Case study
State-inspected to federal grant, and the contingency that saved it
- Business
- A state-inspected harvest and processing plant
- Location
- Northern Missouri
- Product
- USDA plant buildout
- Industry
- Meat processing
$1,094,000
11-month build, grant issued at month 14
- Total project
- $1,094,000
- Contingency held
- $117,000 at 12%
- Contingency consumed
- $104,000
- Owner equity
- $164,100 at 15%
- Construction rate
- 10.2%, interest only
- Permanent takeout
- SBA 504 at 6.3% fixed, 25 years
- Grant issued
- Month 14
Sec. 01 — The business
Who they are.
A harvest and processing plant in northern Missouri, state-inspected, running roughly 40 head a week across beef and hogs for local producers, freezer-beef customers and two independent grocers. Family-owned, in business since 2006, with a good reputation among producers within about a ninety-mile radius and a booking calendar that ran four months out. What it did not have was any capacity to sell across a state line, which capped the business at whatever Missouri could absorb.
Sec. 02 — The problem
What was actually wrong.
A regional grocery chain offered a supply agreement that required federal inspection, and two neighbouring states represented obvious demand the plant legally could not serve. Converting from state to federal inspection meant bringing the facility to the standard a grant of inspection requires — a much larger job than the owner had assumed, because the building had been added to twice since 2006 and none of it had been built with federal inspection in mind.
Sec. 03 — The constraint
What made it hard.
FSIS plan review came back with comments on drainage slope, raw-to-ready-to-eat separation and welfare facilities. Those three items alone added roughly $340,000 to a project the owner had estimated at $650,000. The plant also could not stop operating during construction, because the existing state-inspected business was what serviced the debt, which meant phasing the work around live production and accepting a longer build. Harvest days continued through most of the project, with the contractor working around a schedule set by animals rather than by the construction calendar - an arrangement that added roughly six weeks and was non-negotiable.
Sec. 04 — The product
What we used, and why.
A staged construction facility at 10.2 percent, interest-only on drawn balances across eleven months, sized at $1,094,000 including a 12 percent contingency of $117,000 that the owner initially wanted to cut to make the number smaller. We would not write it without the contingency. On completion the balance was taken out by SBA 504 at 6.3 percent fixed over 25 years, with the owner’s 15 percent equity injection funded partly by a HELOC so the operating account was not drained going into the build.
Sec. 05 — The outcome
What happened.
Grant of inspection was issued fourteen months after the first draw. The contingency was almost entirely consumed — $104,000 of the $117,000 — by undersized electrical service, a failed drain line under the original slab, and additional separation work the district office required once framing was up. None of that was visible at bid stage. Financed at the owner’s original estimate, the project would have stopped around month eight with an unusable facility and no revenue to service the drawn balance. The supply agreement with the grocery chain began the quarter after the grant was issued, and the two neighbouring states opened up as a direct consequence. Weekly throughput has since risen from roughly 40 head to 65, and the plant has added six employees. The owner now recommends a fifteen percent contingency to anyone who asks, having argued hard against twelve.
This case study is a composite illustration written to show how a file of this type is structured. It is not attributed to a real, named business, and the outcome has not been independently verified. Figures shown are illustrative and are not an offer of credit.
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