Evaluation of SBA's 7(a) Loans to Poultry Farmers

This report presents the results of our evaluation of the Small Business Administration’s (SBA’s) 7(a) loans made to poultry farmers.  The 7(a) Loan Program is SBA’s primary program for helping startup and existing small businesses, offering financing guarantees for loan amounts up to $5 million to fund startup costs, expand existing businesses, purchase equipment, repair existing capital, and other uses.  Our evaluation objective was to determine whether 7(a) loans made to poultry farmers (growers) met statutory, regulatory, and SBA requirements for eligibility.

We found that 7(a) loans made to growers did not meet regulatory and SBA requirements for eligibility.  The large chicken companies (integrators) in our sample exercised such comprehensive control over the growers that the SBA Office of Inspector General believes the concerns appear affiliative under SBA regulations.  Therefore, SBA and lenders approved 7(a) loans that were apparently ineligible under SBA size standard regulations and requirements.

We found integrator control exercised through a series of contractual restrictions, management agreements, oversight inspections, and market controls.  This control overcame practically all of a grower’s ability to operate their business independent of integrator mandates.  As a result, from FY 2012 to FY 2016, SBA guaranteed approximately $1.8 billion in loans that may be ineligible.

We provided two recommendations to improve SBA’s oversight of the 7(a) Loan Program.