10 Ways to Finance Your Farm in Zimbabwe
Finance
{This post part of our #HowtoStartAFarm series. It is a series on what it takes to start a farm}
One of the realities of starting a farm or a farming business is that it takes money (financing and cash-flow). That money is not always available. Plenty of otherwise productive farms are left fallow or are underproductive because of lack of access to finance. In fact, one of the most commonly asked questions we get is, "How do I finance my farm." This question comes both from aspiring and established emerging farmers. We respond with some ideas through email, but we thought we should address this very real challenge here.
You need to determine how much you need
To do so you must set-up a budget. It will help you monitor the amount of money that you are making and spending. Your budget should include your initial set-up and operating expenses. Your operating expenses include things like seed, fertiliser, feed, animals, labour, storage and transport. Your expenses will vary depending on your specific goals, what you are farming and the resources you already have available to you.
Starting your agribusiness without adequate finances can be the difference between success and failure. A lack of finance can limit your ability to access the resources you will need to grow your farm. To help you meet your funding goals you should start now to limit your expenses.
You can do this by staying on the farm and not overbuying. Cut out any unnecessary expenses like being out on the town to keep your costs low. To get farming tools and equipment you should consider bartering, looking for free stuff, borrowing or buying used.
Be disciplined when you are planning to get started. Farming takes time and money. Creating constraints now will build resilience for your farming business in the future.
Funding options to help you get started
If is important that you understand the financing options available to you so you can make an informed decision.
Let's get started:
#1. PERSONAL FUNDS
Your own personal funds are your first option for financing your farming business. Self-funding gives you full control of your farm.
If you are currently working, start putting aside money. Don't rush to quit your job because you have dreams of running your own farm today. Be intentional about preparing your finances before you submit your resignation letter.
You want to make sure you have enough of a cushion to live on as well as operate your farm given the variability of farming. Continuing to work for someone especially if its agriculture-related can also give you valuable farming skills.
You can also explore bringing in some additional revenue through market gardening in your backyard. If you have specialist skills you can freelance on other farms helping with land preparation, irrigation, farm management etc. This can also bring in more income.
#2. FAMILY AND FRIENDS
Family and friends are a good source of funding especially if you don't have much savings to spend. Your family knows you better than anybody else and are usually more willing to invest in you.
When we started Soko Mushrooms, we used our own savings and also received a little financial (and emotional) support from our parents.
Ruramiso Mashumba, our first interviewee for our "Meet the Emerging Farmer Series" received some capital from her parents when she was rejected for a bank loan.
Family and friends can give you money as either a gift or a loan. You can use some of the remittanes from family abroad to start and run your farm.
If your family gives you a loan they typically don't require security and may or may not charge interest.Make sure that you agree on the terms to avoid future conflict and ruining your relationship.
In our current economic situation, family and friends are also facing economic challenges so their ability to help may be limited. Ask for money from family friends that can afford to lose it. Farming is risky and may require long repayment terms. Your family and friends must be willing to understand this and also be ok with it before you take a loan from them.
#3. PARTNERSHIP
You could partner with a friend or someone you know. A partner can bring in money and skills that you don't have. They can also help you get started without needing to borrow money. Keep in mind though that a partnership is like a marriage. You will need to able to work together and you must have similar goals for the farming business for it to work. You should also be willing to share decision-making and profits.
Rotimi Williams, the 2nd largest rice farmer in Nigeria, got started by negotiating a 50/50 partnership with a landowner. He had provided the capital.
#4. CONTRACT FARMING
Contract farming opportunities are available for tobacco, horticulture, cotton and some grains. A contract farming company can provide you with pre-harvest financing for buying inputs (seed, fertiliser, feed, chemicals etc), training and in some instances financing for your labour expenses. They also provide a guaranteed market for your produce.
Do your due diligence before signing on with a contracting company. Not all contracting companies provide "win-win" contracts. So you need to ask around depending on what you are farming or planning to farm and where you are located in the country.
#5. INCUBATOR FARM
You can apprentice on a farm to gain valuable farming skills while earning an income to put towards your own farm.
Ebenezer Trust in Matebeleland South runs a 2-year apprenticeship program on their teaching farm. They teach young people between the ages 17-23 years old how to farm. It's a model called the "earn and learn" approach. The apprentices receive agriculture, business and life skills training and share revenue (50/50) generated from the farm with Ebenezer. They can use this capital to fund their own farms once the training is completed.
#6. BANK LOAN
You can get a loan. Getting a traditional bank loan can be difficult if you are a new farmpreneur. Most banks require cash flow, some sort of collaratel and repayment history. New farmers with less than a year in business and no financial records are often seen eligible. Most banks consider emerging farmers to be high risk (likely to default) and as a result may deny your application.
How to get a loan: you need to prepare a business plan and complete a loan application. Keep track of your financial records (income statements, cash flow, Profit and Loss (/L) statements and projections). The bank wants assurances that you can repay your loan.
Regardless of the size of your farm, you must start tracking your cash-flow. An online tool such as Quickbooks or Freshbooks will help you manage your finances. You can also work with a bookkeeper.
Loan Types: You can get a short-term loan for seasonal finance which must be repaid within a year. Or a mid-term loan for infrastructure (irrigication equipment, fencing, machinery etc) which can be repaid between 2 to 6 years. Another option for those still working is a salary based loan. Salary based loans are determined based on 3x your salary. These types of loans are a common across all banks. They have an interest rate of between 17-25% and varying repayment terms.
Don't overborrow: Borrowing too much money can cause you more problems than you think. It can cause you to lose focus and overspend on things you don't need. Overborrowing may also get your loan application denied. It can also lead to you losing your farm, your parents home or vehicle. So be prudent.
Other loans
ZADT provides affordable farmer financing through it's CREATEFUND. The fund is disbursed by FBC Bank, NMB Bank, Steward Bank, BancABC, EcoBank, MBCA Bank, CABS, Inclusive Financial Service and Collarhedge Finance. To get this loan you will need to complete a business plan and loab application and also meet their lending criteria.
Government loans: the government provides funding through programs such as its "youth fund." These loans typically have lower interest rates. We haven't had much luck accessing this fund so cannot speak to it.
#7. GROUP SAVINGS
You can find other farmers in your community to create a Savings Group (SG), or a self-help group to pool savings and grant loans. You will need to host weekly or biweekly meetings with your group members. The members of your group can borrow money from the group fund at an interest rate agreed on by the group.
#8. FACTORING
Factoring is the practice of providing a business advance financing based on purchase orders. This allows the business to finance production immediately. For example if you got a large order to supply your peanut butter brand to a major supermarket and couldn't fulfil the order you could factor it. You would approach a factor with the order, they would provide you with financing and get paid by your buyer.
It is commonly done in manufacturing but can work in agriculture/food business.
#9. CROWDFUNDING
Crowdfunding is the process where people (the crowd) invest in a company in exchange for some of gift or equity.
If you have a good network, time and the ability to manage a campaign (video, thank you gifts and communications) then you should consider using crowdfunding to start or run your farm.
You can use crowdfunding platforms such as (Kickstarter, Indiegogo, Start Some Goodm GoFundMe). The founders of Tomato Jos (Nigeria) and Moringa Connect (Ghana/US) used crowdfunding to start and run their operations.
The benefit of crowdfunding is that you have no debt. The downside is that it takes a lot of work and needs you to already have some sort of support base.
#10. ANGEL INVESTMENT
Angel investors are individuals or group we can invest capital in your farm using debt or equity. Be self-aware and only seek angel investment when your farm business is ready for this type of funding.
What to look for: It's not just about the money. You want smart money which includes capital and mentorship. You can use online platforms like VC4Africa to research and connect with regional and international angel investors. ZamGoat from Zambia was able to raise angel investment by listing on VC4Africa.
Shows like Simba Savannah, Dragon's Den and Shark Tank are exposing entrepreneurs to the requirements of this type of financing. If you have your pitch and a clear way for them to make back their money and more you should consider this option.
Do your due diligence when looking for an angel and choose wisely.
Summary
- Keep your expenses low when you are getting started
- Know how much it will take to get started
- Keep good records to meet loan requirements and to manage your farm
- Borrow only what you need and plan your repayment
- Do due diligence on your financiers the same way they do on you
The bottom line is you should pick the funding option(s) that are right for you based on the farming business you are trying to start. We hope this will help you get started on your farming journey. If you need any additional information feel free to contact us on email, Facebook or Twitter.
Let us know in the comments how you plan to fund or funder your farming business.
About the Authors
Eleanor Musarurwa Manske is the co-founder of Emerging Farmer.
Emmanuel Mwesige is a writer, farmer and accountant in Uganda. He can be reached at via email at emmanuel.mwesige(at)gmail.com or on +256704004263
