Creative financing examples

Hi Elizabeth & Eric,

Was curious as to any examples of creative financing that you have seen other permaculture enterprises employ. Ideas beyond bootstrapping, credit cards or Kickstarter, especially for getting value-added elements into production.

Hi Ann,

great question! There are so many innovative financing techniques (and/or create approaches to traditional models)... and which might actually be appropriate in any situation will depend on a great many factors, including:

Who are your customers, and how do you interact with them?
Who else is in your value-added ecosystem?
How long have you been in business / earning revenues?
Do you own your land?
How much money are you looking to raise, and for what specifically?
etc etc etc...

If you can give me a bit more detail about your situation, I can try to provide examples that might be a good fit.

I also wanted to mention that there are many ways to use Kickstarter (not to mention any of the other online crowdfunding platforms, please see my article on the various types here), and so I'm curious to hear more about which particular approach you've either already tried and/or have decided isn't a good fit.

Cheers,
Elizabeth

Elizabeth Ü wrote:
Who are your customers, and how do you interact with them?
Who else is in your value-added ecosystem?
How long have you been in business / earning revenues?
Do you own your land?
How much money are you looking to raise, and for what specifically?

Hi Elizabeth,

It was more of a general question to spark some creativity, but I'll tell you some of our story.

We own the land, we have no debt. We intend to sell direct to our targeted customers through a CSA model, seasonal product, with a regional (1 day drive over state lines) delivery/pick-up.) I am rock solid on the knowing who my target customer is and how to find them. We haven't started marketing yet but customers are already finding us. Building buzz that I can't satisfy is a losing strategy IMO. The public campaign starts next winter.

We are located in a tourism oriented economy that is primed for ag-tourism. The economy slowly winds down in the autumn just as our product becomes available but it is an ideal time to visit. Some folks will want to come here to pick up their product and visit our neighboring national park and visit a couple nationally known restaurants. Eventually we would turn this into an event farm day. One of our goals is to help extend our entire area's tourist season by a week or two.

We are in the early stages, next year will be our first year of generating revenue. The production is planned to grow over the next 3-5 years as the trees mature in succession (3 years of planting in place).

The funds are for a palletized set of juicing equipment. In the range of $25-$50K, depending on whether we scale two juicing lines (resiliency and ability to produce two products) and buy a pasteurizer (get the man off our backs, expand our potential customer base). The plan is to rent a local restaurant after it closes for the season (several options within a mile or two) as our temporary processing quarters, since we expect to need the space for less than a month each year. So we wheel the pallets in and back into storage when we are finished for the year. I don't plan on investing in structures/utilities until we have to down the road. When we do that, it will have a full commercial kitchen to expand our product line, but that is a ways off, both in terms of our ability to pay for it and our system's yields to provide inputs for additional products.

My initial thought is actually to use a Kickstarter type vehicle as a pre-sales mechanism, so I will go read your article next. Actually, my first thought is to partner with a local juicer for next year on contract, and then start on the equipment project for 2016. That relationship doesn't exist yet, and I'm not sure it can be done so more options are good.

Ah ha, thanks Ann, for further details... you're in an interesting spot, certainly. Before a big marketing push, and before you've attracted legions of adoring fans, you're right, crowdfunding of any sort doesn't make much sense!

What most people do in this situation is max out personal savings and credit cards. Not very exciting or innovative...

For the amount of $ you're talking about (ie, $25-50k), Peer-to-Peer lending (also known as P2P lending) is an interesting tool that many people have not heard of, and in some situations, it could be helpful, which I'll try to spell out here. Peer-to-peer lending a terrible name because you don't actually get the loan funds from people you know (which is what the word "peer" implies to me); it's usually complete strangers, and increasingly, institutions, that lend you the money through the online platforms.

In the US the two P2P platforms are Lending Club and Prosper. These are good options if you have a good credit score; if you don't, you either can't use the platform at all to get a loan, or your interest rates will be a lot higher. If you do have good credit, then you should be able to get a loan at a much better interest rate (ie, lower) than you'd be able to get from a bank for a line of credit or a loan... if you can get a small loan at all from a bank, which is not as easy as people think!

Lending Club and Prosper are really better for PERSONAL loans than business loans for a few reasons (one of which being that at least one of them doesn't offer business loans, and the one that at least did a couple years ago charged more for them as they were riskier to lenders), so you'd likely be applying in your own name rather than as the business entity. The way I usually recommend that people use these platforms is to get a personal loan to help consolidate other debts at a lower rate than what you might currently be paying to your creditors.

Microloan programs are another potential source of debt financing that isn't so much innovative as it is invisible to many entrepreneurs. (In the US, a microloan is anything below $50k.) More importantly than the money though, in my opinion, is that the organizations that provide microloans usually also provide a whole bunch of other important services to small business owners, and often the training that they provide can open the door to many other financing (and other types) opportunities! You can find microenterprise development organizations in your area here.

If you're fortunate enough to have a local Slow Money group where you are, make sure you're part of their conversations about how we can better use our savings and retirement and investment dollars to better support our local farmers and food producers, and you'll be well-situated to meet and continue the conversation with values-minded investors.

***

There are lots of other more innovative ways to find financing for businesses once you have lots of lots of customers who know who you are and that you're engaging with regularly, though social media or an e-newsletter or even just in person at the farmers market. For instance, Farm Fresh to You has a Green Loan program that offers lenders interest in the form of the vegetables that they deliver, and apparently the #1 question they get regarding the program is "how much do I have to loan you so that my entire veggie order would be covered by the interest?" Pretty cool! Just keep in mind that there are many laws you need to comply with before you offer any investment opportunity to the permies... you don't want to get yourself in trouble by just thinking you can make something up and start pitching it to your whole newsletter! Definitely talk to a lawyer who is well-versed in securities law.

-Elizabeth