USDA Micro Loans, State Programs, Banks = Small Business Finance

       

       We have to build a facility, folks. The business looks viable, we have learned all we can from our mentor, and having accomplished these goals, we have to reduce our travel time and stress levels by bringing this business back home to the farm. But being a young business and this being the first year of working it full time and relying upon it for our financial needs, we just don't have the funds to throw up a facility.
          Before starting to look for financing, I combed the internet looking for the experiences of others. But I mostly came up empty handed. Weird! I know we are not the only farmers who have needed financing. We hate borrowing as much as the next person, but when it has to be done, it has to be done....so here is a run-down of the options we found and some tips and mistakes we learned from along the way.

           FSA / USDA Microloan

         A microloan through the FSA/USDA was our first choice. It has a low interest rate with typical commercial loan repayment terms. The fees involved are low and mostly have to do with the cost of credit checks. (About $200)  But it is also tailored for young, small businesses that do not have a lot of revenue or credit history and socially disadvantaged farmers. (Minorities, women and beginner farmers!) To get in touch with your Farm Service Agency local office, just click on your state and follow the prompts to your county. My county does not handle loans but they could connect me with the regional office that does.

• The application is like a book! Just schedule a meeting with your loan officer and bring in copies of your tax returns, farm production records, copies of any permits you will need or state/county approved building, waste water, ect plans. Also bring in the numbers for your business's costs and revenue, your future projections for those costs and revenues, and your EIN number. Since we are a LLC, we had to fill out forms individually and also fill out some forms as the corporation itself. We wallered in confusion! Just go and let them help you fill all this out!
• The process will take about 90 days so start early! Also one might have to take a financial course or have a mentor. FSA wants you to succeed and these measures help insure that.
• DO NOT START YOUR PROJECT BEFORE YOU ARE APPROVED. Whoops! We spent money out of pocket to gravel a driveway and dug the foundation thinking the earlier we started the better. But the government has to do an environmental study on unbroken ground to ensure that no historical sites or Indian burial grounds will be obstructed or disturbed. To go with this loan meant we had to move our site and lose all our work up to that date and we could not work on the project during the loan approval process. 

State Programs / KADF

         Since we do not have time to wait 90 days and we do not want to lose our progress to date on the facility, we started looking at other options. We checked to see if our state had any programs for people in our situation. It turns out that when tobacco companies paid a settlement out to states, Kentucky partly invested it into a program to loan money to farmers. This program has low interest rates and they will work with a loan up to 100% of the value of the collateral and guarantee the loan.

• But a bank needs to fill out the application because the program requires a bank to loan half of the amount.
• Documents and applications must be turned in by the end of the month in order to be considered at the board meeting in the middle of the following month. So start early!
• In this case, having ties to tobacco would have helped us as those farmers take precedence over other types given the purpose of the settlement.

Facility Plans

Banks

        We shopped around with local banks and even tried Lending Tree, an online exchange that connects consumers with banks. But most banks are not set up to work with farms or land or use livestock/equipment in their collateral calculations. Enter Farm Credit Services! They work with farmers or even people just buying undeveloped land. Interest rates are doable, as well as repayment terms. So a loan based off the collateral we have in the land and farm assets is plan B! We already have a tentative approval for this option. We are just waiting to see if we will be approved by the KADF option first because that option has a lower interest rate.
          *UPDATE! We got the state loan guarantee and the Farm Credit Services loan! Yippy!!!

    Loan Helpers!

• Farming experience, good credit, and collateral are all helpful!
• Know your plan, business numbers, and proposal numbers. We needed to be able to show how this loan would help our business, that we could handle the monthly payment financially, and how we figured up the amount we were asking for.
• Often where there is a will, there is a way! Don't take no for an answer and keep shopping around. Try to get the best deal out there!
• Try crowdfunding for smaller projects or even grants. Check with your state's agricultural development office or programs that promote local products.

    We love hearing about others experiences! Got any other ideas? Share them, please!