In order to start or grow a farm of food-based business, you need money. Farmers have more financing options than ever before to raise capital for their farm-based businesses, but choosing which fundraising methods to pursue requires knowing how they work. In this track, learn the criteria, sweet spots, pros and cons, tips and techniques of the many financing options available. Complete with interactive exercises, success stories, and cautionary tales, discover what it takes to access the right kinds of capital for your farm. You’ll leave with steps you can take right away, whether you are currently seeking financing or don’t expect to for years to come. Presenters: Rebecca Thistlewaite, Sustain Consulting Elizabeth Ü, Finance for Food Bill Kitsch, Mid-Atlantic Farm Credit Topics Covered: --Clarifying Your Values & Prioritizing Business Investments --Organizing Financial Records & Improving Your Credit Rating --Cash Flow, Budgeting & Enterprise Analysis --Overview of Financing Types & Laws to Keep in Mind --Loans; Land Financing Options; Grants; Community Supported Models; Crowdfunding --Social Capital: Why It’s Important & How to Build It --Equity Financing Presented at PASA's 23rd Annual Farming for the Future Conference: Letting Nature Lead. State College, PA. February 8, 2014

1. Raising Dough: Financing Your
Farm & Food-Based Business
Rebecca
Thistlethwaite
Elizabeth
Ü
Bill
Kitsch
PASA’s
Farming
for
the
Future
Conference
February
6,
2014
in
State
College,
PA

3. “Lack of Access to Capital”

4. Clarify Your Values

5. Clarify Your Values
business?

6. Clarify Your Values
•
•
•
•
•
•
Place
Control
Scale
Pace
of
growth
Financial
success
(…and
for
whom)
Time
horizon

7. Clarify Your Values
SupporLng
local
economy
“Organic”
(cerLfied
or
not?)
Humane
(cerLfied
or
not?)
PolluLon
reducLon
Renewable,
biodegradable,
recycled,
and/or
recyclable
packaging,
to-­‐go
ware,
(etc)
• Animal
power
• Biofuel(s)
•
•
•
•
•

8. Clarify Your Values
• Local
purchasing
• Transparency
• Food
jusLce,
food
sovereignty,
food
security,
food
access
• Job
creaLon
/
economic
development
• Healthy
and
safe
condiLons
for
employees
• CompensaLon,
benefit,
decision-­‐making
policies

9. A Few Considerations
Small
dollars
Millions
$$$
Inexpensive
Expensive
Quick
Takes
more
Cme
Li,le
paperwork
Lots
of
paperwork
Do
it
yourself
Requires
professional
help
Easy
to
manage
Lots
of
care
and
feeding
Good
for
introverts
Needs
a
people
person
Lower
credit
score
OK
Good
credit
required

10. Prioritizing Business Investments

11. What is Capital?
Financial - the financial resources available to
invest in a business; $$$
Social – relationships and networks that
involve higher levels of interpersonal trust
and norms of mutual aid and reciprocity
which act as RESOURCES for individuals
and facilitate collective action

12. “Fully 1/2 of all first purchases made
by a consumer were influenced by
social capital.”
-from Social Capital Community Benchmark
Survey, Harvard University, 2000 & 2006
RELATIONSHIPS MATTER

13. Why Social Capital?
Lending a hand
Lending money
Borrowing & bartering
Barn raising!
Insurance policy
Make friends and cooperators
Mutual learning and improving practices
Word of mouth marketing, referrals

14. Pete’s Greens barn fireJan. 2011, Craftsbury, VT

15. “Pete has a huge CSA, and a farmers’ market and
self branded wholesale presence in Vermont. I
think a lot has to do with the range of people
who see themselves as connected to the farm
—the size of the community from which the
farmer can draw their support. For a dairy
shipping milk, it seems that community is
limited really to the people who personally know
the farmer, whereas a direct-marketing farmer
clearly has a much wider pool of people who
feel invested in their farm.” – NOFA-VT

16. Building Social Capital
-Take stock of your social networks
-Share your values, walk your talk
-Represent your ‘brand’ at all times
-Connect with other farmers & like-minded
businesses
-Promote others, even competitors
-Consider volunteering
-Do lots of public speaking
-Charitable donations & sponsor events

17. Building Social Capital cont…
-Build a social media presence
-Farm tours & videos to build connection
with customers; transparency
-Local media tour or local chef tour
-School visits or bring kids out to farm
-Join chamber or other business groups
-Join boards of directors, steering committees,
food policy council, etc

18. Building or Enhancing Credit
• Order a free credit report from
www.annualcreditreport.com
• Look for inaccuracies & problem areas
• Work on raising your score by:
– Getting a small term loan (auto) & paying
on time
– Opening & managing 1-2 credit cards
– Paying all bills on time, automate bill
payments
– Closing store cards

19. Budgets, Savings, & Income
• Develop a budget for your personal life & try
sticking to it.
• Try to put a portion of your income into a
savings instrument each month. This will test
your financial resolve.
• Don’t quit your day job, particularly if you plan
to apply for some sort of loan that needs to
verify your income.
• Figure out your Debt:Income ratio. Ideally 36%
or less (ie. $1,400 debt obligations/4,000
income/mo.).

