April 10, 2018

Poultry Farm Loans Under Review

Poultry Farm Loans Under Review
On March 6, 2018 the SBA’s Office of Inspector General (OIG) issued a report regarding SBA 7(a) loans made to poultry farmers (growers) and their affiliation to the large chicken companies (integrators).  The report presents the results of the OIG’s evaluation of the use of the SBA’s 7(a) loan program for poultry farmers and to the extent those loans met statutory, regulatory and SBA requirements for eligibility.   In summary the OIG found that the integrators exercised such comprehensive control over the growers that the concerns appear affiliated.  Accordingly, with such affiliation the growers (SBA Borrowers) were not small by SBA size standards.

The OIG reviewed 11 SBA loans plus defaulted loans as part of the project. The OIG did state that the SBA did not recognize this affiliative control because it relied on a 1993 Agency decision based on a review of a grower-integrator contract.

The recommendations of the OIG to which SBA management has agreed to include:

  • “Review the loans cited in the evaluation sample to determine whether SBA loan specialists and lenders made proper size determination given the apparent affiliation based upon comprehensive contractual, oversight, and market control and take the appropriate corrective action(s).
  • Review the arrangements between integrators and growers under the revised regulations, and establish and implement controls, such as supplemental guidance, to ensure SBA loan specialists and lenders make appropriate affiliation determinations.”
To review the entire OIG Report it can be found at: https://www.sba.gov/node/1615442.  If you have poultry farm (grower) SBA loans in your portfolio and they are NOT part of the OIG’s sample we think that you may be covered under the SBA 1993 ruling, but this is not to be construed as a legal opinion.  Until further guidance is issued by the SBA, going forward, if you are looking to lend to a poultry grower or any other farming entity where there is a contractual relationship with another company affiliation and the accurate size determination is critical.  We strongly recommend, even if you have what you believe is an eligible small business, that any loan requests of this nature be submitted through the regular 7(a) processing and not utilize any delegated authority.
-Ken Olson, SBA Consultant
Capital Growth Solutions, LLC