Credit and Capital

This is a guide on where to find credit and capital. Is there something you’d like to see added? We would love to hear from you. Email us at info@youngfarmers.org.

Finding Credit and Capital
Federal Farm Service Agency Loans
Types of Loans
How to Apply
Cooperative Credit Sources
Farm Credit System
Non-Profit Lenders
Private Lenders and Investors
Getting Ready to Apply for a Bank Loan
Finding More Resources for Applying for a Bank Loan
Other Private Farming Investors
Crowd-Sourcing Investment
State-Based Resources

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  Federal Government Resources

The USDA offers a number of credit services and is intended to be a “lender of last resort” (ie, they fill in the gaps when traditional lenders – such as private banks – turn you down).  Many of the USDA programs, especially those administered by the Farm Service Agency (FSA) are intended specifically for beginning farmers.  These programs are funded via allocations from Congress; the allotments are dictated by the US Farm Bill (which is why NYFC works so hard to represent beginning farmers in Farm Bill proceedings!).

 

 Types of Farm Service Agency Loans

FSA Direct Farm Operating Loan
FSA Direct Farm Ownership Loan
FSA Guaranteed Operating Loan
FSA Guaranteed Farm Ownership Loan
FSA Down Payment Loan Program
FSA Land Contract Guarantee Program
FSA Rural Youth Loan
FSA Emergency Loans
FSA Microloan Program

 

 

 

 

 

 

 

 

 

 

How to Apply  

The FSA released a loan application fact sheet to help you understand the process of applying.  It also names the specific forms needed for each program.  You can see the FSA loan fact sheet here.  You can download specific forms (and instruction sheets) here.

Another simple reference tool for understanding the FSA loan application process is the “Plain Language Guide to Applying for a Farm Service Agency (FSA) Loan,” published by the Northeast Network of Immigrant Farming Projects.

The best place to learn more information is at your local FSA office.  You can find the office closest to you using this USDA mapping tool.

 

FSA Direct Farm Operating Loan
Operating loans are given to help a farmer with annual operating expenses.  This often includes things like purchasing livestock, feed, seed, farm equipment or other operating expenses. Some farmers also use operating loans to pay for farm improvements that will increase the farm’s revenue.

  • These loans are direct from the FSA to the farmer.
  • The limit is $300,000 per farm.
  • Loans are typically paid with one year, or when the crop grown is sold
  • For intermediate-term purposes, the loan repayment period will not last more than 7 years
  • More information on Direct Farm Operating Loans is available here.
  • The process for applying for an FSA loan is available here.

FSA Direct Farm Ownership Loan
These loans can be used to purchase a farm, enlarge an existing farm, construct new farm buildings or improve existing structures, pay closing costs, and promote soil and water conservation and protection.    

  • These loans are direct from the FSA to the farmer.
  • The maximum repayment period for a Direct Farm Ownership Loan is 40 years.
  • Applicants for DFO Loans must meet the following requirements:
    1. Have appropriate education, experience in managing a farm
    2. Have participated in the operation of a farm or ranch for at least 3 years
    3. Be unable to obtain credit from traditional lending sources (ie, banks) and have an acceptable credit history
  • More information on Direct Farm Operating Loans is available here.
  • The process for applying for an FSA loan is available here.

FSA Guaranteed Operating Loan
Instead of a direct loan from the government, with a guaranteed loan the FDA provides a guarantee to the lender (traditionally either a bank or Farm Credit Services) to bolster a farmer’s application for an operating loan.  These loans are the property of the lender (ie, the bank), but if the borrower is unable to fulfill the loan, the FSA will reimburse the lender up to a certain amount, depending on the contract.

  • Like Direct Operating Loans,  these can be used to purchase livestock, farm equipment, feed, seed, fuel, and other operating expenses. Operating Loans can also be used to pay for minor improvements to buildings and to develop land and water resources.
  • FSA provides a guarantee of up to 90%, although some beginning farmers can get up to 95%, depending on the specific situation.
  • FSA can guarantee loans of up to $1,302,000
  • Interest rates can not be above the lender’s average farm customer’s rate.
  • More information is available from the FSA here.

FSA Guaranteed Farm Ownership Loan
Instead of a direct loan from the government, with a guaranteed loan the FDA provides a guarantee to the lender (traditionally either a bank or Farm Credit Services) to bolster a farmer’s application for a farm ownership loan.  These loans are the property of the lender (ie, the bank), but if the borrower is unable to fulfill the loan, the FSA will reimburse the lender up to a certain amount, depending on the contract.

Like Direct Farm Ownership Loans,  these loans can be used to purchase a farm, enlarge an existing farm, construct new farm buildings or improve existing structures, pay closing costs, and promote soil and water conservation and protection.

  • FSA provides a guarantee of up to 90%, although some beginning farmers can get up to 95%, depending on the specific situation.
  • FSA can guarantee loans of up to $1,302,000
  • Interest rates can not be above the lender’s average farm customer’s rate.
  • More information is available from the FSA here.

