What is Agricultural Financing?
Agricultural finance is the provision of multiple types of services dedicated to supporting both on- and off-farm agricultural activities and businesses including input provision, production, and distribution, wholesale, processing and marketing. Without access to credit, most smallholders are restricted to farming practices that result in low levels of productivity Although many new types of formal financial institutions have spread to the rural areas of developing countries, the majority of smallholders have limited or no access to them. Farm surveys often show that less than 1 in 10 smallholder farmers is eligible for a commercial loan from a bank or other financial organisation.
Farming has a long and proud history in the United States with fully 90 percent of Americans engaged in farming for much of our early history. Agriculture – including both crops and livestock – may no longer be the occupation of most Americans, but it is still big business.
It is a challenging sunup to sundown job and the men and women who work to put food on the tables of America, contribute not only to the health of our nation, but to its wealth as well.
American farmers and ranchers grow 80 percent of the food that Americans consume, as well as many of the raw materials used by manufacturers, such as hops for beer, cotton and wool for textiles, corn for ethanol, and honey that is used in personal care products.
The U.S. has a healthy agricultural export market as well – in 2016, the U.S. exported over 129 billion dollars of ag products across the globe, with China, Mexico and Canada typically the top consumers of our agricultural exports. Between 2009 and 2016, U.S. agricultural exports reached its highest level in history with over a Trillion dollars of shipped product.
Farms and ranches operating in the U.S. number 2.1 million. Primarily owned by a family or individual, the average farm size is 434 acres. Run by a single owner-operator, successful farming requires a broad range of skills.
A love of the land is necessary along with determination and a disciplined work ethic – the cows can’t wait to be milked and seeding has to be performed at the right time. A successful farmer also requires a knowledge of his or her land, livestock and crops; expertise in managing the work by season and weather; and an understanding of running and financing a business to profitability.
Obtaining Agricultural Financing
Whether you are a beginning farmer or rancher, or looking to modernize and/or expand an already running operation, agriculture financing can be the source for the capital needed. Working capital is an important part of any business and farming is no different.
These loans can cover the range of needs from the down payment and financing of a new farm to the costs of turning over an existing operation to the next generation.
Mortgages are typically made to cover the purchase, expansion, or improvement of land, dwellings and outbuildings. There are also specialty loans that cover operating expenses like wages, consumable supplies such as feed and chemicals, and minor repairs to buildings.
Other agriculture financing loan products can be used to cover the purchase of new, large equipment such as a combine or hay baler.
Farming Practices & Agricultural Financing
Agribusiness also encompasses alternative farming practices such as hydroponics, low-energy farming, organic farming, and urban community gardens.
As the demand for fresh food grows, especially in areas that are far removed from agricultural centers, alternative farmers can help to serve those needs. These alternative farmers are also eligible for agriculture financing.
Financing can be obtained from commercial banks and lending institutions, as well as from federal and federally backed sources. The United States Department of Agriculture (USDA) and its department the Farm Service Administration (FSA) oversee federal agriculture loans.
Farm Service Administration
The agricultural financing program has three main loan types, but is not limited to these. The Direct Farm Ownership loan program is funded and serviced by the FSA. It can be used to purchase a farm, make farm improvements or construct and repair buildings.
The maximum amount that can be borrowed is 300,000 dollars. This loan is particularly valuable to the new farmer since no previous farm experience is required and it can be used to finance 100 percent of the farm.
Direct Farm Operating Loans
The direct loan program also has Direct Farm Operating loans. With a maximum borrowing limitation of 1 million dollars and no down payment needed, the purpose of these loans must be essential to the success of the farm. Examples of what the funds can be used for are the purchase of operating items such as seed, feed and chemicals; purchase of equipment; minor repairs to buildings; rent and living expenses; and for land and water development and conservation.
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