Running a farm is more than just a job; it’s a way of life. With a feast-or-famine workday and crop or livestock yields that can be wildly impacted by many factors outside your control, keeping your farm cash-flow positive all year long can often be a challenge.
For these reasons farmers can have a hard time accessing cash for equipment, livestock or even next season’s seedlings. If you’re like many farmers, you may feel like you have to jump through endless hoops just to access farm financing. However, understanding the different types of farm loans and the federal programs in place can help you secure the funds you need.
Most traditional mortgages are a fairly safe bet for the lender; with restrictions on the maximum percentage of the home’s value that can be extended as credit, lenders provide themselves with a cash cushion to cover foreclosure and liquidation costs in the event of default.
Farm loans are different than traditional loans. While raw land, especially land that supports crops or grazing livestock, can be valuable, it can also be harder to sell. The supply and demand of farmland can vary widely from year to year (and even from month to month) based on food prices, so professionals can’t easily predict whether the value of farmland will go up or down.
In addition, much of a farmer’s funds will be spent on depreciating assets like tractors or plowing equipment or on capital improvements like barn or fence repairs. Unless you have a substantial amount of equity in your farm already, a loan that will cover the cost of these improvements or purchases may bear more similarities to a personal loan than a land-secured mortgage or line of credit.
How Can Federal Agencies Help?
Through the FSA, you may be able to access operating loans or microloans that aren’t necessarily based on the value of your farm.
Operating loans are designed to cover the operating costs inherent in small and medium-sized farms. These loans can help pay for minor repairs to outbuildings or for the purchase of new equipment, seeds or livestock. To qualify for an operating loan, you’ll need to show how you plan to use the funds for an approved purpose and that the funds are “essential to the success” of your farm.
Microloans are a type of operating loan for niche or nontraditional farmers who can’t always qualify for more traditional operating loans. These loans are for smaller amounts than operating loans and require less paperwork to apply for.
FSA also has loans for farmers who may be in extra need of assistance. For example, beginning farmers and ranchers who have been operating their farms for less than 10 years may qualify. While these loans have different land-size requirements, on the whole these loans have requirements similar to those of microloans and operating loans.
If your farm employs others or otherwise functions as a business, you may also be able to apply for farm loans through the SBA as a small business. These loans can carry restrictions similar to those of loans available through the FSA. However, an SBA loan may be a better option for business-related expenses, such as adding employees.
Regardless of where you’re seeking funding for your next farming venture, partnering with financers can help you make sense of a complex process. Financial Consulting, Inc.. Is an experienced farm financer who will help you overcome the hurdles of obtaining farm financing. Contact us today to learn more.