Assessing Financial Resources Every start-up business needs some level of financial investment Land is a big one, but so is infrastructure! Once you know what you need, you can develop a strategy for financing those investments Under investment AND over investment can both be problematic

How can you raise the money you need? Savings Assets you can sell? Save money –many defer start-up to save –cutting expenses Borrowing from traditional lenders Borrowing from family and friends “Alternative” loan funds (non-profits, community based)

Some Definitions Assets = what you own or what is owed to you –savings –real estate –stocks –equipment and vehicles Liabilities = what you owe to others –loans –mortgages –credit card balances –income tax Net worth = Assets – Liability Collateral = assets you pledge as security for a loan that is given up if you default on the loan.

Personal Resources to Invest in Business What personal assets do you to have to invest in your business?

Personal Resources to Invest in Business How can you use these assets? –cash –collateral –use –assets to sell for cash Worksheet # 15 page 57 Examples?

Traditional Funding Sources Chartered Banks and Credit Unions Farm Credit Canada Community Futures Development Corporation Business Development Bank of Canada Input Suppliers/Equipment Dealers

Chartered Banks and Credit Unions Short and long term loans Business accounts Personal accounts –Loans based on personal finances not on business –Eg. Line of credits –Likely will get better loan terms than for agricultural loan which is viewed as risky

Farm Credit Canada FCC is Canada’s largest provider of business and financial services to farms Short term and long term loans (equipment, real estate) Alliances with input suppliers Geared towards commodity agriculture Not great terms –high interest rate –shorter length of time to repay loan Need to provide –net worth statement –financial statements for the past three years –recent pay stub if the majority of your income is generated off-farm

Community Futures Development Corporations In Ontario Business Counseling and Training Loans to help new or existing small businesses Up to $150,000 Secured and unsecured Focus on Rural Development Phone:

Business Development Bank of Canada Business counseling, training and financing for small businesses Short and long term financing – up to $150,000 Resource material for business start ups BDC- BANX ( )

Input Suppliers/Equipment Dealers Input Suppliers –Short term operating funds/line of credit Equipment dealers –Financing for equipment Typically in alliance with bank or Farm Credit Canada

Loan terms Amount of the loan you are requesting Interest rates –Negotiable with the lender –Based on the lender’s risk assessment –Many use prime rate as the base --- prime = 2.25% (May 09) Ex: prime plus 1% or prime less ¼ % –Typically real estate loans have lower interest rate

Loan terms Length of term –Operating 1 year –Equipment 5 – 7 years –Real estate 20 – 25 years Security/collateral that will be required: –Will depend on the loan –Short term (maybe none…) Personal property - Inventories, equipment –Long term - mortgages Real estate

What are lenders looking for – 5 C’s –Capital/Commitment – how much you are relying on debt to finance the business –Capacity/Cash Flow – can you make your payments –Collateral – what can you offer as security if you can’t pay –Character – experience, creditworthiness –Climate/Conditions – what are the opportunities and threats in your business

Credit Rating Rating given to a person by credit bureaus that measures their “credit worthiness” or ability to repay a loan – experience managing credit (credit cards, mortgage, loans, etc.) – reliability making loan payments –current financial condition (income, savings, outstanding debt, etc.) –other factors Credit Bureaus – Equifax, Experian, and TransUnion –contact directly to get a copy of your credit report. –contact all three - they often offer slightly different information –may have errors

Character & Climate/Conditions Character (internal to the business) –Credit bureau report –Personal record/credibility with your lender –Personal experience, strengths Climate/Conditions (external to the business) –Market prospects/your marketing strategy –Opportunities/threats in your industry A well prepared business plan will go a long way to address these areas

Borrowing from Family & Friends Can get complicated… But can be “patient” lenders –longer terms –flexibility to make payments –low interest May want to become part owners or “limited partners” –No management but provide financing and take on limited liability

“Alternative” Funding Sources Available through non-profits or community-based organizations –Canada Small Business Financing Program (CSBF) –Canadian Youth Business Foundation (CYBF) –Micro-credit financing - under $25,000 More wiling to take risk on start-up venture but generally charge higher interest rates Environmental Farm Plan –Federal cost sharing program for farmers who adopt Beneficial Management Practices –Cover 30-50% of cost –Up to $50,000 Small material grants (~ $4000) available from Heifer International through FarmStart and Everdale

Evaluating your Options Truth is, that it’s hard to get funding for a new business, especially in agriculture, so come prepared! If raise funds for business, what is your tolerance for risk and comfort with debt? If self-finance, how much of your investment do you want to repay yourself over time? –Gift? –Lending? –Repay when reach certain level of profitability? –Repay only when sell farm? –Regular repayment schedule?