Rufus Haucke with his new crops of winter greens, grown in a hoop house constructed with help from a Willy Street Co-op vendor loan.
When someone discovers a loophole in investment finance rules, it's usually bad news for the little guy. But the Willy Street Co-op and some progressive investors think they've found an opening that will help small family farms and give average citizens a way to invest in businesses they believe in.
In fact, this new, progressive investment fund is now up and running. The Willy Street Co-op Local Vendor Loan Fund has disbursed the first loans to help local food vendors expand their businesses. And if this first round is successful, the founders hope to open the fund to any owner of the Willy Street Co-op.
No one is exactly sure where the initial inspiration came from, but about three years ago, Slow Money Wisconsin approached the co-op about creating an investment fund. The organizations have similar interests in supporting sustainable, local agriculture. "We had a sense that a lot of local food vendors have a hard time getting financing to help them grow their businesses," says David Waisman, finance director for the co-op. "So we started to investigate what their needs might be."
The co-op surveyed its vendors and found a hole in the financial system that makes it hard for small agribusinesses to expand and grow. "The big takeaway from the survey was that vendors needed loans in the $30,000 to $50,000 range," says Waisman. "Anything smaller, they can finance with credit cards or personal loans from friends or family. Anything bigger is where banks come in."
The fund has distributed money to three small local farms already. The funding for this initial round comes from Forward Community Investments, with technical assistance from UW Extension. But the ultimate goal is to allow the co-op's members to invest in the fund, making it possible for any co-op owner to become an investor in local agribusiness.
Normally, average citizens can't just invest money in an investment fund, because they are not accredited investors. But Tera Johnson, president of Slow Money Wisconsin, explains that "We realized that members of a co-op are owners, so they are not subject to the same restrictions that limit most people from participating in an investment fund."
The Willy Street Co-op has raised money from its owner/members before, including during a recent bond drive that raised $1 million in 39 days to finance expansion. "We saw a dual opportunity in this project," says Waisman. "We are continually looking for ways to build our regional food system and suppliers, and our owners are interested in investing in ways that support their values."
The idea is simple, but hammering out the details has been a long process, spanning almost three years from initial conversation to initial loan disbursement. The fund had to be designed to avoid inordinate risk, but also serve its original purpose of filling in gaps in the financial system.
Organizers believe they have two advantages. First, the fund invests only in products that are sold at the co-op. As the retail outlet for these providers, the co-op believes it knows good products and has a handle on the financial realities facing its suppliers. "We're not going to cut a check if we know a product really isn't moving enough to justify an investment," Waisman says. "The longer a vendor has been with us, the better we can assess the risk."
Second, the fund offers technical assistance to help ensure the loan funds are used effectively. Johnson, who also serves at the UW-Extension's Division of Entrepreneurship and Economic Development, is leading this effort. "We want to come in at a point in the vendor's growth where funding or business assistance is needed to push them to a new but sustainable level," says Johnson.
The biggest challenge facing the fund is determining how much money to keep in reserve to cover loan losses. "We're not a bank, and we can't afford to structure our little fund the same ways a large bank would," says Johnson. "Stuff happens to businesses, especially in agriculture, so we have to be careful that a single bad loan won't wipe out the fund."
The fund also has to be more flexible about repayment terms than a bank. For example, one of the loans will help Healthy Ridge Farm launch organic peach orchards. But the orchards will not produce fruit for several years, meaning the fund has to defer repayment until produce is available.
One of the first loan recipients was Rufus Haucke, owner of Keewaydin Farms, who used the funds to retrofit an unused building on his farm into a packing warehouse, install a cooler, and build hoop houses and a greenhouse to extend the farm's growing season. The loans make it possible for Keewaydin to grow chard, kale, spinach, cucumbers and other vegetables into the winter months.
For Hauke, the loan isn't just about business; it's also personally liberating. Hauke was raised on the 200-acre farm and took it over from his parents when they considered selling it. After years of spending hours a day on the road driving to facilities off site, he can now walk out his front door and get everything he needs done. "It's kind of beautiful that everyone's interests line up like this," he says. "I get to build up my farm, the co-op gets fresh produce. It seems like a perfect deal."