"The diligent farmer plants trees, of which he himself will never see the fruit."
|| Loans for Organic Farms
|Toki Oshima drawing
By Tim Nason
A number of resources are available to small farmers who desire financing in the form of loans. Although debt is often anathema to farmers, those who have achieved a certain level of reliable, annual cash flow and a record of profitability will find that a loan can provide financing for land, machinery, buildings, operating capital or other purposes. Some loans and grant programs are focus on start-up farms. Others support food storage or value-added processing activities. Still others are available for conservation purposes, marketing, or farmland preservation. This article focuses on farm loans for structures, land, equipment and operating costs.
Although a very few banks in New England apparently provide loans to small farms, for equipment, real estate or buildings, farmers usually work with specialized organizations that understand the business characteristics of agriculture. After all, farms are not businesses in the usual sense, strictly engaged in producing, manufacturing, processing, distributing or retailing inanimate "things." Farms deal with living plants and animals, with changes of seasons, and with unpredictable (or truly unaccountable) weather. Farms are complex, highly dynamic enterprises. In addition, some newer small farmers may not have a lot of farm experience, or may not own a farm, so they lack the collateral assets that provide additional security for loans made by banks and credit unions.
Organizations such as the national Farm Credit network, a 100-year-old, government-regulated cooperative, step into the breach and loan money to farmers, based on applications that emphasize the business side of things. The application process, which includes listing farm qualifications and assets pertinent to the loan request, helps ensure that the loan is reasonably secure, in the view of Farm Credit's loan officer.
Farm Credit is a big outfit, created to act as a national banking system for farmers. The group's website reports that some "500,000 member-borrowers" are served nationwide, and that it currently provides $160 billion in loans, leases and other financial services. The Farm Credit System is regulated by the federal Farm Credit Administration agency, created in 1916 by Congress, and further supported by the Farm Credit System Insurance Corporation, created in 1987. Loan monies are created using its own capital reserves, involving the sale of bonds, and making use of funds available through Denver-based CoBank.
Farm Credit has two offices in Maine, in Minot and in Presque Isle, and provides loans for a wide variety of purposes that serve any kind of farm operation, from youthful start-ups to agribusiness corporations. The cooperative's 2009 annual report states that Farm Credit intends to "serve all types of agricultural, forestry, commercial fishing, and related businesses in Maine and to meet their total credit needs for any purpose at any location." Serving rural home ownership is also part of the group's mission.
According to Fred Morton, chief lending officer at Farm Credit's Minot office, the size of a farm loan is limited only by the farm's level of cash flow, its assets and its profitability. For example, a small vegetable grower may seek a $5,000 to $10,000 loan, although Morton says there is actually no minimum loan size; or a large potato grower might qualify for a $1 million line of credit. The real bottom line is whether the loan can be repaid, despite the possibility of a bad production year or other factors. Morton notes that buying crop insurance and/or credit insurance can mitigate against some of these unpredictable factors.
The group's website refers to loan programs for farmers under age 35; for new farmers with fewer than 10 years experience; and for "small" farmers, which requires that "farm production is less than $250,000 annually." The group's 2009 annual report indicates that Farm Credit has "established specific goals to increase its business in Maine's part-time, small farmer and non-traditional market segments."
According to Maine Farm Credit's most recent annual report, about 9 percent of the group's loans in 2009 went to fruit growers, cash crop farmers and rural home owners, 13 percent to dairy farmers, and 20 percent to potato producers. Loans to the fishing industry totaled 12 percent, and forestry-related businesses received 46 percent of the group's financial services.
Beyond Maine, Farm Credit East serves some 11,000 customers in New Hampshire, Massachusetts, Connecticut, Rhode Island, New York and New Jersey, with $4 billion in loans in support of natural resource businesses, including "nursery and greenhouse operators, forest products businesses, fishermen, lobstermen, part-time growers, agribusinesses and country home owners," according to the group's website.
Farm Credit East emphasizes that additional services are offered to farm-related businesses in the form of tax assistance, recordkeeping, credit life insurance and multi-peril crop insurance.
The FarmStart program offered by Farm Credit East serves farmers and others, including farm cooperatives, with start-up loans of up to $50,000. Promotional materials announce that the program helps recipients develop a good credit record and learn "effective cash flow management." The program can be used during the first three years of a farm-related enterprise.
The entire national Farm Credit network, being a cooperative, refunds to its "customer-owners" an annual "patronage distribution," amounting in 2009 to a national total of almost $2 million.
