Funding your farm, farm startup, or farm project

“Funding” is a general term. It can mean any of these approaches or a combination of them:

  1. Investment or “equity” funding is where the source of the money invests in your project in trade for a piece of the ownership of it. Equity funding is often used to acquire operating or expansion capital. This is basically how the stock market works, but is also often done on a small scale.
  2. Loans are money given for an agreed upon period of time, with the intention that they will be paid back with or without interest. Loans may or may not be “secured” by collateral, meaning that if the loan cannot be repaid, the lender gets the collateral instead. Loans from friends or family are often “unsecured” (the “collateral” being the relationship itself), whereas loans from lending institutions almost always are secured by collateral, such as real estate, vehicles, buildings or other items of value, on which the lender is said to have a “lien” for the duration of the loan.
  3. Donations or contributions is money given freely by those who share your desire to see your project succeed. These contributors may be friends, family or even individuals who have found you through crowdfunding sources. Some reporting of how the money gets used may be expected.
  4. Grants are money given by a government, for-profit or nonprofit entity in response to getting an application for funding. If the grantor feels that the plan set forth in the application is likely further some set of goals they deem worthwhile and that the applicant is credible, then the money is “awarded” to the applicant and periodic reports must be sent to the grantor to show how the project is progressing and exactly how the money is being used. Sometimes project money needs to be spent first, and is then reimbursed via the grant. Some grants are awarded only to non-profit 501(c)3 organizations, so it may be necessary to work with one of these as your “fiscal sponsor”.
  5. Also see FAME’s financial glossary.

Traditional Funding Sources

Finding Funds For Farming, Maine Farmers Guide to Loans and Grants.

ME Dept of Ag, July 2011, downloadable pdf

A comprehensive 81 page booklet of names and contact info for banks and credit unions in the state as well as profit, nonprofit and government organizations that offer loan and grant possibilities for farmers in Maine. An impressive opus, it covers most of the existing traditional loan and grant opportunities.

http://www.getrealmaine.com/index.cfm/fuseaction/faqs.showpage/pageID/100/index.htm and the booklet itself: http://www.getrealmaine.com/_ccLib/attachments/pages/Loans_and_grants_booklet.pdf

New Funding Sources

MOFGA’s Organic Farmer Loan Fund makes loans in the range of $5,000 to $20,000 to MOFGA-certified farmers or transitioning farmers for working capital or investments in equipment or infrastructure. MOFGA is particularly interested in lending to organic farmers who need to establish a credit history so that they may borrow from traditional sources in the future. For more information, call 207-568-4142, send an email to loanfund@mofga.org or visit our website:http://www.mofga.org/Programs/OrganicFarmerLoanFund.

Coastal Enterprises, Inc.’s Sustainable Agriculture Fund offers a wide range of financing options, from microloans of $5,000 to investments up to and beyond $500,000 for farm mortgages, operations, equipment, buildings and supplies, and other working capital needs. Rates are fixed, starting at 5%, and repayment is matched to cash flow.  Applications are accepted at any time. In addition to loan capital, free business planning counseling and lending technical assistance is available. For more information call Gray Harris at 207-882-5135 or send an email to gharris@ceimaine.org

Maine Organic Lenders is an investment club that will lend to organic farms throughout Maine, and have a special interest in Knox, Waldo and Lincoln counties. They will make loans up to $25,000 and will consider flexible terms.  Applications will be accepted at any time. Please contact Deb Chapman atcci@midcoast.com  for more information.

