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How Economic Development Tools Help Food Companies Expand

01/08/2020 Kenneth Holub, Senior Vice President, Commercial Executive and Kati Behrens, Vice President, Relationship Manager

Consumer packaged goods make up one of the largest industries in North America. Here's how economic development tools are helping food companies grow. 

With an eye-popping value of about $2 trillion, consumer packaged goods make up one of the largest industries in North America.

That segment includes pre-packaged food and beverages, which is led by household-name companies such as Coca-Cola, Kraft-Heinz and Kellogg’s. But there’s still room for startup and middle-market companies to expand and grow in this space. For instance, little-known brands like JC’s Pie Pops, LIFEAID energy drinks and BrightFarms produce are raking in millions in annual revenue, according to Inc. magazine.

An array of economic development tools are available to help smaller food companies expand, as evidenced by incubators like The Hatchery in Chicago. At The Hatchery, food entrepreneurs have access to the kitchen space, education, and other resources needed to build and grow their food and beverage companies.

Middle-market and smaller food businesses may get a boost from other economic development programs, to provide them with the capital and tools they need to expand. Here are three to consider.

1. New Markets Tax Credit

The New Markets Tax Credit (NMTC) is a federal program to help boost development in low-income communities. It's designed to stimulate the investment of private capital into underserved markets. To benefit from this tax credit, an organization must become certified as a Community Development Entity and must have a primary mission of investing in low-income communities and populations. Companies that are doing business in a qualified, low- to moderate-income census area could benefit from Community Development Entities by attracting additional equity into their projects or by getting a lower cost of funding for their projects.

For instance, with financing from NMTC equity, Amped Kitchens Chicago is opening a new 113,000-square-foot facility with 64 kitchens that will be leased to food manufacturing companies of all sizes.

Food entrepreneurs and company leaders that want to expand or grow their food manufacturing businesses can rent kitchen space at Amped Kitchens as well as access to loading docks, conference rooms, warehouse, and refrigerator space. They’ll also receive health and safety support, an expedited pathway to health permits and logistical support.

2. Small Business Administration Loans

The U.S. Small Business Administration (SBA) provides loans for small businesses with growth potential, including many food businesses. Many traditional lenders, including banks, offer SBA loans, but because these loans are guaranteed by the federal government, the qualifications to obtain them are less stringent than with traditional business loans.

To qualify for an SBA loan, your business must be classified as “small” by the government—but businesses with hundreds of employees may still be eligible. Your classification as a small business depends on your industry, total receipts and number of employees. You can use the SBA’s size standards tool to determine whether you qualify.

In addition to being a small business, SBA loan recipients must demonstrate excellent personal credit and strong business financials. Loans guaranteed by the SBA come in a wide range of dollar amounts and can be used to purchase fixed assets or for ongoing operating capital. Before applying, check with your SBA-approved lender to make sure the use you have in mind will be allowed.

Learn more about available SBA-backed loans here.

3. Healthy Food Financing Initiative

The Healthy Food Financing Initiative (HFFI) was launched in 2010 to bring grocery stores and other healthy food retailers to underserved urban and rural communities. These communities are known as “food deserts,” where residents often rely on convenience stores and fast-food restaurants that offer little or no healthy foods.

The HFFI, which is overseen by the U.S. Department of Health and Human Services, helps grow food businesses and improve food deserts in three ways, through various government departments:

  • Offers competitive grants for projects that finance grocery stores, farmer’s markets and other sources of fresh, nutritious food;
  • Provides financial assistance and training to businesses that offer healthy food options;
  • Provides support for food retailers to work with local farmers and food producers.

If your food company serves or would like to serve people in food deserts, it may qualify for some of the services and resources of the HFFI.

Through participating in economic development programs like these, startup and middle-market food companies can expand their market share as well as provide needed food products to people in rural, low-income or underserved communities. For many food company leaders, reaching people with good food is the goal—and these programs help make that happen.

The views expressed by the authors are not necessarily those of Fifth Third Bank, National Association and are solely the opinions of the authors. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank, National Association. Member FDIC.

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