Cooperative Stock Purchase Program

10 Pages·1998·0.44 MB·English

by  United States. Rural Development

Historic, Archive Document
Do not assume content reflects current
scientific knowledge, policies, or practices.
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Rural Business-
Cooperative
Service
Cooperatives have longprovided aneffectivebusi-
ness structure for helpingruralAmericans process
and markettheirproducts and to acquire needed
goods and services. As part ofits mission to create
new opportunities for ruralAmerica, USDARural
Development is striving to stimulate the creation of
new cooperatives that canhelp boost the rural
economyin the 21stcentury.
Agricultural cooperatives will likely grow in
importance as more farmers and ranchers seekto
transform their commodities into value-added
products. Co-ops can also helpbring stabilityto
agricultural markets as Federal farm income sup-
portprograms wind down. USDARural Develop-
mentwill continue to supportthe creation ofcoop-
eratives through a number ofservices, one ofwhich
is the Business and Industry (B&I) Guaranteed
LoanProgram. The B&Iprogramworks with the
private sector toboost the Nation's rural economy
by supportingbusinesses thatproduce orpreserve
ruraljobs. Borrowers first seekfinancing from a
local lender in their area, and the lender in turn
seeks a guarantee fromUSDA. This programwas
expandedby the 1996 Farm Bill to provide loans
forproducers seeking tojoinnew cooperatives that
produce value-added goods.
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Family farmers can use B&I loan guarantees to help
pay for stock in a start-up cooperative that
processes their agricultural commodity into a
value-added product. The co-op mustbe a new
cooperative venture, not an expansion or diversifi-
cation of an existing co-op. Further, the producer
mustbe a family-sized farmer, as defined by the
USDAFarm ServiceAgency.
The cooperative entity must make a written request
to its USDARural Development State Office for a
determination ofeligibilityprior to approval ofany
cooperative stockloans to individual producers.
Applications for a Cooperative Stock Purchase Pro-
gram loan are processed through an eligible lender
(bank, savings and loan. Farm Credit System, etc.).
A
feasibility study ofthe cooperative entityis
required. While a feasibility study on the individual
producer will notbe needed, the lender is required
to provide (as part of an application) a complete
written analysis covering, among other things,
repayment ability ofthe producer.
Environmental
Cgncgrne
A
single cooperative stock share loan cannotbe
linked with a specific actionwhich significantly
impacts the environment. However, the cooperative
is strongly encouraged to complete an environmen-
tal analysis to evaluate the potential environmental
impacts ofthe proposal; aid in the selection ofa
site; and ensure compliance with applicable Fed-
eral, State, and local environmental requirements.
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The maximum guarantee is 80 percent.
The maximum loan amount is $400,000.
Loans have a maximum term of 7years.
The interest rate for the guaranteed loanwillbe
negotiatedbetween the lender and the producer
and maybe either fixed orvariable.
The guarantee fee is 2 percent ofthe guaranteed
portion ofthe loan. This is a one-time fee paidby
the lender. The fee canbe passed on to the pro-
ducer.
There is no testfor availability ofcredit from
commercial creditors.
Normally, personal and corporate guarantees are
required.
Tangible Balance Sheet
Since farm producers who come to USDAfor a
guarantee will already havebeen established as an
existingbusiness (i.e., having operated for more
than 1 year) by the time ofthe request, only a 10
percent tangiblebalance sheet equity is required.
The tangiblebalance sheet equity mustbe deter-
mined in accordance with GenerallyAccepted
Accounting Principles (GAAP). Financial state-
ments do notneed tobe doneby an accountant,but
the presentation ofthe financial statements willbe
formatted andbased upon GAAP.
The stock acquired with loan funds and personal
guarantees oftheborrower will ordinarilybe taken,
butthe lender will determine the sufficiency ofcol-
lateral in accordance with its normal lendingprac-
tices.
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Appraisals are not required on the cooperative
stock shares. Ifadditional collateral is offered as
security, itwillneed tobe assessed to determine
value and discounted appropriately.
Producers need to provide:
• financial records for the most recent3 years;
• a current (notmore than 90 days old) balance
sheet and profit and loss statement;
• pro-formabalance sheet at start-up, prepared in
accordance withGAAP; and
• projectedbalance sheets, income and expense
statements, and cashflow statements for the next
2 years, including the list ofassumptions upon
which the projections arebased, also prepared in
GAAP
accordance with
At a minimum, annual financial statements pre-
pared in accordance with GAAP are required. We
will accept the lender's certification thatthebor-
rower's financial statements havebeenprepared
accordingly.
For more information, contact the USDARural
DevelopmentState Office or any Rural Develop-
ment field office:
Or call the Rural Business-Cooperative Service
(RBS) at [phone]. You may also visit our
home page on the Internet:
http://www.rurdev.usda.gov
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The U.S. Department of Agriculture (USDA) prohibits dis-
crimination in all its programs and activities on the basis
of race, color, national origin, gender, religion, age, dis-
ability, political beliefs, sexual orientation, and marital or
familial status. (Not all prohibited bases apply to all pro-
grams.) Persons with disabilities who require alternative
means forcommunication of program information (Braille,
large print, audiotape, etc.) should contact USDA's
TARGET Center at [phone] (voice and TDD).
To file a complaint of discrimination, write USDA, Direc-
tor, Office of Civil Rights, Room 326-W, Whitten Building,
1400 Independence Avenue, SW, Washington, D.C.
20250-9410, or call [phone] (voice orTDD).
USDA is an equal opportunity provider and employer.
PA 1640
Issued November 1998