Access to Capital
Funding your farm or food business.
Funds, or capital, is any source of money that you will use to implement your business plan – to purchase assets, pay personnel (including yourself), and contract for services in order to generate income. Funding categories that may be available to farm and food businesses include investments, loans (including standard commercial loans, low-interest loans, and loan guarantees), and grants.
When you offer someone an investment opportunity in your business, you are essentially offering them an ownership stake (“equity”). Investors 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, and therefore may want to have a say in important business decisions. The investor will not receive benefits from their ownership until they sell their share of the business for a profit, so 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).
Traditional loans provide immediate access to funding in exchange for a commitment to repay the funds over a defined period of time, 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.
Lenders do, however, risk losing the funds if the business defaults (is unable to repay the loan). Lenders seek to minimize that risk by lending to the most creditworthy businesses, using the five C’s to inform their risk evaluation:
Capital – the measure of the farmer’s equity investment in the enterprise.
Collateral – the question of how the loan is to be secured against business failure or loan default.
Conditions – the lender’s consideration of the big picture within which your business plan will fall.
Character – how the lender looks at the farmer’s capacity to execute the business plan successfully, involving both management capacity and examination of credit history.
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.
While the promise of free money is enticing, the process of applying for a grant and then accepting, monitoring, and evaluating the success of your grant-funded work is more than many are prepared for. Our Grants 101 webinar can help decipher eligibility and requirements to assess what funding opportunities are right for your business.
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. Such grant programs could be designed for a myriad of reasons, such as to encourage the development of innovative business models, help businesses transition in response to disruptive changes in the marketplace, or strengthen businesses whose continued viability is deemed to be important to the industry or the community in which it is located.
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 (assets or services) in lieu of cash.
Many grants are available to both for-profit and non-profit applicants, while some are restricted to applicants with a non-profit mission. For-profit businesses seeking grant funding may consider allying with an established non-profit via fiscal sponsorship.
The USDA has several grant opportunities along with the NYS Department of Agriculture, NYS Agricultural Society, Farm Aid, and many others. For a full list of available grants, or if you need assistance with your grant application, fill out our consultation request form and a member of our team will reach out to you.
CADE’s Fiscal Sponsorship Program allows CADE, as a registered 501(c)3 not-for-profit, to act as a mediator between funders and sponsored farm and food businesses. This means that grants normally reserved for non-profit organizations can be awarded to for-profit farm and food businesses, and individuals interested in funding projects or donating to farm and food businesses may receive a tax exemption letter for their contribution.
As a fiscal sponsor, CADE acts as a non-profit tax-exempt umbrella organization that accepts and administers contributions made to a project implemented by a farm and food business. CADE is legally responsible for the funds received on behalf of fiscally sponsored projects and must ensure that the funds are used for charitable activities, as agreed upon between the donor and recipient, and that the donor reporting requirements are met in a timely fashion. It does not mean that CADE is in any way connected to the content or actual production of the project. All proprietary rights, interest in and to the completed project will belong to the farm operation.
Fiscal sponsorship does not automatically provide grants or research for individual project funding. It is a fee-based contractual agreement where CADE receives a fee (10% of project income) in exchange for administering the award. There is no minimum amount of money required to qualify as a recipient of a fiscal sponsorship, but we aim to work with clients in need of at least $4,000.
To apply for fiscal sponsorship, fill out CADE’s application and email your completed application to hello@cadefarms.org with the subject “CADE Fiscal Sponsorship Application.” Eligibility requirements include having a farm or food business enterprise based in New York State and providing us with your FEIN or SSN (if self-employed).
If you are interested in sponsoring a farm or food business via fiscal sponsorship, write to hello@cadefarms.org with the subject “CADE Fiscal Sponsorship Program.”
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. Some common crowdfunding platforms include:
