Woodbury County, IA Loan Program

Woodbury County, Iowa has been working hard to develop their regional economy through agriculture. Last week they posted a press release announcing a county based loan program designed to support local business growth.

“We have seen millions of taxpayer dollars used to attract large outside companies to locate in the area. What we also need to do is to invest in our own people to create or expand locally owned businesses,” said Rob Marqusee, Director of Rural Economic Development for Woodbury County. The ‘Investing in Woodbury County’ Loan Program is meant primarily to benefit entrepreneurs of the county who would not otherwise, but for this program, be able to start or expand a business. The program does not specifically direct what businesses the county will support. Opportunities are limited only by the imagination and the need for sound business initiatives.

The Loan Program will make available a total of $1,000,000 in loans to qualifying county residents at a target interest rate of two percent (2%). The costs associated with administering the “Investing in Woodbury County Loan Program” will not be from a tax levy, but from a source of funds is to be established by the Board of Supervisors prior to September 1, 2010. The specific application process, as well as objective criteria for making loans, will be posted on the woodburyiowa.com website on September 1, 2010.

Revenue Based Financing

A Seattle group, Revenue Loan, highlights an innovative method for financing where the return occurs from the revenue gains. While their focus is on tech development, the financial model can be used with food enterprise development.

What is Revenue Based Financing?
Revenue Based Financing (Revenue Based Finance) is a new way for promising early-stage companies to finance the growth of their business. In a nutshell, Revenue Based Financing is a special kind of loan. Instead of requiring a business to pay a fixed amount and over a fixed amount of time (i.e. think of your typical bank loan), a RBF loan entitles the lender to a fixed percentage of gross revenues, “capped” at a multiple of invested capital (typically 3 – 5x). Revenue Based Finance lenders trade steeper default, timing and rate of return risk for richer potential returns than those offered by traditional business lending (i.e. banks).

How does Revenue Based Financing work?
Here’s a hypothetical example:
Tom is the CEO of a promising Software as a Service (SaaS) business. He’s built the business with no outside capital and is operating close to breakeven. He sees an opportunity to ramp up sales by investing in business development. He doesn’t have enough cash in the bank to make this happen.

Most banks won’t lend to a company like Tom’s because his isn’t an asset-intensive business. Tom doesn’t want to raise venture capital because he doesn’t want the dilution and he isn’t sure his business has the potential to scale as quickly or or as big as most VCs would expect.

Tom learns about Revenue Based Financing. He lines up a group of angel investors willing to invest $500,000 for a royalty rate of 10% of gross revenues. The royalty payments don’t begin for a year – giving him time to invest and build the business – and have a 3x cap (limiting Tom’s total royalty payout to a maximum of $1.5 million).

With the help of this additional capital, Tom builds a profitable small business with revenues of $3 million a year — and still owns 100% of the equity. The investors get their 3x return paid back over 5 years — without having to force Tom to sell his company or buy their shares. In this scenario, everyone wins.

The innovation here lies in bringing the Revenue Based Finance approach to riskier, earlier-stage investing, while receiving the expected return in the form of cash flows. The fact is, most well-run businesses look more like the firm in this example – growing, profitable, but not a shoot-the-moon success – than like the Google and Amazon.com rocket rides that the traditional venture industry is geared around.

This seems a great tool to use when dealing with growth stage food enterprises, those with an established track record that are looking for expansion capital.

Rover’s Restaurant offers gift certificates to fund expansion

Rover’s Restaurant is implementing an innovative method of raising capital for their expansion plans. They are offering people gift certificates of $1,000 that are worth $1,305 in food. The core offering:

Pre Purchase Amount: ____x $1,000.00 = __________
You will receive your gift certificates in 3 parts.
Distribution Dates:  March 2010/ March 2011/ March 2012

For example: If you pre purchase $1,000 in gift certificate:
March 2010: Receive a $435 Gift Certificate Card
March 2011: Receive a $435 Gift Certificate Card
March 2012: Receive a $435 Gift Certificate Card
Gift Certificate Total: $1305.00, more than 30% added value
*Gift certificates are redeemable at both Luc and Rover’s.

This method has precedent. As one example, a local coffee shops allows me to prepay in to a coffee card. For this I get two free coffees over a certain period, which is different than a “Buy ten get one free” customer loyalty cards which gets a mark on the card every time I purchase over time (can’t recall which company right now, I need more coffee this morning).

This is also similar to how a Community Supported Agriculture (CSA) business operates. A customer commits to pay a certain amount of money every month or week for a certain amount of product every month. This system answers a critical cash flow issue for the farmer and adds stability to their sales as well as helps them determine more accurately what seeds to plant. The buyer gets a stable supply of food and can plan meals around the deliveries.

This ‘pre-pay’ method of raising capital can be attractive to both customer and restaurant. The customer gets more food dollars than they pay, while the restaurant gets to utilize the time value of money (loosely, having money in hand today is worth more than the same amount of money in hand later, same as the old saying “a bird in the hand is worth two in the bush”).

The purchasing power of the dollars will probably decline over time if prices for the products rise. In other words, the $435 reedeemable for food purchase in 2010 will most likely buy more food than the $435 reedeemable in 2012.

Of note: this is $1,000 that you do not have sitting in your bank account gaining interest, or invested in some strategy. According to bankrate.com, the highest national yield rate on a 3 year CD is currently 0.8%.

Time will tell if this is successful in the current market climate.
For more information see http://www.rovers-seattle.com/ and scroll down to “Pre-Purchase Gift Certificates.”


Slow Money NW is pulling the wrapper off of it’s work. We are excited to start engaging the larger community in our efforts to connect community capital investors interested in food and farming with the community enterprises in need of investment.

Slow Money Northwest’s vision is a healthy and just regional food system comprised of successful food and farming businesses supported by regional individuals and investors. SMNW catalyzes investment and donation opportunities that strengthen the Pacific Northwest’s sustainable food economy.

For a quick overview of our work view the SMNW Intro pdf.