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Traditional, Creative Capital Sources for Growing Food and Ag Businesses Abound in Minnesota

In March, the Agricultural Utilization Research Institute (AURI) hosted the fourth annual News Uses Forum in partnership with Compeer Financial and Georgetown University’s Rural Opportunity Initiative. The conference explored the intersection of sustainability, innovation and investment in food and agriculture.

One of the many highlights of the two-day event was an extended discussion on the public and private funding streams available to help launch new businesses and create jobs in the agriculture sector and rural America.

Dr. Karama Neal, the administrator of the United States Department of Agriculture’s (USDA) Rural Business-Cooperative Service, gave a keynote address on the USDA’s various financial resources and grants available to help agriculture producers and small business owners. Following her discussion, a panel of industry experts explored additional alternative capital sources for entrepreneurs and agribusinesses.

Dr. Neal said the USDA’s Rural Business-Cooperative Service offers programs that help provide capital, training, education and entrepreneurial skills to assist those living in rural areas start and grow businesses or find jobs in agricultural markets and in the biobased economy. The service prioritizes programs that combat climate change, improve food security, build stronger communities, build resilient agriculture markets and address past inequities in USDA programs. A recent focus of the service has been programs to help rural America recover and adjust from the economic hardships created by the COVID-19 pandemic.

The USDA has invested $4 billion to strengthen critical food supply chains through the American Rescue Plan. Funding is available for projects in four categories: production, processing, distribution and markets. The USDA hopes these efforts will strengthen the food system, create new market opportunities, help communities recover, create and foster well-paying jobs and combat climate change.

As a result, the USDA started the Food Supply Chain Guaranteed Loan program in late 2021. Through this program, funding is available for investments in facilities, working capital, equipment and other investments. The guaranteed loan program is directed at the “middle of the food supply chain” and projects that improve food aggregation, processing, manufacturing, storage, transportation, wholesale and distribution.

“We welcome and encourage participation in this program from a variety of lenders to help promote access to these funds,” Neal said.

A high priority of the UDSA, Neal said, is making a more fair, competitive and resilient meat and poultry supply chain. One example of how the federal government is working toward that goal is the Meat & Poultry Processing Expansion Program. Through this program, funding is available to start or expand meat and poultry processing operations to increase capacity nationally.

“This is one of many actions that the USDA is taking to increase and enhance local and regional food systems and support economic systems where wealth is created and retained in rural areas,” Neal said.

Another funding source available to producers and businesses is the Healthy Food Financing Initiative (HFFI). This initiative works to improve access to healthy foods in underserved areas. Grants are available to health food retailers and cover the higher costs associated with doing business in traditionally underserved areas.

The Value-Added Producer Grants, designed for ag producers in both rural and urban centers, expand value-added activities that process and market new products. These grant dollars can generate new income, products and opportunities.

“This is one of our most popular programs. It is often used for food products, but these grants can be used very broadly for nonfood value-added products, like wool or leather,” Neal said.

Rural Energy for America Program (REAP) grants are good examples of how the USDA assists small, rural businesses and agricultural producers while not actively funding production. These dollars are used for energy audits, renewable energy development assistance and providing support for renewable energy systems to make efficiency improvements.

There is also a REAP Guaranteed Loan program used by entities like solar farms, dairy farms and traditional ag producers to install energy efficient equipment and systems at production and processing facilities.

Additionally, there are general funding programs non-specific to food and agriculture that have agriculture applications. The Business & Industry Guaranteed Loan program is one example. It offers loan guarantees up to $25 million to rural small businesses. Successful applicants frequently use these funds for post-production agriculture activities, Neal said.

The USDA provides smaller loans through nonprofit lenders in the Intermediary Relending Program (IRP). Selected financial partners receive up to $2 million from the federal government to lend to small businesses in the form of long-term, 30-year, low interest loans. The IRP is specifically designed to improve economic conditions and create jobs in rural communities.

