Farm Loans and Financing
Updated: Sep 22, 2022
We've already talked about how small farms can get into trouble but what about getting funding to start or expand your farm? If you're ready to get started and need a bit of help to get you there, finding a funding option may help. How do you get funding for your small farm, you ask?
Whether you grow vegetables for market, fresh cut flowers, fruits, berries or raise livestock for milk or meat having access to capital is a critical part of any farm business. Keep reading to learn about some common funding avenues and potential approaches that might work for your farm.
In this article we're going to talk about some of the key ways to find funding for your farm and review the different farm financing options, including farm loans, farm credit services, grants and more...
Check out these different ways to finance your farm:
Commercial farm loans are a common way to finance your farm and can typically be sourced from a credit union, local bank, private funding or from the USDA Farm Loan Program.
Here are some examples of common commercial farm loans:
Operation Loans to purchase livestock, equipment or seed.
Farm Ownership Loans can be used to purchase or expand a farm or ranch.
Micro-loans are small loans, often with less paper work and used to meet the needs of small and beginning farmers or specialty operations.
Emergency Loans can help farmers and ranchers recover from losses due to drought, flooding or other natural disasters.
It's a good idea to shop around to try and find the best rate and financing options. Traditional commercial lenders (credit unions and banks) can take some time to review and approve loans so be sure to allow plenty of time for approval.
There are also some private farm lending companies that are working to provide innovative solutions to support financing needs for farmers and ranchers and can provide quicker approval and more flexibility than traditional lenders.
Steward offers flexible business loans and expert support services to farms and food producers looking to expand their operations. By financing businesses practicing regenerative agriculture, Steward strives to preserve natural resources, reduce environmental impacts, improve soil health, increase biodiversity, protect water quality, promote fair wages, expand opportunities for underserved communities, and increase the number of producers working towards meeting society’s food needs without compromising the planet’s ecosystems and natural resources.
Flexible Farm Loans—Financing to individual agricultural businesses for equipment, infrastructure improvements, land acquisition, working capital, or marketing. Terms vary per project, but commonly range from 36-60 months, 5-10% interest, with 3-6 month deferment periods.
Steward Regenerative Capital—Short-term bridge loans designed to provide a diverse collection of farmers and food producers with swift access to the capital so they can keep growing. Funding can mean being able to take advantage of time-sensitive opportunities like securing land, urgent equipment repairs, or buying livestock at auction. Participating lenders earn fixed 4.5% interest on a short 9-month term.
Steward currently supports US based producers and focusses mostly on regenerative agriculture. Visit gosteward.com to learn more.
Small Business Loans for farms
There are many small business loans that are structured for various types of business, including farms. If you have some collateral to put up for the loan then a small business loan from the SBA might be a good option. You may not have to put up collateral but instead have to give a personal guarantee (which is a legal promise to repay the loan).
This is a more traditional funding option but it isn't for everyone.
Crowdfunding has become a popular way finance new products, companies, movies and other initiatives, why not your next agriculture project? Crowdfunding is sourcing various amounts of capital from a large number of individuals to finance a new business venture. You make use of your network and the network of the people you know through social media sharing, crowd funding websites and getting the words out about your venture. You can be creative in how you structure the return of funds. Maybe it's just a t-shirt or a discount on items or maybe you pay back all the loans as they came in. Whatever way to structure it this way is very fluid and feels very community funded.
So, if you have a lot of friends, neighbors, or a large family that want to support your efforts then crowd funding might be a great option for you.
If you are great at research, writing and have some time on your hands, a grant might be a great option for you. There is a lot of research and time needed to invest in this route of financing. The great thing about this option though is that you don't have to pay it back.
The downside of grants is that there is the potential that you won't get awarded the funds. So, you should definitely have a backup plan.
A micro-loan is an alternative funding option for those who don't need a whole lot of capital to get started. Just as the names suggests they are smaller loans.
According the the USDA Farm Loans program, "Micro-loans are a type of Operating or Farm Ownership Loan. They’re designed to meet the needs of small and beginning farmers, or for non-traditional and specialty operations by easing some of the requirements and offering less paperwork."
Micro-loans typically have a maximum loan limit, usually of about $50,000 USD. But can be used to support a variety of things on the farm, including:
Making a down payment on a farm
Building, repairing, or improving farm buildings
Financing soil and water conservation projects
Fencing and trellising
Purchasing Hoop houses
Bees and/or bee-keeping equipment
Milking and pasteurization equipment
Purchasing livestock, seed, fertilizer or other materials essential to the operation
Paying for utilities, land rents, family living expenses, and other materials essential to the operation
Installing or expanding irrigation
Compliance costs, such as GAP (Good Agricultural Practices), GHP (Good Handling Practices), and Organic certification costs
Marketing and distribution costs, for example fees for selling through Farmers’ Markets and Community Supported Agriculture (CSA) operations
Like any loan, yo qualify for these types of loans your financial institution will evaluate your ability to repay the loan, but often the application and approval process are more simpler. Visit the USDA Farm loan micro-loan site to learn more.
Bootstrap Your Farm
Getting funding is a hot topic and it seems that all the cool kids are doing it but it might not be for you. Maybe you don't want to start your farm business in debt (that's wise) or maybe you don't have great credit or collateral. Whatever the reason you can find alternatives to borrowing a lot of money.
Bootstrapping is just using your own capital to start your farm. That could be through working a second job and your partner(s) run the farm or vice-versa. Maybe you live on farm and work part-time for the farm or the other job. This is a great way to start out in farming without starting out in debt. Truthfully, many farmers are bootstrapping their farms even when they are bringing in a profit.
More bootstrapping options
If you don't mind using your own capital to secure a loan then these options might be for you. If you have a home and don't mind using it for collateral you could use a HELOC (Home Equity Line of Credit) or use a personal or small business credit card to fund your farm business. I put these last because these are putting your in a difficult place if you don't get a great start on your farm. They often come with a higher interest rate and therefore a higher risk to you.
Start a CSA
One other financing option that can be a great fit for many growers is to start a CSA. Community Supported Agriculture (CSA) programs have been around for years. They allow members to pay in advances, often at the start of the season, and in turn receive produce, meat or flowers through the growing season. This method allows farmers to sell CSA shares to community members to help cover seed, material, labor and other growing costs through the season.
So there are a few funding options for you to look into. It really comes down to your risk tolerance and your specific situation. Below are some other links to find other information as you start your farm.
As always, we wish you the best of luck in your agricultural venture and Happy Farming!
Additional Resources for Farm Funding, Grants, Lending and Financing:
Worldwide Farm Funding Options
If you would like information on how to keep better records and have visibility into your farm profit take a look at Farmbrite!