5 Steps For Financing Your New Farming Operation

Most startups need more cash than the average person has on hand. This is definitely true for aspiring and beginning farmers who need financing for land, equipment, seeds, livestock and other materials. Roxanne Reed, founder and CEO of Farm School on Wheels, shares five tips that can set you up for financial success in the long run.

1.    Develop a business plan.

Having a well-thought-out plan is key for any new business, and farming is no different. The plan is a roadmap that will help you clarify your vision, identify your market, outline financials and map out steps and tools for moving forward. A business plan is also essential for securing financing to fund farmland, farm infrastructure and machinery costs because it shows lenders you have a viable model and the required knowledge to make your operation successful. In fact, most lenders ask to see a business plan before even considering a loan application. And business plans aren’t one-and-done. You’ll need to review and revise yours regularly as your operation evolves.

2.    Develop an operational plan.

Map out how you will plant, harvest, process and distribute your crops or manage your livestock. Determine equipment, infrastructure and staffing needs. Build relationships with suppliers, buyers and distributors. Create schedules and timelines for key product milestones. Taking these steps will help you better understand your financial needs throughout the year.

3.    Gather and prepare your financial statements.

When applying for a farm loan, being organized is important. Gather your financial records, proof of income, Social Security or ITN number and other documentation in one folder. This documentation usually includes financial statements, tax returns, proof of farm ownership or lease, your business plan, financial projections, balance sheets, cash-flow statements and income statements.

4.    Get the right financing.

Farming requires a lot of money up front. Lenders in the Farm Credit System provide education and mentoring about finances to young, beginning and small farmers. Farm Credit offers customized short-, medium- and long-term loans, as well as refinancing options.

5.    Have a backup income.

Off-farm jobs are especially critical for young and beginning farmers as they build their businesses. Debt-to-asset ratio analysis and other research shows that off-farm jobs reduce financial risks, which is especially important for new and younger farmers, who face higher debt needs as they grow their business. In the early stages of starting a farming business, you might struggle to bring in enough income. Know how you’ll make money until your operation starts bringing in enough income to sustain itself and pay you a salary.