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Loans & Financing

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 our Guide to Farming in New York). 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.

Farm Credit’s FarmStart Program 
Farm Credit East has launched a program called FarmStart – visit 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 $75,000, as long as the business cash flows and seems to have a good chance of succeeding.

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, ME, 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
Revised in 2013, 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.

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.

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 – http://regionalcouncils.ny.gov/.

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.

Custom Hiring
Instead of purchasing machinery or specialized buildings, beginning farmers should evaluate options for local custom hire opportunities. It is better to hire someone to provide a service than to buy expensive equipment.

For example, would a neighboring farmer be willing to work your fields? This would avoid the time and expense of purchasing and maintaining machinery. Is there a commercial kitchen available for processing? This would avoid the expense and regulation of building a commercial kitchen.

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.

Guide to Financing the Community Supported Farm
A great resource, published by the University of Vermont with funding from Northeast SARE, for individuals “exploring alternative investment vehicles and ways to help finance small businesses within communities.” The Guide to Financing the Community Supported Farm provides detailed options and considerations for creating successful, unconventional financial arrangements for starting an agricultural business. The Guide covers legal, accounting, environmental and social considerations with examples of farm that have made use of alternative financing methods. To view the guide, visit the University of Vermont site.

The information above is excerpted from Fact Sheet #4 Financing a Farm Operation in the Guide to Farming in NY.  To view the full Guide, head over to the Northeast Beginning Farmers Project Website.