Starting a small farm business or expanding into a new farm enterprise can be an expensive venture. Thus, acquiring financing for the new farm enterprise is a necessity. The two methods to get free or low-cost assistance for new farm enterprises are grants and low-interest loans. This fact sheet includes a summary of these methods and resources for acquiring them.
Procuring Grants and Low-Interest Loans
Planning must happen before a farm considers applying for grants and loans. Having a farm business plan is the first step towards business success. A farm business plan includes the mission and vision for the business, along with marketing plans, financing considerations, cost of production, and sales projections.
Planning must happen before grants and loans are considered. A basic business plan should be written before moving to funding decisions. Ohio State University (OSU) Extension partnered with the Ohio Small Business Development Centers (SBDC) to provide technical assistance for small businesses in the state. Visit the OSU South Centers website for a Small Business Toolbox which helps farm entrepreneurs write business plans, understand finances, and start new businesses. Part of doing a business plan will be conducting a feasibility study. Lenders will want to see a balance sheet and cash flow statements before making a loan.
Enterprise budgets are available from Ohio State University Extension and other land grant universities to help with the business plan. Enterprise budgets contain details of all expenses relating to growing a crop or raising livestock. Most enterprise budgets are available for download as a Microsoft Excel spreadsheet for making changes for a specific farming operation.
Many other tools exist to help small farms understand the concept of a loan, payments, cash flow, and more. Search online using terms such as, “farm loans university extension,” to gain a deeper understanding of loans and agricultural credit.
Grants are often thought of as easy, free money; but, that is not the case. Grants take time to plan, write, document, and report. Also, some grants are considered income on which taxes are paid. Grants require innovation and a significant time investment to write proposals. Grants are competitive, thus only a percentage of those applying receive a grant.
Available grants for farm businesses are generally related to farm:
• Environmental Stewardship
In general, grants are tied to a desired outcome for the funding agency. Knowing the goals of the funding agency will help the farm prepare ideas for grant projects. Common outcomes for the farm and funding agency will be related to sharing the results of the funded project. These projects include on-farm research, sustainable agriculture, attracting tourism, cooperative marketing, alternative energy, adding value to farm production, job creation, and economic development.
The grant process should be started by outlining the project. Writing the goals and objectives of the project starts by generating innovative ideas. Making a list of ideas and possibilities for the future of the farming operation will help develop a list of potential projects. Also, researching successful farm grant projects online will stimulate ideas. The farm team will need to decide which ideas best meet the farm’s mission and have the best prospect of being funded. Unique, innovative ideas have a greater likelihood of being funded.
Many grant programs require matching dollars or labor. The odds of some proposals may improve with a match of time and other resources. For example, the United States Department of Agriculture (USDA) requires cost share for some farm programs such as the Environmental Quality Incentive Program (EQIP). USDA pays for only a percentage of the project, with the farm covering the remaining cost. Reading the rules for the grant program and contacting the local Farm Service Agency or Natural Resources Conservation Service with questions to better understand the process will help determine if the grant will be beneficial for the farm.
Grant applications have pages of documentation to be completed. Most applications require information about personal finances. Successful grant proposals require applications to be well-written. But, more importantly, the guidelines set forth by the funding agency must be followed in writing the proposal.
Assistance is available for grant development through the Ohio SBDC. There are 28 locations in Ohio that can be located by searching online. Other sources for grant assistance include local chambers of commerce, economic development corporations, trade associations, and tourism groups.
Farm Grant Program Examples
Some of the grant programs available to farmers include:
- SARE (Sustainable Agriculture Research & Education) has grants available through USDA for farmers/ranchers to test, evaluate, and adapt sustainable agriculture practices for their farm and related activities, including marketing. These grants are for sustainable agriculture research and education projects, and not to be used for everyday farming expenses. Grant projects are funded up to $7,500 per farm, $15,000 for a couple of farms, and $22,500 for a group of three or more farms. The deadline for application is typically early December. Search online for USDA-SARE for more information.
- Farm Aid was started by music recording stars in 1985 to raise awareness about the loss of family farms. Competitive grants are available to non-profit organizations that work with farmers in three areas: Growing the Good Food Movement; Helping Farmers Thrive; or Taking Action to Change the System. Direct grants to farmers are available for emergencies or an economic crisis. Search online for more information about Farm Aid grant guidelines.
- Warner Sustainable Agriculture Grants—Farmers who partner with Ohio State University’s College of Food, Agricultural, and Environmental Sciences (CFAES) to conduct on-farm research in sustainable agriculture are eligible for funding. Search the internet for Warner Grants with OSU CFAES.
