Loans from Whole Foods Help Small Producers Grow Business

Loans from Whole Foods Help Small Producers Grow Business

The credit crunch may affect banks' ability to loan money, and the glut of milk products is sending dairy cows to slaughter, but neither of those things have affected Neal Gottlieb, founder and partial owner of Three Twins Organic Ice Cream, based in San Rafael, California. Gottlieb said in a telephone interview that he is building a new factory in a space leased from Cowgirl Creamery, an organic cheese maker in Point Reyes Station, Calif.

As one recipient of the Whole Foods Market Local Producer Loan Program, he received $25,000 in December 2008. The funds will go toward construction costs for the new factory, which once completed, will help the company widen their customer base by making the ice cream more affordable, he said.

Even though $25,000 may not seem like a large amount of money in the grander scheme of things, Gottlieb said, "the value of being in line with Whole Foods is beneficial in the long term." With the backing from the natural grocery store chain, the ice cream makers have been able to raise additional capital. Three Twins has since been able to secure a line of credit from Sonoma Bank of San Rafael to expand their business.

The idea itself seems to be fairly radical for a grocery chain to provide loans to their producers -- and in particular, small, local producers who would otherwise have a difficult time putting their products on store shelves. While it would be difficult to know for sure, a spokesperson for the company said they believe they are the only ones doing this.

The loan program, which began in 2006 and awarded its first loans in 2007, hit the $2.5 million mark in late May,  said Jenny Brown, the Local Producer Loan Program administrator. And the global economic situation will not affect the company's ability -- or commitment -- to loan money to local producers.

"Our commitment is to fund up to $10 million throughout the program, so we still have lot of money to lend out," Brown said from her office in Austin, Texas. "Our local producers is part of what customers say they value a lot; and they are very valuable to us, too."

While the terms of the loan are negotiated with the companies individually, the interest rates vary from five to nine percent; an average interest rate is approximately 6 percent, Brown said. And unlike traditional loans, there are no closing fees, no fees for repaying the loan early, and no application fees, she said. The maximum loan amount is $100,000, but Brown said there is no minimum amount. In addition, even though the terms of the loan agreement vary based on the amount and the individual, in general the maximum repayment time is 10 years or less, Brown said.

"We don’t require any purchasing amounts from our local producers that receive the loans," Brown continued, nor does the company require exclusivity to supply products to Whole Foods Markets. A total of 40 recipients have received these low-interest loans, which in many cases, have helped small producers expand to regional markets.

For example, Justin Baumgartner, the founder and president of Phoenix-based Laughing Giraffe Organics, went from selling gluten-free, vegan snacks at a local farmers' market in 2006, to selling his line at Whole Foods Market and eventually developed a partnership with United Natural Foods International (UNFI), where the products are sold in Whole Foods stores nationwide. The initial loan of $20,000 allowed the company to completely rebuild their kitchen and expand into the regional market from the initial stores in the Phoenix area, Baumgartner said.

Trying to get a loan to start an organic, raw, vegan granola business from a traditional lender was nearly impossible, Baumgartner said in a telephone interview. Partnership with the first certified organic grocer in the nation was key to getting his business off the ground.

"I went to regular banks [and] I couldn't get any money. So the fact that it was someone who understood what I was doing and made a choice based on their own private decisions" made expanding beyond the farmers' market a viable option. In fact, the company approached him about the loan program after Laughing Giraffe had products on the shelves for a few months, Baumgartner said.

And the 33-year old entrepreneur was able to secure a second loan through the program which allowed him to expand to national distribution through UNFI; his macaroons and oat-free granola are now distributed in at least 100 stores, Baumgartner said.

The loan process was straightforward and simple, said both the ice cream-maker Gottlieb and granola-maker Baumgartner. Local producers can download the eight-page application from the Whole Foods Market website, which asks basic questions such as credit references, social security numbers and annual revenue.

But the application also includes unconventional questions such as: "If your product involves livestock, please describe your animal welfare standards," a nod to the company's policy on purchasing from suppliers who provide meat from animals "raised humanely and processed with a measure of compassion," according to the company's website.

Other loan recipients include a Florida beekeeper, a fruit and vegetable farm in Minnesota, an organic ice cream maker in Colorado, and from the company's home state of Texas, a pasta sauce maker, and grass-fed beef ranchers, among others. A complete list of producers can be found on the company's website.

Even before he began supplying his organic ice cream to the grocery chain, Gottlieb said he was a fan of the store, because they "do the filtering for you, you know it is going to be good for you," he said. He added that the company should be lauded for its response to criticism generated by Michael Pollan's 2006 bestseller, The Omnivore's Dilemma, in which Whole Foods represents an industrialized version of the organic food movement.

"They invited over 100 local food producers to learn about how they could work (with Whole Foods Market)," Gottlieb said. "I had never heard of anyone who had done that," which created the opportunity to work with the company, he said. And even though Three Twins Organics needs additional funding to complete the new factory, Gottleib said, the loan program has helped their business financially, and psychologically -- to know there is someone willing to support them.

There is no specific time limit to the loan program, and it will continue until it reaches the $10 million mark. Brown said the program "is also significant in terms of those being of affected; we deal with hundreds if not thousands of local suppliers and producers...The point was not to help us but to help them."

Farm photo CC-licensed by Flickr user James Jordan.