They are generally different approaches to business funding. The tips provided in this article are just a few and may work for some.
We know the population of the world is increasing geometrically, while food production is increasing at an arithmetic rate. There is a need to increase efforts in food production through farming and food processing, and you’re probably a player in this field.
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Agri-food Business Funding Challenge
If you’re reading this article, you are probably an agriculturist/farmer/food processor or you have an interest in becoming one of these. Like many in this field, you might find it challenging to raise funding for your agri-food business.
You might also find it challenging to access loans from commercial banks, which might be due to the unpredictable nature of agriculture, inadequate collateral, or other factors beyond your control.
Therefore, the question that individuals, businesses, and companies in the agri-food sector and the agricultural world at large ask and crave practical answers to is how to raise capital.
The internet is full of theoretical answers. How can you source funds for your agri-food businesses? Here are practical tips you could try.
Business Funding Tips
The first step is to make a detailed Feasibility Report/Business Plan
A feasibility report is a document that assesses potential solutions to the business problem or opportunity and determines if the business is economically viable or not. If you reach out to seek funding, this document will help to persuade the decision maker (your potential investor) to consider funding your business.
Further, when making your feasibility report, make sure to add calculations that would project profitability. Typical profitability indices everyone out there wants to see are payback period, benefit-cost ratio, and rate of return on the agri-food investment (IRR), among others. They will show whether your agri-food business would be profitable and how profitable it would be.
Think of the introduction of your feasibility report as an elevator pitch that aims to win the heart of the investor, while the analysis aspects and calculations should appeal to the logic of the potential investor.
Do you need a detailed guide on how to write a business plan? Check out this article by Investopedia.
Business Funding through a Venture Capitalist or Angel Investor
A venture capitalist (VC) is a private equity investor, usually part of a group/organization that provides capital or part of the investment cost to businesses with high growth potential in exchange for an equity stake (Investopedia).
In simpler terms, they provide funding for your business and own part of it. Then you share profits based on the percent stake they have in your business. Please read more about venture capitalists at Investopedia.
On the other hand, an Angel investor does the same thing as a venture capitalist but is a single individual who has money to invest. Learn more about Angel Investors from Forbes Advisor.
Where can you find a venture capitalist/Angel Investor?
- A lot of them can be found on Twitter or other social media platforms.
- You can find them on their blogs. Search online; you can.
- LinkedIn doesn’t disappoint you in your quest to look for them.
- Watch out for events and exhibitions.
- Talk to your rich acquaintance or relative and let them know what’s in the bag.
Further, it is smart for you to do extensive research on the venture capitalist/Angel investor you are about to approach, and get information like interests, hobbies, past investments, goals, passion, and very importantly fears. This helps you prepare a presentation that would most likely be successful.
The carefully drafted presentation with an outstanding feasibility report will result in a high probability of success.
Business Funding through Cooperative Societies
We are sure you have heard quotes like two heads are better than one; even George Carlin said, “never underestimate the power of stupid people in large groups”. This suggests that it might be beneficial to join a cooperative society. Two people together have more power than three people separated.
A Cooperative Society is a voluntary association of individuals, united by a common bond, who have come together to pursue their economic goals for their own benefit. Make sure the organization you join is made up of only trusted individuals and is well-structured.
If you cannot find a suitable cooperative society to join, find like-minded people and form yours.
How can a cooperative society help with your business funding?
- You can use contributions from cooperative societies to fund your agri-food businesses.
- Cooperative societies can go as a group to collect loans that are not normally given to individuals.
Crowdfunding
Crowdfunding can be another way to fund your agri-food business. According to Investopedia, crowdfunding is the use of small amounts of capital from many individuals to finance a new business venture.
Depending on the type of crowdfunding, investors either donate money altruistically or get rewards such as equity in your company.
You can use platforms like Indiegogo, Kickstarter, SeedInvest, GoFundMe, and some others, to reach out to good-minded people, who might support your agri-food businesses.
What is needed is to sign up on any of the platforms and then provide details about your agri-food business. Make a strong case about your situation and explain how such funds would impact your business and society.
Quick Tips on Getting a Loan
Getting a loan for your agri-food business might be challenging, but not impossible. When you approach an institution for a loan, make sure you understand the terms of your loan.
There are conspiracies that banks sometimes hide terms of loans in bulks of texts to legally cheat individuals and businesses. These conspiracies are sometimes true.
Therefore, before you apply for a loan get someone who understands the gibberish of the terms and conditions of financial institutions.
Moreover, the interest rate on a loan per year should be compared to the profit that your business can generate in a year. If it is reasonable, you can go ahead. For example, if your IRR per year is 40% and the interest rate of your loan is 15% per year, it is reasonable to go ahead with the loan.
Another point is that a good feasibility report might be helpful in getting loans. Loan sources include commercial banks, agricultural banks, agricultural credit scheme funds, NGOs, Government relief funds, and cooperative societies.
You should note that getting loans from commercial banks for agri-business might be hard and almost impossible. But a good feasibility report does make it easier.
Saving for Business Funding
Putting some money aside each month might be a good way to reach your business funding goals. Savings are usually underestimated, but many startups are funded with personal savings. This calls for a lot of self-discipline and planning on your part.
The advantages of savings are that you don’t have debts and you wouldn’t be splitting the profits with anyone. You can do automated savings, where a little percentage would be removed from your bank account monthly to a safe wallet. If you fund your agri-food business with your savings don’t be scared to reinvest your profits.
The Bottom Line
There are various ways to source funds for your agri-food businesses, all of which have their own challenges. Whichever approach works for you, it is important to make a detailed plan for the business.
You should be able to define how you’d get your capital back over the years, why your agri-food business is important, the problem your agri-food business is solving, the goals, the objectives, and others.
Those are what you might need to win an investor, lender, or helper over. They also predict how successful your agri-food business will be.
REFERENCES
Tribuneonline. Why Bank Don’t Lend to Farmers. Online at: https://tribuneonlineng.com/why-banks-dont-lend-to-farmers-nirsal/
Great Article!