- Local Foundations—Farm entrepreneurs are encouraged to meet with local foundations to discuss options and plans for grant programs for agriculture. State and national foundations with grant opportunities can be found with internet searches with keywords such as “foundation center” and “agriculture foundation grants.”
A variety of loans are available for farms. Short-term loans include credit cards and lines of credit from lenders. Credit cards will generally have the highest interest rates. Lines of credit offer more flexibility in borrowing and lower interest rates and the farm can be pre-approved for a set amount, with some limitations on purchases. Farms often have lines of credit for planting crops, which are paid back after harvest and sales. Term loans are available over a fixed period of time with a specific payment amount; e.g. a car loan. When considering any loan, farmers need to carefully read the terms, identify the interest rate, and calculate the full cost of the loan. Contacting the local SBDC will help farmers gain a better understanding of load terms.
Low-interest loan programs through USDA and other entities are an opportunity for farmers to save interest on loans designed for agricultural ventures. These programs can sometimes do two things:
- Lower the applicant’s interest rate
- Increases the loan package above the bank offer in order to finance the project
Most low-interest loan programs require the cooperation of a local bank and the farm. The individual still needs to qualify financially for the loan. Low-interest loans are generally available for either lines of credit or term loans. Some programs even rework existing farm loans.
In addition to checking credit scores, a financial institution rates borrowers based on the potential for business growth, business risk, the term and amount of the loan, the amount of debt already outstanding, and other factors. Before approaching a bank or non-profit organization for a low-interest loan, the farm should have its finances in good order and have a reasonable business plan outline completed for the funding venture.
Farm Loan Program Examples
Some of the loan programs available to farmers include:
- The Farm Loan Program with USDA’s Farm Service Agency (FSA) provides access to credit for family-sized farmers and ranchers. Search online for the FSA loan program.
- USDA Rural Development was created to increase economic opportunity and improve the quality of life for rural Americans, and the agency offers opportunities through the Value Added Producer Grant program (VAPG). Search online for the USDA rural development loan programs.
- USDA EZ Guarantee Loans can be used to purchase a farm, expand a farming operation, refinance current debt, purchase equipment or livestock, finance operations, and more. The program serves small and underserved farms who may have limited financing options and can be searched for online.
- The Ohio Department of Agriculture (ODA) offers grants through the Clean Ohio Agriculture Easement Purchase Program (AEPP) to preserve farm land in Ohio. Information is available by searching online at ODA.
- The AgriLink Deposit Program is available to farms headquartered in Ohio with at least 51 percent of the land farmed in Ohio. These farms may apply for low interest loans through the State Depository Bank. Approved bank loans are submitted to the state treasury, which purchases a reduced interest CD with the lender. Information about this program is available through the Office of the Ohio Treasurer.
- The Progress Fund is a non-profit organization that lends money for unconventional ideas to people with good character. The fund is for innovative ideas that aren’t able to receive lending from a traditional bank. Search for the progress fund online for more information.
Crowdsourcing is an emerging alternative to grants and low interest loans that uses technology to connect funders to a project or a cause that can be used by small farms. Completing a business plan before seeking this type of funding will help the farmer effectively communicate the idea and project. Sites such as Barnraiser focus on providing this service to small farms. A tax accountant should be utilized when pursuing this funding option to ensure compliance with the law.
Grants and low interest loans provide support for new ideas and farming operations in Ohio. The process of applying for grants and low-interest loans will be easier with planning and identifying projects uniquely suited for funding.
Additional Resources and References
Agricultural Marketing Resource Center. 2017. Available online at http://www.agmrc.org/business-development/starting-a-business/raising-money/
Cornell Small Farms Program. 2018. Funding. Available online at http://smallfarms.cornell.edu/resources/funding/
Ellinger, P. and Barry, P. A Farmer’s Guide to Agricultural Credit. University of Illinois. Available online at http://www.farmdoc.illinois.edu/finance/FarmersGuidetoCreditBody.htm
Marrison, D. 2017. Whole Farm Planning Model. ANR-52, Ohio State University Extension. Available online at: https://ohioline.osu.edu/factsheet/anr-52
OSU Extension. 2017. Small Business Toolbox. Available online at https://southcenters.osu.edu/small-business/toolbox
USDA. 2017. A Guide to Funding Resources. Available online at https://www.nal.usda.gov/ric/guide-to-funding-resources
USDA. 2018. Grants and Loans for Farmers. Available online at https://www.nal.usda.gov/afsic/grants-and-loans-farmers