Funding 101
Business funds are any money that you will use to run your business, including everything from making purchases to paying employees (including yourself) and service providers. These funds are sometimes called capital. Opportunities for raising business funds can include investments, loans, grants, crowdfunding, and fiscal sponsorship.
Investments
When you offer someone a chance to invest in your business, you are giving them part ownership, which is called "equity." Investors want to share in the business’s success, but they also take on some risk. Because of this, they may want a say in important decisions. Investors do not make money until they sell their part of the business for a profit. That’s why it’s important to agree on clear terms for how they can leave the investment. These terms should include how much their share is worth, when they can sell it, and how they will be paid.
Loans
Traditional loans will give you funds right away, but you have to pay it back over time with interest. No matter how well or poorly your business does, the borrower (you) must follow the repayment plan. Unlike investors, lenders do not share in the risks or rewards of the business—they just expect to be paid back.
Lenders do, however, risk losing money if the borrower is unable to repay their loan. Lenders try to minimize that risk by lending to the most creditworthy businesses, using the “Five C’s” to inform their risk evaluation:
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Cash flow – Your ability to pay. Lenders check your income (how much money you make) and expenses (how much you spend) to see if you can afford to make loan payments.
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Capital – What you own. If you have savings, investments, or other valuable things, lenders feel more confident that you can handle the loan.
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Collateral – Can you offer something valuable as a promise to repay the loan? For example, if you borrow money to buy a car, the car itself might be the collateral. If you don’t pay back the loan, the lender can take the car.
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Conditions – Additional factors that might affect your ability to repay. Lenders look at things like the economy, your job situation, and the purpose of the loan to decide if it’s a good risk.
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Character – Can the lender reasonably trust you to repay the loan? Lenders look at your history of paying bills on time and making responsible money choices. If you have a good track record, they will be more confident that you’ll pay back the loan.
Many commercial banks offer loans for farm and food businesses. Farm Credit East 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. Read about USDA farm loan programs available to you, or use the farm loan discovery tool by answering a few questions to find out which loans may be right for you.
Grants
Free money sounds great, but applying for a grant—and following all the requirements once you get it—is more work than many people are prepared for. Our Grants 101 webinar can help you understand those requirements so you can see if a particular grant is right for your business.
Governments and non-profit charities can offer grants to farms and food businesses to support various social, economic, or environmental goals. These grants don’t need to be paid back, and you don’t have to give up business ownership. Grants might be given to help businesses create new ideas, adjust to major changes, or just to keep running if they are important to their industry or community.
Even though grant providers don’t focus on profits, they do want to invest in projects that will make a long-term impact. That means they look for businesses with good leadership and strong connections in their industry and community. They also prefer projects that have other financial support, like investments, loans, or other grants.
Many grants are available to both for-profit and non-profit businesses, while others are strictly for for non-profits. If you run a for-profit business, you might be able to partner with a non-profit in an arrangement known as fiscal sponsorship to qualify for these funding opportunities.
Organizations like the USDA, NYS Department of Agriculture, SARE, Farm Aid, and NYFVI offer several grant opportunities. If you need help finding or applying for a grant, fill out our Support Request form and a member of our team will assist you.
Crowdfunding
Crowdfunding is when a lot of people each contribute a small amount of money to help fund a business or project. Instead of relying on a few big investors, crowdfunding allows any number of people to participate in growing your business. This makes it easier for new businesses to get started by connecting them with a wide range of people who want to support new ideas, not just wealthy investors. Some common crowdfunding platforms include:
Fiscal Sponsorship
Fiscal sponsorship allows farm and food businesses to apply for grants normally reserved for non-profit organizations. Click here to learn more about CADE's fiscal sponsorship program.
Still have questions, or need help navigating these resources? Fill out our Support Request Form and a member of our team will be in touch!