Hands depositing coins into a piggy bank.
Updated: May 28, 2025
By Shannon Dill , and Ginger S. Myers

Financial Matters: Non-Traditional Sources

Many agricultural businesses seeking funding will benefit from working with their local bank, Farm Credit, or the Farm Service Agency office in their region. These are familiar sources for business capital. However, start-up enterprises may be unable to meet the lending requirements set by these lenders, or the owners choose not to take on additional debt or a loan repayment schedule at this point in their business.

There are alternative sources of capital available for your business if you are looking for amounts less than $50,000 and are willing to get creative about “selling” your business ideas, products, or services to family, friends, and local business supporters. These sources require a clear message about how the funds will be used and what the donor will receive in return. Although they may not require you to have a written business plan like commercial lenders do, having a written plan is still a good idea to help you map out your financial needs and long-term business goals.

Explore Non-Traditional Sources

Family and Friends—Loan or Gift? Understanding the Options

When starting or expanding a small business, turning to family and friends for financial support is common. These individuals often believe in your vision and may be more willing to take a risk on your success. However, whether their support comes in the form of a loan or a gift, it’s essential to handle the arrangement with transparency and professionalism to protect your relationships and avoid legal or tax complications.

Loans from Family and Friends

Borrowing money from someone close to you can be an excellent way to secure capital, but it must be treated with the same seriousness as a traditional business loan.

Key Steps for Borrowing Responsibly:

  • Determine Your Needs: Clearly outline how much money you need, what it will be used for, and your proposed repayment schedule.
  • Put It in Writing: A written loan agreement protects both parties. It should include the loan amount, repayment terms, interest rate, and consequences for non-payment. Written agreements are legally binding and help prevent misunderstandings.
  • Set a Fair Interest Rate: The IRS requires that personal loans—especially those between family members—include a minimum interest rate that reflects current market rates. Failing to charge interest may trigger tax consequences for both the lender and the borrower.
  • Consult a Professional: Speak with an accountant or financial advisor to ensure the loan structure meets IRS guidelines and supports your business goals.
  • Maintain Open Communication: Keep lenders informed about your progress. Although they are not business partners, they are investors in your success.
  • Honor Your Agreement: Repay the loan as promised. Timely payments demonstrate integrity, support your creditworthiness, and help preserve your personal relationships.

Gifts from Family and Friends

Unlike loans, gifts carry no obligation to repay. They can be a straightforward and generous way to access start-up funds, but they still require documentation for legal and tax clarity.

How to Handle Gifts Properly:

  • Document the Gift: A simple letter should accompany the gift, stating:
    • The amount and date of the gift
    • The name of the recipient
    • A clear statement that the money is a gift with no repayment expectations
  • Keep Records: Both you and the giver should retain copies of the letter to demonstrate to the IRS that the transaction was not a disguised loan.
  • Know the Limits: Individuals can gift up to $12,000 per year (subject to IRS updates) to another person without triggering gift tax reporting requirements. If the gift exceeds this amount, the donor must file IRS Form 709 (U.S. Gift Tax Return) for the amount above the limit.
  • Gift to the Individual, Not the Business: To qualify for the gift tax exemption, the funds must be given to you personally, not to your business entity.

Final Thoughts

Whether structured as a loan or a gift, receiving funds from loved ones can give your business a strong foundation. However, it’s essential to approach these financial arrangements with professionalism and care. Doing so not only ensures compliance with legal and tax requirements but also helps maintain trust and respect in your personal relationships.

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Community Supported Models

Community Supported Agriculture (CSA), sometimes referred to as Community Shared Agriculture, is a farming model that provides an upfront source of funding for individual farmers or groups of farmers. This approach allows farmers to raise working capital before the growing season by securing financial commitments directly from community members.

The CSA model is highly adaptable and can support a wide range of farm products—including vegetables, flowers, cheeses, breads, eggs, and pasture-raised meats and poultry. Rather than relying on large investments from a few stakeholders, CSA programs typically collect modest contributions from many individuals. This grassroots funding model not only strengthens the connection between consumers and producers but also fosters a sense of shared responsibility and engagement.

Participants, often called "members" or "shareholders," pledge in advance to help cover the farm's operating expenses, including the farmer’s salary. In return, they receive regular distributions—or shares—of the farm’s harvest throughout the season. This mutual commitment enables consumers to enjoy fresh, locally grown food while gaining insight into the agricultural process.

Importantly, CSA members also share in the inherent risks of farming, such as crop failures due to adverse weather or pest outbreaks. For farmers, this model reduces the financial uncertainty of the growing season, secures better prices for their products, and minimizes the time and expense associated with traditional marketing and distribution.

Four main types of CSAs have been developed:

  • Farmer managed: A farmer sets up and maintains a CSA, recruits subscribers, and controls management of the CSA.
  • Shareholder/subscriber: Local residents set up a CSA and hire a farmer to grow crops, shareholders/subscribers control most management.
  • Farmer cooperative: Multiple farmers develop a CSA program
  • Farmer-shareholder cooperative: Farmers and local residents set up and cooperatively manage a CSA.

