At some point during the life cycle of every business, more money will eventually be needed. More money will be needed to grow, expand or to keep the business running.
While there are several funding options available for you to grow and expand your business, you need to be aware of each option’s features and how they suit your business needs. This is especially critical for agribusiness entrepreneurs or farmers due to the peculiar nature of the farming business. This post will examine the funding options available to farmers, how to prepare to raise funds and how you can get the CBN Agric Loan.
Before addressing the CBN Agric Loan, funding options available for farmers and how to access them, it is important to establish a good foundation for preparing to raise funds.
Preparing for Funding
You must be very clear about these two things before you seek to raise funds for your agricultural business.
First, decide what the money or CBN Agric Loan is going to be used for. There are good and terrible reasons for getting a loan for your agricultural business. Some good reasons for getting a loan include purchasing equipment, buying land to expand, hiring experienced and qualified staff etc. Terrible reasons for taking a loan include financing harvest or production losses, renovating farm office, or acquiring non-essential business assets like television sets, decorations etc.
Second, decide how much money your agricultural business really needs. Most agricultural business owners don’t ask for a large enough loans. Under-estimating the amount of money you need can lead to problems with a lack of working capital sooner than you expected. This can lead to lenders second guessing your business decisions going forward. While over-estimating can make lenders doubt your assumptions and credibility. Have a well thought out budget that is supported by realistic financial projections (profit & loss statement and cash flow statement)
Once you’ve completed these preparatory steps for raising funds, you need to become aware of the funding options or sources available to you.
Sources of Funding
The funding options available to help you grow, expand and diversify your agricultural business can be broadly classified into the following categories: Crowdfunding, Angel Investor(s) and CBN Agric Loan
When you are just starting out or your agricultural business is at the infancy stage, it will be very difficult to get a traditional lender or investors interested in funding your business. If you aren’t ready to sell off your assets or borrowing against them, your only option is Crowdfunding.
Crowdfunding is a way of raising money by getting financial contributions from a large number of people. Crowdfunding is a form of crowdsourcing and of alternative finance.
Several crowdfunding platforms have emerged that allow people to donate or invest in agriculture-related opportunities. AgFunder is one global platform that gives both individual and institutional investors access to venture capital investments, both in agriculture technology and food technology companies. Cropital and Farm Crowdy are platforms that allow investors to invest in small-holder farmers, and rewards-based platforms like Barnraiser allows users to support farmers and food startups. You can also check out platforms like Indiegogo, GoFundMe and KickStarter for help in raising funds too. Each of these platforms has their rules and guidelines on how you can raise money for your particular needs.
Some benefits of Crowdfunding are:
It’s more efficient than traditional fundraising
It’s a place to build traction, social, proof, and validation.
It’s an opportunity for crowdsourced brainstorming to refine your idea.
It gains you early adopters and loyal advocates.
It doubles as marketing and media exposure for your business.
An angel investor can either be your friend, family member or any wealthy individual who provides you with capital for your agricultural business in exchange for owning a part of your agricultural business. This funding option is available to you if you’ve been in operation for a while and you have proven the viability of your agricultural business.
The advantages of this funding option are:
You can raise the amount of money you need quickly and from one person
The ownership equity arrangement can be flexible
You can benefit from the angel investor’s vast business knowledge and experience
No payment of monthly fees and charges that banks and traditional lenders require
While this option might be a good fit for you, it has its disadvantages. You may find it hard to raise additional money when your investor hasn’t gotten a return on his or her initial investment. Some angel investors interpret the ownership equity they have as a right to dictate how to run your agricultural business.
CBN Agric Loan
In order to promote commercial agricultural enterprises in Nigeria, by reducing the cost of credit to farming businesses, the Central Bank of Nigeria (CBN) established the Commercial Agriculture Credit Scheme (CACS)—CBN Agric Loan. This Fund complements other special initiatives of the CBN in providing concessionary funding for agriculture in Nigeria such as the Agricultural Credit Guarantee Scheme (ACGS), Interest Draw-back scheme, Agricultural Credit Support Scheme, etc.
This CBN Agric Loan (or CACS) is financed from the proceeds of the N200billion three (3) year bond raised by the Debt Management Office (DMO). The fund has been made available to participating banks to finance commercial agricultural enterprises. In addition, each State Government can borrow up to N1 billion for on-lending to farmers’ cooperative societies and other areas of agricultural development provided such initiatives/interventions are in line with the objectives of the CACS.
The agricultural businesses eligible for this CBN Agric Loan (or CACS) are any farm or agro-based enterprise with agricultural asset (excluding land) of not less than N100 million for an integrated farm with prospects of growing the assets to N250 million within the next three years and N50 million for non-integrated farms/agro-enterprise with prospects of growing the assets to N150 million, except in the case of on-lending to farmers’ cooperative societies.
If your agricultural business meets the CBN asset requirements above, it must also be involved in the following commodities and value chain in order for you to get the CBN Agric Loan:
Cash Crops: Cotton, Oil Palm, Fruit Trees. Rubber, Sugar Cane, Jatropha Carcus and Cocoa.
Food Crops: Rice, Wheat, Cassava, Maize/Soya, Beans/Millet, Tomatoes and Vegetables
Poultry: Broilers and Eggs Production
Livestock: Meat, Dairy and Piggery
Aquaculture: Fingerlings and Catfish
PROCESSING: Feed mills development, threshing, pulverization and other forms of transmutation for value addition.
STORAGE: Commodities, Agro-Chemicals and Warehousing
MARKETING: Agricultural commodities under the focal investment areas.
This CBN Agric loan can be accessed through participating deposit money banks in Nigeria. For example, in order for you to access the CBN Agric Loan, First Bank of Nigeria created some innovative financial products. In addition to helping you access the CBN Agric Loan, these products will also fund your agricultural business that fall outside the scope of businesses eligible for the CBN Agric Loan. Some of these financial products are:
Conventional Term Loans & Overdrafts
This credit facility is for medium and large scale agricultural businesses whose profile fall outside retail or special government intervention fund product specification
Flexibility: the structure, tenure and transaction dynamics can be customized to accommodate all types of agricultural projects.
Real Sector Support Facility
This special intervention fund of N300bn was established by the Federal Government through the CBN to address the financing needs of start-ups and expansion projects of large enterprises by providing low-cost, long-tenured fund to such enterprises.
Large-scale enterprises in the manufacturing, services and agricultural value chain wholly-owned and managed as a Nigerian private limited company registered under the Company & Allied Matters Act of 1990
Micro Small and Medium Enterprises (MSME) Development Fund
This special intervention fund of N220billion was created by the CBN to provide low cost, long tenored funds to MSMEs to enhance their capacity for employment generation, economic development and inclusive growth.
Interest rate: 9% (all-in), no other fee can be charged
Credit facility is available either as term loan or overdraft.
Now that you know about the CBN Agric Loan and have compared the funding options available to support your agricultural business, it’s time to apply for funding through the options that fit your financing needs.
To gain access to the CBN Agric Loan and other funding from the First Bank products listed above, you’ll need to submit a combination of the following documents with your formal loan application:
Feasibility Study/Business Plan
Board Resolution to Borrow
Business legal documents (e.g. certificate of incorporation, memorandum and article of association etc.)
For more details on these financial products and the CBN Agric Loan, you can follow up with First Bank’s Agric Finance Desk via email at [email protected]
In closing, you also need to have a good understanding of how the interest rates of the CBN Agric Loan determine how much you will repay. You will find an excellent learning resource for understanding interest rates and calculating loan repayment plans here.
Also, if you need professional help in writing a business plan and proposal to raise money for your agriculture business, send a mail to [email protected]