4: Financing a Farm Operation

4: Financing a Farm Operation

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 too much on loans—at least in the very beginning--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 <$5,000 cash, whether on leased land or land you already own.

Obviously avoiding the expense of purchasing land greatly reduces the need for start-up capital. If you do have money saved up to buy land, don’t make the mistake of spending it all on the property! A good guideline is to spend no more than 50% of what you have available on the land itself; save the rest for infrastructure and start-up needs.

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 are not able to keep up with sales, assuming you want to continue growing the farm, 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

A beginning farmer or rancher is an individual or entity who:

  • Has not operated a farm or ranch for more than 10 years
  • Meets the loan eligibility requirements of the program to which he/she is applying
  • Substantially participates in the operation
  • 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

USDA Farm Service Agency Microloan Program

In addition to larger loans for land purchase or facility construction, FSA offers a microloan program with low-interest loans of up to $50,000, more flexible eligibility requirements, and shortened application and processing time

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.

Fact Sheet Overview

    Microloan Program:
    Designed to help small farm operations including beginning farmers secure loans under $50,000.


    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:

    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.

    Kiva USKiva 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 you can get a 0% interest loan of up to $10,000. You may have a 6-month grace period and a 2-3-year repayment term. Loans are crowd-sourced on Kiva’s online platform, and are made primarily based on character references.https://borrow.kiva.org/borrow
    Farm Credit’s FarmStart ProgramFarmStart has a mission to provide investments of working capital in farm businesses and farmer cooperatives that show 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.https://www.farmcrediteast.com/products-and-services/new-farmer-programs/FarmStart
    NYS Consolidated Funding Application – funding from NYS Empire State DevelopmentFunds for larger agriculture projects may 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/
    The Carrot ProjectThe Hudson Valley, Western Connecticut & Berkshire County Loan Program (also known as the Greater Berkshire Agriculture Fund) serves the four-county region of Dutchess, NY, Columbia, NY, Litchfield, CT, and Berkshire, MA, and is administered in partnership with Salisbury Bank and Trust Company. The program offers loans up to $75,000.http://www.thecarrotproject.org/loan_programs


    The concept of “Slow Money” (www.slowmoney.org) remains popular, and investor circles nationwide are helping 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 Supported Agriculture farmers have used the strategy of fundraising from their membership to secure their land or build new facilities, usually offering repayment plus 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.

    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.

    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.

    Note: Never finance a business using credit cards as interest rates are enormous and, if payments are not made, can quickly spiral out of control.