20. Business Finances
• Open bank account in business name
• Don’t use business account for personal
expenses
• If you want to pay yourself, you can either: 1)
wait till the end of the year & draw from any
net profits after taxes you realized, 2) take a
regular ‘owners draw’ from gross profits to
deposit into your personal account, or 3) put
yourself on payroll. They all have different tax
implications- ask an accountant what will
make most sense for your business.

21. Taxes
• Start filing taxes as soon as you start a
business. Schedule F is farm tax form,
Schedule C is small business tax form for sole
proprietorships.
• Don’t over exaggerate your business
expenses just to get a bigger tax refund. This
will come back to bite you if you ever want to
get a loan, find investors, or sell the business.
• Develop a depreciation schedule for asset
purchases & follow it (ie. $10K truck will last 10
years, thus depreciate $1K annually).

22. Record Keeping
• Keep track of all income and expenses
• Use boxes/folders/trays to house things
temporarily
• Create folders for everything once you have
reconciled them (after Quickbooks for example)
• Pay for all expenses using check or debit card,
not cash. This provides a backup receipt.
• Write due dates on bills. Put them in order of
payment in a place that you can see.
• If you don’t have time for regular bookkeeping,
contract that out for 2-4 hours a month

23. The 5 C’s of Credit

24. 5 C’s of Credit
• Character
• Capacity
• Capital
• Collateral
• Conditions

25. Character
• Integrity
– Personal and Professional
• Trustworthy
– Examples
• Business Plan
– Outline

26. Capacity
• Cash Flow
– Demonstrate your ability to repay the loan
• Projected Income
– How it will happen
• Expense Statement
– Demonstrate your ability to manage the
expenses

27. Capital
• Net Worth
– Total Assets – Total Liabilities
• Resources
– Off Farm Income
– Outside Investors
– Government Loans
– Guarantees

28. Collateral
Collateral is your ability to pledge assets
• Equipment
• Life of equipment must equal length of loan
• Livestock
• Real Estate

29. Conditions
• Economic Outlook
• Weather Patterns
• Potential for Flood
Conditions can be anything that puts your
success at risk.

30. Credit Score (the 6th C of Credit)
• A number used to estimate your credit
risk
• The score is calculated from your credit
report
• FICO (Fair Isaac Corporation)
– Used most by lenders
– 3 major credit reporting agencies: Equifax,
Experian, TransUnion
– Scores range from 300 - 850

31. Credit Score
• Ways to improve your credit score
– Apply for new credit accounts only as needed
– Manage revolving accounts responsibly
– Pay on time
– Be sure closed accounts no longer active
– Check your free credit report annually:
annualcreditreport.com

32. Bill Kitsch
Sales Manager
THANK YOU
Nmls #662745

33. Financial Statements
• Profit & Loss (Income Statement) should be
updated monthly
• Balance Sheet (Shows net worth & biz equity)
should be completed 1 x a year, at the same
time of year (i.e. 7th of each January)
• Cash Flow Budget should be completed 1 x a
year right before new year (or fiscal year)
• Ideally, compare your monthly P & L with your
budget to see where cost overruns or income
shortfalls might lie. Work on problem areas
immediately, don’t wait.

34. Income/Profit & Loss Statement
Revenues
FM
Sales
Farmstand
Restaurants
Grocer
subtotals
Less
COGS
Gross
Profit
OperaCng
Expenses
Insurance
ULliLes
Rent
DepreciaLon
Hired
Labor
Repairs
&
Maint.
Gas,
fuel,
&
oil
Property
taxes
Vet
&
Medicine
Supplies
Interest
Expenses
subtotals
Net
Profits
before
taxes
Est.
tax
liability
30%
Est.
Net
Profits
Veggies
22,000
8,000
5,000
12,000
47,000
25,000
22,000
Eggs
10,000
4,000
0
0
14,000
10,000
4,000
Meat
33,000
6,000
3,000
0
42,000
22,000
20,000
Total
65,000
18,000
8,000
12,000
103,000
57,000
46,000
Veggies
500
200
500
1000
1000
150
300
n/a
n/a
500
500
4,650
Eggs
200
300
100
200
300
20
50
n/a
20
100
500
1,790
Meat
700
400
1000
200
500
30
400
n/a
100
150
500
3,980
Total
1,400
900
1,600
1,400
1,800
200
750
n/a
120
750
1,500
10,420
17,350
2,210
16,020
35,580
-­‐10,674
24,906

