Pilot Investment Project

Pilot Investment Project

Summary

The objectives of the grant, the ‘Pilot Investment Project’ are to provide financing to at least two farmers, but more importantly to use the process to inform the creation and design of alternative financing programs. In the project proposal, we planned to provide debt financing, test the farmer application process, and begin to establish relationships with lenders and investors. Preparatory objectives have been met and expectations exceeded. Those steps directly related to the provision of financing will begin in January 2009. We expect to complete financing in the first quarter of 2009 followed by a report of lessons learned. We are pleased to report that we were able to move beyond pilot financing, as envisioned originally, and have moved forward to develop a complete alternative financing program, where we will be able to facilitate a greater number of loans. We have created the Microloan Fund for New England Farmers in partnership with Strolling of the Heifers.

Objectives/Performance Targets

In order to accomplish the objectives of the project, outlined in the summary, The Carrot Project set seven different performance targets.

• Establish interest and likelihood of commitment and financing parameters from investors to finance a deal in the range of $25,000 to $75,000 with a return on investment of between 1% and 5% for each pilot.

• Review farmer application process, modify as necessary, and finalize.

• Partner with farm support organizations and lenders to set-up financing services.

• Begin application process, including a short initial application, and for chosen applicants, a detailed business plan with budget projections, collateral, and cash flow.

• Complete application process including business plan reviews, feedback to investor, possible phone conversation with farmer, investor and member of reviewing team, and possible site visit by The Carrot Project staff accompanied by the investor.

• Decision and finalization of financing agreements between farmer, lender, and investor.

• Drafting of Lessons Learned

Accomplishments/Milestones

The major accomplishment to date is to move beyond a limited pilot program to the establishment of agreements for an alternative financing program that can grow and continue after the end of the granting period.

Impacts and Contributions/Outcomes

As we have just begun to use the relationships and processes set up established for the Microloan Fund New England Farmers it is a difficult to assess their ultimate impact and performance. However, based on the target performances for the project, the program may have a greater impact than anticipated. The program is launching in the four counties of Western, Massachusetts and Vermont and we hope to make more than two loans. If successful, we anticipate expanding the program to Maine and the rest of Massachusetts in 2010 and then the rest of New England as soon as possible thereafter.

The first performance target was to establish interest and likelihood of investments in the range of $25,000 to $75,000. Because the financial needs to establish a loan fund is different from carrying out pilots, we have secured the needed investments, but the way the monies are brought together and used has changed. Strolling of the Heifers has raised $50,000 in donations for the program and expects to continue holding benefit concerts to support expansion of the program. These donations will be used for a loan loss reserve account which is useful to attract investors to the program because it acts as a buffer between their investment and any potential borrower defaults. The Carrot Project has secured investments of $60,000 from private investors and expects to secure an additional $50,000 to $75,000 in January 2009. The investments are for 5-years and each investor will receive a market rate on their return through a certificate of deposit at Chittenden Bank. The amount raised through donations and investments is anticipated to exceed the initial goal for the Microloan Fund for New England farmers of $150,000 which positions us well to expand the program to other regions and continue beyond the first year.

The second performance target to review the farmer application process, modify as necessary, and finalize is complete. Modifications of the process were minimal. We have established loan committees for both Vermont and Western, Massachusetts and we will publish the application on-line and make hard copies available no later than January 5, 2009. The loan committee includes members reviewing applicants from both states. They are: Poppy Davis, USDA-RMA; Jon Jaffe, First Pioneer Farm Credit; Lee Straw, Straw’s Farm; and Dorothy Suput, The Carrot Project. The Massachusetts Review Committee includes Rick Chandler, Massachusetts Department of Agricultural Resources and we are awaiting confirmation from a Massachusetts farmer to join the team. The Vermont based committee includes Morgan Greenwood Rilling from Yankee Farm Credit and Helen Robb of Robb Farm. The one change we already know we will make is to provide a longer application period. However, this was not possible this first round because of the administrative structure that needed to be put into place. Ultimately, we would like to provide loans on a rolling basis in order to make the program as flexible as possible.

The third performance target was to partner with farm support organizations and lenders to set-up financing services. This step is complete. We have a service agreement with Strolling of the Heifers and Chittenden Bank to administer the Microloan for New England Farmers. We will be making loans for $10,000 or less, for terms up to 5 years. For this initial pilot round of loans, applications will be limited to farms located in Vermont or in Western Massachusetts (Berkshire, Hampshire, Hampden and Franklin Counties) with a primary focus on small loans to small and mid-sized farms that use sustainable and organic methods (or are moving toward them), and that are marketing at least a portion of their products to local markets.

Eligibility is limited to farms with 250 acres, or less, in active production, with annual gross revenue of $250,000 or less. Acceptable purposes for the loans are capital investments and other expenses that help improve efficiency or quality, or that expand production and sales; repairs necessary to maintain farm operations; short term operating needs such as inventory, supplies or labor; and emergency funds to deal with business interruptions from fire, natural disasters, or other unforeseen events.

The fourth, fifth, and sixth performance targets, to carryout the application process and close loans, will start in January 2009 and we plan to approve loans in the first week of March 2009 with closings no later than April 6th, 2009. The primary difference from what we anticipated was that each investor will not be involved in finalization of the financing agreements with the farmers. Because we are setting up a pooled fund to secure the loans, authorization for the provision of individual loans will not be necessary. Instead, each investor will authorize the program to use deposits to secure loans based on the loan program criteria.

The final performance target, to draft lessons learned, will begin after loans have been closed.

Collaborators: