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Inspector General Critical of SBA Poultry Farmer Loans
Ohio Ag Connection - 03/12/2018

The U.S. Small Business Administration received a report from its Inspector General on loans made to poultry farmers. The report focuses on 11 loans that were made from FY 2012 - FY 2016 and, by extension, questioned whether the remaining 1,500 poultry loans made during that five year period met SBA's eligibility requirements.

The Inspector General announced in the report that most chicken growers may no longer qualify as independent, small businesses. And that means they won't qualify for small business loans. Industry watchers said it's a finding that could signal a significant loss in support: Between 2012 and 2016, SBA loaned about $1.8 billion to poultry growers. In 2016, poultry companies received more than three-quarters of all the SBA loans that went to agricultural businesses.

The SBA said in a separate statement released over the weekend after the Inspector General report that it has reviewed the 11 loans in question, and confirmed that they were correctly made in accordance with Agency policy at the time the loan was made. The loan guarantees will continue to be honored for those and other similar poultry loans. The SBA did not indicate whether loan policies have changed since the loans in question were made.

As always, SBA said its loan guarantees are backed by the full faith and credit of the U.S. Government, the agency said in a release.

Contract growers might need loans for a variety of reasons--to get their farms up and running, for instance, or to make expensive, integrator-mandated enhancements and updates to facilities, which can cost anywhere from $10,000 to as much as $350,000 or more. The average loan to poultry growers in 2016 was a little over $1.25 million.

The SBA has a technical term for being so closely linked to a corporation or integrator (i.e., Tyson, Perdue, Sanderson Farms, and Pilgrim's Pride). It's "affiliative." And that's important because, if contract growers are considered affiliates of the large processors they work with, they can't technically be considered independent and qualify for small business loans.

Congressional staffers brought that concern to the attention of SBA, and it launched an independent audit on poultry industry loans. Last week's report shows that the administration essentially agrees, saying, in effect, that chicken growers don't meet the requirements to be considered small businesses because every aspect of their operation is controlled by a corporation.

Small business loans are at the core of the SBA mission, and the Agency is examining the policies and procedures around poultry loans to ensure SBA loans continue to be directed towards those small businesses most in need of assistance.

"This control overcame practically all of a grower's ability to operate their business independent of integrator mandates," SBA wrote in its report. And its conclusion was backed up by an analysis of defaulted loans: A farm worth nearly $2 million when it had an integrator contract fell to just $135,000 in value in its final liquidation.

"When SBA loans go to firms that aren't supposed to receive them, it means there are fewer resources available for deserving, small businesses who struggle to secure capital," Rep. Nydia M. Velázquez (D-NY), the top Democrat on the House Small Business Committee, said in a press release. "The findings in the OIG report are profoundly troubling and I look forward to working with Chairman Chabot to exercise vigorous oversight, including potentially holding hearings in the future."

The Inspector General's findings have implications. If poultry growers can't really qualify as independent, small business people, shouldn't it fall on the big processors to finance the expensive equipment and upgrades they require from farmers?

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