Is Equity Financing Right for Your Farm?

When farmers seek financing, the vast majority go through banks, credit unions, and other traditional lenders. Many also take advantage of government grants and loan programs. Rarely do they take on equity investment—but that doesn’t mean it can’t be a viable option. Trading a slice of ownership for working capital may enable a farmer to install infrastructure, purchase equipment, increase acreage, or invest in other key areas that propel business growth.  
Cliff McConville, founder of All Grass Farms northwest of Chicago, has had great success with equity financing. Around 2014, he and partner Anna had wanted to lease more land and renovate an old dairy barn, but they lacked the cash. And since they’d been in business for only 2.5 years and generated just $200,000 annually, they knew they’d have a tough time getting a bank on board.
Instead, Cliff hit up four longtime friends who had investible assets. Collectively, the friends assumed 30% of the business, giving Cliff and Anna the capital to install a milking parlor, septic system, and other upgrades. As All Grass Farms increases profitability, they will start distributing dividends annually.
In the latest Edible-Alpha® podcast, Cliff shares his best advice for farmers considering equity financing.
Get your feet wet first. Cliff recommends the equity route, but not when farmers are just starting. “Bootstrap your business until you really know that you are passionate about farming and know what to do to be successful,” he says. “We raised capital in our third year, after I had a better idea of our needs, how the business was evolving, and whether this was something I wanted to do this for the rest of my life and that we could make money.”
Shore up your business plan. Before courting any type of financing, farmers should draw up or polish up their business plan. Cliff kept his a simple 10-pager that spelled out pro forma financials and projected revenues.
Hit up friends and family. It could be tough to convince angel investors whom you don’t know personally to buy into a farm, whereas loved ones may be an easier sell. Plus, family and friends are often more laid back, patient, and understanding.
Consider loyal customers. A committed customer or two might be eager to support your business, so don’t overlook them as potential investors.  
Be clear about expectations. No matter whom you pitch investment to, “make sure they understand the nature of this slow-money business,” Cliff says. “I spelled out that we’re not projecting to make a bunch of money in the next five years—this will be a long, slow enterprise. I positioned it as a feel-good investment, not a huge financial windfall. It’s about supporting a business they buy from and believe in.”
Raise more than you think you’ll need. Cliff figured it would cost $120,000 to get the barn up to snuff and farm store open. His prediction fell way short, and the investor money ran out fast. “The moral of the story is everything will take twice as long and cost twice as much as you think,” Cliff says. “So make your best estimate and then double it.”

All Grass Farms provides grass-fed beef, raw A2 milk, and a range of pastured proteins, along with operating a farm store, so it’s a good thing owner Cliff McConville has a lock on financial management. Adept at enterprise-level analysis, Cliff carefully tracks costs, revenues, and profits to inform business decisions and strategize growth. Learn how he has expanded this diversified ag operation through unique financing and smart decision-making.

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