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State Agricultural Development Programs
Most states have some type of
state-based agricultural finance program. Such programs range from tax credits
for landowners who rent land to beginning farmers, to direct- and
guaranteed-loan programs and Aggie Bonds, which lower interest rates on loans
to beginning farmers. Many of these programs are geared toward beginning
farmers. Visit Missouri's at http://mda.mo.gov/abd/financial/.
Personal Savings
Farming is often a long-term,
lifetime goal for which aspiring farmers save money while working a nonfarm job
over many years, the same way that families set up savings accounts for
college. Some nonprofits and state agencies can help meet savings through
Individual Development Accounts (IDAs), which match new farmers’ savings
account one dollar (or more) for every dollar saved.
California FarmLink and Practical
Farmers of Iowa (PFI) both have programs like this. PFI’s Savings Incentive
Program requires beginning farmers to attend business management trainings,
meet with a farmer mentor, save money regularly, and complete a business plan.
Graduating farmers receive their match funds to use for purchasing land,
machinery, or livestock.
FSA Transition Incentive Program (TIP)
TIP provides incentives to retiring
or retired farmers to rent or sell farmland to beginning farmers. Retiring
owners or operators with land coming out of the federal Conservation Resource
Program (CRP) are permitted to continue to receive CRP payments for two years
if they rent or sell the land to a non-family beginning farmer who will graze
or farm the land using sustainable practices. This subsidy might allow the
farmer to rent this land at a lower rate to a beginning farmer.
Friends and Family
New farmers can approach friends
and family members who believe in their farm business vision and mission for a
loan. For example, in the winter before their first year of operation, TableTop
Farm in Nevada, Iowa, worked with a lawyer to develop a letter to send to friends
and community members requesting small loans of at least $1,000.
Lenders had the option of providing
loans of two to five years at interest rates of 2% to 4%, with the longer loans
receiving higher interest rates. TableTop used these funds to purchase supplies
and make improvements that their FSA equipment loan would not cover.
Private Contracts with Retiring Farmers
Beginning farmer and land link
programs connect new farmers with retiring farmers to assist in the transition
of land or farm business operations. These programs can ease transitions within
a family or make matches across families based on a synchronicity of goals,
values, personality types, etc. The combination of an older farmer's wealth and
experience and a younger farmer's energy can bring a fruitful farm transition.
Community Supported Agriculture
Community Supported Agriculture
(CSA) allows farmers to develop relationships with their customers and local
community members that can be deep and long-lasting. At its basic level, a CSA
provides operating capital for farmers by requiring up-front payments in return
for a weekly share of produce throughout the growing season. This allows
farmers to purchase seeds and other inputs and to share the risk of crop
failure with their customers. Customers may also become long-term investors in
the farm by lending money to help farmers acquire land or make other
significant investments.
Vendor Financing
Some agricultural suppliers have
flexible payment terms that let farmers align their payment plan with their
cash flow.
FSA Microloans
The Farm Service Agency has
proposed, but not yet implemented, a new category of microloans up to $35,000
for seeds, animals, small equipment, etc., to jumpstart a small farm operation.
Contact your county FSA office to learn whether the program has gotten
underway.
Microenterprise Lenders and Private Financing Programs
Microenterprise lenders are
nonprofit organizations dedicated to supporting microentrepreneurs who are
unable to access business loans at commercial banks. Microenterprise lenders
offer smaller loans at higher interest rates (around 10%). They also provide
training and technical assistance in business start-up or management.
Microenterprise lenders include the following:
- ACCION
USA
- The Carrot Project
- North
Carolina Rural Economic Development Center
- Whole Foods Local Farmer Loans
A new and potentially interesting system of internet-based funding, crowd funding lets many individuals donate money to a business for a specific goal. Some crowd-funding sites aim at sustainable practices. Search for "farm" at www.kickstarter.com, www.startsomegood.com, www.indiegogo.com, www.threerevolutions.com, and similar sites. This is a new funding approach, so exercise caution.
(Adapted from Financing Your Farm by NCAT Agriculture Specialist Hannah Lewis)
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