Because of the flexible structure of Community Supported Agriculture (CSA), farmers can tailor membership terms to complement their existing market outlets. For example, a grower might schedule CSA pick-up days to alternate with farmers’ market days, helping to balance harvest workloads and manage inventory more efficiently. They may also offer options such as half-shares for smaller households or seasonal shares to align with specific crop availability.

In addition to flexibility, a CSA provides an important source of early-season income. This guaranteed revenue arrives at a time when farm expenses are typically high but production is still ramping up, offering valuable financial stability and reducing reliance on uncertain market sales.

Final Thoughts

Community Supported Agriculture represents more than just a sales strategy—it’s a philosophy rooted in transparency, sustainability, and mutual benefit. By participating in a CSA, both farmers and consumers become active stakeholders in local food systems. For farmers, the model offers critical funding, community support, and reduced marketing stress. For consumers, it’s an opportunity to invest in their health, environment, and local economy. As local food continues to grow in popularity, CSA models provide a powerful tool for strengthening farms and communities alike.

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Gift Cards and Pre-Paid Sales

Gift cards and prepaid sales can provide businesses with early revenue and encourage customer loyalty. When implemented thoughtfully, they also serve as valuable marketing tools that draw customers back into the business.

What Is a Stored-Value Card?

A stored-value card is a type of electronic bank debit card that has a specific dollar value preloaded onto it. These cards are commonly used by individuals who may not have access to traditional checking or deposit accounts. Stored-value cards fall into two primary categories:

  • Closed-loop cards: These are issued by specific retailers and can only be used at designated locations. Examples include merchant-issued gift cards and prepaid phone cards.
  • Open-loop cards: These can be reloaded with funds and used anywhere the card’s payment network (such as Visa or Mastercard) is accepted, offering more flexibility.

Gift Cards as a Business Tool

Gift cards function as a form of stored-value card issued by retailers or financial institutions. They represent a restricted monetary equivalent, serving as a convenient alternative to traditional gift-giving. In the United States, gift cards are extremely popular, ranking as the second-most given gift overall. They are especially preferred by women (as the most-wanted gift) and are the third-most-wanted by men.

In addition to generating immediate income, gift cards often lead to additional purchases. In fact, research from Consumer Reports shows that over 25% of recipients still haven’t used their gift cards a year after receiving them, and many end up spending more than the original value when they redeem them.

Consumer Protections and Challenges

Gift cards have faced criticism due to past practices such as expiration dates, administrative fees, usage restrictions, and limited protection against fraud or loss. However, many of these concerns have been addressed in recent years. Several states now have regulations prohibiting expiration dates and fees on gift cards, offering greater security for consumers.

Gift Cards vs. Gift Certificates

While gift cards are typically electronic and backed by a payment system, gift certificates are paper-based vouchers that usually carry an authorized signature and a set monetary value. Gift certificates may or may not expire and generally do not incur administrative fees. However, they lack the electronic tracking features of gift cards.

Key Considerations for Offering Gift Cards or Certificates

When developing a gift card or certificate program for your business, consider the following:

  • Denominations: What dollar values or value ranges will you offer?
  • Format: Will you use plastic cards, digital codes, or printed paper certificates?
  • Redemption Terms: Will you include an expiration date or set a usage schedule?
  • Balance Tracking: How will you manage remaining balances for partially used cards or certificates?
  • Unused Cards: What is your policy for cards or certificates that are never redeemed?

By carefully planning a gift card or certificate program, businesses can enhance customer engagement, generate early-season revenue, and build lasting customer relationships.

Final Thoughts

Gift cards and prepaid sales are more than just convenience tools—they’re a smart strategy for improving cash flow, expanding your customer base, and encouraging repeat business. With proper planning and clear policies, small businesses can use these programs to enhance financial stability and customer satisfaction. Ensuring compliance with state and federal regulations also helps build trust and protects both the business and its customers.

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Peer-to-Peer Lending

Peer-to-peer (P2P) lending is a modern form of borrowing and investing that takes place directly between individuals, bypassing traditional financial institutions such as banks or credit unions. Through online platforms, borrowers can secure funds from individuals or "peers" who are looking to lend money, often at competitive rates. This method can be an ideal way for entrepreneurs to access funding without the requirements and formalities of conventional loans.

Overview of the Peer-to-Peer Lending Process

  1. Application: The borrower completes an online application, typically including a financial statement and loan details.
  2. Credit Evaluation: The borrower’s creditworthiness determines the interest rate on the loan.
  3. Loan Listing: The project description, loan needs, and financial information are posted on the lending platform’s website.
  4. Investor Engagement: Interested investors select the project they wish to fund, and once the required amount is reached, the funds are transferred to the borrower’s bank account.

Key Characteristics of Peer-to-Peer Lending

  • Profit-driven The platform and lenders seek to earn a return on their investment.
  • No Prior Relationship: Borrowers and lenders don't need to have any existing relationship.
  • Online Transactions: Everything from application to funding occurs on the platform's website.
  • Unsecured Loans: P2P loans typically don't require collateral, though lenders may assume a higher level of risk.
  • Lender Control: Lenders have the freedom to choose which ventures they want to invest in.
  • No Government Insurance: These loans are not backed by government insurance, unlike traditional bank loans.
  • Transferability: Loans can be bought or sold to other lenders, providing flexibility in the market.

