For many young farmers there is a deep desire to grow their farming operation, however, most are faced with the challenge of getting financing. Young farmers that are just getting into the business have not had time to build a lot of equity. Because of this, banks will consider the young farmer to be riskier compared to a seasoned farmer. One of the many variables banks will consider is how well the farmer can manage their working capital, and without a history of that from operations, it’s more difficult for a bank to determine the likelihood of repayment. Today, with low commodity prices and smaller margins between expense and revenue, young farmers are exposed to tough decisions and banks are tightening their internal lending policies. Despite this, there are still many opportunities for the young farmer.
It is crucial to find a community bank that participates in agriculture lending and start building a relationship with that bank. Open a business account with the bank and start with small loans first. This process will help the bank clearly see your spending habits and repayment behavior. It is a process and takes time to build a history with the bank, but in the long run, it is well worth it. Community banks are willing to make loans with new farmers by participating with agencies such as USDA/FSA to help lower their risk exposure with the loan. When it is time to apply for a loan for your new farm, bigger is not always better. Your community bank knows which loans are available for you and how to obtain the best interest rates for your borrowing needs. Just like farmers, community banks have deep roots in their service area and will protect your needs as well as their own.
The USDA/FSA offer a variety of loan programs for existing and new farmers. Depending on the amount needed, the young farmer will have different options to choose from. One of the best fits for a new farmer is the Micro Loan which will lend up to $50,000. Loan funds can be used for equipment purchase, startup assistance, working capital and even family living expenses. The loan application is simple and FSA understands the need of a new, young farmer. Traditionally the farmer will need to have some farm experience, yet FSA will consider an applicant’s small business experience as well as any experience with a self-guided apprenticeship to meet the farm management requirement. FSA also offers direct loans up to $300,000 to farmers and will also back 95 percent of a guaranteed loan through a bank. It is very important for any new farmer to contact their local FSA office to get more information on their loan programs.
Farm Credit Services
In most agriculture communities there are farm credit services that offer loan products for farmers. They are specialized lenders who understand farming and focus strictly on agriculture loans. Many of the companies will have loan products tailored for new or young farmers. For example, Farm Credit Services of America and 1st Farm Credit Services offer a loan product for less-established farmers. The program is designed for farmers age 35 or younger or with 10 years of experience or less. There are other companies that offer similar products so it’s very important for a new or young farmer to reach out and inquire with your local farm credit provider.
The most suitable source of money for your farm is your own cash. Having to rely on operating loans, home equity, or family loans ultimately puts your farm at too great a risk. However, there are times when the best route is to apply for a loan. Take time to do your research and find what option works for you. Don’t let the first “no” prevent you from utilizing all the resources that are out there and available for young or new farmers.
(Source: Walt Moore, Consultant, UGA SBDC at Valdosta State University)