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#4 Financing a Farm Operation

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Getting Money for Your New Farm Enterprise

By far, the most appropriate source of money for your new farm is your own cash – no loans, no home equity, no family loans, and no credit cards. Relying on loans substantially (or entirely) puts your farm dreams at too great a risk. It is worth the patience to build up your own farm start-up account. Most farms can easily begin operating with $2-3,000 cash.

Set aside the personal cash you have available for your farm in a separate bank account called your “farm account.”  Use this money judiciously for your start-up expenses. When you earn income from the sale of farm goods, replenish this farm account and continue buying what you can afford for your farm. Chances are, you will be more inspired and creative with your purchasing knowing you have to stretch those dollars. Once your products have a clear demand and you are not able to keep up with sales, then it is time to consider a loan or financing to allow more rapid expansion of the profitable aspects of your farm.

If you reach the stage where you’re ready for a loan, you will need to present potential investors or lenders with a solid business plan that exhibits a realistic strategy for paying it off (See Fact Sheet #12 in this Guide). Here are a few loan options:

Farm Service Agency Beginning Farmer and Rancher Program – www.fsa.usda.gov   315-477-6300
The Farm Service Agency (FSA) provides direct and guaranteed loans to beginning farmers and ranchers who are unable to obtain financing from commercial credit sources.

A beginning farmer or rancher is an individual or entity who: (1) has not operated a farm or ranch for more than 10 years; (2) meets the loan eligibility requirements of the program to which he/she is applying; (3) substantially participates in the operation; and, (4) for farm ownership loan purposes, does not own a farm greater than 30 percent of the average size farm in the county.  All applicants for direct farm ownership loans must have participated in business operation of a farm for at least 3 years.  If the applicant is an entity, all members must be related by blood or marriage, and all stockholders in a corporation must be eligible beginning farmers.

In Jan. 2013 the FSA announced a new microloan program with low-interest loans of up to $35,000, more flexible eligibility requirements, and shortened application and processing time. You can view a webinar and Q&A document about this program here: https://nebeginningfarmers.org/2013/04/15/microloans-from-farm-service-agency-fsa-whats-the-deal/. To apply, visit http://fsa.usda.gov, click on the “Farm Loan Programs” link from the top menu, and scroll down to the bottom of the following page to access application materials.

Commercial Banks
Most banks have a commercial lending department to handle business loans, but few banks have an agricultural lending department prepared to work with agricultural business.  Check with your bank to see if they write agricultural loans (most will if you have a Farm Service Agency or Small Business Administration guarantee).

Following is a partial list of NY banks with known agricultural lending departments:
Farm Credit – www.farmcrediteast.com (with branches in NH, NY, NJ, RI, MA, and CT)
M&T –  https://www.mtb.com/personal/Pages/Index.aspx 800-724-2440
NBT Bank – http://nbtbank.com 800-NBT-BANK
Community Bank, NA – www.communitybankna.com 800-724-2262
Bank of the Finger Lakes – www.bankofthefingerlakes.com 315-789-1500

USDA Farm Service Agency Microloan Program – new in 2013
Designed to help small farm operations including beginning farmers secure loans under $35,000. The new program offers a simplified application process. To qualify, it is helpful if beginning farmers have a business plan that shows income and expenses and ability to repay the loan.  For established farms, a three year financial and production history is part of the application, along with a list of assets and debt.  Microloans can be used for start-up expenses, annual supply costs, marketing costs, purchase of equipment and livestock, farm improvements, hoop houses, irrigation, delivery vehicles, etc.  Microloans must be secured by a lien on property or products.  Repayment term will not exceed 7 years.  For an application, contact the USDA FSA office that serves your county: http://offices.sc.egov.usda.gov/locator/app?state=ny&agency=fsa

Micro-Enterprise Loan Funds or Revolving Loans Funds for Small Business
Some county governments have micro-enterprise loan funds with attractive interest rates and repayment terms that can be used to finance farm operations.  Check with your county Planning and Economic Development Agency/Dept. to find out if they have micro-enterprise loans funds that you might qualify for. The Carrot Project (www.thecarrotproject.org) is piloting a few such programs for small farmers in New England, with plans to expand to serve farmers in NY eventually if their programs are successful.

Investors
With the concept of “Slow Money” (www.slowmoney.org) gaining popularity, investor circles nationwide are forming to fund local food systems. Depending on your location and farm plans, you may be able to attract investors to fund start-up or expansion of your farm. Many Community Support Agriculture farmers have used the strategy of fundraising from their membership to secure their land or build new facilities, usually offering repayment + interest in the form of farm products. You will need to check in with legal and tax advisors about the implications for your farm, and you will also need to crunch the numbers and write a business plan to determine whether this is a strategy that can work for you. Search online for “slow money”, “local investing opportunity networks” and “small farm angel investors” to learn more about the possibilities for your farm.

Kiva Zip – http://zip.kiva.org
Kiva has a long and solid reputation as a global microlender. Now they’ve set their sights on helping US entrepreneurs as well, with a particular interest in farmers. Through Kiva Zip you can get a 0% interest loan of up to $5,000 your first time. You may have a 6-month grace period and a 2-year repayment term, and once you’ve successfully repaid that loan, you are qualified for higher amounts, up to $50,000. Loans are crowd-sourced on Kiva’s online platform, and are made primarily based on character references.

Farm Credit’s FarmStart Program
First Pioneer Farm Credit has launched a program called FarmStart – https://www.farmcrediteast.com/Products-and-Services/FarmStart.aspx. FarmStart is a relatively new venture with a mission to provide investments of working capital in farm businesses and farmer cooperatives that show sound promise for business success. The program can make loans to beginning farmers who wouldn’t meet Farm Credit’s internal credit standards. It requires no down payment or equity for five-year loans up to $50,000, as long as the business cash flows and seems to have a good chance of succeeding.

NYS Consolidated Funding Application – funding from NYS Empire State Development
Funds for larger agriculture projects can perhaps be secured by working through local county economic development and planning organizations and the regional economic development council that covers your county.  These entities set their own priorities for funding allocation.  Each regional council is awarded a set amount of NYS funds based on their plans.  Projects are submitted via regional councils and approved by the state.  Some of the funding may be in the form of a grant, but mostly this is a loan program.  Applications are long and complicated.  Seek assistance as to whether this is an appropriate funding source to pursue. Visit http://regionalcouncils.ny.gov/ for more information.

Residential Finance or Using Your Own Equity
While many banks are unwilling to lend money to an individual to purchase a herd of goats, for example, almost all banks offer home equity loans and/or other personal loans that you could use for your agricultural business.  Home equity and personal loans may carry higher interest rates than business or farm loans available through the above sources. Be sure to check rates and terms. Never finance a business using credit cards as interest rates are enormous and, if payments are not made, can quickly spiral out of control.

If purchasing equipment or supplies (machinery dealers, a farmer selling animals, etc.) ask the vendor about their credit options and terms, as they may be more liberal than a commercial bank because they can easily seize and make use of the asset if payment is not made.  Again, be sure you know the interest rates and term.

This fact sheet is part of the Guide to Farming in NY by Monika Roth et al, published by the Cornell Small Farms Program and Cornell Cooperative Extension. Fact sheets are updated once annually, so information may have changed since last revision. If you are reading a printed version of a fact sheet, compare revision date with online fact sheet publish dates to make sure you have the latest version.

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