Finding funding for your indoor agriculture operation is tough. Recently we wrote that venture capital funding doesn’t always make sense for startups planning to build indoor farms because the time horizon and returns profile may not match.
“We decided to launch Contain, Inc. because we saw that many of the kinds of financing that were readily available to outdoor farmers—such as leasing equipment—weren’t currently offered to indoor farmers,” Nicola Kerslake, founder of Newbean Capital recently told AgFunderNews via email. “This is a significant disadvantage, as one critical aspect of establishing or expanding a farm is access to capital.”
The long-term goal for Contain Inc? To become the premier provider of capital for the indoor ag sector.
Part of Newbean Capital’s efforts has included talking to lenders about the needs of indoor farmers to help them understand the unique aspects of the sector. It’s also selected some strategic partners.
Under today's unique circumstances, AgFunder is re-opening Fund III for a limited time to enable investors to join our mission and invest alongside us as LPs in a second close. Learn more here.
“We’re working just with Bright Agrotech’s current and prospective Upstart Farming community now, but we envision rolling it out to all indoor farmers over time,” says Kerslake. “We’ve also been thinking through the way that farmers interact with banks, and that’s something that will lead to several new features over time.”
While Newbean Capital is busy creating new and disruptive financing options, there are a few channels that indoor ag startups and businesses can use to keep the lights on and the hydroponic systems pumping.
Here are six routes you could go, whether you run a hydroponic greenhouse, a container farm, a vertical growing operation, or some other outfit.
One of the biggest inputs for indoor ag is electricity. Keeping those pink and purple hued lights burning around the clock can lead to costly bills no matter how energy efficient they may be.
The USDA’s Rural Energy for America Program (REAP) offers grants of $20k or less along with guaranteed loan financing to ag producers and small rural businesses that want to install renewable energy systems or make other energy efficiency upgrades. Examples of the ways the cash can be used include equipment to produce energy from biomass, hydropower, hydrogen, wind and solar generation, and ocean-based generation.
Applicants must earn at least half of their gross income from an agricultural operation, while small businesses in rural areas must meet other specified criteria. Eligible businesses must be located in areas with a population of less than 50,000 folks.
This provides funding to indoor farms in participating states to conduct specialty crop research provided that the partners in the operation include a research organization or cooperative extension that can publish the research results. The purpose of the program is to address the critical needs of the specialty crop industry by awarding grants to support research and extension that address key challenges of national, regional, and multi-state importance in sustaining all components of food and agriculture, including conventional and organic food production systems. Indoor ag companies that are willing to do some research could really benefit from this opportunity.
Funds provided through this grant can be used to promote, market, and distribute value-added products from farms and other agricultural enterprises. This can cover things like packaging, delivery, labels, and websites. Priority is given to certain groups, including beginning farmers or ranchers, socially-disadvantaged farmers or ranchers, and small-to-medium sized operations. Family farms are also looked upon favorably. The maximum amount available to each awardee is $75k for planning grants and $250k for working capital grants.
Offering planning grants between $25k to $100k and implementation grants from $100k to $500k, this program supports the development and expansion of local food businesses. It’s geared toward boosting the amount of domestically-produced and regionally-grown agricultural products and to help create new markets for farmers in their local communities. Eligible entities must support local and regional food business enterprises that process, distribute, aggregate, or store locally or regionally-produced food, including agricultural businesses and cooperatives, as well as other for-profit agricultural business entities.
Providing under $50k in capital, these short loans are geared toward early-stage companies that may not have substantial credit history. Some non-profit lenders like KivaZip offer loans of up to $25k. It usually takes some sort of collateral to get the loan, but this can be as simple as using a farm vehicle. In some instances, the lender will even provide some business support services like business planning with the microloan. Some banks shy away from offering them, finding that the cost of servicing the microloan outweighs the money that they make on the interest. Although there are numerous private and non-profit organizations that provide microloans, some public entities provide them, too. For info about the US Small Business Administration’s microloans program, click here.
Lobbying for Tax Abatements or Rebates for Indoor Crop Production at the Local Level
Local governments can create incentives for indoor ag production, giving people a financial motive for turning abandoned structures, vacant overgrown lots, and other spaces into food-producing businesses. In New York, for example, there are 10k acres of land and rooftop areas that could be prime indoor ag space. California recently passed an Urban Agriculture Incentive Zones Act, which lets landowners in metropolitan areas use a tax incentive for putting some of their property into agriculture use.
Know of another funding route for the indoor ag space? Get in touch Media@AgFunderNews.com.