Final Thoughts

Peer-to-peer lending offers an alternative funding route that is fast, flexible, and accessible, particularly for small businesses and entrepreneurs who may not qualify for traditional loans. It opens up new opportunities for both borrowers and investors, but it's important to weigh the risks—especially given the lack of collateral and government protection. As a borrower, consider the potential for high interest rates based on your creditworthiness. As an investor, carefully evaluate the ventures you're willing to fund, keeping in mind the potential for loss and the absence of guarantees.

Peer-to-peer lending can be a valuable tool for securing capital or exploring investment opportunities, but thorough research is crucial to ensure it's the right fit for your needs.

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Crowdfunding

Crowdfunding is an increasingly popular way for entrepreneurs, creatives, and small businesses to raise funds by collecting small contributions from a large number of people, typically via online platforms. It offers a flexible, accessible alternative to traditional financing, especially for those who may not qualify for bank loans or attract venture capital.

The JOBS Act: Opening Doors to Everyday Investors

The Jumpstart Our Business Startups (JOBS) Act, signed into law in 2012, was designed to boost small business growth by relaxing federal securities regulations. A major shift introduced by the Act was allowing non-accredited investors (i.e., individuals who don't meet high net worth requirements) to invest in startup companies through regulated online platforms.

This legislation paved the way for equity crowdfunding, where individuals can invest in exchange for a financial stake in the business, alongside donation- or reward-based crowdfunding, where contributors support a project without expecting financial returns.

Benefits of Crowdfunding

  • Access to Capital
    Crowdfunding provides funding opportunities beyond traditional loans or investors. It allows farms and agribusinesses to tap into a broader audience—including customers, supporters, and community members—who want to see your project succeed.
  • Market Testing and Validation
    A successful crowdfunding campaign shows there's demand for your idea. It helps validate your business concept and can build confidence with future investors or lenders.
  • Brand Awareness and Audience Building
    Running a campaign helps you grow your visibility and attract new customers. Those who back your project early often become loyal supporters and advocates for your business.
  • Customer Feedback
    Engaged backers can provide early insights, suggestions, and feedback—helping you improve your idea before full-scale launch.
  • Reduced Financial Risk
    Especially with reward- or donation-based crowdfunding, you can raise funds without giving up ownership or taking on debt.
  • Publicity and Promotion
    Campaigns are natural storytelling opportunities. Many gain traction through social media, word-of-mouth, or even press coverage.
  • Partnership Potential
    Exposure may attract future investors, collaborators, or distribution partners interested in your mission or product.

Types of Crowdfunding to Consider

  1. Reward-Based Crowdfunding
    Backers receive a reward (like a product, gift box, farm experience, or branded gear) in exchange for their support. Best for: new farm products, agritourism ideas, value-added products (cheese, jams, etc.). Examples: Kickstarter, Indiegogo
  2. Equity-Based Crowdfunding
    Supporters invest in your business in exchange for partial ownership. Best for: scalable businesses with growth potential, like ag tech or food startups. Examples: SeedInvest, Wefunder
  3. Debt-Based Crowdfunding
    Also known as peer-to-peer lending, this involves borrowing funds from individuals and repaying over time with interest. Best for: established farms with stable revenue seeking capital without giving up equity. Examples: LendingClub, Kiva
  4. Donation-Based Crowdfunding
    Supporters donate with no expected return, often for projects with community or environmental impact. Best for: farm-to-school programs, food access, conservation, nonprofit projects. Examples: GoFundMe, GiveButter

What Is Crowdfunding?

Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically online. It grew out of crowdsourcing and thrives on community support, storytelling, and digital outreach. While new in its online format, the concept is historically rooted in American philanthropy—for example, the Statue of Liberty’s pedestal was funded in 1884 through thousands of small public donations organized by newspaper publisher Joseph Pulitzer.

Tips for a Successful Crowdfunding Campaign

To boost your chances of success on any platform:

  • Set a realistic funding goal – Projects with attainable goals tend to perform better.
  • Tell a compelling story – Use strong visuals and a short, engaging video to explain your mission.
  • Be authentic – People invest in people as much as ideas.
  • Keep the campaign short and focused – 30 days is often ideal.
  • Offer attractive rewards or perks – Tiers encourage larger contributions.
  • Start with your network – Ask friends, family, and your community to donate early to build momentum.
  • Use regular updates – Show backers that your project is active and evolving.
  • Promote, promote, promote – Use email, social media, local news, and community events to spread the word.

Final Thoughts

Crowdfunding has revolutionized how small businesses and startups raise capital. It empowers entrepreneurs to pitch directly to the public, test their ideas, and build a community of loyal supporters. While the competition is high and success isn’t guaranteed, a well-planned and enthusiastically promoted campaign can provide not just funding, but also valuable feedback, visibility, and long-term brand supporters.

Resources

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