The news is filled with the problems and issues in the banking world. It seems that every month another major bank is hit with a multi-million or even billion-dollar  penalty. Remember all the TARP money the US government gave the banks? Banks received this extraordinary generosity from the government so that they could use the money to make new loans and keep business going. But that’s not what they did. Instead, they  created new barriers to loans, ignored re-financing regulations and made it very, very difficult for individuals with mortgages and small businesses that needed loans to keep in business. We’ve all heard about these financing problems, but far fewer people have heard about the problems that farmers have had with banks. Banks have become less interested in working with America’s small farmers.  Now, farms are fighting back, using 21^st century technology and crowd funding!  

Farms rely on banks to finance them through each year, allowing them to: buy seed and equipment, pay for cattle feed, repair buildings and farm equipment and of course pay to service the debt on the farm. However, small farmers are not as appealing to banks anymore.  Mega banks know how to work with Mega farms, but the smaller farm just isn’t what they want to deal with. Part of this dis-connect is due to the rising risk in farms… changing weather conditions, increase in floods AND droughts, invasions of new pests and diseases… and part is due to the changing profile of banks. According to one study of banks in farm areas , the banking landscape has changed significantly in the past two decades.” Banks now:

• Are fewer in number (local banks have been sold to mega-banks)
• Are less “local” (under central control, and not as responsive to local needs)
• Maintain leaner staffing (less willing or able to spend time with individual customers or loans)
• Less interested in areas in which they don’t specialize (mega banks do not specialize in small farms)
• Have few loan officers with farm-lending expertise, even in farm areas

One farm, in particular that has felt this change in banking is Franklin Livestock, in North Carolina. This farm has been owned for over one hundred years by the Boone family. The third generation of farmers, in the form of the founder’s grandson Grant Boone, is ready to take over managing the farm. Grant needs to do upkeep of the farm and wants to launch a new line of business, selling beef directly to consumers around the country. By being a national “farmers market” for  beef, Franklin Livestock (the new line is “Franklin Beef”) wants to re-establish a direct connection between consumers and the farmer, and turn back the clock on the food scandals that have plagued processed meats. However, the Boone Family has been struggling to fund the upgrades to the farm, without burying the farm under debt. The answer appears to be, Crowd Funding.

In order to raise funding, the Boone family has launched a campaign on Indigogo, one of the largest Crowd Funding sites. By using a crowd funding strategy, Franklin Beef gets to bypass bans, and instead asks potential customers to support them. A crowd funding campaign typically asks for donations in return for funding a project. A big part of the campaign process is providing donors with “gifts.” Donors are usually given a “thank you” for supporting the project, plus other incentives that increase in size as the donation increases.  Franklin Beef offers selections of frozen beef, which are sent to the donors after the campaign is over. For example, campaigns for new technology (a new type of game box, cell phone, etc.) would offer that technology as a gift when it is ready, while a campaign for world good (cleaning up an environmentally damaged area, developing a more efficient stove for third-world countries) might emphasize the “thank you” rather than merely pre-selling you a product.

The size of these campaigns has grown dramatically in recent months. Just a few weeks ago, there were dozens of projects in the million-dollar  range, and the top projects raised just over $5 million, usually on Kickstarter, the world’s largest crowd funding site. In fact, just a couple of months ago there was a successful campaign for $1 million ($1.5 million raised) to launch a private satellite, to allow primary and high schools the ability to do astronomy experiments. In the last month, a campaign was launched for the Ubuntu Edge, what could be the world’s most capable cell phone. The campaign, on Indiegogo, raised nearly $13 million. Unfortunately, the campaign needed $35 million to meet the ambitious goals of the project. Because they did not meet the minimum of $35 million, all the $13 million will be returned to the donors. Not every campaign follows this “all or nothing” strategy. While every crowd funding site has different rules, most allow you to accept the donations if you fall below your financial goals (usually with some sort of financial penalty… to limit the number of overly-padded budgets).    

Crowd funding is definitely the hot trend of the moment. In a few months, when the selling of equities and other options are added to crowd funding (pending the next section of the Employment Act of 2012) it will expand even faster than it has so far ($3 billion raised in 2012) . Will Franklin Livestock lead the way for other farmers who have a Beef with Banking? Only time will tell! Take a look at this and other crowd funding campaigns, you might find that this is the way that you can fund your next project… and that’s my Niccolls worth for today!