by Liz Higgins and Sandy Buxton, Cornell Cooperative Extension
My phone rings on a regular basis with a future client asking questions about grants available to help them start farming. Unfortunately, the answer to that question is often not what they want to hear.
There is no such thing as free money. And money which may appear free, rarely is. A business owner must choose a funding source that complements the business and does not create a distraction or drive the business in a direction outside of the business plan.
Several months ago, Liz Higgins of the Eastern New York Commercial Horticulture Program held several meetings to discuss the reality of hunting and gathering funding for starting or expanding ag businesses. While many wannabe or expanding farmers seek grant money, it is rarely the boon they hope for.
When seeking an infusion of capital for projects, business owners first need to understand where it can come from and what the strings are. The three most common forms of government or quasi-government money are: Grants/Cost Share, Loans, and Tax Incentives.
Grants/Cost Share — the most popular—provide money which, generally, doesn’t need to be paid back. It can help subsidize adopting a good practice, reduce barriers for entry/expansion into a new area or grow jobs. For example, NRCS has a program assisting farmers with grants for hoop house structures for growing season extension.
However, these programs are generally reimbursement oriented, meaning the business must outlay the cash for the project BEFORE they receive the money. They have contractual obligations to provide deliverables and numerous paperwork requirements. There is also a long time frame from application to disbursement of funds.
Sources to check: SARE, USDA Value Added Producer Grant, NRCS EQIP Cost Share Program
Loans – can come in several forms; subsidized loans offer money at lower than market interest rates. Guaranteed loans reduce the risk of a lending institution by standing with the farm business owner which makes money more available and accessible, possibly at a lower interest rate.
While the money does need to be paid back, it is usually on a long timeframe and arrives before or coinciding with the purchase.
Sources to check: FSA Microloans, Operating, Direct and Guaranteed loans; Dirt Capital; USDA loans for farmworker housing; USDA SBIR
Tax Incentives – are available at the federal, state and local levels. Programs may reduce the cost of purchase/bill (sales tax exemption, property tax exemption) or refund money (energy tax credit, farmer’s school tax program).
The process is less arduous due to much of the information already being collected. The information is reported and if you qualify, you get the benefit.
Sources to check: ask your tax preparer, cooperative extension educator, town assessor, USDA REAP Energy Efficiency
Additional sources of funds come from areas typically tapped by new businesses: crowdfunding and friends and family. When utilizing the friends and family connection, the assistance may not be actual cash but may be supplies, labor, expertise and network connections. If you decide to actually borrow money from someone, show them your business plan, create a repayment plan, and schedule. Treat it professionally. The habit will serve you well going forward and reassure your ‘lender’.
I do not recommend asking for a co-signed loan. This makes your co-signer legally obligated to repay the loan while they have NO oversight over you and the money. Such a choice has destroyed the credit standing of many people.
Crowdfunding (Indiegogo, Kivazip, Kickstarter, etc.) is something many of our younger farmer entrants are taking advantage of. Like a grant, this money does not have to be paid back, as sponsors donate to your project. Much of the general population is supportive of farmers, and is willing to help if they feel connected. However, the most successful crowd-funded projects already had a crowd of supporters who feel connected to that specific business. It is challenging for a new and unknown business to stand out.
Before taking any federal money, grants or loans, it is important to note some of the restrictions that can impact the project. A recipient cannot be delinquent on any federal, state, or local taxes or debt, as you may not be eligible for many publicly funded grants or loans. This includes student loans. An eligible recipient also cannot be in violation on many local, state or federal laws. This includes environmental, labor and safety laws. You must be fully in compliance and remain that way for the course of the project.
If you ‘take’ federal money, you may also be obligated to use a bid process to make purchases or perform work with approved contractors, not always according to your choice. The reporting requirements also must be met or you risk your reimbursement. When approved for a grant, no work or purchases can be done until the contract is signed. Any costs outside of this time frame are not reimbursable. The final payment will also be held until there is independent confirmation the work has been completed satisfactorily.
There are many ways to approach gaining access to funds to accomplish changes, improvements or expansion on farms. Think through the options and decide what is right for you, your time frame, and risk tolerance. The effort you, the owner, need to put into the source of funding (grant/loan/incentive) should be proportional to the value of benefits received and achievable with your resources. Spending an enormous amount of precious time on a grant project competing with a huge pool of candidates may not make the most sense.
Liz Higgins (firstname.lastname@example.org) is an Extension Specialist, Ag Business Management with Eastern NY Commercial Hort Program. Sandy Buxton (email@example.com) is a Senior Extension Educator, Farm Business Management with Capital Area Ag & Hort Program.
This article originally appeared in Small Farm Quarterly, Summer 2017.