While Farm Credit Maine does not appear to provide direct financial planning for its customer-owners, the group "actively participates" in educational programs specifically designed for young and beginning farmers. The 2009 annual report asserts that Farm Credit has made a "long-term commitment to provide financing to credit-worthy enterprises throughout rural Maine regardless of their size or the age and expertise of their principal owners."
For further details, contact a Farm Credit office listed in the resource section below.
Farm Service Agency
The Farm Service Agency (FSA) is a USDA program that offers "direct" and "guaranteed" farm loans using federal money, made available to farmers who can't qualify for loans from banks or Farm Credit. Examples of such farmers are young and beginning farmers lacking experience and assets, or established farmers experiencing difficulties. Loans are applicable for land purchase, supplies and livestock-related materials, for new buildings or general improvements.
According to the FSA website, the agency attempts to make sure applicants truly qualify for its specialized loans using an interesting variety of measures. For example, a "beginning farmer or rancher is an individual or entity who has not operated a farm or ranch for more than 10 years." For start-up farm ownership loans, the beginning farmer must "not own a farm greater than 30 percent of the median size farm in the county."
Interest rates vary for different loan purposes, ranging from 1.75 percent for farm operating loans, up to 4.5 percent for conservation loans. A 1.5 percent rate is offered for farm ownership down-payment loans.
FSA offers credit counseling for loan recipients. FSA offices are located in most counties, nationwide, packaged with other USDA agencies.
From a farmer's perspective, the screening process for the small farm loan program of the Maine Organic Farmers and Gardeners Association works in a way that is similar to Farm Credit, despite the disparity in size of the two organizations, in requiring loan forms describing the farm's activities and the farmer's business acumen. MOFGA adds further qualifications, restricting applicants to certified organic farms, farmers formally transitioning to organic methods, and graduates and current participants in the MOFGA Journeyperson program. This gives new meaning to the phrase "Know Your Farmer," in that loan applicants have been vetted by MOFGA in one or more ways well before they request a loan. According to Melissa White Pillsbury, primary point person for the program, "I don’t think you’ll find that any other loan or financing program has our kind of flexibility to consider applications on a case-by-case basis, with the personal relationship being such a large factor in the decision."
Loan funds, once approved and guaranteed by MOFGA, are administered by Bangor Savings Bank.
The MOFGA program provides loans of $5,000 to $20,000, with loans going to capital improvements (such as equipment, tools or infrastructure) or to operating expenses, covering seasonal cash shortfalls. MOFGA's website mentions that the program is designed to "help organic farmers working on establishing a credit history for their farms." Repayment plans can be arranged monthly, quarterly, or on another basis, as long as regular financial reports are submitted.
MOFGA approved four loans in 2009, averaging about $15,000 each; and nine loans in 2010, averaging $13,700 each. Loans were usually used to buy equipment, such as a walk-in cooler, fencing or a tractor, or were used for buildings and grow-tunnels.
The many loan forms required for an application include the Bangor Savings Bank Business Loan Application; Customer Identification Policy (CIP) Forms and a Questionnaire for Business Entity; Personal Financial Statement Form; projected 12-month cash flow of gross sales and expenses; projected budget for the next production season in regard to sales and categorized expenses for your business, including expenses for the entire project being financed, anticipated additional sources of financing, and total project cost; trade reference sheet or three letters of reference; and copies of federal tax forms for the previous two years. The full packet is available as a download on www.mofga.org (Spring 2011 MOFGA OFLF Packet.pdf).
The application deadline in 2011 was January 28, with approved funding usable in April.
MOFGA's program is modeled after the loan program started by the Northeast Organic Farming Association in Vermont (NOFA Vermont) and the Chittenden Bank's Socially Responsible Banking Fund, which offers loans of $2,000 to $15,000, at a fixed rate of 5.75 percent. The program is limited to farmers in Vermont. Loans are available for equipment, working capital or business management. A second loan program is offered to dairy farmers to purchase energy-conserving equipment.
According to its website, NOFA Vermont offers, in addition to its loan program, "on-farm technical assistance in production and business planning to organic and transitioning vegetable, grain, dairy and livestock farms in Vermont."
Applications are accepted on a rolling basis and are prescreened for potential funding, with a follow-up site visit by a loan fund officer.
Forms and applications include a General Information Sheet, a Loan Fund Letter, Personal Data Sheet or Joint Applicant Personal Data Sheet, and a Trade Reference Sheet.
Coastal Enterprises, Inc.
