If you’re planning to buy or expand a farm, you’ll need funding from an outside source unless you’re capable of self-funding.
“Access to Funding” was a panel presented at AlfrescoFLX, an annual event hosted by the Canandaigua Chamber of Commerce highlighting the food and ag businesses of the Finger Lakes. This year, the event was virtual.
The panel was presented by Jenn Smith, program director of the Grow-NY food and agriculture competition; Chris Laughton, director of knowledge exchange at Farm Credit East; Mike Rusinko, assistant vice president and commercial loan officer with Lyons National Bank; and Noa Simons, executive director of Upstate Capital Association of New York.
“There are a lot of different types of funding under debt and equity,” Smith said. “As an entrepreneur or someone working in food or ag, funding is an interactive process. What you need changes over time and your traction changes and the place you are in your business changes.”
“You can spend your own money or other people’s money,” Simons said. “Within (other people’s money) there’s debt and equity and grants. Most often you can’t get grants, and you’re looking at debt and equity as your options.”
Before people lend money, they want to look at the risk they’re taking. Early-stage plans bear the most risk. Taking over an established, well-running business bears the least risk.
Farmers can get loans from large commercial banks, small community banks and Farm Credit.
In the investment world, grants most often come from federal small business programs.
“They’re looking to innovating technology to solve specific solutions they have. If you have a technology-driven company, that’s a great avenue to pursue,” Simons said.
While some national banks do provide farm loans, Rusinko argued that community banks may be attractive because of their local roots.
“I think when you’re dealing with someone from a community bank, it’s someone who’s connected to the community who lives in the community,” he said. “My motivation is that there’s a strong sense of community purpose in what we do.”
Rusinko views lending as a business relationship, not just a transaction, and encourages those seeking funding to show they are prepared to make it a successful relationship by preparing the documentation they’ll need to apply for their loan.
The documentation should include the last three years of income taxes and a personal financial statement of assets and liabilities.
“What we’re really looking for at the genesis is the enthusiasm. What inspired you to bring your thoughts and actions to this point?” Rusinko said.
Farmers can use templates to create their business plans, but Rusinko said the finished product should still give “a sense of excitement. Why are you here?”
Smith added that using revenue-based financing and crowdfunding represents two newer ways to finance a farm startup.
“Most of these are successful with product-based businesses,” Smith said.
“It can be difficult to start up a new ag business,” Laughton said. “It’s not unique to ag businesses; it’s common to any business where you make tangible stuff. One of the challenges with having a startup business is knowing the state your business is at. If you’re at the point where you’re a business plan and a dream, put together a personal financial statement and know the existing baseline of assets and debt obligations. Look at your existing income availability to pay back debt and think about what you can bring to the table in terms of equity. Debt capital lenders and equity investors are going to want to see you have skin in the game.”
Rusinko brought up Small Business Administration preferred lenders, like Lyons National Bank. These banks may be good options for small businesses because the federal agency guarantees 50% of the loan. Lyons National also works with the USDA Farm Service Agency, which offers its own loan guarantees to help manage risk.
“The Finger Lakes has had an organized tourism industry,” Rusinko said. “What drives the economy is agriculture. I think you have to as an entrepreneur have a sense of place and how you bring your story to that story. Those connections are important. There’s room for more.”