Wednesday, August 26, 2009

Financing the New Farm

I have been considering starting to farm on more than an urban level as I get more familiar with the vagaries of farming in the Maritime Pacific Northwest. I am beginning to feel the need to stretch a little bit.
I have identified what I need to get started, land with water, adequate labor to put in, manage, and harvest the crops, and financing. I can sell my house and take out the equity in it as down payment for some acreage. Even though the market is down and I won’t get as much money out of a sale as I could have a couple of years ago, there are a lot more balls in the air right now that might mean an opportunity that wouldn’t normally be available. I found a property recently that had a USDA no down payment required loan available.
What other options are available? I started researching different types of financing available for small businesses in the agriculture sector. Here is what I found.
Loans for Beginning Farmers and Ranchers
The Farm Service Agency (FSA) provides direct and guaranteed loans to beginning farmers and ranchers who are unable to obtain financing from commercial credit sources. Each fiscal year, the Agency targets a portion of its direct and guaranteed farm ownership (FO) and operating loan (OL) funds to beginning farmers and ranchers.
Direct Loan Program
"Direct" farm loans are made by FSA with Government funds. They also service these loans and provide Direct loan customers with supervision and credit counseling so they have a better chance for success. Farm Ownership, Operating, Emergency and Youth loans are the main types of loans available under the Direct program.
Guaranteed Loan Program
FSA guaranteed loans provide lenders (e.g., banks, Farm Credit System institutions, credit unions) with a guarantee of up to 95 percent of the loss of principal and interest on a loan. Farmers and ranchers apply to an agricultural lender, which then arranges for the guarantee.
SBA Basic 7(a) Loan Program
7(a) loans are the most basic and most used type loan of SBA's business loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the Agency to provide business loans to American small businesses. FARMS AND AGRICULTURAL BUSINESSES - are eligible; however, these applicants should first explore the Farm Service Agency (FSA) programs, particularly if the applicant has a prior or existing relationship with FSA.
SBA CDC/504 Program
The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide, with each covering a specific geographic area.
SBA Microloan Program
The Microloan Program provides very small loans to start-up, newly established, or growing small business concerns. Under this program, SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make loans to eligible borrowers in amounts up to a maximum of $35,000. The average loan size is about $13,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level.
Commerce Department CDBG Float Loans
Community Development Block Grant (CDBG) Float Loans are available to businesses from the Washington State Department of Commerce (Commerce) through cities and counties which are eligible to receive Washington State Small Cities Community Development Block Grant Program assistance. An eligible city or county may apply for a grant under this program in order to extend a short-term loan to a private business entity
Accionusa Micro Loans
As a leader in U.S. microfinance, ACCION USA is committed to bringing affordable small business loans to microentrepreneurs.
Business Owners Idea Cafe Biz Grant$
Idea Cafe is passionate about helping fellow small business owners every way possibe. They make cash awards to deserving entrepreneurs.

We haven’t decided to ask for any of this financing yet but if we do we’ll let people know more of the details about how these programs work and how you might qualify for coverage.