35. Enterprise Profitability
Enterprise
Net Profits
$17,350
Hours of
Labor
630
Profits per
Hour
$27.54/hour
Vegetables
Eggs
$2,210
364
$6.07/hour
Meat
$16,020
520
$30.81/hour

36. Balance Sheet

37. Cash Flow Budget
Item
Jan
Feb
March
April
May
Income
Farmers Markets
6,500
Farmstand
800
2,000
Restaurants
600
1,200
Grocer
2,000
Total
0
0
0
1,400
11,700
COGS
800
1,200
3,000
3,400
5,000
Gross Profits
-800
-1,200
-3,000
-2,000
6,700
75
50
Expenses
Insurance
Utilities
700
100
100
100

38. Intermediary Institutions /
Commercial Lenders

39. Other
Institutions

40. Direct Investments

41. A Farm / Business Needs
All of These

42. …and It Gets Complicated.

43. Types of Financial Capital
Fixed/Asset Capital - $ for assets that will
remain permanently with the business to help
it earn income. Ex- land, buildings,
greenhouses, processing plant, feed mill
Working/Operating Capital - money used for
running the business day to day. Ex- seed,
fertilizer, fuel, utilities, labor, packaging

44. Intermediary Institutions /
Commercial Lenders

45. Conventional Sources of Debt
Financing
Short-term: credit cards, annual operating
loan, extended terms
Medium-term: bank loan, USDA operating
loan, SBA loan, line of credit
Long-term: mortgage, refinance, USDA farm
ownership loan

46. Other Forms of Financing

47. Other Forms of Financing
•
•
•
•
•
•
•
Friends & Family Loans
USDA REAP or Conservation Loans
Owner Financing / Land Contract
Peer-to-Peer Lending
Various Forms of Crowdfunding
Convertible Debt
Equity Financing

48. Cooperative Financing
• Each member-owner makes a financial
contribution or a sweat-equity contribution or
combo of both
• Helps spread risk, more resistant to economic
booms & busts, assures more stable supply
• Owners receive annual patronage dividends or
choose to reinvest back into business
• Good way for small-scale producers to ‘scaleup’ & build necessary infrastructure

49. Grant & Cost-Share Programs
• Not free $- costs $ to apply, manage, report
• Very competitive in most cases
• Most reimburse for funds already spent- do
you have cash flow for this? Or require 1:1
cash match
• Require good record-keeping, bookkeeping, &
reporting
• Ex. USDA REAP, VAPG, FMPP, CIG, EQIP,
CSP, CRP, WRP, SARE, & others

50. www.usda.gov/knowyourfarmer

51. Direct Loans

52. Friend & Family Loans

53. Peer-to-Peer Lending

54. Kiva Zip = Peer to Peer +
Intermediary

56. Land Financing Options
•
•
•
•
•
•
Conventional Mortgage
USDA/Farm Credit Loans
Owner Financing
Lease-to-Own/Land Contract
Buy with Conservation Easement
Partial ownership with land trust

57. Conventional Mortgage

58. Conventional Mortgage
• Does not work for raw land unless you plan to
build a residence within certain time frame
• If there is a residence, do you have to call it a
“farm”? The “F-Word” to lenders
• Certain lenders, such as VA, forbid lending for
farms period
• Will require stable income, usually off-farm
• Do you have a long-term relationship with
lender?
• Are you a first time land buyer? Do you have a
sizable down-payment? If not, move on…

59. USDA Farm Service Agency
-You must 1st apply for commercial creditIf they reject you, you can apply to FSA for:
Farm Ownership Loans- up to $300K for direct
or $1.35 million for guarantee, up to 40 year
payback
Downpayment Loans- applicant must make at
least 5% down, max amount is 45% of purchase
price, up to 20 year payback

60. Owner Financing

61. Owner Financing
• Great for properties that may not be
commercially financeable or when a farmer
does not qualify for a traditional loan
• Terms negotiated between landowner and
buyer, such as downpayment required, interest
rate, and timeline
• Promissory note drawn up, reviewed by
lawyers and title company
• Downpayment made to landowner, monthly
payments with interest made to landowner
• Title conveyed to buyer, but original owner has
lien on property in case of default.

62. Lease-to-Own/Land Contract
• Another form of owner-financing, but title
remains with original landowner until property
is fully paid off
• May or may not require downpayment but
does require monthly payments with interest
• You can apply for a land contract guarantee
with FSA if you are a beginning farmer or
socially-disadvantaged farmer, up to 90 % of
purchase price

63. Conservation Easements &
Other Partnerships

64. Buy with Conservation Easement
Either find a piece of land that might have an
easement value (high habit value or high
development pressure) and then find a land trust
that might be interested or, talk to your local land
trust about any properties they are thinking of
protecting (or already own) and if they would be
willing to partner with a conservation-minded
buyer such as yourself.
Ex- Elkhorn Slough land trust paid $1 million for
development rights, ALBA financed the remainder
with a 250K loan on 200 acre property

65. Partial Ownership w/Land Trust
Farmer owns ‘improvements’ while land trust
owns land. Farmer leases the land back from
land trust at an affordable rate via a long-term
lease. Ex. Kirsop Farm near Seattle. Farmers
owns house & buildings, land trust owns land.
Leases back to farmers for 99 years.

66. Focus on Other
Institutions

67. Government Grants
Grants-­‐
$
given
to
an
enLty,
not
required
to
pay
back
(VAPG,
RBEG,
FMPP,
SBIR,
SARE,
REAP)
Loans-­‐
$
lent
to
an
enLty,
required
to
pay
back
(REAP,
Farm
Storage
Facility
Loans,
B
&
I
Cost-­‐Share
Programs-­‐
$
reimbursed
to
enLty
aker
they
complete
a
project
&
submit
receipts
(EQIP,
CSP,
WRP)

68. Foundation Grants

70. Community Supported Models

71. Community Supported Models

72. Live Power Community Farm,
California
CSA
members
organized
and
contributed
towards
the
ConservaLon
Easement
owned
by
Equity
Trust,
allowing
the
Decators
to
purchase
their
40
acre
farm
for
less
money

73. TLC Ranch, California
Egg
Share
customers
purchased
$500
credits
for
eggs,
redeemable
over
2
years
for
100
dozen
eggs.
Raised
$25,000
in
three
weeks
from
50
families
in
order
to
purchase
a
refrigerated
delivery
van
and
new
farm
truck

74. CSA Financing Models:
Misty Brook Farm, Maine
15
private
loans
to
purchase
house
plus
2
acres
• 10-­‐15
year
terms
• interest
rates
vary
by
lender,
none
more
than
5%,
several
earn
interest
in
food
credits

75. Crowdfunding: 3 Different Types!!!
1.
SoliciLng
giks
2.
Pre-­‐purchase
/
Community
Supported
models
3.
Selling
securi8es
to
a
large
number
of
investors
who
expect
a
financial
return

76. Online Crowdfunding

77. Asking the Public for Loans

78. Which Type of Crowdfunding?
1.
SoliciLng
giks
2.
Pre-­‐purchase
/
Community
Supported
models
3.
Selling
securi8es
to
a
large
number
of
investors
who
expect
a
financial
return

79. Direct Public Offerings
• It’s
not
a
form
of
security;
it’s
a
way
for
a
company
to
offer
a
security

80. Equity Financing

81. Equity Financing

82. Equity Financing
• You
sell
stock
in
your
company.
Investors
become
shareholders,
and
they
want
their
money
back
at
some
point.
• …they
usually
also
want
some
control
over
how
you
run
the
company
in
the
meanLme.
www.financeforfood.com

83. Equity Innovations
• Non-­‐voLng
preferred
stock
• Stock
doesn’t
appreciate
in
value
as
company
grows
• Investors
receive
fixed
dividend

84. How Will YOU Raise Money?

85. Elevator Pitch Time!
1. 2
minutes
of
individual
prep
Lme
2. Take
turns
giving
1-­‐minute
pitch
Pitch
includes:
• DescripLon
of
the
business
NOW
• Your
intenLons
for
the
FUTURE
• A
specific
request
or
ASK

86. Affordable Legal Counsel?
Jason Foscolo, http://www.foodlawfirm.com/
Fare Grange Law, http://www.faregrange.com
Drake Agricultural Law Center,
http://directmarketersforum.org/
Farm Commons, http://farmcommons.org/

87. rebecca@
sustainconsulLng.com
831-­‐682-­‐6812
@farmbizfuture
elizabeth@
financeforfood.com
415.891.9194
@foodfinance