The federal dollars available through the USDA play a significant role in helping food and agriculture business start and grow. However, federal dollars do not meet every need in this emerging sector.

Following Neal’s keynote address, a panel discussed some of the alternative capital sources available for entrepreneurs and agribusinesses. Aaron Knewtson, vice president of food and agribusiness at Compeer Financial, moderated the discussion. The panelists were Jeff Ochs, CEO at the Venn Foundation, Tim Penny, president and CEO of the Southern MN Initiative Foundation, Neela Mollgaard, executive director of Launch Minnesota and Andrea Yonah, director of business development at the Binational Industrial Research and Development (BIRD) Foundation. Neal also participated in the panel.

Compeer naturally receives many inquiries from entrepreneurs looking for capital, and Minnesota has a host of options and a broad network of talented people available for them, including the Venn Foundation, the USDA and Bread and Butter Ventures, Knewtson said.

“A lot of times people are ready to go from the idea stage to a proof of concept or from simply having a product to creating a business, but they aren’t far enough along in the journey for the type of capital we [at Compeer] provide. Minnesota is incredibly fortunate to have many other capital and technical assistance providers like AURI and Launch Minnesota that are willing to help,” Knewtson said.

One avenue for those entities in the very early stage of a business idea are Program-Related Investments (PRI), said Ochs. A PRI is an investment that a private foundation or public charity makes to advance a charitable mission. However, PRIs are not grant or donation dollars. Instead, financial terms of the investment must be “below market” rate, and when the investment is repaid, the donor can re-deploy it in a new venture. PRIs are a good tool for ag businesses looking for alternative sources of capital, said Ochs.

“For-profit investors would stay away from these terms because they are too low, and most philanthropists don’t know what PRIs are. We are working hard to make these investment vehicles more mainstream,” he said.

The BIRD Foundation’s mission is to stimulate, promote and support industrial research and development to the mutual benefit of the United States and Israel. The foundation provides matchmaking support between U.S. and Israeli companies, as well as funding covering up to 50 percent of project development costs. BIRD has supported many projects in agriculture, as well as renewable and alternative energy, said Yonah. A U.S. and Israeli company must apply jointly to be eligible for grants.

Yonah said there is exciting innovation occurring throughout the food and ag space involving Israeli and American companies.

“Adapting AI technology to the food and ag space and autonomous systems are two areas that we are really excited about right now, especially in this tight labor market,” Yonah said.

The Southern Minnesota Initiative Foundation (SMIF), a donor-supported foundation, invests for economic growth in south central and southeastern Minnesota to the tune of about $5 million annually. Through a SEED Fund, SMIF invests up to $25,000 to support start-up businesses that need capital and business expertise. Additionally, companies use SEED Fund dollars for research, patent opinions and filings and product testing. Through the Southern Minnesota Equity Fund, SMIF provides financial capital and expertise to early stage and start-up companies. The fund partners with other organizations and individual investors to leverage capital and expertise to grow innovative companies that will provide economic opportunities for Southern Minnesota.

Launch Minnesota is an initiative spearheaded by Minnesota’s Department of Employment and Economic Development to help grow Minnesota’s start-up ecosystem. It accomplishes this by cultivating a collaborative start-up culture, bringing together talent and improving access to capital for start-ups.

Launch Minnesota awards innovation grants to support business operations and help entrepreneurs. Thus far, 11 percent of the businesses awarded grants have ties in the ag tech sector, 14 percent in biotech and six percent in clean energy. 21 percent of the grant recipients reside in greater Minnesota.

“We have seen that a connected and coordinated ecosystem helps drive change. What we are trying to do is ensure that individuals and communities are educated about the value of engaging in [investing] and the impact it has on our agriculture economy and rural communities,” said Mollgaard. “The states and cities focusing on innovation are the ones that are growing and separating themselves from those who are not. We want to make Minnesota one of the best places in the country to start and scale new ventures.”

For more information on these organizations and their programs, please visit each entities website or contact AURI to see if a program is a fit to advance your business and accelerate an innovative idea to the market.