Businesses that buy raw produce, meat, and several other types of agricultural products straight from the grower or farmer often have difficulty obtaining business credit due to provisions of the PACA laws, however, there are a few lenders throughout the United States that will make loans to PACA affected businesses.
Companies that directly purchase produce, meat and other food products directly from the grower or farmer have long known that obtaining financing for working capital and other purposes can be difficult. This is due to lender’s fear (and sometimes lack of knowledge) of certain Federal laws designed to insure that growers and farmers are promptly and fairly paid for their goods.
The laws generally known as PACA (The Perishable Agricultural Commodities Act) were originally enacted in the 1930s and strengthened several times since. Lenders shy away from making loans to companies who buy livestock and produce for processing and further sales because the PACA laws have strict provisions that require a commercial buyer of goods protected under PACA to pay the original producer in a very short period of time and have stiff penalties when a buyer doesn’t comply. Lenders who make loans to small businesses are always concerned that they have a perfected lien on their collateral and more importantly, that no other entities have the legal right to interfere with their source of repayment. Broad provisions under PACA allow a grower or farmer to file liens that supersede those of secured creditors such as banks. Banks and other lenders do not like to take the risk that a PACA lien can be superior to theirs.
Thus, while PACA laws protect the farmer and producer of raw produce and meat, they make it difficult for the processor, canner, or food manufacturer to obtain financing.
Throughout the country there are niche lenders who do make working capital and other loans to companies that are at risk due to PACA. These lenders have made it their livelihood to completely understand the risks inherent in loaning money to small and medium sized businesses affected. Unfortunately, these lenders are hard to find. These lenders also vary greatly in terms of cost and lending requirements.
If your company needs financing and is affected by PACA, it is advantageous to work with a consultant who knows lenders who specialize in making loans for PACA affected companies. Many PACA financing consultants do not receive direct payment from their clients, but do receive commissions from lenders. Such commissions are part of the regular cost of doing business for lenders and do not normally add additional cost to the borrower. More importantly, an experienced and qualified loan consultant can save a company thousands of dollars in interest and fees, as well as help find the lender and type of loan that best suits a business.
