How to Finance Your Farm Property | United Country Real Estate

April 26, 2023
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Unlock endless possibilities with our guide to getting the financing you need for your farm property. Learn all your options and how to make them work

How to Finance Your Farm Property: Options and Strategies

Farming can be one of the most rewarding jobs, but it also requires significant financial resources. The expenses associated with buying property, equipment, and livestock add up quickly, making it essential to take the time to consider multiple financing options.

There are various strategies available when it comes to financing a farm property. Having a sound understanding of these options will help you make an informed decision on which strategy best suits your needs and objectives.

This article takes you through some of the most common strategies for financing a farm property so that you can make the best choice for your future farm.

Farm Credit System

A Farm Credit System (FCS) is a network of lenders who provide financing for farm property, farm equipment, and rural land.

The Farm Credit System provides special loans for farmers and agribusinesses; it also has programs that benefit new and beginning farmers, minority-owned agricultural businesses, young farmers, women in agriculture, veterans transitioning to farm ownership, community-supported agriculture businesses, organic producers, and water-quality initiatives.

The different options available through FCS when it comes to funding your farm property include:

  • Traditional mortgage loans from its 15 Regional Associations across 34 states
  • Direct loans from its other two Banks
  • Insurance loans from the Farm Credit Leasing Corporation
  • Real Estate Mortgages (REM)
  • Operating lines of credit (LOCs)
  • Emergency funding
  • Various specialty programs based on state or locality
  • AgriInvestor funds for farmers building business portfolios in crops or livestock production
  • Capital Access Funds from investors who help fund startup operations and small agricultural projects
  • AgTech Accelerator Loan funds for innovations in technology focusing on smart farming techniques

Once you have determined which loan option works best for your specific situation it’s time to look into securing financial assistance in terms of grants or training so you can properly manage your affairs while running the day-to-day operations of farming or ranching on property secured with an FCS loan.

The USDA provides resources such as Agriculture Management Assistance Grants that allow recipients to access money designated specifically toward activities necessary for producing a successful crop year after year without extensive debt loads incurred by credit borrowing.

There are numerous other resources through government websites with information about local private foundations or minority business owners who may qualify for additional funding support related to starting agribusiness adventures including beekeeping starter kits or aquaponics setups.

Grant Opportunities

If you’re a farmer who has worked hard to save money and build your business and now plans to finance a farm property, there are several options available.

Depending on which route you select, the cost of accruing a loan may prove to be much lower than initially expected. One such way to acquire financing is through grant opportunities.

Here is an overview of some of the grant opportunities that farmers could use for purchasing or developing their farm property:

  • USDA Grants for Specialty Crop Producers
  • This particular grant is funded under the USDA Agricultural Marketing Program Title IX grants and awards funds to specialty crop producers that help enhance their marketing capabilities in order to increase sales at both wholesale and retail levels as well as expand access to markets available.

    An eligible producer must either have 50% of their expenses attributed to agricultural operations within a 12-month period or earn more than $10,000 per year before deductions in gross agricultural income on average over the course of three years prior.

  • National Sustainable Agriculture Coalition Grant Programs
  • National Sustainable Agriculture Coalition (NSAC)offers various grants that cover commodities such as fruits, vegetables, and other crops deemed by the USDA.

    This program accepts applications from individual farmers, farms both large and small, non-profit organizations, and alliances consortiums whose members are engaged in sustainable agriculture endeavors towards farming activities.

  • Conservation Innovation Grants Program
  • The U.S Department of Agriculture Natural Resources Conservation Service (NRCS) administers this grant program whose purpose is to encourage projects that promote innovative capacities in conservation systems for agriculture land operators along with pertinent third-party cooperation regarding natural resources management efforts carried out under the NRCS authority.

    It requires applicants not to submit applications directly through NRCS state offices but rather through regional-specific grants initiatives, each year set up by National Headquarters NRCS offering certain amounts for funding activities during the program period length typically specified for its ending date when announced or posted online about new solicitations each year.

  • Rural Energy For America Program Grants
  • The Rural Energy For America Program (REAP) provides assistance in terms of grants every fiscal year mainly into renewable energy systems also including energy efficiency system improvements.

    This involves partakers trying to obtain cost benefits and lowered energy demands/consumption while performing lesser impact environmentally damaging activities.

    Utilize Current Assets

    Purchasing land and business assets for your farm does not have to be overwhelming. By leveraging current assets, there are various financing strategies that you can implement to make your purchase easier and more cost-effective.

    Here are a few strategies you may want to consider:

  • Utilize Cash
  • One of the simplest strategies when it comes to financing your farming property is to use cash that you already have on hand. If you don’t have enough cash saved up, it could be worthwhile to start cutting unnecessary expenses and building savings up quickly. Of course, if you’re able to pay for everything in cash, you’ll eliminate any interest payments which could save you some money in the long run.

  • Consider Obtaining an Equity Loan
  • An equity loan allows you access to the equity in the home or other assets while allowing the borrower to remain in ownership of those assets. It is typically used when homeowners need extra funds but may not qualify for traditional loans or lines of credit due to income restrictions or lack of credit history. This option gives borrowers quick access to capital without having any payments during a set draw period. During this time, they can use these funds as they see fit such as buying equipment or seed stock, repaying debtors, hiring labor contractors, etc.

  • Exploit Credit Sources
  • Many farm businesses have specific avenues from which they receive favorable rates from credible sources such as suppliers, grain buyers, lenders, etc. Taking advantage of these opportunities can mean significant savings over the course of purchasing items for your farm operation that can quickly add up.

    Tax Breaks

    Financing your farm can be a challenge. One important tool to consider is the potential for tax breaks. Depending on the type of agricultural enterprise you set up, there may be deductions available for things like machinery and other related expenses.

    Tax strategies like these can help reduce the cost of your farm operations and make it easier to manage your cash flow. Additionally, look into what state or local assistance may be available in your area to help make funding your farm property more achievable.

    Leverage Technology

    The agricultural industry has experienced massive changes over the past few decades with technology being at the forefront of these changes.

    By leveraging technology, you can automate many of your daily tasks and save time to focus on more important aspects of running a farm. Investing in technology such as automated irrigation systems can save money on energy costs and help reduce water usage.

    Successful Operation With the Right Financing Option

    Financing your farm property is an important part of running a successful operation. With the right strategies and resources, it can be much easier to obtain the funds needed to purchase land and business assets for your farm.

    Whether you leverage current assets, exploit credit sources, take advantage of tax breaks, or utilize technology, there are various options available to help make financing your farm property achievable.