It all started with visits to the local food banks.

A few years ago, North Coast Credit Union in Bellingham, Wash.,started working with several of them in the area. Terry Belcoe,president/CEO of the $122 million cooperative, said the foodoffered to those in need was not the healthiest on the shelves andin the bins.

“So much of it was processed and prepackaged stuff. They didn'thave anything fresh,” Belcoe recalled. “And, we live in one of themost lush and agricultural parts of the country.”

North Coast began working with the community action agency todevelop a program to raise money to contract with small, localfarmers to purchase home-grown food for the food bank system. Fromthere, the credit union partnered with several groups includingViva Farms, an organic farm incubator in Skagit Valley, Wash., anda project of GrowFood.org,an international nonprofit that recruits, trains and capitalizesthe next generation of sustainable farmers.

Talks began on microenterprise lending and how the groups andNorth Coast could possibly collaborate to provide small loans tofarmers. Those conversations led to the launch of the FarmerReserve Fund, a new program that links the credit union, WashingtonState University Extension, Slow Money NorthWest, Viva Farms andother investors in the region.

Launched by Slow Money Northwest, the fund recently made itsfirst loan with North Coast to strawberry farmer Santiago Lozanoand a second loan to vegetable producer Nelida Martinez.

Slow Money connects investors interested in food and farmingwith food and farm businesses seeking investment.

The loans allow new farmers to purchase equipment and supplies and then repay theloan within a year. Charitable donations from two local investorswere used to establish a reserve fund at North Coast in order toreduce risk for the credit union while leveraging its existingdeposits, according to the program's organizers.

Viva Farms said it screens its student-farmer pool for the bestpotential financing candidates.

The farmers also receive technical and entrepreneurialassistance from WSU Extension's Cultivating Success program.

Belcoe is ecstatic on how the effort came together.

“This is fun stuff for us. We're trying to assume a leadershiprole in community,” Belcoe said. “Our board has come up with amission to help build strong communities and people of low income.This is right down our strike zone.”

Since the fund launched a few weeks ago, two loans totaling$7,000 have been dispersed, Belcoe said. To protect against losses,the investors provided North Coast with $5,000, which the creditunion will leverage out to $25,000 against that pledge.

“This gives us a healthy reserve pool against losses,” Belcoeexplained. “If we find losses are higher than that, we can ask fora bigger pool.” 

Given the size of the micro loans and the borrowers, who arerequired to be trained by Viva Farms, Belcoe is not so much worriedabout losses. Because the farmers have to make purchases beforetheir crops come in, loan repayment will typically start after thefruits and vegetables have been harvested and sold. Belcoe said theloan would be similar to a balloon loan.

“It's not going to make money for the credit union, but it willhave an impact on someone's life,” Belcoe said.

The Farmer Reserve Fund is the first piece of Slow Money's foodand farm microfinance effort as the organization works to make iteasier for local agriculture producers to grow their businesses,said Japhet Koteen, project manager for the Mount Vernon,Wash.-based group that connects investors interested in food andfarming with food and farm businesses seeking investment.

“They're not a lot of banks that want to lend to farmers who arein this small start-up stage,” Koteen said. “We wanted to build onexisting infrastructure in the community and deliver servicesefficiently by building relationships, rather than reinventing thewheel. The reserve fund structure through North Coast is a perfectmatch.”

Koteen said the credit union's loan-loss reserve is now 20% ofits portfolio, a buffer that provides even more protection againstrisk.

New farmers like Lozano will have access to the capital theyneed to expand, Koteen pointed out. In 2011, he started with threeacres. This year, Lozano will have 10 acres and the funds needed tohire more people to help tend his strawberry farm.

“It is very difficult for new growers to access credit,” Lozanosaid. “I will reserve some of my line of credit to cover anyemergencies that come up. The rest I will use to pay my harvestcrew before I get paid for sales.”

Martinez said she farms three acres at Viva Farms and leasesanother two acres elsewhere. She sells more than 70 varieties ofvegetables at the Mount Vernon Farmers Market and makes freshtortillas and Oaxacan style tacos stuffed with queso fresco, squashblossoms and other vegetables she grows on her farms.”