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Need a loan? Help your banker say "yes" to organics.
By Caroline van Schaik
This article was first printed in the November - December 2004 issue of the Organic Broadcaster, published by the Midwest Organic and Sustainable Education Service.
organic comes with a change in how you do your business. And we
are business people," said organic dairyman, John Bedtke, during
a field day he and his wife, Donna, hosted this past summer near
Plainview, Minnesota. Backed by blue sky and fields of grass, Bedtke
gave a characteristic pause, then added, "We have to learn
to make decisions about what's really profitable. And it's not just
measured by money but by the family as well."
Does this tone
resonate in a bank, where a farm is business and profit the sole
bottom line? It begins to sum up what 260 farmers said in a survey
coordinated by the Land Stewardship Project (LSP) in 2002 on the
subject of credit. As to the bank, a companion survey of agriculture
lenders in Minnesota and Wisconsin found an undertone of skepticism
backed by a poor level of understanding of organic and sustainable
In fact, while surveyed lenders recognized the potential especially
in organic production with a professed open-mindedness to financing
it, the welcoming attitude isn't getting across to six in 10 farmers.
Furthermore, a closer look at the comments of 195 responding lenders
showed a conflicting outlook on the future of farming, different
loan criteria for new farming practices, a bleak or uninformed sense
of the profitability of such methods, the strong likelihood of unhelpful
loan thresholds, and little hope in the future of new farmers.
But if a trip to the bank is in store for you, also be prepared
for some interest, maybe even a little enthusiasm. Most of the responding
lenders were raised on farms and said they were open to financing
beyond the world of corn and confinement hogs. Most have an academic
sense of what sustainable farming is about, though one in three
lenders acknowledged they don't actually know enough to have an
opinion about its potential for profit. Depending on how you ask,
95% of them will tell you that this type of farming is here to stay
and grow. About half indicated good relationships with sustainable
farmers and a third said that conventional and sustainable farming
were competitive, dollar-wise.
No magic wand, these glimpses into what agriculture lenders think
and know about farming with multiple bottom lines nevertheless highlight
strategic points of entry for the next time you need to pay one
of them a visit. They come as a result of three targeted surveys
sent by mail and email to 1,550 sustainable farmers, agriculture
educators, and agriculture lenders (www.landstewardshipproject.org/pdf/edsurvey.pdf).
Each survey had 27 to 37 pointed questions about record keeping
and record requirements, loan thresholds, bank and farm terminology,
banking and farming practices, the future of farming, and demographics.
The goal, then, was to unveil and substantiate some of the ideas
these groups have about farming and lending as each relates to sustainable
in this work included Extension, Farm Business Management/Production
(FBM/P), and the Farm Service Agency in Minnesota and Wisconsin,
Independent Community Bankers of Minnesota, Wisconsin dairy farmer-members
of the Coulee Region Organic Produce Pool, and Minnesota farmer-members
of Pride of the Prairie and LSP. Follow-up round table discussions
were held in both states.
LSP and partners are now pursuing a host of education and outreach
activities to address the quantified needs of 567 survey respondents
for 1) exposure to sustainable farmers and enterprises; 2) record-keeping
and written business plans; 3) databases of sustainable farming/marketing
financial numbers; and 4) common ground on the topic of profitability.
What have we learned from the surveys, which presented themselves
as the obvious route by which to quantify the anecdotes, complaints,
and accusations that plague so many conversations related to credit
within the sustainable agriculture community? Or more to the point,
what can farmers do more or less or differently if a fruitful relationship
with a banker is the goal? With the usual caveat that past performance
is no guarantee of the future, here are some of the common (but
worth repeating) and uncommon lessons from the surveys to ponder
as you mull over next year:
- Write business
and marketing plans - Lenders told us that just one in six agriculture
loan applicants supplies a business plan and one in seven comes
armed with a market plan. You can be that one. A lender will look
twice at these very comforting documents, even if you are proposing
something well out of his/her realm of experience. And yes, "they
are worse than doing taxes!" as one beginning vegetable grower
put it before she marched into a bank with her plans and out again
with her loan.
