Incubation, expansion and learning: The microloan fund for New England farmers

Project Overview

Project Type: Sustainable Community Innovation
Funds awarded in 2009: $17,514.00
Projected End Date: 12/31/2009
Region: Northeast
State: Vermont
Project Leader:
Julia Grigg
The Carrot Project

Annual Reports

Information Products


Not commodity specific


  • Sustainable Communities: community development

    Proposal abstract:

    As communities and regions, we face the challenges of keeping farmers in farming, and shaping a food system that works for farmers and consumers while bolstering local and regional economies. As established farmers in the Northeast age, young, entry-level farmers are needed to replace them. There is also growing demand for locally and sustainably grown foods, and farm enterprises need to expand to meet this demand. Given these two factors, it is concerning that 25 percent of farmers requesting financing are denied access to credit. More compelling is the fact that start-up and expanding businesses make up a majority of farms denied credit, and these are the farms on whose success we will increasingly depend. The Carrot Project’s 2008 survey (completed prior to the tightening of credit markets and supported by a 2007 Sustainable Community Grant) of 706 farmers in New York and New England showed that 25 percent of small- and midsized farmers applying for operating or capital loans are unsuccessful. This is especially true for start-up and expanding businesses. Examples of this problem have been recognized by agricultural professionals. Jon Jaffe of First Pioneer Farm Credit, ACA, and a member of The Carrot Project Advisory Board, states, “Farmers who lack equity need first- or second-position liens to provide adequate collateral to receive financing.” A USDA Farm Services Agency (FSA) study of on-farm cheese makers in Vermont found that insufficient financing was an obstacle to start-up for 63 percent of respondents, and to operations and expansion for up to 20 percent. Farmers are being denied financing because of inadequate credit history, collateral, or cash flow. Lenders are unable to work with some farmers because of the costs of administering smaller loans, lack of flexibility in applying selection criteria (such as allowing for alternative collateral or limited credit history), and inflexible terms. Community development finance institutions (CDFIs) finance many small businesses. However, they were pioneered to address urban issues and typically have little or no agricultural expertise. Though agricultural lenders such as Farm Credit and the USDA Farm Services Agency — known as the lender of last opportunity — do offer credit, neither adequately serves farm operators perceived as greater risks because they are in the start-up stage, have “alternative” enterprises, or are poorly collateralized. Use of business technical assistance combined with new sources of capital and alternative financing, such as flexible payment options and ability to work with farmers with inadequate credit history or collateral, can start to address this situation. The 2009 Sustainable Community Grants seeks innovative proposals to strengthen the position of sustainable agriculture as it affects community economic development. This proposal addresses two key issues — finance and enterprise development. The Carrot Project is dedicated to providing financing for small- and midsized farms, limited-resource farmers, and those using ecologically sound practices. We are incubating financing programs, while connecting farmers to business technical assistance, by joining community-based lenders, investors, non-profits, and farmers, and helping them create alternatives that provide debt financing and help farmers thrive. Our work directly addresses elements of the Northeast SARE outcome statement because we are helping build agriculture that offers stability to local farmers, provides healthful food for citizens, replenishes the environment, and is good for local and regional economies. Farmers have been involved in all aspects of The Carrot Project’s research, project design, and implementation. For the research and project design we received input from 706 farmers through the farm financing survey, which was developed with the help of eight farmers. We also spoke with six other farmers periodically (during a 1½-year period) to learn about their businesses and how financing impacts their operations. Farmers have provided input into the application process and three will participate on the Loan Review Committee.

    Project objectives from proposal:

    The Carrot Project seeks support for Incubation, Expansion, and Learning: The Microloan Fund for New England Farmers, a project that will help address farm financing gaps and provide case studies (of three states), detailing how to fill financing gaps with varying degrees of both involvement from lenders and availability of business technical assistance. We anticipate providing 27 microloans (with a median loan size of $5,000) in collaboration with lenders that have a limited agricultural portfolio — particularly for small- and midsized farms without access to conventional financing; matching farmers with business planning technical assistance; and building the partnerships and track record necessary to expand the microloan program and provide the basis for a second financing program whose median loan size would be $30,000 or more.

    What we learned from CEI, Inc., Western Mountain Alliance, NOFA-VT, MOFGA, USDA FSA, and state government programs in the Northeast, as well as organizations around the country, is that a number of non-profit and government programs assist farmers with financing. However, little of this funding is focused on smaller sustainable farms or is available to those with limited resources. Many of the programs are restricted by organizational mission and geographic focus, as well as by the amount and terms offered. The goals of The Carrot Project’s work go beyond simply providing financing — we aim to increase the availability of financing and to attract, in an ongoing and concerted effort, socially responsible investments as a new source of capital.

    The project is innovative and breaks new ground because it: 1) joins together community-based lenders, investors, non-profits, and farmers to create alternative financing programs while connecting farmers to appropriate technical assistance; 2) acts as an incubator to work through the difficulties inherent in any new program; 3) provides a new stream of capital for microloans geared toward small- and midsized farmers using sustainable practices; 4) in addressing the needs of farmers and lenders, it expands on previous work; and 5) it advances our goal of institutional change — lenders operating, in ways they have not previously done, to support small- and mid-sized sustainable farming.

    The targeted institutions are lenders not currently focused on small- and midsized farms or with limited programming. We seek to make institutional change possible by creating partnerships with these lenders and incubating financing programs that work (and when an early partnership is not possible, transferring the programs to them once they are fully functional). The financing programs will be important tools for farm enterprises as they strive to maintain or increase their farms’ productivity and financial viability, or to decrease their ecological footprints. The benefits to the community will be increased stability of farm operations that use ecologically sound practices, contribute to local economies, and sustain local food networks.

    The project has promise because of the careful research, networking, and planning that have preceded this proposal. During the past three years, The Carrot Project has addressed the lack of research that’s critical to understanding small-farm financing and how institutional change could be effected (see responses to questions #1, 5, and 7). In addition, the fact that many of the program pieces are in place augurs well for project success. The Microloan Fund for New England Farmers, a partnership with Strolling of the Heifers and Chittenden Bank, is ready to launch in Vermont and Western Massachusetts this winter. Implementation agreements have been drafted, the application process is established, and the Loan Review Committee members have been recruited. We have raised sufficient funds to provide financing. Options for business technical assistance referrals are documented, early work to expand the project to Maine has begun, and institutions that could administer the financing program in each state, post-incubation, have been identified.

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.