Regional food received an impressive new spurn of funding from the USDA last week. The money is split between the Rural Development Business and Industry Guaranteed Loan Program ($48 million) and available grants from Agriculture Marketing Services ($30 million) targeted at giving much needed federal investment in “food hubs, farmers markets, aggregation and processing facilities, distribution services, and other local food business enterprises.”
Locally sourced food now accounts for roughly $7 billion a year in sales but with any emerging sector, cash investments are needed to continue its growth, and its exciting to see the USDA taking a proactive approach and creating new funding options for farmers, growers, and sellers of locally sourced food.
This comes in tandem with the 2014 Farm Bill tripling the funding for and renaming the existing Farmers Market Promotion Program (FMPP) to allow grants to support regional food system infrastructure, as well as direct marketing programs for farmers.
These new funds are available to a wide variety of regional food stakeholders including; cooperatives, non-profit organizations, corporations, partnerships or other legal entities, Indian tribes, public bodies or individuals.
The USDA is accepting applications for the funds on a rolling basis, so our Northwest regional food developers should get their applications in ASAP.
You can read all the details in the USDA’s press release here.
Slow Money NW recently received a grant from the Washington State Microenterprise Association to expand our Farmer Reserve Fund. We aim to recruit ten additional farmers into the program through two informational meetings and one-on-one technical assistance to ensure the farmers are ready to take on funding. These meetings will be held April 27th at Sustainable Connections in Bellingham and April 29th at the Skagit Valley Food Co-op in Mt. Vernon. For more information please contact Leigh Newman-Bell.
In a Business Alliance for Local Living Economies (BALLE) webinar last month Tim discussed our Farmer Reserve Fund and the larger the role Slow Money is playing in identifying innovative opportunities for farmers that may not qualify for traditional funding. This webinar was a part of their Community Capital series and you can access the recording for more information.
|Sample of coverage from Grist’s online site
We definitely struck a chord with our Farmer Reserve Fund when we launched it last month. With limited distribution, we received numerous requests for interviews and many groups are interested in replicating this success. Check out the articles published so far, and if you’re interested in covering the topic, or learning how to create a program like this in your area, please contact Japhet Koteen.
|Santiago Lozano (right) with his approved operating line of credit secured by the Farmer Reserve Fund standing next to Grow Food’s Executive Director, Ethan Schaffer, and NCCU loan officer, Carolina Chavez
Thanks to all the great work from our friends at North Coast Credit Union (NCCU) and Viva Farms, and with the generous support of our social impact investors, we have officially launched our Farmer Reserve Fund to help beginning farmers grow their businesses. This is the first piece of our food and farm microfinance effort as we work to make it easier for local agriculture producers to grow their businesses. The first Farmer Reserve Fund loan was made through North Coast last Friday to a strawberry farmer named Santiago Lozano. A second loan closed on Monday to Nelida Martinez, a vegetable producer.
Slow Money NW developed the loan loss reserve fund as a way to fill a gap in financial services available to small-scale farmers and to meet the interest of regional investors seeking to support sustainable agriculture most effectively. Slow Money NW, a project of the non-profit Grow Food, did not want to administer the loans so it looked to partner with a regional lending institution. “We wanted to build on existing infrastructure in the community, and deliver services efficiently by building relationships, rather than reinventing the wheel — the reserve fund structure through North Coast is a perfect match.” said Japhet Koteen, Slow Money NW’s Project Manager.
As a co-operative credit union, NCCU doesn’t take big risks with their depositor’s money, but they desired to help farmers in their community. Charitable donations from two local impact investors were used to establish the reserve fund to reduce the risk for the credit union. Viva Farms provides an additional layer of due diligence for the fund by screening their student pool for the best potential financing candidates.
The Farmer Reserve Fund is a win for the credit union which puts its deposits to work in their community, and a win for the investors that donated the reserve funds since each dollar they put into the fund means up to five dollars available to lend out to beginning farmers. The farmers also see immediate benefits. “It is very difficult for new growers to access credit, “said Lozano. “ I will reserve some of my line of credit to cover any emergencies that come up. The rest I will use to pay my harvest crew before I get paid for sales.” Martinez says the loan is allowing her to grow her young business. “Thanks to this program, it’s much easier for new farmers like myself to get a loan and keep moving forward. We’re very thankful for the extra help in realizing our dreams.”
Learn more about the Farmer Reserve Fund here.
Woodbury County, Iowa has been working hard to develop their regional economy through agriculture. Last week they posted a press release announcing a county based loan program designed to support local business growth.
“We have seen millions of taxpayer dollars used to attract large outside companies to locate in the area. What we also need to do is to invest in our own people to create or expand locally owned businesses,” said Rob Marqusee, Director of Rural Economic Development for Woodbury County. The ‘Investing in Woodbury County’ Loan Program is meant primarily to benefit entrepreneurs of the county who would not otherwise, but for this program, be able to start or expand a business. The program does not specifically direct what businesses the county will support. Opportunities are limited only by the imagination and the need for sound business initiatives.
The Loan Program will make available a total of $1,000,000 in loans to qualifying county residents at a target interest rate of two percent (2%). The costs associated with administering the “Investing in Woodbury County Loan Program” will not be from a tax levy, but from a source of funds is to be established by the Board of Supervisors prior to September 1, 2010. The specific application process, as well as objective criteria for making loans, will be posted on the woodburyiowa.com website on September 1, 2010.
A Seattle group, Revenue Loan, highlights an innovative method for financing where the return occurs from the revenue gains. While their focus is on tech development, the financial model can be used with food enterprise development.
What is Revenue Based Financing?
Revenue Based Financing (Revenue Based Finance) is a new way for promising early-stage companies to finance the growth of their business. In a nutshell, Revenue Based Financing is a special kind of loan. Instead of requiring a business to pay a fixed amount and over a fixed amount of time (i.e. think of your typical bank loan), a RBF loan entitles the lender to a fixed percentage of gross revenues, “capped” at a multiple of invested capital (typically 3 – 5x). Revenue Based Finance lenders trade steeper default, timing and rate of return risk for richer potential returns than those offered by traditional business lending (i.e. banks).
How does Revenue Based Financing work?
Here’s a hypothetical example:
Tom is the CEO of a promising Software as a Service (SaaS) business. He’s built the business with no outside capital and is operating close to breakeven. He sees an opportunity to ramp up sales by investing in business development. He doesn’t have enough cash in the bank to make this happen.
Most banks won’t lend to a company like Tom’s because his isn’t an asset-intensive business. Tom doesn’t want to raise venture capital because he doesn’t want the dilution and he isn’t sure his business has the potential to scale as quickly or or as big as most VCs would expect.
Tom learns about Revenue Based Financing. He lines up a group of angel investors willing to invest $500,000 for a royalty rate of 10% of gross revenues. The royalty payments don’t begin for a year – giving him time to invest and build the business – and have a 3x cap (limiting Tom’s total royalty payout to a maximum of $1.5 million).
With the help of this additional capital, Tom builds a profitable small business with revenues of $3 million a year — and still owns 100% of the equity. The investors get their 3x return paid back over 5 years — without having to force Tom to sell his company or buy their shares. In this scenario, everyone wins.
The innovation here lies in bringing the Revenue Based Finance approach to riskier, earlier-stage investing, while receiving the expected return in the form of cash flows. The fact is, most well-run businesses look more like the firm in this example – growing, profitable, but not a shoot-the-moon success – than like the Google and Amazon.com rocket rides that the traditional venture industry is geared around.
This seems a great tool to use when dealing with growth stage food enterprises, those with an established track record that are looking for expansion capital.