Farming has a long and proud history in the United States with fully 90 percent of Americans engaged in farming for much of our early history. Agriculture – including both crops and livestock – may no longer be the occupation of most Americans, but it is still big business.
It is a challenging sunup to sundown job and the men and women who work to put food on the tables of America, contribute not only to the health of our nation, but to its wealth as well.
American farmers and ranchers grow 80 percent of the food that Americans consume, as well as many of the raw materials used by manufacturers, such as hops for beer, cotton and wool for textiles, corn for ethanol, and honey that is used in personal care products.
The U.S. has a healthy agricultural export market as well – in 2016, the U.S. exported over 129 billion dollars of ag products across the globe, with China, Mexico and Canada typically the top consumers of our agricultural exports. Between 2009 and 2016, U.S. agricultural exports reached its highest level in history with over a Trillion dollars of shipped product.
Farms and ranches operating in the U.S. number 2.1 million. Primarily owned by a family or individual, the average farm size is 434 acres. Run by a single owner-operator, successful farming requires a broad range of skills.
A love of the land is necessary along with determination and a disciplined work ethic – the cows can’t wait to be milked and seeding has to be performed at the right time. A successful farmer also requires a knowledge of his or her land, livestock and crops; expertise in managing the work by season and weather; and an understanding of running and financing a business to profitability.
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Obtaining Agricultural Financing
Whether you are a beginning farmer or rancher, or looking to modernize and/or expand an already running operation, agriculture financing can be the source for the capital needed. Working capital is an important part of any business and farming is no different.
These loans can cover the range of needs from the down payment and financing of a new farm to the costs of turning over an existing operation to the next generation.
Mortgages are typically made to cover the purchase, expansion, or improvement of land, dwellings and outbuildings. There are also specialty loans that cover operating expenses like wages, consumable supplies such as feed and chemicals, and minor repairs to buildings.
Other agriculture financing loan products can be used to cover the purchase of new, large equipment such as a combine or hay baler.
Farming Practices & Agriculture Loans
Agribusiness also encompasses alternative farming practices such as hydroponics, low-energy farming, organic farming, and urban community gardens.
As the demand for fresh food grows, especially in areas that are far removed from agricultural centers, alternative farmers can help to serve those needs. These alternative farmers are also eligible for agriculture financing.
Financing can be obtained from commercial banks and lending institutions, as well as from federal and federally backed sources. The United States Department of Agriculture (USDA) and its department the Farm Service Administration (FSA) oversee federal agriculture loans.
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United States Department of Agriculture
USDA was originated in 1861. Signed into law by Abraham Lincoln, who ran on a platform that included assistance for farmers, the department was set up to serve America’s farmers and their communities.
Raised to cabinet level in 1889 under Grover Cleveland, the USDA receives yearly budget appropriations, part of which is used to fund loan programs for farmers and ranchers.
Besides being a source of funds, the USDA conducts research, assists farmers through education and its Agricultural Extension Agents, assists with modernization of rural communities and has special programs for nurturing new and traditionally underserved farmers such as women and minorities.
Farm Service Administration
The agriculture financing program has three main loan types, but is not limited to these. The Direct Farm Ownership loan program is funded and serviced by the FSA. It can be used to purchase a farm, make farm improvements or construct and repair buildings.
The maximum amount that can be borrowed is 300,000 dollars. This loan is particularly valuable to the new farmer since no previous farm experience is required and it can be used to finance 100 percent of the farm.
Direct Farm Operating Loans
The direct loan program also has Direct Farm Operating loans. With a maximum borrowing limitation of 300,000 dollars and no down payment needed, the purpose of these loans must be essential to the success of the farm.
Examples of what the funds can be used for are the purchase of operating items such as seed, feed and chemicals; purchase of equipment; minor repairs to buildings; rent and living expenses; and for land and water development and conservation.
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Targeted Agriculture Financing
The FSA also has targeted agriculture financing. These loan funds are held in reserve to further the USDA’s mission to nurture and assist traditionally underserved farmers and ranchers in these categories: minority groups such as Hispanics and African Americans, youth, women, and beginning ranchers and farmers.
For example a young person can get financing through the FSA to start a small money-making project such as raising hens for eggs. Through these youth programs, the FSA provides much needed assistance for the future farmers and ranchers that our country will need.
Rounding out the agriculture financing offerings from the FSA is the Microloan program. These are small loans of up to 50,000 dollars (with no minimum) that enable beginning and non-traditional ranchers and farmers.
They can be used for truck farms or niche farming such as growing organic strawberries or shiitake mushrooms. They are also a source of funding for non-traditional farming such as vertical growing, hydroponics, or raised bed farming.
Traditional Source of Agriculture Financing
Commercial banks and lending institutions are also a traditional source of agriculture financing. These range from large banks with departments specializing in agricultural loans, to smaller, local banks that know the community they live in and serve.
And while larger banks may have a broader portfolio of loan products, smaller banks know their market – providing the loan types needed and taking advantage of the services of Federal Agricultural Mortgage Corp. (Farmer Mac) to provide competitive loans to its customers.
Terms for borrowing will vary greatly in commercial products. You will find 90 days loans for emergencies, long-term mortgage loans, variable rate loans with and without interest rate caps and everything in between.
Many of these institutions are approved by the USDA to provide USDA Guaranteed Farm Loans. While these loans are funded, owned and serviced by the lending institution, the USDA guarantees the loan, lessening the risk of the lender.
There is also an EZ Guarantee program for smaller loans. This follows the same guidelines as the Guaranteed Farm loan, but with a loan cap of 100,000 dollars and a streamlined application process.
Agriculture is still an important business in the United States and lenders providing agriculture financing want your business. Ensuring you check out the loan products from several vendors, compare interest rates – whether fixed or variable, loan repayment terms, and the overall cost to you for the life of the loan makes good sense.
For a rancher or farmer, capital is a tool – just like a milking machine or a harvester. Making your capital work for you and obtaining that capital at the lowest cost, is just one of the ways to
manage your farm or ranch to profitability.
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