Agricultural Businesses Benefit from Multiple Funding Sources
Canada has an abundance of agricultural focused businesses. From the farmers and producers that feed our cities, to the processors who modify food, to the organizations who help support food and agricultural research. As a result, and given Canada’s position as a leading agricultural producer, it’s not surprising to see the abundance of funding options available to support agricultural businesses. In this post we focus on three key avenues available to support agricultural businesses: private equity funding, government funding, and traditional financing.
What Funding Mechanisms are Available?
Although funding for an agricultural business can come from a variety of sources, there are three general pots of money available to both producers and processors to help support growth, expansion, and research activities. Agricultural businesses can leverage private equity funding, government funding, and traditional financing (e.g. bank financing) to help support their growth objectives.
There are benefits to each option, which would help explain why main agricultural businesses leverage all three sources in different scenarios. We’re here to help explain when an agricultural business might opt for one of the three sources.
Option 1: Canadian Government Funding
There are a variety of programs available to support agricultural businesses in Ontario and Canada. These include the popular Growing Forward 2 and Rural Economic Development (RED) Initiatives. Both funds can help an agricultural business receive Canadian government funding to support a specific project. The funds are typically allocated to support a specific project, and businesses can expect to see anywhere from 25%-50% of eligible project costs covered by the fund (total coverage amount varies by fund, project type, and business type). In order to fully leverage government funding, there is a significant amount of pre-planning involved and businesses may be required to apply for funds anywhere from 45 days to 6 months prior to the project starting. Businesses should be aware that most grants and repayable funding options require businesses to submit a funding application for the project that would like to receive funding for and have it accepted by the government body prior to starting their project.
Option 2: Private Equity Funding
Due to the high concentration of agricultural businesses in Ontario and Canada, there are many private equity funds available for agricultural businesses to receive investment. This option is of particular benefit to agricultural businesses who are developing a unique or innovative crop/agri-food product and who are in the early stages of development. The benefit of this route is that in addition to cash to support the business during crucial growth phases, private equity usually gives a business access to the investors’ knowledge and expertise. The main drawback with this option is that the business owner will likely be required to trade off a portion of their equity for cash.
Option 3: Bank Financing
The last option that agricultural businesses have is to go the most traditional route and leverage bank financing. Typically, a small agricultural business can approach their bank for an operating loan or line of credit to help offset cash flow issues. The bank will want to review an asset and liability profile to assess the risk of loaning your business money. The main drawback of this avenue is that the loan or line of credit may have a high interest rate, thereby making the cost of borrowing too high for some businesses to fully leverage it.
Agricultural Business Funding Reality
The reality is that many of our clients who operate in the agricultural space leverage multiple sources of funding. Some have private equity investors, most have an operating line with the bank, and they are all in the process of leveraging Canadian government funding to support their business. Many agricultural businesses have the opportunity to leverage government funding to support specific projects, including business growth and expansion activities. If your agricultural business is in a growth phase and undertaking growth-related projects, then you may be eligible to receive support from the Canadian government. You can contact a Canadian government funding expert today to learn more about the options available to your business.