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Access to Capital

Access to Capital refers to funding - any source of money that you will use to implement your business plan - to purchase assets, to pay personnel (including yourself), and to contract for services - in order to generate income to the business.

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Funding categories that may be available to farm and food businesses include:

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  • Investments

  • Loans, including standard commercial loans, low-interest loans, and loan guarantees

  • Grants

 

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Investments

 

When you offer someone an investment opportunity in your business, you are essentially offering them an ownership stake (“equity”). As an investor, they hope to benefit from the success of the business along with you; they also join you in taking on some of the risk of the business. In order to take on that risk, an investor may want to have a role in important business decisions. Because the investor will not receive the benefits from their ownership until they sell their share of the business for a profit, it’s critically important that any investment arrangement include mutually agreed-upon terms for the investor to exit - i.e., valuation of their ownership share, timing, and means of payment.

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Loans

 

Traditional loans provide access to funding now in exchange for a commitment to repay the funds over a defined period of time in the future, with interest. Whether the business falls short of or exceeds expectations, you (the borrower) commit to repaying the loan according to the agreed schedule; in that sense, compared to investors, lenders do not take on the same risks, nor do they have the same potential upside rewards as the business owner.

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Lenders do, however, risk losing the funds if the business defaults, i.e. is unable to repay the loan. Lenders seek to minimize that risk by lending to the most “creditworthy” businesses, using the “five C’s:

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  • Cash flow is a measure of the enterprise’s capacity to repay the loan.

  • Capital is the measure of the farmer’s equity investment in the enterprise.

  • Collateral is the question of how the loan is to be secured against business failure or loan default.

  • Conditions are the lender’s consideration of the big picture within which your business plan will fall.

  • Character is how the lender looks at the farmer’s capacity to execute the business plan successfully, and involves both management capacity and examination of credit history.

    (source: https://rafiusa.org/farmers-five-c-s/)

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Many commercial banks offer loans for farm and food businesses. Farm Credit East in our region specializes in agriculture and has lending programs focused on startups and new farmers.

The US Department of Agriculture is an important source of loans (and loan guarantees) for farm businesses, including businesses that have been unable to access loans from commercial lenders.

 

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Grants

 

In the interest of supporting a variety of specific social, economic, and environmental goals, government agencies and private non-profit organizations make funds available to farms and food businesses with no requirement of repayment or ownership equity. Examples of the goals that grant programs are designed to address are: to encourage the development of innovative business models; to help businesses transition in response to disruptive changes in the marketplace; and to strengthen businesses whose continued viability is deemed to be important to the industry or the community in which it is located.

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While grant-making agencies are not primarily concerned about the profitability of the projects they support, they will only fund projects that they are convinced can have a lasting impact beyond the period during which the grant funds are being spent. With that in mind, they will seek out grantees with demonstrated general management capabilities and with a strong presence in the community and industry in which they will be working. Grantors will also typically favor projects where other entities have made significant commitments - whether in the form of investments, loans or other grants. Many grants will have specific “matching” requirements, under which the grantee commits to providing some percentage of total project funding from other sources; some grants will allow at least a portion of this funding to take the form of “in-kind’ contributions of assets or services.

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While some grants are available to both for-profit and non-profit applicants, some are restricted to applicants with a non-profit mission. For-profit businesses seeking grant funding may consider allying with an established non-profit using a tool called fiscal sponsorship.

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Crowdfunding and Micro-Lending Sources

According to Investopedia: “Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together, with the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives and venture capitalists.” (investopedia.com/terms/c/crowdfunding.asp)

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Ongoing Grants

This is an evolving list of funding opportunities; we do our best to keep it up to date, but if you notice something missing or information that appears to be out of date don’t hesitate to flag it for us with an email to info@cadefarms.org.

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In July 2020 Farm Credit East released a useful compilation of grants and incentives for Northeast Agriculture:

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Grants for Farmers:​

 

Grants for Nonprofits - Public funders:

 

Grants for Nonprofits - Other:

 

Grants for Schools & Universities:

Image by Robert Kalinagil
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