Smart Solutions

A structuring aid for criteria-based decision-making about alternative financing models

The alternative financing models roadmap tool is meant to help structure your information seeking and decision-making process about alternative financing models. 

What is the purpose

Different developments demonstrate that citizens appreciate being directly involved with the production of goods and services they consume and often accept some extra cost and financial risks for that: Crowdfunding platforms have become popular and citizen engagement in food networks is high. Attention to ethical use of capital is demonstrated by the popularity of sustainability-aware investment funds. Projects, initiatives and businesses along the value chain in need of financing can benefit from these developments by using alternative, community-based financing models.

This tool helps you approach some key questions you need to consider when thinking about alternative ways to finance a project. These are generally community-based, that is to say, people who support your work and goals provide you with capital.

We have listed criteria you should think about and questions you should ask yourself to clarify your needs and options. We also give a very brief overview of possible alternative financing models. Both the criteria and list of alternative financing models are exemplary and non-exhaustive. They are meant to help you get a grip on what model might be a good fit for you, but this will not replace making a business plan and getting legal advice.

The alternative financing models introduced in the roadmap tool can be used to finance different projects with correspondingly different amounts to be financed. Some of the models are suitable for start-ups. When thinking about the business and financing plan, different financing models should be considered in addition to bank loans, public funding, grants etc. 

How does it work?

The tool is mainly intended to help you ask yourself the important questions.

  • We suggest you read the brief introduction of different financing models first. Perhaps you can already exclude some. Take notes.
  • Then go over the list of criteria, asking yourself how these apply to your project or business. How these criteria apply to the different financing models is quite complex, we cannot deterministically guide you through the process.
  • You might need to find more information about different financing models. Availability and legal regulations will differ by country, so we can only provide some initial ideas of what may be possible. This may be a starting point for your own in-depth research.
  • After you have narrowed down your options, you may need to consult someone with expert knowledge about the specifics in your country. That may be a lawyer or tax advisor, but also think about associations of your sector or of the specific financing model. Umbrella organisations of cooperatives exist in most places, and in the cases of financing models with an intermediary organisation, you can find those in your country.

Who is the tool for?

  • Those running or starting a project, initiative or a business who would like to involve people in the financing of the undertaking.
  • Those looking for an alternative to traditional bank financing because they value independence, because the bank doesn’t give them a loan or simply to try out other models.
  • Those looking for ways to use financing to gain new customers or retain existing ones, or simply to gain greater publicity.
  • A solid economic situation of your project or business is an important prerequisite for the successful implementation of an alternative financing model. Businesses and projects in an economically difficult situation should not consider these models as an option for restructuring.

Dos and Don’ts

Raising funds is not the only thing you can achieve with alternative financing models. As a business, customer relations can also benefit from using them, and in return, success depends on the existing customer base or network. People will want to contribute to financing your project because they identify with the business, in order to feel a part of a process they want to support. You should therefore think about whether and how you can engage people and can make your activity (e.g. production) tangible for them.

Alternative financing does not come for free. Typically, it requires a lot of time for administration, public relations and communication with those who provide money to your business. As a rule, it is no cheaper than bank loans. The personal relationship with your investors or supporters brings with it a special responsibility – especially if your project fails.

In order to successful embark on an alternative financing model:

  • Reflect on your goals and those of potential supporters.
  • Be honest with yourself and your supporters about risks.
  • Critically evaluate your resources and the demands and costs of financing models.
  • Don’t try to use alternative financing models to keep an economically unsustainable business afloat.

How the tool was already used

This roadmap tool is based on information from the BioFinanz research project and website. In that project, it was examined how alternative financing models are used in the organic food sector. The website (in German) has been set up to inform both capital seekers in the agri-food sector and possible supporters about different financing models. Many of the models can also be used outside the agri-food sector.

Community financing in the German organic food sector: a key for sustainable food systems?
Sarah Peter , Simone Sterly , Gerlinde Behrendt , Anna Maria Häring - Institut für Ländliche Strukturforschung , Eberswalde University for Sustainable Development ( 2019 )
Part of the results of the BioFinanz research project on community financing in the organic food sector, this publication succinctly summarises key findings about the usage, benefits and critical points of different financing models. The paper was presented at the 7th CIRIEC International Research Conference on Social Economy “Social and Solidarity Economy: Moving Towards a New Economic System”, Bucharest (Romania), 6-9 June 2019.
Language : German

Institut für Ländliche Strukturforschung , Eberswalde University for Sustainable Development ( 2020 )
Web portal about alternative financing in the organic food sector, based on a research project (2017-2020).
Language : German

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