Are farm programs the right fit for your operation
An influx of revenue is bound to boost any operation. There are many government programs available to producers that provide funds for business development or operation improvements. However, depending on the type of assistance offered, there are different requirements and stipulations.
Grants
Typically grant funding acts as a financial stimulus to grow a business or plan a new one. Grants serve as short-term business funding. “Grants are often reimbursable programs that require a recipient to pay for approved items, submit receipts and report on project outcomes. Approved receipts for projects that are making adequate progress are then reimbursed at 100 percent of the original cost,” Mallory Rahe, University of Missouri Extension Agricultural Business and Policy Education Director and director of the Missouri Agriculture, Food and Forestry Innovation Center (MAFFIC), explained.
Loans
Producers seeking government loans for their agricultural business will want to keep in mind there are short-term and long-term loans. The loans accrue interest payments and are granted to producers on credit. Loans must be repaid on a specified timetable with interest.
Cost-Share Programs
This program offers a bit of a mix between grants and loans. In a cost-share program, producers must shoulder a portion of the financial burden of the proposed business plan, improvement or expansion.
“Cost-share programs are reimbursable programs that require a recipient to pay for approved items, submit receipts and report on project outcomes,” Rahe said. “Approved receipts for projects that are making adequate progress are then reimbursed at a percentage of the total cost. Recent cost-share programs have provided 50 percent to 75 percent reimbursement.”
Application Requirements
Depending on the program, producers must provide different types of information. Producers seeking loans should expect to present a business plan, financial projections and a cash-flow statement.
Other programs may ask for similar documents as well as letters of support, specific project objectives and metrics that gauge success. “The process of applying to any of these programs can help a business owner crystallize their plan for an expansion, stress test their ideas and discover gaps as they think through how they will operationalize a project and measure its success.” Rahe said.
Consider All Costs
Although grants and cost-share programs do not require repayment, many times these programs require producers to cover all of the costs upfront and then request reimbursement. One strategy to help with this hardship is to take out a short-term loan and then pay it off after receiving the program reimbursement.
Additionally, Rahe encourages producers to carefully evaluate every cost associated with the program, “While many people talk about grants and cost-share programs as “free money”, it is important to consider the full cost of these efforts and only pursue programs that are well aligned with the business’s needs.”
For example, producers participating in grants and cost-share programs incur administrative costs. They must keep paperwork, follow reporting guidelines and track financial requirements.
Business Fundamentals
Though program funding may be beneficial for ag operations, business specialists encourage producers to manage their businesses in a way that keeps them successful with or without the influx of government money.
“Good businesses may be able to accelerate their growth with grant funding, but ultimately all businesses need to be able to cover their costs, respond to customer demand and competition, and be able to pivot as market and economic conditions change,” Rahe stated.
“At the end of the day, being able to produce a product or service that people want at a price they can afford (and that keeps the business operating with reserves to invest in growth) are still the fundamentals to a strong business – not the ability to successfully secure grants,” she added.
