Loans

Loans can be a major source of capital for your healthy food project. For-profit businesses, nonprofit organizations, limited liability companies, and member-owned cooperatives are eligible to borrow money for their projects. A loan's terms and conditions, including interest rate, are often tied to the perceived risk of the project. Generally speaking, start-up businesses are considered riskier than those that have been operating a while. 

A lender will evaluate whether a potential borrower is eligible to receive a loan based upon the project's cash flow projections. Lenders take several factors into consideration when evaluating risk: your business plan and market studies, management capability and experience, real estate appraisals, and collateral. Some lenders participate in loan guarantee programs to help mitigate the risk. 

Loans can typically be used for the following expenses:

  • Acquisition
  • Predevelopment
  • Construction/renovation
  • Leasehold improvement
  • Energy efficiency improvements
  • Equipment loans and equipment leasing
  • Working capital
  • Permanent financing

To better understand loan applications and loan requirements for a healthy food retail project, click here.

If you want to explore taking out a loan for your project, start with Community Development Financial Institutions (CDFIs), community development banks, credit unions, and government agencies. These organizations have social missions and are more likely to make a loan to innovative healthy food projects in underserved communities. They also may support their borrowers by providing technical assistance such as business planning, and providing grants for market studies and feasibility analysis.

Visit the Healthy Food Financing Funds tab to learn more about CDFIs participating in the federal Healthy Food Financing Initiative and managing state and local financing programs and initiatives.

Looking for a loan for your project?  Check out Available Funding.

Federal Government

The federal government offers several loan guarantee programs and a small number of direct loan programs. Federal loan guarantees encourage lenders (in most cases, banks) to make loans in sectors or areas perceived to have higher risks. Although the federal government guarantees the loans, local and national banks originate and service the loans.


Examples of loan and loan guarantee programs that are relevant to healthy food projects are listed below.  
 

  • Community Facilities Loan and Grant Program: Offers loans and loan guarantees to develop essential community facilities and services for public use in rural areas, including farmers markets and refrigerated trucks.
  • Business and Industry Guaranteed Loans (B&I):  Guarantees loans for up to $10 million for economic development and/or environmental projects in rural communities for a wide range of purposes, including healthy food business enterprises like grocery stores and food hubs.
  • Small Business Administration (SBA) 7(a) Loan Program:  Offers up to 90 percent loan value guarantees for small businesses.  The program backs loans of up to $2 million with a payback period of seven to 25 years, a longer term than most standard bank loans. The 100 most active SBA 7(a) lenders can be found here.
  • Small Business Administration (SBA) CDC/504 Loan Program:  Provides long-term, fixed-rate financing for small businesses that will help create new employment opportunities or retain existing jobs. These loans are made through the SBA's community-based partners, Certified Development Companies.

 

State and Local Governments

Most states and municipalities have economic development agencies and authorities whose mission it is to promote business development and job creation by offering businesses low-cost loans, grants, loan guarantees, or tax-exempt bond financing.  Check your state and local economic development departments, agencies, and authorities to learn about loan opportunities and other incentives. Green for Greens: Finding Public Funding for Healthy Food Retail is a helpful discussion of how to seek grants, loans, and financial incentives from community and economic development agencies.
 

Consider exploring these lending opportunities:
 

  • Tax Exempt Bond Financing: State and local governments have the authority to issue bonds to finance community facilities.
  • Public Employer Pension Funds: Every state and many local governments offer a pension system for their retirees. Pension fund managers may decide to invest in community economic development projects. Your state treasurer’s office should be able to help you identify public pension fund managers.
  • Tax Increment Financing: Redevelopment or economic development agencies can finance a project by borrowing money against future tax income.

Financial Institutions

Conventional banks and credit unions are required by a federal law, the Community Reinvestment Act (CRA), to invest in the low- and moderate-income neighborhoods they serve. As a result, a healthy food retail project may qualify for a loan from the lenders' CRA investment portfolio. The bank CRA officer is a good first contact when exploring options to fund healthy food options in underserved communities.


For a comprehensive list of banking institutions in your area, go to the Federal Reserve System's National Information Center.


The U.S. Department of Treasury CDFI Fund has certified nearly 1000 organizations as CDFIs. CDFIs are important mission-driven financial institutions that are increasingly playing pivotal roles in credit markets. Several programs, including OFN's Financing Healthy Food Options and Reinvestment Fund's ReFresh Initiative, are helping to develop and strengthen CDFIs' healthy food financing expertise.


Nearly two dozen CDFIs are currently managing federal, state, and local Healthy Food Financing Funds across the nation. Contacting a CDFI that is a federal HFFI grant recipient or manager of a state or local initiative is a great starting place in your search for funding. Even those CDFIs who do not have a dedicated funding source for healthy food projects may be interested in financing your work.  Many CDFIs are expert small business lenders and your project may qualify for this type of financial assistance.


To search for a CDFI in your community, check the CDFI Fund's Searchable Database or OFN's CDFI Locator.

Foundations

Foundations are increasingly providing loans to nonprofit organizations in addition to grants. These loans are offered in the forms of program-related investments (PRIs) and mission-related investments (MRIs). (See Glossary for definitions.) PRIs are typically below-market-rate loans invested from a foundation’s grant-making budget. Foundations expect the capital to be repaid after an agreed-upon time. PRIs can also include loan guarantees, lines of credit, and equity investments. For example, the New Jersey Food Access Initiative is funded with a $10 million PRI from the Robert Wood Johnson Foundation. MRIs are typically market-rate loans invested from a foundation’s endowment. MRIs may seek financial returns similar to conventional investments (e.g., stocks, bonds), while also producing social, environmental, or educational impacts. The California Endowment launched California FreshWorks Fund with an MRI.