Each fund works somewhat differently. But in general, The Carrot Project does the farmer outreach, site visits and due diligence. It may even package the loan based on agreements made ahead of time and make a recommendation to its lending partner, who closes the deal. "They make the final decision," Suput says, "but we see it as more of a check. They've never turned down a loan we recommended."
A key part of The Carrot Project's role also includes technical assistance to the farmers. "That's similar to CDFIs," she admits, "and we are working with CDFIs in two states. We are focused on gap financing, and I would say we are extending their capacity."
Whereas Carrot Project funds are lent directly in Maine, they are used for collateral in Vermont and Massachusetts. This collateral ranges from 20% to 100% of the loan amount, depending on the lender, and farmers must also post collateral. Each fund has a 10% loan-loss reserve, which has been provided by donation. Farmers usually pay 6.75% to 7.5%.
In most cases, microloans are for amounts up to $35,000--or $75,000 for the Berkshire Fund. Farms obtaining loans have ranged from a berry grower/cordial maker and a greenhouse herb business to dairy farmers, grass-fed beef operations and a mussel farmer.
There a bunch of beginning farmers focused on equipment such as hoop houses, tractors, irrigation equipment, generators and sheds. "They are looking for everything from shelter and barns to all of their equipment to be movable," Suput says. "Their premise is that if they are going to farm, they will never be able to own land."
Creating Food Hub
But the production of local food is only part of the story. "Even if you have a perfect product, it's not going to work if there's not a market," CEI's Harris says. "That was a real issue [for farmers] years ago. But now we're finding that the markets have really opened up [for local food] and the issue is turning to scale and scalability so farmers can sell not just to the high end."
With respect to scale, the key issue is the infrastructure to move the food from farm to local plate, says Patricia Cantrell, a food system economic development consultant at Regional Food Systems, LLC in Beulah, Michigan. She points out that a lot of the local storage and process distribution doesn't exist anymore.
"As we centralized or globalized our food system, the avenues that farms have to travel to market are pretty large scale," she says. "The national distribution system doesn't have a lot of on-ramps between a farm and a local school, for example. So the ability of several farms to put their products together for a local school district requires starting from square one."
Financing food hubs is a big focus for RSF Social Finance, which makes direct loans to nonprofit and for-profit social enterprises. Among other things, food hubs aggregate and distribute fresh produce from local farmers to local institutions such as schools and hospitals.