Jeremy Gilpin is Executive Vice President of Greater commercial lending (GCL).

Crises often bring innovation – new technology, new solutions, new opportunities. The Great Depression, for example, was followed by a great rise in innovation and, I would say, another industrial revolution.

The innovations are usually the result of the underlying issues that the crisis itself has revealed. With Covid, among many other issues, we saw severe disruptions to the food supply chain in the United States during the height of the pandemic. Restrictive food trade policies, financial pressures, changes in consumer demand, closure of food production facilities and manpower issues have all affected food production, processing and distribution.

Indeed, the global pandemic and geopolitical conflicts have exposed the kinks of our food supply chain because we have had the same supply chain for decades. We have found that there is a great need for upgrades and new technology to increase flexibility.

Of course, these kinds of innovations don’t come without a cost because new technology is expensive. But healthy foods that are produced and delivered faster, more efficiently, and at a better cost, should be a priority. So how can agriculture and food businesses, especially those in rural and underserved areas, raise much-needed capital to increase food security in the United States?

One answer is through the United States Department of Agriculture (USDA). The USDA Rural Development Agency offers a variety of government-guaranteed loan programs that enable lending institutions to arrange flexible financing for businesses and initiatives that may not have access to traditional financing that meets their needs.

In fact, the USDA recently announced the Food System Transformation Framework, which is designed to enhance the diet across the entire supply chain. I fully agree with the USDA message that the American food system should be decentralized from a few geographic areas to more local areas across the country. Another benefit of this, as the USDA rightly pointed out, is more choice for consumers. Increased regional capacity means more buying options. And of course, there is job creation and other economic benefits.

One aspect of the new USDA framework is the Food Supply Chain Guaranteed Loan Program, which guarantees loans of up to $40 million to eligible private lenders to finance food system projects. The USDA has set aside $100 million to provide more than $1 billion in secured loans available for food processing, distribution, and assembly infrastructure.

When new (or existing) food businesses are supported by these types of loans, there is also an abundance of benefits for local communities. Increased employment and a larger tax base, which better supports the needs of society - such as health care and infrastructure - are just two advantages.

There is even a climate benefit to many of these food supply chain projects. Today, new technology usually brings less pollution and other climate-friendly benefits. For example, one Alaskan seafood processing company uses proprietary quick-freezing technology on board a floating processor in its fishing grounds. Local fishing vessels sell fresh salmon to Northline Seafoods at the source, eliminating several days of transportation, fuel, and lost quality.

The best way for lenders, including community banks and credit unions, to maximize loan guarantee programs (such as the USDA's Food Supply Chain Program) is to seek out projects that enhance food security. And the geared towards expansion of production. These are likely to be more favorable opportunities than those focused on refinancing.

As with any new financing or venture, there are a few things to keep in mind for both borrowers and lenders. Borrowers should note that this program has a loan limit of $40 million and there are some refinancing restrictions. With this in mind, it tends to be best used as a financing resource for new production or technology. In other words, you will likely need to be part of a larger loan package. Lenders should keep in mind that these are long-term loans, sometimes up to 40 years, and often at fixed interest rates.

I've written previously about how companies are exploring government-guaranteed loans - a solid project scope chart is a great place to start. Talk to your local USDA office as they may have a program for you.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.

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