“Top Small Town” invests in local food

By Patty Cantrell, Regional Food Solutions

Good Food Economy Digest

"Top Small Town" invests in local food

People building strong places with local and regional food 

Good Food: Healthy, green, fair, and affordable

In this Edition

In this edition, we go to northern Michigan where regional economic developers are part of a team addressing the unique financing needs of a growing food and farming sector.


Start your own conversation with local lenders, funders, and technical assistance providers. See what kind of financing collaboration may result. Need help finding regional farm and food contacts? Email contact@ngfn.org to make the connection.

The Traverse City Area Chamber of Commerce is proud of national recognition that this northwest Michigan community has received as a Top 10 Small Town and one of America’s Top 10 Foodie Towns.

The Chamber also knows that these accolades are both closely related and hardly accidental. 

Behind the scenes right now, for example, the Chamber’s sister economic development organization, Venture North Funding and Development, is actively involved in a novel, peer-group effort to learn about and finance new local food and farming enterprises. 

Intellectual capital – not financial capital – is the main thing this small group of lenders, investors, funders, and technical assistance providers brings to the table. It is their commitment to both lending and learning that is making the difference. This Northwest Michigan Food and Farm 20/20 Fund team wants to make sure the region’s growing crop of beginning farmers and artisan food makers do not fall through the cracks. 

It’s a unique community-based approach that confronts some basic facts that complicate the already tough small business financing challenge that food and farm entrepreneurs face. 

Bankers today are generally unfamiliar and uncomfortable with the business of farming. Agriculture lenders are used to their mainstream of commodity production borrowers. All lenders and investors are highly averse to big risks inherent in the largely startup world of beginning farmer and artisan food businesses. The loans are also often too small or time intensive for most for-profit lenders. 

Economic Player

Farmer Nic Welty inspects young plants that will make their way to many markets in northwest Michigan. Welty is an advisor to a collaborative of local organizations working together to ensure local food and farm entrepreneurs find the financing they need to grow. 

Farmer Nic Welty inspects young plants that will make their way to many markets in northwest Michigan. Welty is an advisor to a collaborative of local organizations working together to ensure local food and farm entrepreneurs find the financing they need to grow. 

Traverse City’s business leaders understand, however, that food from the region, and for the region, is a major economic player. It feeds both tourism and small town quality of life here on the Lake Michigan shoreline. Addressing big financing gaps that can hamstring northwest Michigan’s rapidly evolving and innovating food and farm sector is a natural. 

“Farms, food processors, and food retailers are all important businesses in our area,” says Don Coe. He is a local winery operator and former state agriculture commissioner who advocated in 2012, as then-chair of the Chamber’s economic development arm, to join in the collaborative lending and learning effort.

Getting their feet wet

The experiential aspect of lenders “getting their feet wet” through the 20/20 Fund group can lead to more consistent and confident lending as the region’s local food sector grows, says Susan Cocciarelli. 

She is a sustainable agriculture finance specialist from Michigan State University based at Traverse City’s regional council of governments Networks Northwest. Her “Financing Farming in the U.S.” research provided a point of departure for the 20/20 Fund group. 

The 20/20 Fund: Results

In its first year, 2013-2014, the Northwest Michigan Food and Farm 20/20 Fund’s members made 18 loans for a total of nearly 1.5 million.

Financing went to seven agricultural operations and 11 food businesses that use local foods. This work resulted in 13 full-time jobs and two part-time jobs across five counties.

Members are: Venture North Funding and Development, Northern Initiatives, As Local As Possible, Honor Bank, Greenstone Farm Credit, Networks Northwest, Michigan Small Business Development Center, Michigan State University Extension, Black Star Farms, and Nine Bean Rows.

A key finding is that local food and sustainable agriculture financing requires the kind of “relationship lending” that involves getting to know a borrower and his or her business. Financial underwriting today, however, allows for little of such qualitative information. Decisions rest on credit scores and other data, such as industry benchmarks, which the emerging and diverse sector has yet to produce. 

Cocciarelli says the 20/20 Fund’s motto “Lend and learn. Learn and lend.” is working. “With 20/20 Fund successes -- paid on time or even before due -- conventional lenders are becoming more familiar with the sector and comfortable with the borrowers.”

