One of the questions I always get from young aspiring farmers is how do I get funding? Well there are a couple of ways one can finance their farm, in this article I will share a few of the types and hope they will be of great use to you.
It would not be fair to discuss farm funding and not talk about farm business planning. Farm business planning is the basis that drives funding. To learn more about this an article on that shall be discussed in detail, but for now let’s see a glimpse of it.
Farm Business Planning
You need to identify your specific interest in livestock farming. What animals are you planning to keep? Why do you want to keep the animals? At what scale do you want to do your farming? For how long are you planning to do the farming? Are you a fulltime or part time farmer? The list of questions is endless, but if you can be able to confidently answer them now you can start to think of committing yourself to getting funds and starting your production
Funding your farm
The first rule of funding is to avoid getting into unnecessary debts, this increases chances of success. The profits that you make you can reinvest in the farm to grow your enterprise. Look at all funding options available to yourself go further and explain the options to see what aspects they entail. Try by all means to resist temptations, it’s either by getting more money on credit or buying more equipment than you really need (overcapitalization). Of course you shall benefit from a loan, especially if you have a solid business plan that exhibits a realistic strategy for paying it off.
Types of Funding for a farm business
Self-financing a start-up
Farmers who are working or have other sources of income, use it to start off their farming enterprises. They invest by inputting small amounts in getting machinery, land and livestock to start themselves off. Starting small is mostly what these farmers have in mind. What they put in will multiply to grow the livestock enterprise.
Donations or contributions
Donations or contributions is money given freely by those who share your desire to see your project succeed. These contributors may be friends, family or even individuals who have found you through different associations and connections. These contributors require reporting of how the money gets used may be expected. This type of funding is mostly accessible to farmers who are already in the farming business, whether small or large producers. The passion of the farmer coupled with the evidence of hard work is the factors that contributors look for, so they know their money is not going to waste.
Grants are money given by a government or Non-governmental organizations, for-profit or nonprofit entity in response to getting an application for funding. If the grantor feels that the application set of goals they deem worthwhile and that the applicant is credible, then the money is awarded to the applicant. Periodic reports are required to be sent to the grantor to show how the project is progressing and exactly how the money is being used. Sometimes project money needs to be spent first, and is then reimbursed via the grant. Some grants are awarded only to non-profit organizations, so it may be necessary to work with one of these as your fiscal sponsor.
Loans are money given for an agreed upon period of time, with the intention that they will be paid back with or without interest. Loans may or may not be “secured” by collateral, meaning that if the loan cannot be repaid, the lender gets the collateral instead. Loans from friends or family are often unsecured” (the “collateral” being the relationship itself), whereas loans from lending institutions almost always are secured by collateral, such as real estate, vehicles, buildings or other items of value.
There are different types of programmes that the government has developed so that new farmers or already existing farmers can take benefit of. We should keep in mind that there is no such thing as free money and pursuing any of the programs requires a solid commitment of time and mountains of paperwork to secure any funds that are available. The following are some of the programmes that the government of Botswana has for its people to benefit from
Crowdfunding is a technique of asking the general public to fund your project, almost without regard to what that project is. Crowdfunding sources are web-based and now consist of donation types but may soon include investment (equity) types. All that the applicant should prove is if the agriculture enterprise can make profit.
Community Supported Agriculture (CSA)
Community Supported Agriculture is an investment type crowdfunding system run by individual enterprises, or groups of similar enterprises, that act as pre-pay accounts which are marketed directly to potential retail customers as a means of annually raising capital to fund the year’s or partial year’s operations. Benefit to the CSA subscriber may be either via a fraction-of-production system or a credit-against-purchases system. In each case CSA subscribers invest with the expectation of getting a share of the production as determined by the CSA issuer to be the return on their investment. This is one
Kickstarter is a funding platform for creative projects. Everything from films, games, and music to art, design, and technology. Kickstarter is full of ambitious, innovative, and imaginative projects that are brought to life through the direct support of others.
Investment or equity
Investment or equity funding is where the source of the money invests in your project in trade for a piece of the ownership of it. Equity funding is often used to acquire operating or expansion capital. This is basically how the stock market works, but is also often done on a small scale.
Careful financial planning, building relationships with lenders and investors, and understanding the financial resources available are keys to successful financing for your farm. Financial planning involves understanding your income and expenses for your family and business, and getting real estimates for needed changes, purchases or upgrades to your business.
Building relationships requires an understanding of the 5 C’s of credit (Character, Capital, Capacity, Collateral, and Conditions) as well as getting your potential lender out to the farm to better understand your business and financing needs.
Understanding the financial resources available takes time and effort. Where to find lenders who both understand farming and appreciate the challenges and risks inherent to running a farm business is not easy. Start with evaluating your own capital resources, followed by local credit unions and banks you currently do business with. Then broaden your search with the resources listed below.