply Chain Loans
The Food Supply Chain Guaranteed Loan Program is part of the USDA’s larger Build Back Better initiative to help strengthen the food system with focus on developing more resilient local and regional food production; encouraging fairer market competition for producers, processors, and numerous other areas of the food supply chain; and, ultimately, ensuring increased access to safe, healthy food in communities across the country. The program simultaneously seeks to create new markets, jobs and economic opportunity across the country, while building a system and workforce more representative of America.
How Does the USDA FSC Loan Program Work?
So how does the USDA Food Supply Chain Program work? By encouraging private investment in food processing and supply chain infrastructure through the allocation of $100 million in loan guarantees to help support nearly $1 billion in lending from private lenders. The FSC program is available to a variety of meat and poultry processors, businesses and organizations that support activities across the middle of the food supply chain. It is separate and distinct from another $500 million USDA program dedicated exclusively to meat and poultry processing; 19% of the FSC program is dedicated to this purpose.
Under the FSC program, lenders like North Avenue Capital can guarantee loans of up to $40 million per borrower to help eligible entities expand meat, poultry, and fish processing capacity, as well as to finance other food supply chain infrastructure such as processing plants; aggregation, storage, packaging and distribution facilities; transportation businesses; and more.
Eligible borrowers include for profits, nonprofits, corporations, cooperatives, tribal communities, public bodies, and people in both rural and urban areas, a significant distinction between the Food Supply Chain Program and other USDA programs like its Rural Development (OneRD) Business and Industry (B&I) Loan Guarantee Program.
USDA FSC Loan funding can be used to start-up or expand existing food supply chain businesses, help address supply chain bottlenecks, or increase food production capacity through business launch, repair, expansion, modernization, and conversion including the purchase of land, buildings, infrastructure, equipment, and technology. Funds cannot be used for refinancing or lines of credit.
Like many of its other programs, USDA FSC Loans are collateral-backed loans for credit-worthy borrowers. Borrowers need to have a good credit history with a minimum credit score of 680 and be able to provide collateral (cash, real estate, or other tangible assets set at a discounted value consistent with sound loan-to-value practices) on a 1:1 basis to the loan amount sought.
Loan terms can extend up to 40 years. Terms are established by the lender, based on the planned use of the funds and estimated economic life of any assets being acquired. Another great feature, USDA FSC Loans do not require a USDA Guarantee Fee for the life of the loan. In fact, there is no guarantee fee or annual fee required at all.
The USDA FSC is poised to help create a more resilient, diverse and secure U.S. food supply chain, while leveling the playing field and making it a very attractive one to compete on.
Apply for a USDA Food Supply Chain Loan with North Avenue Capital
If you are seeking a commercial business loan for an existing or new business venture in America’s food supply chain industry, then you will want to learn more about the USDA’s incredible Food Supply Chain Loan Program. As a direct lender that deals exclusively with USDA Loans, North Avenue Capital can help you apply for an FSC Loan. We have offices in Northeast Florida, Arkansas, Georgia, Tennessee and Texas and partners for USDA loans in all 50 states. Contact us today, for more information.