Get financed for your farm – What are the financing options available for small farmers?
Anyone who works in agriculture and has no financial experience thinks it will be almost impossible to find ways to support their farm.
But today, it’s very easy to get financing, so new farmers don’t have to worry about money.
Don’t be discouraged by the incessant expense of farming. It’s not difficult to find financial assistance for farming because there are public and private funding opportunities for farmers.
Obtaining agricultural loans
A farm loan is useful when you’re looking for a budget for your small farm. This way, you’ll never run out of money to support the operation and grow your business. But remember that you will only succeed if you use the loan wisely.
The first step to getting the right loan is to know the variety of loans available and how to use them wisely.
Agricultural loans : Facilities available for farmers
New farmers may have difficulty obtaining a loan because lenders may not always be willing to provide loans to a newly started business. Don’t give up hope, as other lending options are available:
Direct loans :
Direct operating loans are to support your purchase of new equipment for your farm. With this loan, you can buy fuel, livestock, and all necessary equipment for the farm. However, you will get a small loan which is sufficient to purchase these essentials.
Aggie bonds :
Aggie bonds are also known as beginning farmer loan programs which are run in the partnership by the state and private lenders. The good news is that they are tax-free interest for new borrowers. However, the different state offers different bonds to the borrowers.
Young loans :
Ranchers can purchase real estate from this loan offered by the farming credit services.
Farmers with a specific niche can take help from microloans to grow their business.
SBA loans :
The small business administration supports farmers by offering competitive interest rates. However, there are different eligibility criteria for farmers running different types of farms.
Other options :
Some wealthy groups are interested to support small farmers in growing their business. Even some wealthy individuals are willing to offer such options.
How to know the eligibility for a loan?
There are many businesses referred to agribusiness that get revenues from agriculture. All these business types are eligible to get financial help to purchase anything related to agriculture. It includes the purchase of farm machinery, stock for new breeding and expense for expanding the staff for your agribusiness. Lenders, banks, USDA and credit unions offer financial helps to support your agribusiness.
Therefore, just like any other loan application keep your agribusiness application ready and take it to a lender. But remember that you should have a plan for using the loan to get it approved.
We will mention how to use the loan for agribusiness in the later section before that know where do you fall in the category of the farmer- a small, beginner or a young farmer? It is important because many lenders have different definitions to categorize you into any of these sections. The rough definition says that:
- Anyone who is below 35 years old is categorized as a young farmer
- Those with agricultural experience less than 10 years are a beginning farmer
- If your annual gross sales are less than $250,000 then you are a small farmer
The USDA also lends loans to small farmers who are new to the business.
The USDA financing options are as follows:
Target funding :
There are two options, directs farm operating loans and farm ownership. It means you don’t have to struggle to get a loan as you are not competing directly with the big companies in agribusiness.
EZ guarantee program :
The loans offered through this program covers the cost of ownership and farm operation. You can get a loan from the USDA-approved lenders but for that, you have to take the help of the FSA.
Microloans for farm ownership :
This loan will cover the cost of organic certification and other small expenses.
Storage Facility loan program :
You can upgrade the storage facilities by taking help from such a loan program. Moreover, the loan-interest on this loan is low.
Land contract guarantees :
A rent-to-own contract is set up between the beginner and retiring farmers. The FSA set up the contract between them. The new farmers will get the benefit as the down payment and interest rates are small in comparison to the conventional real estate loans.
No matter where you get the loan it is always beneficial to compare them.t
Loan option comparison-things to do
To fund your new venture it is essential to take the first step right by comparing the loan options. Here are the lists of things that you must compare to get the best loan option:
Amount of loan :
Since you are taking a loan which is a debt so choose the amount wisely. However, it will narrow down the loan options but you will get what you want and pay for that only.
Term of the loan :
A fixed-term loan is good when you are thinking of paying loans for a limited number of years. On the other hand, short-term options are good for those who are financially stable to pay back the loan in a few months. To have the continuous fund flow considers choosing a line of credit.
Since there is an eligibility criterion of getting a loan so must compare it for different loan options. It includes citizenship, farming experience, age, and other factors as well.
Rate of interest :
However, this will vary and depend on the loan amount but the low-interest rates are offered by the government funding options which is a better idea than others.
Fees and costs :
While applying for a loan you should also consider origination fees and application fees. It may also include prepayment penalties.
Loan type :
It is again a factor for comparison as government-funded options are more beneficial than traditional loan options.
Once you are clear about what type of loan and from where to get financed, the next step is to know the least document to offer the lenders. When applying for short-term loans then only a few of the documents will be required. On the other hand, SBA loans will ask for more paperwork. However, the least documents that will be required everywhere are as follows:
- Contact information
- Personal credit score (must be above average)
- Residential proof
- Past three years statements of business banks
- Your agribusiness plan
- Date of birth proof
- Social security number
Collect all these documents and go to the lender and get loan approval.
Moreover, small farmers have other options than borrowing and few of them are:
A grant is easily available through the region, country or city
Private contacts :
You can contact the private owners as some of them are interested to do business with small farmers by selling their land to them. Build good contact with them and get bits of help from them without borrowing from the government or the banks.
Supported agriculture- some CSA support farmers by paying a fee to them for helping them grow their farm. They get an amount for their farm during harvest period which aids you to eliminate the crop failure risks.
You can easily raise funds for your farms by taking help from sites likes gofundme and more.
Here are a few tips that will help you getting assistance from crowdfunding
Plan a campaign that will help you get funds. However, your agribusiness plan should be solid enough to convince the funders.
Search for a site that is good for crowdfunding to reach a wide audience. Then, offer rewards and incentives to attract more people into your CSA. The first few hours of your campaign are crucial to reach out to audiences as much as you can for collecting donations.
Moreover, new farmers should know the right location for their small farm business. The census bureau has made a list of the top 10 places which are best for farming.
If you are living in any one of these places then starting a small farm business is beneficial.
What to do from your farm loan?
Aforementioned that you should use the farm loan wisely so here are the options you can consider.
- You can buy farm equipment
- Spend money on purchasing supplies
- Use a loan to cover the land costs
- You can even use a new loan to refinance an older loan
- Advertising and marketing campaigns
- For repairs and land improvements
- Invest in growth
- For covering the operating costs
- For rebuilding after the natural disasters
- Weathering the storm
Starting a small farm business is not easy but with financial help and a good farm plan you can grow your agribusiness. However, it requires the efficient use of funds to take your business to the next level.
Ready for the next step to become a farmer ?
So you manage to overcome your fear? Then let’s go to the next point and learn the marketing !
Source : Farmer