FSA Down Payment Loan Program
This is a special FSA program to assist with the purchasing of a farm by providing a loan for a down payment.  

  • The beginning farmer must provide a down payment of at least 5% of the purchase price.
  • The FSA loan can not exceed 45% of the purchasing price (or of the appraised value), which can not be more than $500,000 (thus the maximum maximum loan available is $225,000)
  • The remaining portion of the purchasing cost must come from private lenders (however, the FSA can provide loan guarantees on the private portion of the loan – see FDA Guaranteed Farm Ownership Loan above).
  • The term of the loan is 20 years, with an interest rate 4% lower than the FSA Direct Farm Ownership Loan rate, but not less than 1.5%.
  • More information is available here.

FSA Land Contract Guarantee Program
A program only for beginning and socially-disadvantaged farmers and ranchers who are purchasing land, where the landowner is self-financing the sale (ie, the buyer is not getting a mortgage from the bank).  The program reduces the financial risk for retiring farmers who sell their farmland to a qualified buyer by providing a federal guarantee of the contract.

There are two types of guarantee available:

  • A “prompt payment” guarantee, which means the FSA will provide up to 3 years of payments should the beginning farmer be unable to pay.
  • Or, a 90 percent guarantee of the outstanding principal on the land contract
  • More information on this program can be found on the NYFC blog here.

FSA Rural Youth Loan
This program is open to individual rural youths to facilitate the development and operation of income-producing projects in connection with their participation in 4-H clubs, FFA and similar organizations

  • These loans are open to youths aged 10-20 years
  • The maximum loan limit is $5,000
  • Similar to a standard FSA Operating Loan, this money can be used to purchase livestock, seed, equipment and other operating expenses.
  • More information is available from the FSA here and here.

FSA Emergency Loans
This loan program is intended to assist farmers who suffer production losses in areas declared as disaster areas or quarantine areas by the federal government.  This money can be used for things like covering operating costs, restoring property, essential personal expenses, and refinancing other debts.

  • These loans are only available as direct loans from the FSA
  • The applicant must be able to demonstrate a 30% loss in a farming enterprise (not necessarily the whole farm, but in one specific enterprise)
  • Applicants can receive loans of up to 100% the estimated loss
  • The maximum indebtedness under this program is $500,000
  • More information can be found here or here.

FSA Microloan Program

The Microloan program is intended for operating costs for beginning, niche, and small farms.  Although it is open to anyone, the program was developed (in part through the efforts of NYFC) to specifically support beginning farmers and ranchers.  The program is similar to the traditional FSA Direct Operating Loan program, but was created because of the difficulties beginning farmers were having in accessing that program.

  • The maximum loan amount is $50,000
  • The repayment period can not exceed 7 years, although they are often less than 12 months
  • Interest rates are based on the regular operating loan rates
  • The application period is much simpler for this program, and applicants are not competing with applications from much larger farms.
  • More information is available through the FSA here or from this presentation.

Cooperative Credit Sources

 

Farm Credit System

The Farm Credit System is a nation-wide network of borrower-owned lending institutions.  Organizations in the network operate similarly to private banks; qualified applicants can receive loans farm ownership loans, operating loans (lines of credit), equipment financing and more, depending on the offerings of their local institution.  Many programs also offer related programs, such as business consulting, crop insurance, tax services and financial record-keeping assistance.  

The regional organizations together provide nearly $200 billion in loans, leases, and related services to farmers, ranchers, and other related businesses.  The System as a whole is overseen by a government agency, the Farm Credit Administration.  More information on the Farm Credit System as a whole can be found here.

Farm Credit Services of America
Some Farm Credit groups offer special “Young and Beginning Farmer” programs.  Farm Credit Services of America, which provides service to Iowa, Nebraska, South Dakota and Wyoming, offers specialized real estate loans and operating loans for producers under the age of 35, with 10 years of experience or less.
Farm Credit Services of America also gives “Youth in Agriculture” loans for livestock purchasing.
More on FCSA can be found here.

Farm Credit East
Farm Credit East, which services New Hampshire, Massachusetts, Connecticut, Rhode Island, New York and New Jersey, has a “FarmStart” program, which assists beginning farmers in their startup years by providing working capital investments of up to $50,000 to get their business off the ground.  Information on Farm Credit East can be found here.
Farm Credit East also provides other incentives for beginning farmers, such as accounting and tax preparation assistance.  More information on those programs can be found here.

Finding the Farm Credit organization near you

The Farm Credit System covers all 50 states and US territories, and there is likely a branch office near you.  You can find your closest Farm Credit affiliate office using this mapping tool.

Non-Profit Lenders

This is an incomplete list of non-profit lenders and investment organizations.  Know of another organization that should be on the list?  Please let us know: info@youngfarmers.org.

The Carrot Project

The Carrot Project,a non-profit based in Somerville, MA, works with farmers and lenders to create loan programs for beginning farmers that is connected to technical assistance.

