If you’re in agriculture, you probably thought you’d spend most of your time farming, not trying to find ways to fund your project. For new farmers with no background in finance, it’s important not to let the never-ending list of expenses discourage you. You have private and public options to help you finance your farm and keep you doing what you love.
New farmers face a challenge: lenders aren’t crazy about providing large loans to businesses that haven’t been around very long. But it doesn’t mean you’re out of luck. There are a few lending options available for those just starting out.
Direct operating loans. New farmers need to buy equipment, livestock, fuel and other items to run a farm. Though small, these loans can help you purchase what you need while building trust with lenders, which could lead to larger real estate loans down the line.
Aggie bonds. Beginning farmer loan programs — or aggie bonds — are federal–state public–private partnership programs that encourage lenders to take on new borrowers by offering these lenders tax-free interest. Bonds vary by state and may require you to take business courses — not a bad idea for any business.
Young and beginning loans for farmers and ranchers. The Farming Credit Services of America offers loans to help new farmers and ranchers purchase real estate, open a line of credit or find an installment loan.
Microloans. Starting a rooftop apiary? A hydroponic vegetable garden behind your restaurant? Microfinancing could be available to help small farmers cover niche expenses.
SBA loans. Depending on the type of farm you’re starting, you might be eligible for loan backed by the Small Business Administration (SBA), which offers competitive interest rates. Note that the SBA recommends looking at government resources specifically allocated for agriculture before applying.
How the American Rescue Plan Act affects farmers
The American Rescue Plan Act has a few programs that affect farm loans:
Farmers and ranchers from socially disadvantaged groups may be eligible for up to 120% forgiveness on USDA-backed and USDA-issued loans, based on the balance on January 1, 2021. The stimulus bill defines socially disadvantaged groups as those whose members have experienced racial or ethnic prejudice based on their identity as a member of that group.
The American Rescue Plan act also set aside $10.1 billion to fund local programs for farmers in underserved areas. This means that you may be able to find more loans, grants and other support through the farm credit system in 2021.
Because agribusiness refers to any business that earns most or all of its revenue from agriculture, many of your farm financing options will be available for an agribusiness operation.
You can finance just about anything you need, from purchasing new breeding stock to buying farm machinery to expanding your farm’s staff. That’s because agribusiness is a huge umbrella term that encompasses every step of agricultural production. Banks, credit unions and other lenders — including the USDA — all offer loans to help with your agribusiness.
Like any farm or business loan, you’ll need to supply your agribusiness’s financial statements and build a strong application. Target lenders that work specifically in your niche. You should also know exactly what you plan on using your loan for will as this will help you find approval.
How do I know if I’m a young, beginner or a small farmer?
Different lenders use these terms to refer to slightly different eligibility, so you’ll want to confirm them with specific lenders.
However, you’ll find many lenders that agree on these rough definitions:
A young farmer is younger than 35 years old.
A beginning farmer has less than 10 years of agricultural experience.
A small farmer generates less than $250,000 in annual gross sales.
Rising farm bankruptcies might make it harder to qualify for a loan
The number of farmers filing for Chapter 12 bankruptcy has been on the rise, according to a 2019 report by the Federal Reserve Bank of Minneapolis. A combination of higher interest rates and a drop in agriculture prices have made it more difficult for farmers to pay back their loans.
It’s might make it more difficult for farmers to qualify for loans, as lenders could start to view the industry as more of a risk. Dairy farmers were hit the hardest and might have even more difficulty qualifying than other types of farmers. If your farm is struggling, you might want to look into government-funded options and other forms of financing besides traditional loans.
Online business loans you could apply for as a farmer
The US Department of Agriculture is one of the first places a new farmer should turn to for financing. In recent years, the government has increased its funding and other resources specifically for beginner farmers.
US Department of Agriculture financing options
Targeted funding for beginning farmers. The Farm Service Agency (FSA) sets aside a percentage of direct farm ownership and direct farm operating loans for beginners. Which means new farmers won’t compete with big agriculture companies for loans to cover the costs of real estate or operating and maintaining your farm.
EZ Guarantee program. Through this program, the FSA acts as a middleman between farmers and USDA-approved lenders. It offers a streamlined application for smaller loans to cover farm operating and ownership costs.
Farm ownership or operating microloans. Microlending can cover smaller expenses like fencing or organic certification costs.
Farm storage facility loan program. This low-interest financing can help small farmers build or upgrade storage facilities for agricultural products.
Land contract guarantees. The FSA sets up land sales between retiring and beginner farmers through rent-to-own contracts. These can benefit new farmers with affordable interest rates and a smaller down payment than you’ll find with conventional real estate loans.
