Small Farm Funding

Maybe it’s your lifelong dream to have your own small farm or you’ve noticed a need in your community for a source of agricultural products. Whatever the reason, most farmsteads start with a simple desire: a love for the land and a need to work it. Some folks see it as a way to live more sustainably, while others just want to make an honest living doing something they love. From an environmental ethics standpoint, some people feel that starting a farmstead gives them a way to contribute to the protection of biodiversity and live more sustainably. No matter what’s driving you, there is no right or wrong reason to start a farmstead. Whether you’re looking to bale hay for your horses, raise livestock, or grow crops, you’ll need to find a way to fund it. Let’s face it—you need good ole American Greenbacks to do this.

How to Fund Your Farmstead: Loans vs. Grants

Unless you’ve got a big pile of cash stashed away, chances are you’ll need some kind of financial assistance to get your farmstead going. Most people look to either loans, grants, or a combination of both. But what’s the best option for you? Let’s break it down. It’s important to understand the nuances of these two types of funding to ensure you know what to expect when applying for, obtaining, and using the funds. Both types of funding can be obtained for personal or business use.

Loans: Flexible and Fast

If you need cash quickly, a loan is probably the way to go. Loans tend to have a more straightforward application process, and they’re available to most people and businesses, as long as you meet the lender’s requirements. These requirements will vary depending on how you plan to use the money, but there’s usually plenty of flexibility to meet your needs.

There are a variety of loan types out there, and the money can be used in multiple ways as long as you stay within the criteria of the intended use of the loan. Repayment options are pretty flexible too. You can pay monthly, quarterly, annually, or even make interest-only payments, depending on the loan type.

Grants: Free Money, But a Lot of Paperwork

Grants are the holy grail of farm funding because you don’t have to pay them back. However—grants are usually a one-time payout to be used for a specific purpose, and they come with a lot of paperwork. You might even consider hiring a grant writer to help you get through the application process.

Once you get a grant, you may need to provide reports or undergo audits to ensure you’re spending the money as intended. Grants are also more limited than loans because they’re awarded based on specific criteria, like the potential impact of your project or your qualifications. Be sure to double-check the description of the grant to ensure that you qualify.

And yes, the grant process can seem overwhelming, but don’t let that discourage you: remember this is free money, and you don’t have to pay it back!

A Real-Life Example: Mixing Grants and Loans

Let me tell you about a family I know who combined both grants and loans to get their farmstead going. They already owned a house with some land but wanted to add livestock. They needed money to build fences and run water and electricity to their barn.

They applied for a grant, and it covered a large portion of the project. The rest was funded with a home equity line of credit. Yes, they had to deal with some "governmental red tape," and it took a few months to get the grant money. However, with the help of a representative of the local agricultural extension office and USDA office they were awarded a few thousand dollars with no requirement to pay it back.

This shows the importance of not putting all your eggs in one basket. Grants are great if you can get them, but don’t bank on them entirely. They can take time and effort to apply for, and in some cases the administration of the funds after you obtain the grant requires a bit of work. However, make time to apply for grants. Once you go through the process a couple of times, it gets easier—and you’ll know which grants are worth your time.

You Need a Plan: It’s Non-Negotiable

No matter the funding you’re seeking, a loan, a grant, or both, you need a plan. If your goal is to buy a house with some land, then your plan may be as simple as talking to a loan officer at your local bank. But if you’re starting a farm business, a solid written plan is a must.

Don’t go into any part of the application process of starting or expanding your farmstead business empty handed. The financial resource providers you will be dealing with have no knowledge of your planned business. Your written plan, a business plan, is the tool you are using to explain to lenders or grant providers why you need the money, how you’re going to use it, and—if it’s a loan—how you’re going to pay it back.

We have determined that you need a written business plan. This brings up the question of what information your business plan should include. In the end, your business plan may have many more points and much more detail depending on the complexity of your business. Begin with this list and build on it to develop your business plan. The following is an example of a few items that will be common in the application process with any source of loan or grant funding.

