Where Do I Get the Money to Start a Farm

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[This article is part of my ongoing propensity to catalog the obvious.]

These are my personal observations and thoughts on getting the money to start a farm. 

First, based on many conversations I’ve had with new and aspiring farmers, I believe it is very common to underestimate the cost of starting a farm business. This is understandable, as it takes careful and thorough planning to generate the complete list of equipment, tools, supplies, infrastructure and consumables needed for almost any potential farm enterprise. 

Thus, I think generating that list is an important first step so that an accurate estimate of startup costs can be developed. Enterprise budgets produced by Cooperative Extension or a land-grant university are a potential starting point. If possible, interviewing farmers who are engaged in the enterprise of interest could also be helpful. Your local Agricultural Extension Agent may be of assistance as well. 

In addition to the basic start up supplies, new farmers will need to be able to cover the production costs for at least the first season (e.g. seed, fertilizer, pesticides, fuel). In the case of perennial crops (e.g. blueberries), there will be several years of production costs before the first harvest. Those costs should be accounted for as well.

Once an estimate of needed funds is created, it’s time to consider where to find those funds. In the decision making process, I believe aspiring farmers should maintain a clear picture of the unique risks associated with farming. The risk of failure is not insignificant, and if such an outcome would put you/your family into a position of financial hardship then it may be prudent to postpone the project, or even consider investing in something else (e.g. reducing debt, retirement savings, building an “emergency fund”, learning highly marketable skills, etc.). 

That said, here are some possible sources of funds to start your farm enterprise, starting with what I believe is the most viable option, namely…

PERSONAL FINANCES

I suspect that the vast majority of new farmers cover most of their initial costs from personal finances, and this is very likely to be the approach that you will need to use. This could be income from an off-farm job, personal savings or retirement income for example. I personally would be quite hesitant to recommend using money that was essential for some other important need (e.g. living expenses, savings designated for retirement, fishing equipment, etc.). In other words, for starting a farm enterprise I personally would only use money that I considered “surplus”. 

BORROWED MONEY

There are several options for borrowing money, listed below. I believe it’s worth making the obvious statement that failure to repay a loan can have severe financial and even personal consequences. Before using borrowed money, it would be advisable to prepare a comprehensive business plan to be certain the selected enterprise will generate enough income to pay it back. 

Credit cards and personal loans – These typically carry high interest rates and I suspect that wise financial planners would not recommend them for business startup unless such debt can be paid off quickly. 

Friends and family – The obvious risk in this route is that a misunderstanding or inability to pay off the debt could compromise important relationships. If going this route, it may be wise to borrow small amounts and to put loan terms in writing.

Dealer/manufacturer financing – For some large purchases (e.g. tractors, attachments, modular buildings) it may be possible to get a loan directly from the dealer or manufacturer. Consider doing a careful comparison with other loan sources to be certain terms are competitive.

Commercial banks – Some commercial banks will make loans to farmers for purchasing land, equipment and/or operating supplies (e.g. seed and fertilizer). Collateral may be required, and aspiring farmers should consider carefully whether they wish to put homes, vehicles or other personal property at risk. Borrowers should thoroughly review all loan terms such as interest rates, repayment terms and late payment penalties. A detailed business plan may be required, as well as detailed documentation of the borrower’s personal finances. 

USDA Farm Service Agency – This federal agency can make loans for acquiring farmland as well as operating expenses. Contact them for details. In some cases, they may require that the prospective borrower has applied to a commercial bank before they will consider offering a loan.

GRANTS

Yes, there are grants and cost share programs that benefit farmers, and aspiring farmers should research these options thoroughly. However, the programs that I’m familiar with would cover only a small portion of startup costs at best. Further, in my experience these programs have limited funds, a narrow application window, significant reporting and recordkeeping requirements, a competitive application process and other limitations. 

GIFTS, LOTTERY WINNINGS, FOUND TREASURE

This is clearly the ideal funding source, and the one I plan to use for my cattle ranch. Just as soon as I remember where I hid that treasure map. 

Starting a farm enterprise is a complex endeavor with tangible risk. I believe that thorough planning is an important factor in managing that risk. A careful estimate of startup costs, combined with a thoughtful assessment of individual risk tolerance, could help aspiring farmers make sound decisions about how to fund the enterprise.