Financing For Small Commercial Farms
According to the World Wildlife Fund, all sectors of farming, especially agriculture, are the world’s largest industry. The small farming industry employs over one billion people, while generating over 1.3 trillion dollars worth of food annually. Over 50 percent of the Earth’s habitable land is used for pastures and crops, creating a habitat and food for many species, including humans. Essentially, farmers and farming practices are the backbone of not only our country, but of our world. Farming and agriculture is also one of the most satisfying and rewarding ways to make a living, while greatly boosting the economy. The small farming industry encompasses a variety of different specialties: monocrop agriculture (cotton, corn, soy, etc), dairy, fisheries, forestry, fruits and vegetables, grain, horticulture, livestock, tobacco, and so much more. The farming industry also provides over 10 percent of jobs in the United States today. The small farming industry also directly effects many other industries; for example, let us look at the clothing industry. Endless amounts of clothes are made from cotton, which is heavily dependent on farmers effectively and efficiently growing cotton.
Consumer Demands Shifting the Farming Industry
The biggest issue plaguing and benefitting the farming industry is technology and scientific advancement. Why? Technology has revolutionized how farming is done, as well as being able to monitor crops and livestock much more efficiently than ever before; science has led to changing seeds into drought resistant crops, all while creating various and more effective types of harmful herbicides and pesticides. Farmers across the United States have said goodbye to many old school, tedious ways of farming. In turn, industrial advancements have led to higher productivity and reliability throughout every sector of the farming industry. But with growing technological equipment and scientific advancements dominating the farming industry, famers now have to deal with the negative ramifications associated with advanced technological practices – climate change, GMO’s, and the much-needed transition into sustainable agriculture.
For years, sustainable agriculture has been viewed as unattainable, as well as unnecessary, by many farmers, but with more and more proof coming to light of the drastic side effects that current farming practices have had on our world in the past few years, farmers everywhere are starting to shift from industrial practices into sustainable operations. The World Wildlife Fund, as well as many other prominent agriculture groups like the United States Department of Agriculture and Sustainable Table, have shown transitioning into more sustainable farming practices can still produce effective crop and livestock results. As the world population continues to grow, demand for agricultural commodities grows with it – but it is unsustainable to continue down the path that farmers are now accustomed to. Where farmers are seeing this the most is in consumer spending trends. Studies have shown that over 75 percent of Millennials, 72 percent of Generation Z, and 51 percent of Baby Boomers are spending on products and services from companies and farms that commit to positive social and environmental impact changes.
Most consumers today are also demanding to know where there food is coming from; so even though there are fewer farms today (about 2 million mainly owned by big businesses), there is a new market emerging for more small, local farms – as well as many new regulations coming into play to support small and mid-sized farms. Through local farms, more jobs are created (small farms employ more people per acre than industrialized farms), local economies grow through the purchase of local agricultural products from local stores, and increase in socioeconomic stability. Most importantly – studies have shown that consumers are willing to pay more for local food! There is great potential for the farming industry in the upcoming years.
Another trend that is helping farmers expand their farms and increase profitability (yes, even if they are a sustainable farm!) is technology. As mentioned above, much of the industrialized farming practices around today are detrimental to our world, but some technological advances like GPS systems and Data Integration are greatly benefiting both small, medium, and large sized farms today. GPS-based technology for farmers has allowed many farmers to steer farming equipment remotely; this includes machinery such as tractors, sprayers, and harvesters. These systems can even calibrate equipment to run in the fields automatically and precisely, cutting labor and time costs for many farmers, while allowing farmers the ability to multitask and focus on other things. Data Integration has also enhanced farming practices through satellite imagery of crops, weather, equipment, and much more from sensors placed on crops in the field. This allows farmers everywhere to make more efficient and accurate decisions on all aspects of production.
Why Farmers Need Financing
As with any other industry, agricultural farmers need capital to cover operating expenses, as well as funding for investment capital. Farmers typically need upfront cash to cover annual operating expenses before cash receipts are received from product sales; this is usually at the beginning of every season. Unfortunately, this is just the way the farming industry operates, but that does not mean there are not plenty of finance possibilities for farmers. Farm owners also cover day to day operating costs. These costs include, but are not limited to, advertising, seeds, fertilizer, fuel, labor, payroll, insurance, utilities, and machinery. Unexpected costs are also always a possibility in any industry; farmers that experience issues with machinery, either because it is old and needs to be replaced or because new equipment will increase profitability, find that different loan options can help cover these unexpected, yet unavoidable, circumstances.
In conjunction with other financing needs listed above, many farmers find that making capital investments, or acquiring assets, are essential to keeping their farm running smoothly. By definition, capital investments will have a multi-year life span; these investments include machinery, breeding livestock, conservation improvements, buildings, land, and expansion.
The most important need for funding for most farmers today though is to help finance the transition into more sustainable agricultural practices. Whether it is through the purchase of new technology that will eliminate unethical or unsustainable practices, or simply switching the types of fertilizers and pesticides used (i.e. to more organic or natural products), there are always financing options available to farmers to help shift their practices to the demands of consumers everywhere.
Types of Small Farm Loans
| Types | Rates | Terms | Funding |
|---|---|---|---|
| Bank | 6-10% | 3-7 years | 14-30 days |
| SBA | 6-8% | 3-25 years | 14-45 days |
| USDA | 5-10% | 7-30 years | 30-60 days |
| Line of Credit | 5-15% | 1 – 3 years | 7-30 days |
| Alternative | 6-25% | 1-5 years | 5-7 days |
| Cash Advance | 1.16-1.55 | 3-24 months | 1-3 days |
Small Farm Bank Loans
If your farm has good credit and established profitability, true bank financing is always the best option. Bank lenders have financing options to cover any farming business need while offering the best rates and terms.
- Rates: 4-10%
- Terms: 1-5 years
USDA Bank Loans
The B&I USDA Loan Program is administered by the USDA Rural Development, for the sole purpose of providing buisnesses in rural areas with financing to improve and develop their small business.
- Rates: 4-10%
- Terms: 7-30 years
Small Farm SBA Loans
SBA financing is the next best option to traditional financing. SBA loan rates and terms are similar to traditional bank loan terms,, but the government agrees to cover a portion of the lender’s losses should you default on the SBA loan.
- Rates: 6-8%
- Terms: 7-25 years
Small Farm Alternative Business Loans
Mid prime farming loans are great alternative financing options for farmers who need quick and affordable financing without the hassle of strict credit and documentation requirements.
- Rates: 9-16%
- Terms: 1-5 years
Asset Based Farm Loans
Asset based loans give food truck owners the option and ability to obtain working capital by using their personal or business real estate as collateral for financing. An asset based food truck lender will provide up to 75% of the personal or commercial property’s value.
- Rates: 10-20%
- Terms: 1-5 years
Farm Equipment Leasing
If your small farm needs to obtain new machinery to run day-to-day operations, but doesn’t want to pay the full-cost of the equipment upfront, leasing equipment loans may be an option.
- Rates: 6-20%
- Terms: 1-10 years
Small Farm Cash Advances
If your farming business has bad credit or needs capital quickly, merchant cash advances may be the best option. Cash advances use your business cash flow as the basis for funding.
- Rates: 16-100%
- Terms: 4 months – 2 years
