New farmers often lack one thing – capital. Luckily, there are several options to help you get started. You’ll have to do some legwork and research to find the available funding in your area, but chances are that you’ll find it.
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Here are the top five methods for you to research as you start your journey.
Check With Your Local Bank
Your local bank likely advertises standard mortgages and maybe even home equity loans. However, chances are good that they also offer funding for farmers and ranchers. You just have to ask. Many banks offer:
You may even find that some banks have their own programs by partnering with other investors in the area. Again, you won’t know what they offer until you start calling around. Local banks are often happy to help the ‘little guy’ get started if it will help boost the economy in the area.
USDA Financing Options
The USDA offers a
couple of useful options for beginning farmers, including:
- Direct Farm Ownership – Provides 100% financing up to $300,000. With a term of up to 40 years, you can buy farmland or use the funds to start operations. This government-backed loan requires good credit and the inability to secure funding elsewhere. You must provide lender with a business plan and proof that you have experience/desire to own a farm.
- Guaranteed Farm Ownership – Provides farm ownership funds with a maximum loan amount of $1,399,000. The funds come from a lender rather than the government. The government however, does guarantee the loan for the lenders that provide them. The requirements are similar to the Direct loan in that you need decent credit, a business plan, and are ineligible for any other funding.
The federal government has partnered with several states to offer the Aggie Bond program. This program helps individual states provide farmers with the funds necessary to start their farms. The benefit to the banks, however, is the tax-free interest they are able to receive. The interest may be free from federal and/or state taxes. This allows banks to give farmers loans at interest rates below what the market generally offers. However, the tradeoff is that the government does not guarantee the loans. If a farmer defaults, the lender is responsible for the liability of the loan.
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In order to qualify for Aggie Bonds, farmers must first live in an eligible state. They must then meet federal and state guidelines. A few of the key requirements include using the funds to purchase farmland, not working capital or any other supplies; the farmer must be the primary borrower; and must also be an active farmer. Each state may have their own individual requirements as well.
Farm Credit Services
Farm Credit Services of American provides a loan called the
Young and Beginning Loans. If you are not an established farmer or producer, securing funding from any of the above programs may prove to be difficult. This program, however, focuses on new farmers ages 35 or younger. The farmers must also have less than 10 years of experience in farming, which is a standard requirement for the above programs.
Young farmers have the ability to secure a loan with flexible credit guidelines. It’s meant to be a program to help farmers get started with land and capital. In the meantime, it’s meant to help farmers strengthen their credit profile, enabling them to use any of the above programs in the future.
Finally, you may be able to work directly with the owner of the farmland. Many owners are willing to offer land contracts as well as contracts on livestock and machinery. The type of arrangement you work out depends on the needs and capabilities of the landowner. Some offer standard land contracts, while others offer cash offerings or work-share arrangements.
New farmers have many options for funding; you just have to be creative in your options. Don’t settle for what your local bank offers without shopping around. See what other options are available and then look at the big picture from there. Focus on total interest paid and the cost of the fees. This way you’ll make a decision that is affordable for you now and down the road.
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