In Maine, Coastal Enterprises, Inc. (CEI), a nonprofit corporation in Wiscasset, occupies a position in the farm loan spectrum somewhere between Farm Credit and MOFGA. It offers a full gamut of loans for farmers, from micro-loans of $1,000 up to financing in the $500,000 range. A program specifically for organic farms is available, and a Maine Farm Business Loan is offered through The Carrot Project (see below). All loans are at fixed rates, with applications accepted any time during the year. Where Farm Credit might require secure collateral and offer interest rates comparable to local banks, CEI considers itself much more "risk tolerant," based on the farm's ability to repay the loan. CEI's financial counseling plays a big role in determining that ability to repay.
In addition to loans, CEI provides free assistance in preparing business plans, cash flow spreadsheets and loan applications. It also provides business management training for qualified farmers, food processors, cooperatives and others involved in food-related operations. A one-stop shop for many social services, CEI also offers home-ownership training and fuel assistance.
CEI has supported Maine's small-farm community since 1978, and loans are made within a greater goal of supporting the state's agricultural and food-related infrastructure "from production to processing and retail marketing," through its Agricultural Enterprises Initiative.
Gray Harris directs CEI's Sustainable Agriculture Program and views farm loans as a means to strengthen Maine's farming infrastructure, with her work and CEI's loan division dovetailing within a comprehensive approach to Maine's food system.
Michael Finnegan, CEI's chief loan and investment officer, notes that new small farmers show a strong interest in making a good living on their farms, with an equal passion for integrating their work with their community, fulfilling an ideal behind Community Supported Agriculture, where consumers pay for farm goods in advance through the purchase of "shares." The ideal of family-based farming is also strong, as opposed to large scale, commodity production. Small farmers today are showing a new kind of professionalism in their attitude, Finnegan says, with some farmers turning to agriculture as a career change, and others with Ivy League backgrounds moving into farming.
According to CEI's website, some $10 million in financing and equity investments have been made in more than 140 agricultural and food-related enterprises over the years, leveraging another $43 million in additional public and private capital.
Turning around the local investment process, CEI also offers investors the opportunity to purchase CEI Investment Notes, with proceeds directed toward local enterprises. Contact Ellen Golden at CEI for more information.
Contact information for CEI's Sustainable Agriculture Program is listed below.
The Carrot Project
The Carrot Project, based in Somerville, Mass., near Boston, is a new kind of regional loan entity, paralleling on a much smaller scale the system of Farm Credit. Working on a basis similar to other programs in their partnerships with local banks, The Carrot Project also partners with other financial entities. For example, in Massachusetts the Carrot Project works with MassDevelopment, an agency of state government, and for other states acts as an intermediary for local loan programs. The project's Maine Farm Business Loan Fund, for instance, is serviced by CEI in Wiscasset, offering loans of up to $35,000 for "working capital or other needs such as equipment, buildings, production or value-added enterprises." The program is for "small and midsized farms that use sustainable practices and serve local and regional markets." The Carrot Project also lists CEI's Organic Farms Loan Fund as part of its financing program. See the resource list below for contact information.
Carrot Project loans to farmers in Vermont and Massachusetts are offered under the additional partnership of the Strolling of the Heifers Microloan Fund, usable for capital investments, repairs, short-term operating funds for inventory, supplies or labor, and emergency funds. Applicants should be farms with "250 or fewer acres in active production," with annual gross revenue of $250,000 or less. The programs target farms that use sustainable or organic methods and sell to local markets.
Loan application deadlines in 2011 are January 28, March 4 and November 4.
The Carrot Project, like Maine's CEI, also invites investments from organizations and individuals who seek socially responsible places to put some of their money. The project's website notes that "agriculture is barely reflected in socially responsible investing, which grew to $2.71 trillion in 2008." Such investment does not return a financial dividend to its participants, but instead helps finance "limited resource farmers" and supports local, sustainable agriculture.
Other functions of the Carrot Project consist of financial networking based on support for local farms, and the listing of financial resources for farmers in all New England states and New York on its website.
The Maine Department of Agriculture Market and Production Development Division works with the Finance Authority of Maine (FAME) in providing three types of loans to farmers. The Agricultural Marketing Loan Fund supports up to 90 percent of a project's costs, up to $250,000, including land, buildings, machinery and equipment that "helps improve the quality and marketability of Maine-made products." Another loan program serves dairy farmers in "nutrient management" projects, while a third assists potato producers.
In Vermont, the Vermont Agricultural Credit Corporation provides loans up to $1,112,000 to borrowers who do not qualify for conventional agricultural loans. Large projects involve participation of commercial banks and/or require a guarantee by the Farm Service Agency.
Some state agencies, instead of providing loans, offer various kinds of farm grants, such as Connecticut's Farm Transition Program, offering matching grants up to $50,000, and its Farm Reinvestment Program, providing matching grants up to $40,000 for farm rebuilding or expansion.
