Here is my newest column from the Fence Post!
It’s safe to say that almost all farmers and ranchers need a loan at one time or another. That’s especially true for beginners, because let’s face it, we would all be ranching if we had the funds!
Brad Harr, branch manager for Farm Credit in Limon, Colorado and Allen Page, FSA farm loan officer in Hugo, Colorado have worked with dozens of beginning farmers and ranchers over the years. Here is their best advice.
Get Non-Farm Income
According to Harr, having a good, off-the-farm income source is “king” when it comes to getting a farm loan. “You need to have a way to subsidize your living expenses when you get started,” he said. Both Harr and Page see few people who don’t need off-farm income to make their places work. “You can’t expect to take a profit from a farming or ranching operation for about 10 to 15 years,” Page said.
Page recommends that borrowers save 20% to 25% of the potential loan amount for a down payment. If borrowers come to the table with some capital, they are a lot more likely to get a loan.
Be Realistic About Profit
One mistake that Page sees at his FSA office over and over again is folks being too optimistic about how much profit and margin they have in their operation. “People really need to take a 3 year average high to estimate their profits,” he said. “For example, people should be use $1.10 (per pound) to estimate price on calves instead of using $1.40.”
Stay Involved in Agriculture
“One of the best things that a person wanting an ag loan can do is to stay involved in agriculture somehow,” Harr said. “Most of the FSA loan programs require some ag experience. If a person can, they should get in the position to file a schedule F for at least 3 years before applying for an FSA loan.”
Know Your Expenses
Harr and Page both see people come into their office without a cash flow plan. “People have to know their costs and manage their risk to be successful,” Page said.
Get A Support Group
Page is a strong believer in having a support system in place before starting to farm or ranch. “Beginners should find a profitable farmer in their area and learn from them,” he said. “It’s kind of like having a board of advisors for a business – the people who utilize that are going to have a lot better chance of being successful.”
Start with the FSA
The FSA is a wealth of resources when it comes to beginning farmers and ranchers. Not only does the FSA provide beginner loan programs, they also have information about other local programs.
However, the FSA can’t compete with commercial banks to offer loans. If you don’t qualify for FSA assistance, Farm Credit is another good place to go. They are a preferred lender with FSA and they have branches in all 50 states. In addition, local banks, especially in rural communities, often work hard to help beginners. It’s wise to check out all your options.Photo Credit