Agri News staff writer
CHANDLER, Minn. -- When leaders of a meat snacks manufacturing facility in southwest Minnesota were looking for financing to grow their business, they didn't take the traditional loan approach.
Instead, Monogram Meat Snacks of Chandler got support from a federal agency. USDA Rural Development promised to pay their lender up to 80 percent of each of their loans if the company can't cover the costs.
It's possible through the agency's Business and Industry guaranteed loan program. The current economic climate has caused growing interest in it and now, thanks to a boost from the economic stimulus package, $1.7 billion in extra money is available that has to be used nationwide before Sept. 30, 2010.
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The program can work with loans as big as $25 million, or $40 million for some agriculture cooperatives. Usually, guarantees cover 60 percent to 80 percent of a loan, but stimulus funds can go even higher, with guarantees up to 90 percent. They also require less fees than usual.
The loan must go to businesses in rural areas. Eligible projects include construction, working capital and refinancing loans. Agriculture producers are usually not eligible, however, because assistance for them is set up through Farm Service Agency programs.
The goal of the guaranteed loan program is to reduce risk for lenders so they're more willing to make loans that expand businesses and create or retain jobs.
"We want to improve the economic climate of a rural area," said David Gaffaney, the agency's business and cooperative programs director.
After issuing bonds between 2008 and 2009, Monogram Meat Snacks received $6.3 million from AgStar Financial Services' Rural Capital Network. With this and grant money, they've purchased equipment and made building modifications to start producing smoked sausage. They also increased their production capacity for beef jerky.
Monogram, Murray County's largest employer, added 60 jobs because of the improvements. They're hiring more than 35 additional employees, according to Don Brunson, chief operating officer of Monogram Food Solutions, based in Memphis, Tenn. Monogram Meat Snacks is a division of Monogram Food Solutions.
This all extends into the local economy, Brunson said. Their construction jobs went to local companies, they will continue to buy meat from suppliers in the region and their employees will continue to spend money in the area.
Ches Jackson, president and COO of Monogram Meat Snacks, said the program was vital.
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"If it were not for programs like that that were available, it would make it impossible, or certainly difficult, to fund these projects and create these types of jobs," he said.
The program usually guarantees $20 million to $30 million worth of loans each year in Minnesota. Nationwide, it's $1 billion. Funds have come from the nation's agriculture appropriations bill since 1972.
Bob Madsen, head of AgStar's branch that purchased Monogram's bonds, said in the past some borrowers and lenders didn't want to wait the extra 30 to 60 days it typically takes for USDA Rural Development to process their application. Now, they're willing to wait.
AgStar has offered lower interest rates on these loans, typically one percent lower. And, although AgStar chooses not to, lenders can sell the guaranteed portion, leveraging the funds to make more loans.
"In today's financial times, the guarantee programs are really important and very helpful to the lending community," said Madsen.
USDA Rural Development also has other types of guaranteed loan programs, such as those for rural housing and community facilities.
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