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By: Walt Moore
UGA SBDC at Valdosta State University wmoore@georgiasbdc.org
Funding Options for New or Young Farmers
For many young farmers there is a deep desire to grow their farming operation. Either through purchasing land or equipment, most are faced
with the challenge of getting nanced. Young farmers 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 seasonal farmer. One of the many variables banks will consider is how well the farmer can manage his or her working capital, and without history of that from operations, it’s more di cult 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 with tough decisions, and banks are tightening their internal lending policies. However, despite this, there are still many opportunities for the young farmer to receive funding.
Community Banks
Whether a young farmer is able to get a new farm loan today through
a bank or not, it’s crucial that he or she nds a community bank that participates in agriculture lending and
starts building a relationship with the bank. New or young farmers should open a business account with the bank and start with small loans rst. This process will help the bank clearly see his or her spending habits and repayment behavior. It is a process, and it takes time to build a history with banks, 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 a new farm, bigger is not always better. A community bank knows which loans are available
and how to obtain the best interest rates for a new or young farmer’s borrowing needs. Just like farmers, community banks have deep roots
in their servicing area, and they will protect their customer’s needs as well as their own.
USDA / FSA
The USDA /FSA o er a variety of loan programs for existing and new farmers. Depending on the amount needed the young farmer will have di erent options to choose from. One of the best ts 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 for 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 o ers direct loans up to $300,000 to the farmers and also will back 95 percent of a guaranteed loan through a bank. It is very important for any new farmer to contact
their local FSA o ce to get more information on their loan programs.
Farm Credit Services
In most agriculture communities there are farm credit services that o er 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 o er a loan product for less- established farmers. The program
is designed for farmers age 35 or younger, or with 10 years experience or less. There are other companies that o er similar products, so it’s very important for a new or young farmer to reach out and inquire with his or her local farm credit provider.
The most suitable source of money for a farm is personal cash. Having to rely on operating loans, home equity, or family loans, ultimately puts a farm at too great a risk. However, there are times when the best route is to apply for a loan. New or young farmers should take time to do the research and nd what best option works for them. They should not let the rst “no” prevent them from utilizing all the resources that are out there and available for young or new farmers.
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