RAFI started the Agricultural Reinvestment Fund program in 1997 to assist transitioning farmers and rural communities in finding new ways to replace lost tobacco income. It was an aspiration that farmers whose new projects succeeded would find additional capital to grow their new businesses and that they could take their experiences with the Agricultural Reinvestment Fund to the bank—literally. In some cases, growers did secure financing to expand successful enterprises. However, in too many cases, successful farmers went to their lenders and were denied financing.
Many farmers have years of success getting annual operating loans to grow commodity crops. Yet when these same farmers apply for loans for new production ideas, they may be turned down. From the lender’s side: many lenders are skilled in assessing the risks and rewards of a traditional operating loan, but when presented with plans for new agricultural enterprises, lenders may find themselves lacking the means to do an effective evaluation.
Currently, to maximize profits, more farmers and farm entrepreneurs are turning away from simple commodity crops in favor of more complicated or diversified enterprises. We have determined that farmers may need to take some extra steps in preparing and presenting business plans for these enterprises.
Farmers who are accustomed to annual operating loans for production of commodity crops may not be ready for the burden of research and documentation that a lender expects for a non-traditional farm product. It’s also true that lenders who are familiar with the production and profitability of farm commodities do not always have the expertise necessary to evaluate the risk of agricultural enterprises that he or she has never seen before. RAFI has provided “The Farmer’s Guide to Agricultural Credit” to help farmers and lenders work through these challenges and achieve mutually beneficial results
Many of the financing issues discussed in “The Farmer’s Guide to Agricultural Credit” apply to innovators in other kinds of businesses. The same is true of recommendations— many apply to non-farm enterprises. However, farmers are the chief intended users of the guide. Farm financing has unique complexities that the guide strives to address.
“The Farmer’s Guide to Agricultural Credit” is a tool to help transitioning farmers and farm entrepreneurs take the steps to find a lender who is right for them, prepare to meet with a lender and to present his or her business plans.
The following one-page fact sheets include key information from “The Farmer’s Guide to Agricultural Credit.” Please access them to assess and potentially improve your credit score, initiate the business planning process for your farm enterprise, and prepare yourself to approach a lender.
Fact Sheet: Ag Lending 101
Fact Sheet: Credit Basics
Fact Sheet: Management Experience & Working with Your Lender
Fact Sheet: How Lenders Analyze Smaller Ag Loans
Fact Sheet: Key Business Performance Measures
Fact Sheet: Business Planning
Fact Sheet: Communicating Your Application to a Lender