Team Work

Consider an Amish farmer that applied for a loan through 20/20 Fund member Northern Initiatives, a Community Development Financial Institution (CDFI). The collaborative worked together to move the application through Northern Initiatives’ loan review process successfully. 

The farmer posed relatively little risk. He came with a successful track record plus purchase orders in hand from a regional produce distributor. But the farmer did not have collateral required to secure the $12,000 loan for plants and irrigation. 

Two other members of the 20/20 Fund team stepped in to help. 

One is locally owned and operated Honor Bank, which holds “Individual Development Accounts” (IDAs) that the 20/20 group makes available to farmers. These federally matched savings accounts are common in urban redevelopment efforts but only beginning to show up in rural food and farm development. 

Another 20/20 Fund member, the regional Utopia Foundation, provided the required local match to bring the IDA total to $3,000. The farmer then brought the IDA to Northern Initiatives as a loan guarantee.

Bridging Gaps

The  Northwest Michigan Food and Farm 20/20 Fund  is a group of lenders, funders, and technical assistance providers committed to “lending and learning.” It’s hosted by the regional council of governments Networks Northwest.

The Northwest Michigan Food and Farm 20/20 Fund is a group of lenders, funders, and technical assistance providers committed to “lending and learning.” It’s hosted by the regional council of governments Networks Northwest.

“Its hard to get a traditional lender to finance some of these businesses,” says Venture North Executive Director Laura Galbraith. “They are mostly startups with little to no collateral, and it takes a long time to go to market so you have to be patient lender. We have had to be pretty collaborative and inventive in some ways.”

Sometimes it’s just the 20/20 Fund group’s willingness to jump in when it would take a traditional bank much more processing time, or cost farmers dearly in credit card debt.

“Having a community partner that is quick and flexible, that’s where the value comes in,” says Nic Welty. 

He is a successful young farmer in the region and advisory member of the 20/20 Fund. His Nine Bean Rows farm has worked two loans through the 20/20 Fund. One involved an equipment grant from the sate agriculture agency. The 20/20 Fund fronted Welty the $20,000 he would have had to pay out first before getting reimbursed through the grant. 

 “I didn't want to be out $20,000 while waiting an indeterminate amount of time. ... Unless you’re super capitalized or have a close relationship with a banker, which most don’t have, it takes a long time to get that kind of capital.”

Livability Factor

Northwest Michigan’s 20/20 Fund participants work through challenging, unconventional food and farm loans because they see regional quality-of-life growing from this sort of economic development. 

They are not the only ones.

The 20/20 Fund is just one of 45 related food and farm sector development projects that the Northwest Michigan Food and Farming Network featured recently in its first annual Report to the Community. More than 150 organizations are united, along with individual farmers and others, behind the 10-county Network’s goal of 20 percent local food by 2020.

All of this local food and farming effort contributes to the “livability” factor that is fundamental to the region’s economic development strategy and earning Traverse City national recognition.

Hans Voss has watched it unfold since the mid 1990s. He is Executive Director of the Traverse City-based Groundwork Center for Resilient Communities, formerly the Michigan Land Use Institute. The nonprofit helped kick off local food’s contribution with its annual 10-county Taste the Local Difference guide and marketing programs. 

“Not only are restaurants, schools, and grocery stores prioritizing local, it’s enlivening the whole economy and energizing a growing sustainability ethic,” he said. “A new generation of socially and environmentally conscious people is coming to this forward-looking community.”


Farm IDA Accounts

Northwest Michigan’s 20/20 Fund is part of a group of initiatives from nine states trying out Individual Development Accounts (IDA) for food and farm businesses. California FarmLink is a national leader and coordinates this national learning group. See more here: http://www.californiafarmlink.org/farm-financing/248-idas

Financing Farming Examples

The 20/20 Fund’s “Lend and Learn. Learn and Lend.” approach builds on experience that some innovative lenders around the country have had. 

See discussion of the community-based lending approach in this summary of experiences and findings pulled together by the Michigan State University Financing Farming in the U.S. project.

You can also find practical insights and examples of food production lending here at the Opportunity Finance Network’s “Nurturing Healthy Food Financing” resource bank.