Securing small business funding is hard enough already, but as a new report from the Small Business Association’s Office of the Inspector General suggests, a large amount of the SBA’s loan money may be indirectly benefiting large poultry conglomerates to the tune of $1.8 billion.
This money came in the form of loans to owners of small farms. On the surface, these farms operate in compliance with SBA small business standards. That is, until the Office of the Inspector General (OIG) took a closer look.
The OIG discovered that large processing companies hatch eggs and deliver them to farmers, who raise the chickens by purchasing feed from the processors only to finally deliver the chickens back to the processing plants. This meant that processing plants were raking in money from SBA loans given to farmers because they exercised total control over the process.
According to the report, “This control was enforced through close integrator oversight, management agreements, and grower-integrator communication. A grower’s failure to comply with these requirements could result in a significant decrease in integrator payments, a reduction in flock placements, or a cancellation of the contract.”
Democrat Representative Nydia M. Velázquez of New York, the top Democrat on the House Small Business Committee, spoke out about these findings: “When SBA loans go to firms that aren’t supposed to receive them, it means there are fewer resources available for deserving small businesses who struggle to secure capital.”
Deserving small businesses are left out to dry when there are gross inefficiencies in lending practices. Lending experts speculate that these poultry inefficiencies may just be the beginning. Small businesses who are indirectly owned or operated by large conglomerates can exist in any industry. As evidenced from this recent debacle, the SBA doesn’t yet have procedures in place to spot them.
“While I am glad the Inspector General has drawn attention to this matter, it is disconcerting these loans were made in the first place,” Velázquez concludes. “Our committee and congress have an obligation to investigate this problem further and ensure there are safeguards in place to prevent similar problems in the agriculture and other sectors in the future.”