In any industry, access to finance is essential for purchasing land, machinery, and other inputs. Still, in agriculture, it can be a significant barrier to entry for young and beginning farmers. Fortunately, several partners are available to help the next generation of farmers overcome the difficulty of obtaining capital.
According to Kitt Tovar Jensen, one of the new farmers' most significant mistakes is needing a strategy. Tovar Jensen manages the Starting Farmer Center at Iowa State University (ISU).
"Lenders will want to see a business plan when you seek a loan," she asserts. You must plan your route.
According to retired banker Leslie Miller, a farm financial planning associate with ISU Extension, the business plan need not be formal; it could simply be a statement of your aims.
"Most of the time, that is adequate if you can sit down and vocally express to a lender what you want to do," Miller adds.
She feels it's crucial to get your money in order. Bring a balance sheet, an explanation of your cash flow, a list of your current acreage, yield statistics, and other documents demonstrating your experience. Extension experts can assist you in putting these things together, she continues.
Then, rather than just throwing it together, the lender and the farmer may spend more time reviewing the strategy, she explains.
Develop Your Story
According to Nutrien Financial's John Maman, director of sales and marketing, building your story is a component of the plan.
It's crucial to have a distinct understanding of the operation. "I would describe this structure as your mission statement and tale. Why do you work in this field? What outputs or goods will you need in the short term to be successful, and how do you intend to accomplish your long-term goals?
Locate Your Folks
He also encourages new farmers to locate a mentor and use their networks to tell their stories and expand their knowledge base.
He speculates that a family member might work on the property. They could broaden their perspective by learning from others through a university or an FFA program. When they are just starting, having someone with more expertise who can verify they are on the right road or provide sensible advice to course-correct when they are not can make a difference in covering blind spots.
Miller adds that it's crucial to speak with various lenders to locate one with whom the farmer feels at ease and who is knowledgeable about their business.
She claims there are few lenders with knowledge of cow-calf businesses. "Lenders who work with owners of contract hog houses are few and far between. Hence, make sure that anybody you choose to engage with as a lender is aware of that industry because it does matter.
Young and beginning farmers can access various services to help them achieve their goals.
According to Zach Ducheneaux, administrator of the USDA Farm Service Agency (FSA), "the essential way we are going to [halt] the exodus from rural America" is by having the next generation of farmers produce the food and fuel this nation needs.
For beginning farmers who might need more than the credit requirements of commercial lenders, FSA loans can be a valuable substitute for those loans, according to Ducheneaux. Also, FSA loans have longer repayment terms and more palatable interest rates.
FSA has money designated explicitly for beginning farmers who can satisfy the four prerequisites for an FSA loan:
Proof that there are either insufficient or unavailable commercial tools
Having a credit history that proves your ability to pay it back or provides an explanation for your financial hardships
Plan with positive cash flow and credible estimates
proof that the management is capable of carrying out the operation's plan.
He claims it is up to the local lending teams to decide if an application satisfies these requirements.
He claims that the FSA has a reputation for being excessively stringent. The Vilsack administration "talks much about getting to 'yes.'"
Beginning farmers' requirements are acknowledged by private lenders, who also foster opportunities. Young, beginning, and small (YBS) farmers are the subject of a new collaborative program created by Farm Credit Services of America and Frontier Farm Credit.
The YBS program employs personnel especially committed to working with young, inexperienced, and small clients and providing producers with opportunities and educational resources.
Sam Behrens, the central Iowa relationship manager for the YBS program, says that because farmers, in general, are becoming older, there must be some younger farmers to step up and take their place.
Educate yourself on resources offered by universities and Extensions. According to Tovar Jensen, the ISU Starting Farmer Center's primary goal is to link new farmers with the appropriate resources.
Miller and Tovar Jensen both caution against taking on excessive debt to hasten the operation's expansion. According to Miller, if you have a lot of debt and your financial situation has been favorable, your debt probably hasn't affected you if your net worth is increasing quickly. Yet debt may rapidly drag you down when things start going against you and you experience losses. One of the lessons we picked up in the 1980s was that. Those who developed quickly and frequently also needed to catch up rapidly.
According to Tovar Jensen, even when farmers can afford it, having a huge debt hanging over their heads can harm their mental health. She advises that you shouldn't try to chew off more than you can manage.
To get started, she advises novice farmers with limited means to get inventive and attempt things like specialty farming.
To accumulate money, pay for living expenses, and obtain insurance benefits, Miller advises taking an off-farm job for five to ten years.
According to Miller, "the most prosperous beginning farmers I've seen typically start with off-farm income. "Slow progress is preferable to progress that is moving too quickly."