Farm Service Agency targeted and specialty farm loans
The FSA is a sector within the US Department of Agriculture that specializes in resources for farmers and ranchers. Here are three targeted financing options they offer:
Native American Tribal Loans. Through two FSA programs designed specifically for Native Americans, tribes can purchase property, increase agricultural productivity and preserve farmland within the reservation and even buy farmland with multiple owners.
Loans for minorities and women. The FSA targets a percentage of farm loans for minorities and women starting out in farming.
Loans for young farmers. Designed to encourage urban youth’s involvement in agriculture, these loans help young farmers fund income-generating projects in connection with an agricultural youth organization.
Am I eligible for a Farm Service Agency loan?
If you have a farm business in the US, you can likely apply for a loan with the FSA.
However, you won’t be able to apply for an FSA loan if:
You’re able to get credit elsewhere.
You’re not a US citizen.
You have controlled substance convictions.
You’ve caused the government financial loss on previous loans.
You’ve received debt forgiveness from the FSA.
How do I compare my loan options?
Choosing the right type of financing is a first steps to getting funding for your new farming venture. When comparing your options, weigh the importance of these elements against your needs:
Loan amount. Think about how much you want to borrow to narrow your options. To avoid falling into debt, borrow only what you need.
Loan term. If you want to pay off your loan over a number of years, consider a fixed-term loan. If you think you can pay it back in a few months, short-term options could be a better choice. And a line of credit might give you a continuous flow of funds.
Eligibility. Loans come with eligibility criteria including your age, years of farming experience and citizenship, among other factors.
Interest rate. Interest rates vary depending on how much you want to borrow and how long you need to pay it back. Government and other options aimed at beginning farmers tend to come with lower interest rates.
Fees and costs. Application and origination fees can add up when you’re applying for a loan. Also ask about prepayment penalties that could discourage you from paying off your loan ahead of time.
Loan type. Government-funded options like FSA and SBA loans could offer advantages over venture capital investments and traditional loans depending on your needs.
Business bank statements for the past three years.
A list of your other creditors.
Your farm financing preparation checklist
Educate yourself. Take classes, go to conferences and participate in workshops for beginner farmers. Not only will you know more about how to run your farm, but you’ll also have an easier time getting loans in the future.
Diversify. Chances are that you won’t be able to fund your new farm through one source. You’re more likely to succeed if you apply for a few types of loans and grants.
Keep an eye on the future. Look out for grants and financing programs you may be eligible for later. Applications require planning and can take a long time to process. Knowing what lies ahead can help you stay on top of your finances.
Have a Plan B. Things can go wrong on farms — insects, droughts or floods can wipe out yields. You could apply for an emergency loan, but having an emergency fund or crop insurance can help you weather the low points.
Avoid applying for loans in the spring. Spring is the busiest time for agriculture lenders.
How can I finance my farm without taking out a loan?
You have options beyond borrowing from a lender. A few include:
Grants. While your choices aren’t many, you could find a grant through your city, country or region.
Private contracts. Some property owners are willing to enter into private contracts with new farmers to sell land and other assets. Building a relationship with farmers interested in passing on their land is one way to gradually gain ownership of a new farm without having to involve banks or the government.
Make your farm a CSA. Through community supported agriculture (CSA), consumers pay a set fee at the start of your growing season to receive a specified amount of your harvest throughout a season or year. Fees give you income for the season and help mitigate risks like crop failure.
Plan, plan, plan. Don’t rush into your crowdfunding campaign without a solid business plan that concisely conveys who you are and what you want to do.
Use a site that fits your needs. Kickstarter has a wide audience, but it won’t let you keep any of the money you raise unless you reach your goals. Indiegogo lets you keep everything you raise, but it has a smaller reach.
Offer rewards. Whether a GIF of a rooster crowing for a $5 donation or a year’s subscription to your CSA for $1,000, incentives help draw people in.
Make the first few days successful. The first 48 hours can make or break your campaign. Reaching out to your network for donations in this crucial period can result in a smoother overall campaign.
Where should I open my farm?
Here are the top 10 places for farming based on number of farms recorded by the Census Bureau in that state:
I got a farm loan. What can I expect?
How you repay your farm loan depends on the type of financing as well as the terms of your loan. Typically you’ll have to make fixed monthly repayments on interest and fees until you’ve paid it back in full.
What can I do if I’m struggling with repayment?
If you’re struggling with repayments, contact your creditors as soon as possible. They might be willing to rework your repayment plan, given the circumstances. Or, consider refinancing your loan with a different lender for more favorable rates and terms.
Running a new farm takes passion, dedication and hard work — not to mention time in finding the right funding to help you support its early days. As a farmer who’s just starting out, you have a range of options designed to get you funding. By knowing exactly what you need, you can compare and narrow your choices to one that fits your budget.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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