On Thursday, December 9th. USDA Secretary Tom Vilsack announced an additional $1,000,000,000 under the new Food Supply Chain program for loan guarantees. These Food Supply Chain loans have attractive terms for lenders familiar with the USDA B&I loan programs. I’ll quickly dive into those terms and provide the proper links below.
Links:
USDA Food Supply Chain Homepage: https://www.rd.usda.gov/food-supply-chain-guaranteed-loans
USDA Federal Register Notice Regarding Food Supply Chain Program: https://www.govinfo.gov/content/pkg/FR-2021-12-09/pdf/2021-26693.pdf
Who Can Apply?
For profit and non profits, Co-op’s, Federally-recognized tribes, public bodies, food supply chain entrepreneurs.
Location Based Eligibility?
NO!! This is probably the best regulation in this program. Larger cities have tons of transportation and storage options which are usually out of reach for B&I loans. These are now on the table if they can meet the other regulations.
Use of Funds
- Business Purchase, Modernization, expansion.
- Purchase land, buildings, and infrastructure.
- Purchase Equipment
- Refinance
- Lease hold improvements
- Pollution Abatement
- Working Capital.
Ineligible Use of Funds
Same as the B&I ineligible use of funds.
What Projects are Eligible?
Projects in the middle food supply chain. In the food supply chain you have the following:
Farm – Aggregation – Processing – Manufacturing – Storage – Transportation – Wholesale – Distribution – Restaurants
In this program, Farms and Restaurants wont be eligible unless they have components of the middle supply chain within their operations. It is my opinion that even if farms and restaurants have middle supply chain features, the USDA will rule that only the percentage of operations dedicated to those middle supply chain features will be eligible for loan funds.
Specific Regulations that are different from the B&I Program
Max Loan – $40,000,000
Loan Guaranty – You can obtain a 90% guarantee if the loan has a fixed interest rate of no more than Prime + 200. If the rate varies then the guaranty is 80%. I’m sure you could implement a dual note system and fix the loan at Prime + 200 on the guaranteed note and vary quarterly at the same interest rate on the unguaranteed note.
USDA Fees – There is no Guarantee fee or annual renew fees for this loan program. This is just amazing to me. Having to bid projects in the secondary market, we take a higher servicing fee to cover the USDA Annual Renewal Fee which impacts overall premium generated and new risk to the bank. Being able to lower the servicing fee from the secondary market will increase bank premium and lower next risk making the 90% fixed rate option more appealing since the secondary market is going to discount loan heavily for fixed rate loan, if they purchase them at all. Tacking on a 10 year prepayment should also help obtain a better premium.
Feasibility Study – For new projects, a new feasibility study guide is available which dives into impact on the food supply chain and safety, among the other items normally found in a USDA eligible feasibility study. See the guide here or on the Documents Section of this website.
Priority Score Sheet – There is a new priority score sheet which was put together in Excel form by me in the Documents Section of the website and linked here.
How to Apply as a Lender
If you are a multi-state USDA lender then you will need to sign up for the Microsoft Team account for the Food Supply Chain program similar to when you signed up for the multi-state lender teams account.
For banks that are not multi-state lenders:
- Fill out for USDA OneRD Teams Portal Access Authorization and Management Form (Link or it can be found in the Documents Section of this website)
- Send that application to rdfoodsupplychainloans@usda.gov to gain access to the teams account.
- Follow the application intake guide found here: https://www.rd.usda.gov/sites/default/files/food-supplychain-uploadingapplications-final508.pdf
- Note: No Paper Applications are being accepted for this program.
New Forms and Checklist
Form 4281-8 – Lenders Agreement
Checklist:
- Agency-approved application form.
- Credit evaluation
- Environmental information required by the Agency in accordance with 7 CFR 1970, ‘‘Environmental Policies and Procedures,’’
- Required Financial statements.
- Agency Relationship Notification, if any
- Current credit reports
- Executive Summary The executive summary must include a description of the business and project; the names of any corporate parent, affiliates, and subsidiaries with a description of the relationship; description of how the project will increase the capacity or make the food supply chain more resilient, diverse, or secure; and address how the borrower or project, as applicable, meet the criteria for priority scoring.
- Organizational documents.
- SEC Form 10–K, if any
- Intergovernmental consultation comments in accordance with RD Instruction 1970–I and 2 CFR part 415, subpart C
- Borrowers must provide evidence of compliance with applicable authorities.
- Lender Loan Classification and credit risk rating classification scale.
- Feasibility Study, if any
- Appraisals
- Any additional information required by the Agency to complete its evaluation.