The expenses that go into owning and operating a farm start to add up quickly, leaving farmers and growers short on funds and uncertain who to turn to for help. Because the agricultural industry can be deeply affected by natural disasters, heatwaves, a poor yield, and many other unexpected phenomena, many different loans and grants exist to help farmers in need.
Types of Business Financing For The Agricultural Industry
Whether you’re a new farmer or you’ve been in the industry for years, there are several options to choose from when it comes to agriculture business loans. Depending on your eligibility, you can apply for more than one type of loan.
The United States Department of Agriculture (USDA) offers many agricultural loans or grants through its Farm Services Agency (FSA) to promote small businesses in rural areas.
There are four basic types of USDA loans:
- Farm ownership loans: funds to help you purchase or expand a farm, build a new structure, or update an existing building.
- Farm operating loans: funds to purchase livestock, equipment, and make small repairs.
- Emergency loans: funds to bridge losses from natural disasters, such as replacing or restoring a property, pay essential family living expenses, or refinance debts.
- Microloans: ownership and operating loans with shortened application processes to help small and non-traditional businesses.
In addition to these basic types of loans, the USDA offers Conservation loans and Highly Fractionated Indian Land loans to eligible applicants.
Standard SBA Loans
The United States Small Business Administration (SBA) offers loans to help small businesses launch and expand their operations. SBA farm loans can be harder to secure due to their high guarantee.
SBA loans guarantee 85% of small business loans less than $150,000 and 75% of larger loans greater than $150,000. The SBA will still pay the guaranteed amount even if you cannot make your loan payment.
In addition to conventional financing options, farmers needing more flexible and customized repayment plans can turn to alternative financing. Although high-interest and high-risk alternative financing operations have given the industry a bad reputation, countless legitimate alternative lenders help farmers save and build their businesses every year.
Taking Advantage of Alternative Financing Benefits
If you aren’t eligible for conventional loans provided by government programs or banks, you might consider alternative financing. Alternative financing has become more popular and accessible for small agricultural businesses throughout the US.
The benefits of alternative financing include:
- Flexible repayment schedules
- Faster access to funds
- Personalized loan agreements tailored specifically for you
Alternative loans are not meant to be long-term or quick solutions. Instead, alternative lending tends to act as a bridge for farmers to eventually qualify for low interest agricultural loans through conventional government programs or banks.
Alternative financing is also popular for those seeking a loan for an agricultural startup.
Business Loan Requirements: Revenue, Assets, or Time in Business
Agricultural loan requirements differ depending on which program or organization you are hoping to acquire a loan from.
If you operate a small agricultural business or you are hoping to take loans to start a farm, you should be prepared to answer questions about your revenue, assets, or time in business. Lenders may also require a business plan or for you to be located in a city or town with a certain population.
Generally, a lender will require a year-to-date profit and loss statement or statements from the last two years. To qualify for a conventional loan, lenders want to ensure your business will be profitable and successful.
Alternative lenders do not typically require proof of profitability but might require you to meet annual revenue minimums.
The stronger your business’s financial history is, the more likely you will qualify for a loan at an affordable rate.
A lender may ask you to tie a fixed asset to your loan if you cannot pay the loan back. The fixed asset, or collateral, could be equipment or property.
If you’re applying for a USDA or SBA loan, the lender will likely require a list of collateral your business owns and what it is valued at.
Alternative lenders are less likely to require physical collateral for you to qualify for a loan.
Time in Business
Most lenders will want to know how long your business has been up and running. The longer you’ve been in business, the better. Proof of long-term success increases the likelihood that you will qualify for a loan at an affordable rate.
For Banks, the best rule of thumb to go by for time in business is two years. Businesses less than two years old will have more limited options when it comes to selecting a lender. However, alternative lenders can provide funding for business that that have been operating for as little as 6 months.
Another way to qualify for farm loans with bad credit is to prove that your business has had long-term success and will continue to be successful in the future.
Agricultural Grant Opportunities in 2021
Government programs and other organizations offer grants to help small business owners launch their operations and stay afloat. A grant, unlike a loan, does not need to be paid back and can be an excellent way to increase your funds without entering into further debt.
The USDA offers various kinds of grants, including:
- Farm Labor Housing Direct Loans and Grants,
- Value-Added Producer Grants,
- pandemic assistance for farmers,
If you’re a woman searching for a grant, you can search farm grants for females 2021 to find other USDA grants. A few 2020 farm grants included the Farmer Resilience Initiative and At Home With Farm Aid to provide financial relief to farmers impacted by the COVID-19 pandemic.
Hemp Business Loan Opportunities You Can Apply For Today
Cannabusiness funding can be challenging to find due to strict legal regulations and cannabis’ classification as a controlled substance at the federal level. Although you won’t find hemp business loans offered by major financial institutions, there are alternative and private lenders that provide financing solutions. ROK Financial is able to work with some cannabis businesses to help provide them with the financing they need to grow their businesses.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.