Farm Service Agency (FSA) Microloan Program.  A new FSA program aimed at bolstering the progress of producers through their start-up years by providing needed resources and helping to increase equity so that farmers may eventually graduate to commercial credit and expand their operations. The microloan program will also provide a less burdensome, more simplified application process in comparison to traditional farm loans.   Producers can apply for a maximum of $35,000 to pay for initial start-up expenses such as hoop houses to extend the growing season, essential tools, irrigation, delivery vehicles, and annual expenses such as seed, fertilizer, utilities, land rents, marketing, and distribution expenses.
http://www.fsa.usda.gov/FSA/webapp?area=home&subject=fmlp&topic=dfl

Crowdfunding

Crowdfunding is a technique of asking the general public to fund your project, almost without regard to what that project is. Crowdfunding sources are web-based and now consist of donation types but may soon include investment (equity) types.

Indiegogo

Indiegogo is a donation-type web-based crowdfunding method of raising funds. Charges 4% of funds raised from the public, has plan for partial funding if full funding is not obtained at a 9% charge rate.
http://www.indiegogo.com
“Indiegogo is a crowdfunding platform where people who want to raise money can create fundraising campaigns to tell their story and get the word out. Indiegogo is also a place to discover what people all over the world are passionate about and how to get involved. ”

Kickstarter

Kickstarter is a  donation-type web-based crowdfunding method of raising funds. They charge 5% for completed projects; contributed funds for uncompleted projects get refunded to donors (called all-or-nothing funding).
Kickstarter.com
“Kickstarter is a funding platform for creative projects. Everything from films, games, and music to art, design, and technology. Kickstarter is full of ambitious, innovative, and imaginative projects that are brought to life through the direct support of others. Since our launch on April 28, 2009, over $350 million has been pledged by more than 2.5 million people, funding more than 30,000 creative projects.”
Some Maine farmers and farmers’ markets have used Kickstarter to fund their projects in the recent past.

Fundable

Fundable is a crowdfunding website for small businesses, with plans for either “rewards” or “equity” for those pledging funds.  Building and promoting your company profile is free, but they charge $99/month for the time you are actually fundraising. Fundable is an all-or-nothing plan, and if your fundraising goal is reached, all of the money goes to you, no fees are deducted.
fundable.com

Community Supported Agriculture (CSA)

Community Supported Agriculture is an investment type crowdfunding system run by individual enterprises, or groups of similar enterprises, that act as pre-pay accounts which are marketed directly to potential retail customers as a means of annually raising capital to fund the year’s or partial year’s operations. Benefit to the CSA subscriber may be either via a fraction-of-production system or a credit-against-purchases system. In each case CSA subscribers invest with the expectation of getting a share of the production—as determined by the CSA issuer—to be the return on their investment. In 2012 dozens of CSA plans existed in Maine. See MOFGA’s CSA Directory for a list of CSA farms in Maine. Other variations also exist, such as Community Supported Seeds run by seed companies andCommunity Supported Fisheries run by fishing enterprises.

Credibles

Credibles.org is a new Slow Money web-based crowdfunding source. “Pre-pay the business now and receive Credibles – edible credits. The business uses your pre-payment to ramp up and grow its operations. Use your Credibles as payment for future purchases or as gifts.” Credibles are credits that get repaid in products you produce rather than cash. Thus Credibles works somewhat like a debit-type CSA that designed to work for any food business. Currently in beta phase and only available in NYC and California. Stay tuned.

In the Pipeline

Web-based equity-type crowdfunding sources (where the funding buys an equity share in the enterprise) have in the past been illegal in the US, but are common in Europe. They soon will soon be allowed here in the U.S. as well, perhaps as soon as mid 2013.

About Tom Roberts

When I started attending the Brewer Farmers’ Market back in August of 1983, my sole concern was being able to sell the produce my farm was growing at a good price. After attending market for a year or two, I began to realize that how the market was organized had a great impact on my sales. And how the market was organized also influenced how it made decisions about dues, new members, what could be sold at market, and how it promoted itself—and this, too, had an impact on my sales. So I got involved in the market’s steering committee and began to understand how various market members thought the market should operate. Some wanted a market czar, some wanted everyone to be allowed to do their own thing. But everyone seemed to agree that if the market as a whole did well, then so did they.