Addressing access to capital through crowdfunding
Whether it is to start a farm from scratch, test out a new enterprise, expand existing operations or address routine cash flow challenges, access to capital will always be front-and-center on a farmer’s mind.
We often turn to traditional sources of funding, like operating loans or government-funded programs, but what if there was another source of cash that didn’t involve high interest rates, risking collateral or prostrating ourselves before the established bureaucracy? Too good to be true, you say … well look no further than an under-utilized method of farm financing called “crowdfunding.”
The idea of crowdfunding revolves around the reality that it is easier for people to give if the request is for a smaller amount. It is akin to passing the plate at church — everyone gives a little, yet the total amount gathered is large enough to pay the pastor’s salary. Instead of going to a bank to ask for $10,000, what if you could ask 1,000 people to give just $10?
Well, nowadays you can do exactly that, through the power of the internet. Instead of having to do all the work yourself, these crowdfunding platforms take care of most of the leg work in reaching a global audience with your need, as well as aggregating the donations into a lump sum that ultimately comes to you — for a small fee, of course!
Within the world of crowdfunding, there are two different subsets: loans and gifts. The company Kiva technically offers loans, while other startups like GoFundMe and Kickstarter result in gifts. This difference is why I personally pursued Kiva as my crowdfunder of choice. I was uncomfortable with the idea that I would be asking for a handout through the other platforms, and I wanted to be clear that yes, I was asking for financial assistance, but that I would pay it back someday. I don’t say that as a swipe at anyone who might choose Kickstarter; I’m just sharing my logic for the decisions I made.
Kiva (kiva.org) is a non-profit company that exists to “expand access to capital for entrepreneurs around the world.” They facilitate loans up to $15,000 with no interest rate, repaid over a maximum of 3 years. Kiva has special allowances for farms, allowing the first loan to be capped at $10,000 (instead of the standard $5,000) as well as allowing up to a six-month grace period before starting repayment. You can only have one loan going at a time, but as soon as you successfully pay off one loan you can turn right around and request another, with the second and any subsequent loans capped at the maximum of $15,000. Needless to say, an average of $5,000 of interest free money per year in perpetuity (assuming success in getting funded) sounds pretty amazing, doesn’t it?
Because Kiva is digital in nature, the traditional bank-lending approach of “I’ll give you money but can take your house if you don’t repay me” isn’t in play. Instead, they rely on a concept called “social underwriting” that replaces the bank’s request for collateral. The theory is that you make your initial request to your inner circle of family, friends and coworkers — your social network. If a certain number of people demonstrate their belief in you by giving during that initial phase, then you must be legitimate enough to take a chance on, and your loan goes out to the masses all over the world. Social underwriting also helps to ensure you actually repay the loan. Can you imagine going back to your mother, pastor or neighbor and telling them that you decided to take the money and run?
I have successfully used Kiva twice — once to purchase five additional cows to rapidly grow my herd and once to buy a haybale wrapper in order to preserve forage for winter feed and mitigate weather challenges increasingly present during hay season.
Other platforms take a different approach, helping businesses and individuals get their ideas funded outright. Kickstarter (kickstarter.com) is one such platform, targeting creative ideas to make a reality. Their website says that they are a place “where creators share new visions for creative work with the communities that will come together to fund them.” While projects typically are artistic in nature, the platform can still apply itself to farming; you would just have to justify the creative nature of your request in order to make it through the pre-screening process. It is also worth noting that Kickstarter requires you to give some sort of reward to your backers in return for reaching a specific gifting level. Think outside the box … a plaque on your new barn, having a goat named after them, or monthly pictures of their “adopted” livestock guardian dog … and recognize that farms have lots of opportunities to provide rewards that other businesses do not.
GoFundMe (gofundme.org) is very similar to Kickstarter but is more open in its prescribed scope and structure. It isn’t restricted to creative business-oriented projects, which is why you’ll see campaigns raising money for everything from helping pay medical bills to coping with disasters to furthering social justice efforts. Offering rewards is encouraged but not required, and unlike Kickstarter, if you don’t make your fundraising goal, you get to keep what you raise. In addition, as of this writing, GoFundMe has waived their “platform fee,” so you keep more of what you have been given, although all the platforms still charge a “payment processing fee” to execute and consolidate the gifts for you.
The beauty of any of these platforms is that farms are rich in social capital and therefore have a distinct advantage in the crowdfunding arena. Whether or not they shop for your kind of food, the general populous still strongly supports farming and agriculture. The key to accessing that good will is communicating a solid plan that speaks to your intended audience. Spending some time intentionally designing the paragraph or two for your project will pay for itself in spades! Imagine yourself getting an email from a farmer asking for money for a piece of equipment, with this description: “I wanna buy a rapper, so i can rap bales for haylage.” Between the poor grammar, misspelled words, slang and extreme brevity — would you lend money to them?
Now picture getting this description instead: “This loan will be used to purchase a ‘round-bale wrapper,’ which allows high-moisture forage to be baled and fermented. This process creates a highly palatable feed, eliminates wastage due to weathering, and would allow me to cut and bale hay on the same day! As climate change continues to challenge farming operations, this represents a way to harvest forage for my growing herd and flock within a much tighter weather window. Storage requirements would be eliminated, I would have the opportunity to rent the equipment to other farmers looking to take advantage of this technology. And, most importantly, my animals would be better fed throughout the winter! This equipment costs $10,300 from my local equipment dealer, so the entirety of this loan would go toward that cost, and I will cover the remaining balance.”
There’s a big difference, isn’t there? I described the piece of equipment I wanted to purchase in layman’s terms, why it would benefit my animals, and what problem having it would solve for me. I also briefly touched on how I could help other farmers in the surrounding area and shared specifics on where the money would go and how I would spend it. Those are some of the things you’d want to duplicate in your effort to reach funders from around the country and around the globe, allowing them to understand, believe in, and donate money toward your project. Incidentally, my loan from which that description was taken held the title of “Fastest Funded Loan” on Kiva for much of early 2019!
The power of crowdfunding is immense. It is inexpensive to access and is by default skewed in favor of agriculture. Whether you choose a loan-oriented platform like Kiva or a gift/reward-oriented one like Kickstarter or GoFundMe, be sure you fully leverage your social capital and general good will by building a solid loan plan and description. This will ensure that whoever ultimately sees your project request — whether your own mother, a barista in Birmingham, a medical technician in the United Kingdom or a hotel clerk from Switzerland (just four of the 117 individual who funded my last loan) — your need and plan are clearly and compellingly communicated. I am of the strong opinion that every farm needs to have a Kiva loan in progress at all times. $15,000 at 0 percent interest is simply too good to pass up.
Paul Dorrance is an author, speaker, consultant and sustainable agriculture advocate. He is the author of Farming without Losing Your Hat and instructs the online course “Proven Lessons for Success in the Business of Farming,” which is available at learn.acresusa.com.
