By Kristie Schmitt
Starting a new business in any industry comes with challenges, but new businesses in agriculture are presented with an additional slate of obstacles. Many startup farms don’t have the capital needed for upfront expenses, such as land, equipment, seed, etc. New farms often lack the credit history, repayment ability and/or collateral, so investors and lending institutions are often hesitant to invest in their startup business. Furthermore, any new business lacks sufficient business knowledge, time management skills, confidence and marketing resources to efficiently launch and run a new business.
Farm Credit has a long-term commitment of helping young individuals get started in farming. As a result, five years ago, Farm Credit East initiated a program to support talented, hardworking individuals entering agriculture. This program is today known as FarmStart, LLP. Now celebrating its fifth year, FarmStart has invested more than $3 million to 75 participants, some of whom have graduated and moved on to traditional Farm Credit East loans.
The first initiative of its kind in the United States, FarmStart helps to fulfill Farm Credit East’s vision of a vibrant, entrepreneurial agricultural community by giving strong, new entrants a healthy start. Through FarmStart, LLP, Farm Credit East recognizes the need to invest in the future of farming and agriculture in the Northeast.
“Our farm is in an area where we will probably never be able to own the land we farm, so we have no land for collateral,” explains Ian Calder-Piedmonte of Balsam Farms, LLC in Amagansett, N.Y. “Without collateral, we couldn’t obtain the financing we needed to build our business. That’s where FarmStart came in and helped us as new growers.”
FarmStart invests working capital in northeast agriculture ventures that show promise of success. This investment functions the same as an operating line of credit. It is intended to provide the critical last dollar of funding to overcome the timing mismatch that makes it difficult for true startup farming operations to generate working capital.
“When I got started with FarmStart, I was already a year into my business,” says Terri Lawton of Oake Knoll Ayrshires (OKA) in Foxboro, Mass. “My business was expanding due to demand, but I needed money to buy hay for the winter. I didn’t have enough of the quality hay I needed in order to expand the business, so I called Farm Credit.” FarmStart funds allowed Terri to increase her herd to 20 milk cows and purchase quality western hay and glass milk bottles.
FarmStart’s working capital investment is limited to $50,000 with a minimum interest only for five years and principal due in full in five years. This investment helps recipients learn the discipline and skills of effective cash flow management as they develop a successful track record of credit use.
A FarmStart advisor works with each recipient. This advisor provides substantial consulting and financial planning to help young farmers stay on track toward achieving their business objectives and establishing a positive business and credit history.
“Working with someone who understands my business and my financials were important to me; and that’s just the quality service FarmStart provided” says Zachary Heiken of Heiken Farms in Perkintown, N.J. “FarmStart provided the additional money I needed to allow my business to grow during the early years.”
The final component of FarmStart is the required business plan. All FarmStart applicants are required to submit a business plan along with their application. This plan will help organize the new entrepreneur’s mission and business goals as well as define how to distribute their FarmStart funds. The business plan will serve as a roadmap for the first few years of their startup business.
“FarmStart allowed us the financial flexibility to learn about cash flow and sales fluxes during our first few years in business. Thanks to FarmStart we are now in a better position to project expenses and balance our budget” Bruce Schader of Wake Robin Farms in Jordan, NY explains of the required business plan.
Any beginning farmer, fisherman, forestry producer, farm related business owners and/or cooperative with great promise for success, but a minimal track record to date and limited financial resources is eligible to apply to FarmStart. Candidates are either transitioning into agriculture from another occupation or pursuing nontraditional agricultural businesses, many with a creative agricultural idea or niche. Candidates have at least two years of relevant experience and are in the early startup phase of operation or making major changes in the first several years. The applicant must be an independent enterprise and can not be affiliated with an established operation.
FarmStart allows new producers to get their business off the ground. “Knowing there are funds available through the FarmStart program has helped me to stay calm in financial situations” proclaims FarmStart participant Marcy O’Connell of Holland Farm, LLC in Milford, NH. “The staff at Farm Credit East are extremely knowledgeable in farming, and knowing they are just a phone call away has allowed me to stay focused on my true passion, farming.”
To apply to FarmStart, an applicant must submit a FarmStart application, current balance sheet, income statement, monthly cash flow budget and a business plan, along with two personal references. For more information on the program and how to apply, please visit FarmCreditEast.com.
Kristie Schmitt is Knowledge Exchange & Communications Specialist at Farm Credit East, ACA in Enfield, CT. She can be reached at Kristie.Schmitt@FarmCreditEast.com or (800) 562-2235.