An evaluation made by the Small Business Administration’s Office of Inspector General regarding loans made to poultry farmers and growers concluded most do not meet regulatory and SBA requirements for eligibility.
Poultry Farms Are Not Small Businesses?
In reaching this conclusion, the Office of Inspector General stated in its evaluation (PDF), large chicken companies or integrators exercised comprehensive control of such magnitude over growers as to make them affiliative under SBA regulations.
The control was so pervasive, the report states it overcame virtually all of the grower’s ability to operate their businesses independent of the established integrator mandates. The SBA has also concluded as a result close to $1.8 billion in loans made from fiscal year 2012 to fiscal year 2016 may be ineligible.
As part of its recommendations, the Office of Inspector General has suggested improvement in the SBA’s oversight of the 7(a) Loan Program, which was responsible for doling out the funds. This includes reviewing the loans cited in the evaluation, as well as the current arrangement between integrators and growers to determine their affiliations.
What is an SBA 7(a) Loan?
The SBA 7(a) Loan Guarantee program is designed help small businesses with qualification challenges in their traditional loan applications get funding. The program essentially encourages lenders to make loans to this segment by guarantying the loan against default.
The key point to remember here is, 7(a) was designed for small businesses and an organization has to be defined as such by the SBA to qualify.
So What is a Small Business?
According to the SBA and its small business size standards, there are a lot of exceptions as to what is technically classified as a small business. The two widely used standards suggest a small business must have 500 employees or less in the case of most manufacturing and mining industries and $7.5 million in average annual receipts for many nonmanufacturing industries. But the number for both employees and annual receipts can go as high as 1,500 and $38.5 million respectively.
If you are seeking a loan from the SBA and its 7(a) program, make sure you are not affiliated with a corporation that has overwhelming control of your small business.
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