- Keep records to substantiate your convictions - Lenders
want balance sheets, income statements, and cash flows for at least
a year down the road and two, often three years back. While the
majority of responding farmers attested to the profitability of
their endeavors, just 21% kept whole farm and enterprise records
to prove it and a full third of them only kept records for tax purposes
- lenders said these count, but just for starters!
- Enroll in a record-keeping course - It shows good faith
effort especially in the face of poor records on your part, and
in some cases (with Farm Service Agency, for example), it may be
required. There are state grants and scholarship opportunities to
defray the cost but no amount of free money could compensate for
the learning of a good ledger system for your farm. Note that as
factual a subject as this might seem, it is riddled with the complications
of farm philosophy; shop around for a program and instructor that
- Bring a sales contract - More than half the lenders said
this is especially critical for an unconventional enterprise, as
it helps allay fears of new or uncertain markets.
- Proof of management skills - Get comfortable talking about
your ability to manage what you propose doing. Provide documentation,
no matter how seemingly inconsequential - what you have accomplished
in a related enterprise (herd health report, books kept, staff overseen,
pounds of cheese sold, brochures designed, paddocks designed, problems
solved, etc.), the research you have done to learn about this new
endeavor, internships and mentoring situations, etc. It may feel
boastful, but lenders can't read your mind; you have to convince
them you know what you are doing. Evidence of management skills
(along with marketing/business plans and confirmed markets) were
additionally required by more than half the lenders. These are unfamiliar
enterprises and therefore a risk, much like livestock or sugar beet
enterprises, lenders explained at the round tables. "Lenders
don't discriminate against sustainable farmers," said one banker,
"but if it's new, we need to know a little more." Of course,
the standard cash flow, equity, and credit concerns have to be satisfied
by all applicants, lenders said.
- Bring case studies with the numbers - This appeals to some
lenders. They can help you if you don't have much of a track record
yourself because you are new, transitioning, or didn't catch on
to record keeping until recently.
- Market prices, input costs, enterprise productivity - components
of a business plan, these documents were deemed "very useful"
by lenders reckoning with an unfamiliar enterprise. Only 2% of responding
farmers said they kept enterprise budgets. There is a small but
growing pool of data to support unconventional production and marketing
systems; bring some along to build your case or be prepared with
a reference to help educate your would-be lender.
- Invite a lender to a field event - Lenders considered themselves
simply uninformed rather than biased against sustainable and organic
production. Given that 75% of them hadn't been to a sustainable
agriculture field event or workshop in the past five years; that
a principle source of information for them is Extension, half of
whom also were not current with sustainable and organic practices
up close; and that most responding farmers were not satisfied with
the relevant knowledge of their lenders, this indeed rings true
even if it is not the whole truth.
- Broaden their horizons - Most lenders said that farming
publications serve as a major source of information on sustainable
agriculture is. Provide your banker with a subscription to your
favorite one(s); the odds are high s/he is not reading the Organic
Broadcaster, Acres USA, Graze, or the Organic Farming Research Foundation,
mixed sense of optimism prevailed among surveyed lenders and some
gray area persists in whether or not what sounds like bias is a
fixable lack of education. Lenders say it is their responsibility
to learn about what their customers want to do. Not all farmers
are seeking credit but those who are can put this willingness to
the test. Regardless of your motive, records, research, and articulation
of your goals are sound strategies for better delineating what and
why you are farming. This, then, is your window of opportunity--hardly
flung wide but enough to walk on through!
van Schaik is a program organizer for the Minnesota-based Land Stewardship
Project, having coordinated the initial "Surveying the Gaps"
project and presently heading up the followup "Smarter Farmers,
Smarter Lenders" work in which business planning and outreach
to the lender community are being pursued. She can be reached at
LSP's Lewiston office, 507-523-3366, or firstname.lastname@example.org.
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