The Maine Harvest Credit Project, which aims to create a specialized, socially responsible credit union focused on the new food economy in Maine, has raised $1.4 million, or about 60 percent of the money it needs from donors, to start what would be the state’s 59th credit union, the first new credit union in more than 25 years.
It plans in January to file its application to become a state-chartered credit union, Maine’s 13th, with Maine’s Bureau of Financial Institutions and to get National Credit Union Administration insurance for deposits, said CEO and project director Scott Budde.
“We’ve met with both institutions several times to prepare to submit the application,” Budde said, adding that both think the application is ready for submission.
The likely location for the credit union is central Maine, where he and advisory board chair Sam May, who co-founded the project with him, already are looking at properties to lease. The credit union will only do business in Maine.
After the application there will be a public comment period, and the two men will set about raising the remaining $1 million from donors, a process they anticipate will take about nine months.
“We can’t start until we have $2.4 million,” Budde said. “We need to be well capitalized to support lending as we’ll be doing larger loans than the average credit union.”
Regulators typically like to see credit unions start with 7 percent of their expected equity raised, and Maine Harvest will have 15 percent if all goes according to plan with donors, he said.
Once Maine Harvest has its credit union charter, it expects to raise seven times the amount of the donated seed money in deposits to provide funds for farm and small business loans.
The donors to date are the Sewall Foundation, the Ram Island Conservation Fund and Sandy River Charitable Foundation, all of which donated over the past year.
If the credit union gets the green light, in eight years Budde expects it to have about $12 million in assets, with some 75 percent of its business focused on loans to buy farm land, which are hard to come by currently. It also plans to have three employees: Budde as CEO and May as board chairman, and they plan to hire a chief loan officer.
But getting to the point of being able to submit an application was a long stretch involving filling in about 3 inches of paperwork and detailed interviews with 36 farmers as well as the Maine Brewers’ Guild, the Maine Cheese Guild and the Maine Grain Alliance for proof-of-concept of the new, focused credit union.
“These were two-to-three-hour interviews,” said Budde.
A lot of the discussion was about how difficult it is to get loans for farmland, equipment and expansions.
Budde said that is likely because the other financial institutions don’t understand the farming business well or don’t want to assume the risk of an underperforming farm because of drought or other conditions.
“Community banks and credit unions don’t have the in-house expertise to assess the risk profile [of the farmland],” said May. “They also don’t understand how farm diversification, community supported agriculture, farmers markets and [aspects of farming] work.”
Loans with a social mission
To May, who grew up on a midcoast dairy farm, there’s nothing better than the smells of a barn in winter, the spilled milk, the silage and manure all mixed together.
“I have deep relations to farmland and agriculture,” he said. “I’m a homesteader and a vegetable farmer, and I’m on the board of the Maine Organic Farmers and Gardeners Association.”
He also is on the steering committee of Slow Money Maine.
May watched as his neighbor’s dairy farm went under and got turned into a golf course in the tough business conditions of the 1960s, an experience that made him want to help with one of the toughest aspects of farming: financing to buy land.
Budde’s ties to agriculture came at investment firm TIAA-CREF, where he created the firm’s first investment department focused on social and impact investing strategies.
Maine Harvest is now under the auspices of Maine Farmland Trust and the Maine Organic Farmers and Gardeners Association. The project also is under the fiscal sponsorship of the Maine Organic Farmers and Gardeners Association, which provides it with 501(c)3 status and handles the project’s receipts, disbursements and fund-tracking.
If granted credit union status by regulators, Maine Harvest will be a nonprofit with members including Maine Organic Farmers and Gardeners Association farmer members and those from other food-related businesses.
“Ours is a very loan-driven model,” said Budde.
He said farmland loans will be 2 percent to 3 percent higher over 20 to 30 years than a conventional mortgage, but they still will be a couple percentage points below current loans.
If approved, the credit union will offer three loan products. One is $10,000 to $30,000 for used equipment. The second is a business loan for $65,000 to $135,000 for buildings, expansions and upgrades. And the third is land loans of $200,000 to $400,000.
Budde emphasizes that Maine Harvest isn’t trying to replace customer business at other credit unions or banks. The deposits it does pull in and donations will help mitigate risks associated with farmland. It also is talking to the Finance Authority of Maine to help with loan guarantees.
May said he and Budde have excellent insight into the workings of a farm and the risks of farmland, including droughts, pests, disease, nonproductive seasons and other issues, and have partners that also can help, including the Maine Organic Farmers and Gardeners Association, Maine Farmland Trust, CEI and the USDA. Maine Harvest plans to use Synergent, a Westbrook-based company that performs back-office services for credit unions.
Tapping growing markets
Maine Harvest stands to tap two growing Maine markets: credit unions themselves and farming, especially the swelling ranks of young farmers.
In terms of credit unions, by mid-year they had record asset, savings and membership numbers. The combined assets of Maine’s 58 existing credit unions topped $7 billion for the first time in the period from Jan. 1 through June 30 to reach $7.04 billion, according to Maine Credit Union League numbers. Membership growth was among the fastest in the country, up 1.8 percent, or 12,000 members, to a record total of 679,405 members.
As for farms, the 8,174 farms in Maine are up 13.6 percent in numbers from a decade ago, giving the state the highest number of farms among New England states, according to the USDA Agriculture Census (2007-12). Some 39 percent of that growth is from farmers age 34 or younger, which is far higher than the 1.5 percent across the United States. Agricultural sales also have risen 24 percent since 2007, with the farm-to-fork movement and desire for quality products from known sources stimulating demand.
According to Maine Harvest, financing is the largest obstacle for farmers to grow, with the state having an estimated $90 million in unmet demand for small farm mortgages. Other needs for money include $95 million in unmet demand for lines of credit, equipment loans and startup costs for new farms.