Accessing capital for land, equipment, and other inputs is key to any business, but in agriculture it can be a major barrier to entry for young and beginning farmers. Fortunately, the next generation of farmers has several allies who stand ready to help make the challenge of accessing capital less daunting.
Have a Plan
Not having a plan is one of the biggest pitfalls Kitt Tovar Jensen sees when it comes to beginning farmers. Tovar Jensen is the manager of the Iowa State University (ISU) Beginning Farmer Center.
“When you’re applying for a loan, [lenders] are going to want to see a business plan,” she says. “You need to map out where you’re going.”
The business plan could be formally written, or it could be as simple as being able to articulate what your goals are, says retired banker Leslie Miller, a farm financial planning associate with ISU Extension.
“If you can sit down and verbally describe to a lender what you want to do, a lot of the time that is sufficient,” Miller says.
It’s important to have your finances in order, she says. Be prepared with a balance sheet, explanation of cash flow, the number of acres you already have and yield data, and any other information that demonstrates your experience. Extension specialists can help pull you these things together, she adds.
“That way the farmer and the lender can spend more time analyzing the plan rather than just putting it together,” she says.
Hone Your Story
John Maman, director of sales and marketing for Nutrien Financial, says part of the plan is building your story.
“It’s important to have a clear vision of the operation,” he says. “I would call this building your story, your mission statement. Why do you exist in the industry? How do you plan to achieve your long-term goals, and then what outputs or products are you going to need in the short term to be successful?”
Find Your People
He also encourages beginning farmers to find a mentor and leverage their networks to help build their story and add to their knowledge base.
“It could be a family member that’s involved in the farm,” he says. “It could be others through a university or an FFA program they can use to build their perspective. Having somebody with more experience that can help ensure they’re on the right path or offer sound advice to course-correct when they’re not, it can make a difference in covering blind spots when they are just starting out.”
Miller says it’s also important to find a lender the farmer is comfortable with and who understands the operation, even if that means talking with multiple lenders.
“There are not a lot of lenders that have experience with cow-calf operations,” she says. “There are not a lot of lenders working with people that have contract hog buildings…. So just make sure whatever lender you’re working with, [he or she] does understand that business because it does make a difference.”
Know Your Resources
A variety of resources are available to young and beginning farmers to help them get where they are trying to go.
“We need the next generation of farmers producing the food and fuel we need in this country, and that’s the most important way we are going to [stop] the exodus from rural America,” says Zach Ducheneaux, USDA Farm Service Agency (FSA) administrator.
Ducheneaux says FSA loans can be a helpful alternative to commercial loans for beginning farmers who may not meet the credit standards commercial lenders look for. FSA loans also have more favorable interest rates and longer repayment periods.
FSA specifically has funds set aside for beginning farmers who can meet the four required criteria for an FSA loan:
- Evidence that commercial tools are not sufficient or available
- Credit history that demonstrates likelihood of repayment or an explanation of adverse circumstances for poor credit
- Plan that includes verifiable projections with a positive cash flow
- Evidence of management ability to carry out the operation’s plan.
He says local loan teams have the discretion to determine if an application meets these criteria.
“FSA has a reputation for being perhaps overly restrictive,” he says. “We talk a lot in the Vilsack administration about getting to ‘yes.’”
Private lenders are also recognizing the needs of beginning farmers and creating opportunities. Farm Credit Services of America and Frontier Farm Credit have launched a joint program focused on young, beginning, and small (YBS) producers.
The YBS program includes staff specifically dedicated to working with young, beginning, and small clients and supplying producers with educational materials and opportunities.
“Agriculture in general is aging, so there has to be some younger farmers out there to fill their shoes,” says Sam Behrens, central Iowa relationship manager for the YBS program.
Be aware of university and Extension resources as well. Tovar Jensen says connecting beginning farmers with the right resources is what the ISU Beginning Farmer Center is all about.
Be Patient
Tovar Jensen and Miller both warn against taking on too much debt to accelerate growth of the operation. “If you are gaining net worth really fast, a lot of times it’s because you have a lot of debt and the economic environment has been working in your favor, so the debt has not hurt you,” Miller says. “But when things start working against you and you start seeing some losses, that debt can suck you down quickly. That’s one of the things we learned in the ’80s. A lot of times people who grew really fast, they also fell behind really fast.”
Tovar Jensen says it can also take a toll on farmers’ mental health to have a large debt hanging over their heads, even when they can afford it. “You don’t need to bite off more than you can chew,” she says.
Get Creative
She encourages beginning farmers with limited resources to get creative and try things such as specialty farming to get started.
Miller says working an off-farm job for five to 10 years to save money, cover living expenses, and gain insurance benefits is also a good approach.
“The most successful beginning farmers I’ve seen usually start with off-farm income,” Miller says. “Slow progress is better than progress that’s way too fast.”
