In northwest Michigan a team of investors and lenders is taking a unique community-based approach to capitalizing farmers and local food producers.
It is their commitment to both lending and learning that is making the difference.
In their first year, 2013-2014, members of the Northwest Michigan Food and Farm 20/20 Fund made 18 loans for a total of $1.5 million. This work resulted in 13 full-time jobs and two part-time jobs across five counties.
The group’s motto “Lend and learn. Learn and lend.” is working, says Susan Cocciarelli. She is a sustainable agriculture finance specialist from Michigan State University based at the region’s council of governments Networks Northwest.
“With 20/20 Fund successes — paid on time or even before due — conventional lenders are becoming more familiar with the sector and comfortable with the borrowers,” Cocciarelli says.
The 20/20 Fund’s innovative approach confronts some basic facts that complicate the already tough small business financing challenge that food and farm entrepreneurs face.
Bankers today are unfamiliar with the business of farming. Agricultural lenders are used to their mainstream of commodity production borrowers. All lenders and investors are averse to the high cost of servicing smaller loans and big risks inherent in the largely startup sector.
Northwest Michigan’s business leaders understand, however, that food from the region, and for the region, is a major economic player. It feeds both tourism and small town quality of life here on the Lake Michigan shoreline. Taking innovative steps to address big food and farm financing gaps is a natural.
“Farms, food processors, and food retailers are all important businesses in our area,” says Don Coe. He is a local winery operator and former state agriculture commissioner who advocated in 2012, as then-chair of the Chamber’s economic development arm, to join in the collaborative lending and learning effort.
Consider an Amish farmer that applied for a loan through 20/20 Fund member Northern Initiatives, a Community Development Financial Institution (CDFI). The collaborative worked together to move the application through Northern Initiatives’ loan review process successfully.
The farmer posed relatively little risk. He came with a successful track record plus purchase orders in hand from a regional produce distributor. But the farmer did not have collateral required to secure the $12,000 loan for plants and irrigation.
Two other members of the 20/20 Fund team stepped in to help.
One is locally owned and operated Honor Bank, which holds “Individual Development Accounts” (IDAs) that the 20/20 group makes available to farmers. These federally matched savings accounts are common in urban redevelopment efforts but only beginning to show up in rural food and farm development.
Another 20/20 Fund member, the regional Utopia Foundation, provided the required local match to bring the IDA total to $3,000. The farmer then brought the IDA to Northern Initiatives as a loan guarantee.
“Its hard to get a traditional lender to finance some of these businesses,” says Venture North Executive Director Laura Galbraith. “They are mostly startups with little to no collateral, and it takes a long time to go to market so you have to be patient lender. We have had to be pretty collaborative and inventive in some ways.”
Sometimes it’s just the 20/20 Fund group’s willingness to jump in when it would take a traditional bank much more processing time, or cost farmers dearly in credit card debt.
“Having a community partner that is quick and flexible, that’s where the value comes in,” says Nic Welty.
He is a successful young farmer in the region and advisory member of the 20/20 Fund. His Nine Bean Rows farm has worked two loans through the 20/20 Fund. One involved an equipment grant from the state agriculture agency. The 20/20 Fund fronted Welty the $20,000 he would have had to pay out first before getting reimbursed through the grant.
“I didn’t want to be out $20,000 while waiting an indeterminate amount of time … Unless you’re super capitalized or have a close relationship with a banker, which most don’t have, it takes a long time to get that kind of capital.”
Northwest Michigan’s 20/20 Fund participants work through challenging, unconventional food and farm loans because they see regional quality-of-life growing from this sort of economic development.
They are not the only ones.
The 20/20 Fund is just one of 45 related food and farm sector development projects that the Northwest Michigan Food and Farming Network featured recently in its first annual Report to the Community. More than 150 organizations are united, along with individual farmers and others, behind the 10-county Network’s goal of 20 percent local food by 2020.
All of this local food and farming effort contributes to the “livability” factor that is fundamental to the region’s economic development strategy and earning Traverse City national recognition.
Hans Voss has watched it unfold since the mid 1990s. He is Executive Director of the Traverse City-based Groundwork Center for Resilient Communities, formerly the Michigan Land Use Institute. The nonprofit helped kick off local food’s contribution with its annual 10-county Taste the Local Difference guide and marketing programs.
“Not only are restaurants, schools, and grocery stores prioritizing local, it’s enlivening the whole economy and energizing a growing sustainability ethic,” he said. “A new generation of socially and environmentally conscious people is coming to this forward-looking community.”
First published May 18, 2015, in the Good Food Economy Digest, a project of the Wallace Center at Winrock International http://www.wallacecenter.org/news/top-small-town-invests-in-local-food