What Should Be in Your Business Plan

• Summary: A clear and simple overview of your business idea. Pretend you’re explaining your idea to someone who knows nothing about farming—convince them why they should hand you the money.
• Financial Plan: Lay out your current financial situation and provide income projections for your farm over the next 2, 5, and 10 years. How much of your offered products and/or services do you have to sell to reach your income goals?
• Market Analysis: Show that you’ve done your homework. Who are your customers? Who else is offering similar products? How does your business fit into the demographics of your target market?
• Marketing Plan: Just opening up shop and waiting for customers to show up won’t cut it. You need a solid plan to reach your customers and let them know about your products or services and why they should buy from you.
• Products and Services: What exactly are you selling or what services are you providing? Whether it’s crops, livestock, or services, spell it out clearly.
• Management and Operations Strategy: This is where you talk yourself up. What’s your experience? What makes you qualified to run this farmstead? This is going to include information that builds trust between you and the financial decision makers. Tell them why you’re the right person for the job.
• Goals: Be specific. How much money do you want to make in 1, 2, and 5 years? What’s your plan to reach these goals? How many employees will you need to achieve your goals?
• Stick to the Plan: Your business plan isn’t just for securing funding - This plan is just as important for you personally —it’s your roadmap for success. Keep referring back to it as your farmstead grows and evolves.

Getting Ready: What You’ll Need for the Application Process 

Before applying for loans or grants, make sure you’re prepared with the following:

• Personal Financial Information: Gather three years of W-2s or 1099s from employers, 3 years of complete personal and business tax returns, and most recent statements from retirement or savings accounts, a recent statement of the balance of any mortgages on your home and/or the property where your business will be located.
• Check Zoning and Permits: Contact your local county officials to determine what the zoning and permitting requirements are that may pertain to your farmstead. Livestock, even a few chickens, can be a touchy matter in some areas. Some areas have zoning regulations pertaining to sales of edible items such as fresh fruits and vegetables. Something as simple as adding a driveway entrance off of a county road will probably require a county permit. Make yourself familiar with these regulations and how they affect your farmstead plans. Know how to find these regulations; know the web address so that if needed you can pass the address on to resource providers.
• Get Insurance: Have a conversation with your insurance agent about your farmstead plans. You’ll likely need extra coverage, especially if customers are coming to your property. The cost of this insurance will vary depending on your business structure. Your insurance agent can explain the details of this.
  • Pro Tip: At this point it’s a good idea to reach out to an insurance agent who specializes in business insurance.

• Quotes for Construction and Equipment: If you need to build or buy equipment, get quotes from contractors or suppliers. These quotes should include a detailed payment schedule. How much money to secure the contractor for the job or the purchase of the equipment. At what stages of the job does the contractor require a payment from the lender and how much money for each payment. The same for an equipment provider, usually some amount of down payment for them to order the equipment and the balance upon delivery.

Don’t Go It Alone: Resources to Help You

The process of securing funding can feel overwhelming, but there’s plenty of help available. There are many resources that will assist you with everything from perfecting your written plan to identifying other helpful programs. Here are some key resources that can guide you:

• Your Local Agricultural Extension Office: They’re an excellent starting point for information on farm production and can connect you with organizations that offer financial assistance.
• Find your local extension office here. List of extension agencys by state

• USDA: The USDA offers a wealth of resources for beginning farmers, both online and at local offices.

Check out the USDA beginning farmer website here.

• Small Business Administration (SBA): The SBA provides guidance on everything from writing your business plan to navigating different types of loans and grants.

Visit the SBA website here.

• Veteran Resources: If you’re a veteran, there are additional resources available through the USDA and Veterans Administration.

Explore veteran farming resources here.

• Beginning farmers and existing farmers: another agency with many great resources and information. farmers.gov

Final Thoughts: Persistence Pays Off

Starting a farmstead is a big commitment. However, owning a farmstead that earns part, or all your household income is very rewarding. You’ll likely need some outside funding. A mortgage loan for a house with some land is pretty straightforward, but if you’re starting an income producing farmstead business, you’ll need to put in more work to secure funding. As I’ve mentioned, having a plan is crucial. Your business plan will be your guide as your farmstead grows, and it’ll evolve with your business. And remember—persistence pays off.

As you work through this start up process you are going to encounter many resource providers. Loan officers, grant providers, local government officials and many others. There will be times when you feel as though these people are harassing you. Your loan officer needs another bit of updated information that you just sent them last week or that county official needs more information from your contractor, again!, before they can issue your building permit. No matter how frustrating this all feels, always remember these people are doing their job. Always know that in every situation these people are asking for these items because it is required of them. If you are unprofessional or nasty to them, your frustration will grow exponentially worse because you will get put on the proverbial back burner and they will avoid you. Always be cognizant of the fact that as your business develops and grows, your relationship with your resource providers needs to grow as well. Be persistent but always be a professional.

This business startup isn’t going to happen overnight. Be prepared for the process outlined here to take a few months to get off the ground and at least a couple years to thrive. Stay patient,

professional, and persistent. In the end, all the effort will be worth it when you see your farmstead come to life.

Stay tuned for my next blog installment. I’m going to take a closer look at being off the grid; how far off the grid can we really be?