Loans for New Farmers
Loans for New Farmers.
I was recently asked what the difference was between getting a loan from a bank for a conventional farmer versus a new / local / organic / sustainable farmers….
1) FEW or NO ASSETS. Asset backing is going to be an issue—Remember most conventional agriculture has serious assets (land, tractors and other equipment, cattle).
2) SMALLER TRANSACTION/SAME COSTS TO PROCESS. From what I’ve seen, most of these loans are going to be much smaller in nature than conventional—Bankers look at the cost of doing the “transaction” vs. the return to them. It will cost the same to service a $10k loan as a $1mm loan—and they will have to spend just as much time.
3) CULTURE CHANGE of the customer. The mindset of conventional farmer is VERY different than that of a local/sustainable farmer—Think 65 year old, long time farmer (almost the average age now of a farmer) vs. young, idealistic, socially motivated, triple bottom liner type with lots of little kids running around. I was sitting with some clients and their 2- and 4-year old boys were running around almost naked…..a conventional banker ain’t gonna do well with that culture.
4) BOOKKEEPING/ACCOUNTING. Books are tough at best and there’s nothing to compare this new kind of farming to. Bankers like to compare numbers to standards—there aren’t any good standards for organic ag.
Just my thoughts…