New Farmers Find Loan Support From ‘Old’ Source
By Lisa Kivirist
While beginning farmers make up the heart of the growth in organic and sustainable agriculture, a big hurdle to launching these operations remains lack of capital. Young farmers have immeasurable amounts of enthusiasm and commitment, but lack the financial resources to start their own operation. Increasingly, today’s small-scale, diversified and locally-focused farm businesses are finding strong partnerships and funding opportunities through one of rural America’s more traditional farming resources: the Farm Service Agency (FSA).
The FSA, with offices throughout the Midwest and the country, is the department under the USDA that supports farmers and ranchers and other partners in a variety of agricultural programs, including various farm loans. While this agency supports all types of agriculture, including large-scale commodity operations, more beginning farmers within the sustainable community are connecting with and finding strong support and assistance within FSA.
“We’ve worked hard within the FSA toward outreach to and support for all types of agriculture, particularly young and beginning farmers championing the growing organic and sustainable food movement,” explains Sheri Houtakker, the FSA Farm Loan Manager covering six counties in northwest Wisconsin. Houtakker has worked for the FSA for over 20 years, and also runs a sheep operation with her husband, working towards organic certification. “Beginning farmers are a key priority to the FSA, and thereby receive most of our loan funding.”
The FSA offers a portfolio of various loan programs, both for farm purchase and capital acquisition. There are three key distinctions of FSA loans:
1). Farmers Denied Traditional Credit
The FSA calls itself the “lender of first opportunity.” In essence this means these loan programs are intended for farmers who are unable to obtain a loan through a traditional bank because of things like poor credit history or lack of the required down payment. If a bank will give you the full loan to purchase and start your farm operation, you probably won’t qualify for an FSA loan.
2). Socially Disadvantaged Farmer Groups
Applicants from minority farmer groups that are classified as “Socially Disadvantaged (SDA)” groups by the USDA receive priority status. SDA farmers include groups like African Americans, Hispanic, Native Americans, women and others who, for various reasons, have been discriminated against in the past.
3). Extremely Favorable Interest Rate and Terms
One big appeal of FSA loans is a low interest rate and more appealing terms than regular banks–as low as 1 to 2 percent. The FSA has flexibility to work with young farmers who do not have the savings toward a down payment.
Additionally, the FSA understands and supports farm businesses from a loan payment perspective. There is flexibility on payment schedule. The FSA does not require equal monthly payments, rather can base payments on the type of enterprise and when produce or livestock is sold.
For those interested in exploring the possibility of an FSA loan, here are a few things to keep in mind:
• Acquire Related Experience
“FSA beginning farmer loans require a minimum of three years experience in the field you are going into,” Houtakker clarifies. “The FSA has limited funds that come directly from taxpayers’ dollars, so it is very important that we steward these funds wisely and ensure beginning farmers have a portfolio of various related education, particularly hands-on experience.”
To better work with small-scale, diversified young farmers, the FSA has broadened the agency’s definition of what qualifies as “experience.” They now look beyond a two-year degree at an agriculture college to include this “portfolio” idea of amassing various experiences. These can include programs like the Land Stewardship Project’s Farm Beginnings™ Program, Extension’s Annie’s Project, on-line curriculum, internship and apprentice programs (particularly with management responsibilities), the MOSES Farmer-to-Farmer Mentoring program and attending events like the MOSES Conference. The key is to create and customize an “experience portfolio” based on what it is you desire to do, developing your business plan as part of the process.
“As we compiled our experience for the FSA loan application, we realized the diversity of experiences we had racked up over 10 years, and how important it all collectively is to our future business success,” offers Vanessa Herald. She and her partner, Nikki Lennart, are aspiring young farmers in their 30s currently going through the FSA loan process as they look for property to start their diversified farm operation in south central Wisconsin. They’d like to raise goats, heritage pigs and have fruit orchards. “Any earlier and we honestly would not have been ready,” Herald adds.
Vanessa Herald and Nikki Lennart’s experience included things like participating in the University of Wisconsin School for Beginning Dairy and Livestock Farmers and the New Entry Sustainable Farming Program in Massachusetts, various on-farm internships, and attending the MOSES Conference and the Rural Women’s Project Boots workshops.
“I’d recommend any young farmer collect and keep reference letters or certificates of completion as you complete any farm training experience.”
“If you choose to someday apply for a FSA loan, you will need such documentation. It would have been much easier for us if we had just asked for that at the time,” Herald says.
•Give the Process Time
The reality is the FSA farm loan process can be slow and tedious.
The FSA can start processing a loan application only once you have an accepted offer. The process can take longer than at banks, which can be less appealing to a seller who wants to close the deal. For this reason, it’s important to start the process early, develop a relationship with your FSA loan officer, and have all your paperwork ready to go when the offer is accepted. FSA is trying to accelerate this process; the processing time for approval in Wisconsin is now down to 16 days. However, after approval, a loan still goes through the property appraisal process, requiring additional time.
“I often talk to beginning farmers years before they actually apply for an FSA loan,” shares Houtakker. “This works out great and I encourage young folks starting out in farming to do this because it both starts to build a relationship and enables us to work together to address any educational and experience gaps or other issues that might slow down your eventual application submission.”
Given this lengthy loan processing time (it can take several months), FSA loans work well in situations where time is not of essence, such as farm transitions between family members, or if the seller is committed to the young farmer and willing to wait. That was the case with Rebecca Claypool, a young farmer in her early 30s who ended up purchasing the farm she was working on, after racking up a decade’s worth of experience working on farms from Maine to Minnesota.
“I heard the owners were interested in potentially selling this place, and working there gave me the opportunity to get familiar with the place and property,” explains Claypool. “The situation ended up being good for both of us as they didn’t have to go through putting their property on the market and were committed to selling to me, so that gave me the time to go through the FSA process.”
Claypool purchased her Avoca, Wis., property in 2009, tapping into the SDA FSA loan funding pool, and opened Yellow Barn Farm where she grows diversified vegetables. “There were lots of steps throughout the whole loan application process, but my FSA loan officer was very helpful and supportive and was a real partner throughout,” adds Claypool.
Likewise, while Herald and Lennart are still going through the process and looking for farm property, they, too, have found support from their FSA office. “Our farm vision doesn’t fit the typical box of most conventional farms in our area, but our FSA loan officer wonderfully gets that, and is helping us use our experiences and business plan to our advantage to fit within the FSA system,” shares Herald.
For those interested in researching FSA loans further, first understand the general FSA loan programs. “Your Guide to FSA Farm Loans” is an easy-to-read, online resource that synthesizes various loan and loan serving options. If you generally qualify and think this may be in the future for you, contact the FSA loan officer covering the area where you plan to purchase property.
“At the FSA, we’re not just committed to the farm loan process, but see ourselves as long-term partners in your business success,” sums up Houtakker. “Remember we’re investing taxpayer dollars in you, and want to know where you see yourself in five years, and how can we work together to get you successfully there.”
Lisa Kivirist is the coordinator of the MOSES Rural Women’s Project.