Will Hughes #1 suggestion for food businesses seeking financing from lenders: find the best technical assistance providers you can find that deeply understand accounting and finance because someone on your team needs to understand those things to properly manage the business. There is no free money, and there is accountability and responsibility that comes with any sort of loan or even grant to your organization.
Instead of a shotgun or kitchen sink approach to seeking financing, Will advocates targeting specific funders with specific asks because each has their own requirements, needs and priorities. There are different types of lenders to consider:
- Tier One Lenders – Banks, Credit Unions, Community Banks, Business Banks and Farm Credit etc. have scale, systems and are tightly regulated with tight criteria for lending. They are fairly risk averse and will require down payments and collateral. Some provide lines of credit and financing for working capital, but they prefer collateral.
- Community Development Financial Institutions (CDFI), Economic Development Authorities and State Agencies – These lenders need to understand your business enough to feel comfortable lending and it takes work to educate them. There are 600 CDFIs in the country, and they lend with a social mission, especially nonprofit affordable housing. They get money from the Department of Treasury and are quasi-regulated. Coastal Enterprises in Maine has a natural resources division that includes forestry, fisheries and agriculture. There are potentially lots of restrictions on how the money can be lent. Their loan committees are made up of bankers and so they still are only able to make loans to high-quality applicants.
- Tier 3 Lenders – Local Economic Development Corporations and their loan funds can be more flexible but their loan sizes are really small.
There are also farmland investment funds that work with accredited investors to raise investments for investing in farmland, working with farmers to purchase farmland and doing the due diligence on the farm. The return to investors is often based on the appreciation of the farmland.
