In comments submitted Tuesday to the U.S. Small Business Association (SBA), the National Chicken Council (NCC) urged the agency to reconsider its proposal on the Express Loan Programs and Affiliation Standards.  “We are deeply concerned that this Proposed Rule would drive small family farmers out of SBA’s loan programs and threaten rural economies,” said NCC President Mike Brown in the comments. “Small family farms are the lifeblood of many rural communities and remain the backbone of American agriculture, and they rely on loan guarantee programs like the SBA 7(a) loan program for critical financing.”

The 7(a) loan program is one of the primary federal programs helping small family farmers get the financing needed to build, operate, and maintain modern farms, backing $1.8 billion in loans to poultry growers between 2012 and 2016.

“SBA’s abrupt proposal, based on a fundamentally flawed report from the Office of Inspector General (OIG), threatens to drive many small family farmers out of the 7(a) loan program, cutting off a vital source of financing and jeopardizing rural communities across America,” Brown said.

Background on the Office of Inspector General Report and the SBA Proposed Rule

On March 6, 2018, the Office of the Inspector General (OIG) to SBA released a report titled Evaluation of SBA 7(a) Loans Made to Poultry Farmers (OIG Report).   OIG’s objective was to determine whether 7(a) loans made to poultry farmers (growers) met statutory, regulatory, and SBA requirements for eligibility.  Ultimately, OIG reported that 7(a) loans made to growers did not meet regulatory and SBA requirements for eligibility.  OIG reasoned that, based on an analysis of only eleven samples, the chicken processors (integrators) exercised “such comprehensive control over the growers” that the growers could not operate their businesses independent of integrator mandates, causing the business concerns to be considered affiliated.

Under SBA’s Proposed Rule, SBA is proposing to expand the affiliation principles applicable to financial assistance programs.  Specifically, SBA is proposing to amend 13 C.F.R § 121.301(f)(4) to cause two businesses to be considered affiliated if they have “an identity of interest” or if one is economically dependent on the other, with economic dependence defined as deriving more than 85 percent of receipts from another concern over the past three years.

SBA also specifically addressed poultry growing contracts:

SBA recognizes that, if the proposed identity of interest rule is adopted as final, SBA Lenders may need assistance in applying the rule to certain agricultural business relationships or agreements. In particular, the agreement between a poultry farmer and a large poultry producer (integrator) may be critical to the determination of whether the farmer is an independent small business but, due to the complexity of the typical integrator agreement, SBA Lenders may be uncertain as to the correct outcome of the affiliation analysis for such a business relationship. SBA is considering reviewing these agreements and making the affiliation determination itself so that SBA Lenders will not be reluctant to make loans to small poultry farmers operating under such agreements. SBA will provide further information on this in the final rule, if necessary.

Brown said in response, “The OIG report reached erroneous conclusions about the relationship between poultry farmers and poultry processors, backtracked on over two decades of clear and successful SBA policy, and unnecessarily jeopardized the financial livelihood of thousands of small family farms across rural America.”

NCC’s comments can be read in their entirety by clicking here.