Massachusetts also offers Farm Viability grants for farmers with 5 acres in agricultural use. Up to $20,000 is available for farm planning purposes or seed capital, and up to $40,000 for a 10-year non-development agreement.
New Hampshire offers grants for integrated pest management (IPM) projects and nutrient management systems, in addition to a specialty crops program. Contact information appears below.
The Application Process
All the programs listed above require completing loan forms and submitting business-related spreadsheets or outlines describing monthly cash flow and profit-and-loss information, along with a list of personal assets and debts, plus personal and/or trade references and other details of the farm-related enterprise.
A formal business plan may also be required, which involves a detailed description of the business, its operators and its products or services, along with marketing and management plans, and a very specific financial plan including start-up costs, if applicable, and an operating budget.
Some applications may involve completing a form that helps predetermine eligibility, and a site visit by a loan officer may be a part of the process. Final loan approval is granted by an advisory board of the lending agency.
Most of the loan sources described here also offer help in completing the required materials. CEI also offers a wide range of assistance, along with free business management training to qualified applicants. NOFA Vermont offers on-farm technical assistance in production and business planning. It also offers cash flow analysis and business planning in Vermont, using the Vermont Farm Viability Enhancement Program, a project of The Vermont Housing and Conservation Board and Vermont's state Agency of Agriculture. A Farm Viability Enhancement Program run by the Massachusetts Department of Agricultural Resources offers similar assistance in that state. The Maine Department of Agriculture's Maine Farms for the Future Program offers technical assistance grants to help farmers develop formal business plans. The department also facilitates farmer participation in the "FASTTRAC business training program," and the "NxLevel" farm business program. Contact any of the resources listed here for information about business planning and preparing a loan application.
Although the loan process seems daunting in the amount of detailed information it requires, the lending agencies listed here strongly encourage farm enterprises and are dedicated in their support of local agriculture. They want the farm to succeed, and they want their loans to serve a useful, productive purpose, given the scope of the farm's ambitions.
Directory of Loan Resources
Coastal Enterprises, Inc.
Contact: Gray Harris, Director, Sustainable Agriculture
Phone: 207-882-7552, ext. 135
Farm Credit Maine
615 Minot Avenue, Auburn, ME 04210; 207-784-0193 or 800-831-4230
26 Rice Street, Suite 1, Presque Isle, ME 04769; 207-764-6431 or 800-831-4640
Maine website: www.farmcreditmaine.com
National website: www.farmcreditnetwork.com
Agricultural Marketing Loan Fund
Contact: John Harker
Maine Department of Agriculture
Location: Deering Building, 90 Blossom Lane, Augusta, ME
Mail Address: 28 State House Station, Augusta, ME 04333-0028
P.O. Box 170 (location: 294 Crosby Brook Rd.), Unity ME 04988
Organic Farmer Loan Fund
Other New England States
Connecticut Department of Agriculture (grants)
165 Capitol Ave., Hartford, CT 06106-1659
Massachusetts Department of Agricultural Resources (grants)
Farm Viability Planning Program
Contact: Craig Richov
New Hampshire Department of Agriculture, Markets & Food (grants)
2010 New Hampshire Specialty Crop Program
Contact: Gail McWilliam Jellie
NOFA Vermont (loans)
P.O. Box 697 (Location: 39 Bridge St., 2nd Floor), Richmond, VT 05477
Vermont Economic Development Authority (loans)
Loan Program: Vermont Agricultural Credit Corporation
58 E. State St., Ste. 5, Montpelier, VT 05602-3044
E-mail: see website to contact loan officers
Northeast and National
The Carrot Project (loans in Maine, Massachusetts and Vermont)
2 Belmont Terrace, Somerville, MA 02143
Farm Credit East
785 Hartford Pike, Dayville, CT 06241-1739
Phone: 860-774-0717 or 800-327-6785
Branch Manager: Lynn Weaver
240 South Road, Enfield, CT 06082
Phone: 860-741-4380 or 800-562-2235
Branch Manager: Keith Stechschulte
67 Bedford Street, P.O. Box 720, Middleboro, MA 02346-0720
Phone: 508-946-4455 or 800-946-0506
Branch Manager: Cynthia Stiglitz
In New Hampshire:
2 Constitution Drive, Bedford, NH 03110-6010
Phone: 603-472-3554 or 800-825-3252
Branch Manager: David Bishop
Farm Credit East also has an office in New Jersey and many offices throughout New York
Farm Service Agency
The FSA has an office in nearly every county, usually sharing a building with other USDA offices, such as the Natural Resources Conservation Service (NRCS) and Rural Development agencies. Go the FSA website or your local phone book for locations and contact information.