University of Vermont

Vermont New Farmer Project Vermont New Farmer Project

Resource Guide: Access to Capital

By Dennis Kauppila, UVM Extension; Annette Higby, Attorney at Law; Don Maynard, UVM F.A.R.M.S; and Liz Veskosky, USDA Farm Service Agency

Farms can be very expensive hobbies. A good business plan can help to make sure that your farming venture will be a business that contributes to family living expenses instead of an expensive hobby. First though, you must think through which you wanta hobby or a business? If it will be a hobby, good luck to you and I hope you have fun.

If it you are hoping for a business, you must think about capital needs and profit. Capital needs include buying machinery and equipment, livestock, buildings, and land. Plus you will need money to cover your operating expenses until you begin to sell a product. Starting up can be difficult. You will need to have some assets, either cash in the bank or collateral (land, buildings, machinery and equipment or livestock) in order to borrow any money. Lenders are often very wary of loaning money for a startup operation. They would rather see you with an operating business that is creating a profit, then come in to borrow money for additional equipment, land, a new barn, or more livestock. It can be tough to get that first agricultural loan.

Quite often, when working with farmers, I ask how much the farm is contributing to the family’s living expenses. In a number of cases, the farm does not contribute any cash to the family. So, on these farms, there must be some offfarm income to support the family, or maybe contribute medical insurance. On other farms, there is no off-farm income, and profits from the farm totally support the family. Which kind of farm are you planning on having?

Types of Capital Needs

There are two types of capital needs to operate a farm business—money for operating, and money for ownership of assets.

About Agricultural Loans

At some point, you will need to consider debt financing or taking out an agricultural loan to finance one or more of your capital needs. A loan proposal or business plan is the best way you can demonstrate to a lender your understanding of and commitment to the success of your business. Before you approach any lender, it is important to prepare for your meeting. Lenders expect that you know your business and understand your finances. The more informed you are, the better your chances of getting the financing you need. If you want to borrow money, you must be able speak the language of finance. So it is important that your proposal or business plan include basic financial statements like a Balance Sheet ( Net Worth Statement), Operating Statement ( Profit and Loss), and Cash Flow Statement. Most lenders will also want to see income tax returns from previous years.

A lender will likely use the following “Cs” when reviewing your loan application:

  • Capacity to repay the loan. The lender will look at the financial ability that you and your farm have to pay back the loan, with interest, based on the history of the farm, ongoing cash flow, and assets you hold.
  • Capital or the money you have already invested in your business. Do you have sufficient capital to support ongoing operation of the farm as well servicing debt? Better still, do you have enough savings to operate the farm during tough times?
  • Character or the general impression you make on the lender. This is a subjective judgment on the part of the lender as to whether you and your business idea will succeed. They will look at your qualifications, experience and management skills, as well as your personal credit. The better prepared you are before you meet with a lender, the better your chances of making a good impression on the lender with regard to character.
  • Collateral is the assets you own that the lender uses as a backup to recover funds if you happen to default on the loan. Think about the assets that you will put up as collateral. Is the liquidation value of these assets sufficient to pay back the lender in case of default? Also consider if your house would be at risk.
  • Conditions surrounding the intended purpose of the loan are also considered. How risky is your farm enterprise? What are the current economic trends of the farm’s product and/ or markets? Do they make your future success more or less likely?

If your loan application is turned down by a lender, federal law requires that the lender tell you, in writing, the specific reasons for the denial. You may be denied because one of your "Five Cs" is weak, you have poor credit, or simply that the financial institution is not familiar with the type of agricultural business in which you are pursuing. If your loan is turned down because of a poor credit report, you may request a free copy of the report from a credit report company. Check it for accuracy and completeness as you have the right to dispute any errors. If you have a poor credit history, start repaying outstanding balances on time to reestablish an acceptable record and then try to apply for a loan again.

Business Planning Resources

Vermont Agricultural Lenders

There are several lending institutions in Vermont that make agricultural loans. The following list of lenders is not intended to be exhaustive. Rather, it puts in one place, the major sources of agricultural financing organizations in the State of Vermont. While banks and other forprofit organizations offer competitive interest rates, governmental lending institutions, such as the USDA Farm Service Agency and the Vermont Agricultural Credit Corporation, offer entry loans at subsidized rates to encourage business startups. Typically, these subsidized sources have a five to seven year limit on the length of loans, with transfer to the more commercial sources expected at that time. In all cases, however, a detailed business plan, including market analysis, projected first year cash flows, risk management and exit strategies will be expected as a part of the loan application process. Sources for help with this planning should be used prior to any contact with the loan institutions.

Programs and eligibility requirements change regularly, so visit the links or contact the organizations directly for the latest information.

  • The Carrot Project.In partnership with Strolling with the Heifers, the Carrot Project is a micro-loan fund addressing the difficulty that some New England farmers have in obtaining credit for projects that improve their operations and increase their income, as well as for emergency needs.
  • Vermont Community Loan Fund (VCLF). VCLF offers two lending programs relevant to beginning farmers:
    Small Business Lending Program loans are aimed at businesses that support sustainable local economies, conserve or expand economically viable uses of Vermont's working landscape and/or natural resources, and/or increase economic opportunities for low-income, disenfranchised or underemployed Vermonters through the creation of livable-wage jobs and quality workplaces.
    Agritourism Program is a revolving loan fund where you may access financing of up to $50,000 at low interest rates. The program focuses on supporting new or existing agricultural enterprises by providing low cost capital for agritourism related projects that help them enhance and diversify their revenue streams,” (Retrieved from
  • Yankee Farm Credit is a farmer-owned, lending cooperative with multiple offices in Vermont. Yankee Farm Credit describes itself as as "an agricultural lender who strives to make a positive difference serving the agricultural community by offering reliable, cost-effective services." Yankee offers short term and long term loans at competitive rates and financial services including:: tax preparation, tax planning, financial recordkeeping, payroll, appraisals, equipment leases, crop insurance and credit life insurance.Yankee is structured as a cooperative which entitles eligible members stockholder voting rights and an opportunity to share in the earnings through the distribution of patronage dividends.
    FarmStart is a Yankee Farm Credit program that assists beginning farmers and new cooperatives during their start-up years by providing working capital investments up to $50,000. FarmStart is envisioned as a key element in the success of startup ag businesses and provides an opportunity to develop a successful credit record while learning the discipline of effective cash flow management. The program is targeted to farmers, forestry producers, fishermen, farm-related service businesses and cooperatives, generally in their first three years of business. Each FarmStart participant works with an advisor who helps them follow through with their business plan and encourages recipients to use other professionals to solve problems and develop their business further.
    Contacts: White River Jct. 800-370-3276 , Newport 800-370-2738, St. Albans 800-545-1097, Middlebury 800-545-1169 Email: Website:
  • Commercial Banks.There are a few commercial banks in Vermont that make agricultural loans. You may want to start with the institution with whom you already do y our banking, and/or check with an agricultural service provider for local contacts.

Last modified July 17 2013 07:57 AM