The project works in four geographic areas: Greater Berkshires (Western Massachusetts area), Maine, Massachusetts and Vermont.  In each area, they work with a local private lender to develop loans for farmers and other food processing or distribution endeavors engaged in sustainable agriculture.

  • Loan amounts available range from $5,000 to $75,000
  • Loan terms are between 1 and 7 years.
  • Funds may be used for operating or capital expenses.
  • More information is available here.

Shade Fund

Shade Fund is a joint project of The Conservation Fund and the U.S. Endowment for Forestry and Communities.  The non-profit provides small loans to green businesses entrepreneurs, including farm operators.  More information is available here.

  • Loans range from $5,000 to $50,000
  • Loans can be used for equipment or working capital
  • US Businesses that engage in sustainable environmental practices are eligible to apply.  More information on applying is available here.

ATTRA

The ATTRA program includes an ongoing list of sustainable agriculture grant and funding opportunities from public and private sources around the country.

 

Private Lenders and Investors

Private lenders (ie, banks) should be the first place to look for loans. Unfortunately, they are often unlikely to support farm loans, which is why USDA and other loan sources exist. If this traditional route does prove unhelpful, remember that the FSA and the Farm Credit Council, as well as other non-profit organizations, can work with banking institutions. See those sections of this guide for more information. Also consider finding someone who will co-sign a loan (ie, someone who trusts you and can provide the necessarily collateral.

Private loans can range from short-term (ie, one year or one growing season – these are generally considered to be operating loans or lines-of-credit), intermediate-term loans (generally seven years), or long-term (usually real estate mortgages). More information on types of loans is available on the fact sheet A Farmer’s Guide to Agricultural Credit, published by the University of Illinois. 

 

Getting Ready to Apply for a Bank Loan

Things to prepare before going to apply for a bank loan:

  • A resume describing your background
  • Financial statements for each of the last 3 years
    • balance sheets
    • balance sheets
    • income statement
  • cash flow statements
  • Tax returns for the past three years
  • Business plan that also includes a Profit & Loss Statement, a Marketing Plan and a Cash Flow Budget
  • Titles and information on any property you already own (ie, land, equipment) that can be used as collateral
  • Other farming documents, including lease agreements, farm plans, other loan information, insurance policies, etc

 

Finding More Resources for Applying for a Bank Loan

More tips on how to apply are available from this fact sheet from LandLink Vermont.

Other off-line resources in your area that could help you in applying for a loan are:

  • Your local Small Business Administration
  • Your local Chamber of Commerce
  • Your state’s Cooperative Extension program
  • Your local Agribusiness Development Corporation

 

 Other Private Farming Investors

There are dozens of investment firms out there that focus on investing in sustainable farms. This is an incomplete list – if you would like to add something to it, please let us know!

Vilicus Partners

Vilicus Partners invests in organic farmers and farmland by linking socially-minded investors with organic farmers seeking affordable access to farmland.

New Spirit Farmland Partnerships

New Spirit is a partnership that connects investors with farmers who focus on organic land stewardship. They work with both farmers looking to purchase new land and with those developing land succession plans.

 

 

Crowd-sourcing

 More and more farmers and food entrepreneurs are looking to the crowd-sourcing models for building the capital needed for their business. Although some tout crowd-sourcing as a new concept developed to sidestep traditional lending, it relies on concepts that pre-date the entire banking industry: the idea a person can rely on their community for support with an endeavor.

Kiva Zip 

Kiva Zip is a person-to-person micro-lending program. Its goal is to expand loan access to entrepreneurs who are otherwise unable to obtain loans, either because they don’t qualify or the loan amounts are too small for traditional lenders.

Currently Kiva Zip borrowers pay 0% interest rates.

Kickstarter

Kickstarter is a crowdsource funding platform where you can develop the idea for a project, publish it, and others can choose to donate it. There are dozens of similar services out there, but Kickstarter is one of the largest. Projects that do not reach their funding goals are not awarded any funds.

Indiegogo

Like Kickstarter, Indiegogo is a crowdsource funding platform where you develop a pitch, publish it, and investors can choose to donate to your endeavor. Indiegogo is free to publish, although it takes a percentage-based fee.

Fundable

Fundable is a crowdsourcing funding platform dedicated only to business entrepreneurs. Projects can be set up either as a “rewards” system (donors are given a gift in exchange for a donation) or as an “equity” set-up, where donors are given a share in the business. Fundable charges a flat monthly fee for fundraising projects, but does not take a percentage.

 

 

State-Based Resources

Most states have state agricultural finance programs, similar to the programs offered by the USDA. Use this directory from the National Council of State Agricultural Finance Programs to learn more about what your state has to offer.

These programs include “Aggie Bonds” (loans for beginning farmers), guaranteed loan programs, direct loan programs and loan participation programs (where the state agency purchases a portion of the loan from the lender). More in types of state loan programs is available here.