As they manage their operations, farmers will occasionally have opportunities to purchase additional equipment or real estate, expand due to growth, or potentially reset their balance sheets via a refinance or replenishment of working capital.
When these opportunities arise, it’s important to be able to quickly take advantage. The Farm Service Agency (FSA) and Small Business Administration (SBA) offer government-funded loan programs designed to help farmers in these types of situations. Let’s take a quick look at what each organization provides, then explore how you can choose the right program for your particular operation.
FSA loans
The FSA has loans to help farmers and ranchers get the financing they need. Like with SBA loans, FSA loans can be used by operators who are just getting started as well as more experienced professionals who may want to expand an operation. There are also more specialized options such as microloans for smaller or non-traditional farms, youth loans for young people working on agricultural projects, and emergency loans for farmers who are recovering from natural disasters. FSA Preferred Lenders can help you review options.
SBA loans
The SBA offers several financing options to assist with a new start-up business, or help with capital growth or expansion of an existing business. The SBA also provides guarantees on loans that may not conventionally qualify, which reduces a lender’s risk and enables greater access to funding. The 7(a) program, the 504 program and an SBA Express Line of Credit are the three most commonly used options. An SBA Preferred Lender can help you navigate these choices and determine if an SBA loan is right for your business.
Making sense of your options
Both organizations provide guarantees on loans that may not be traditionally financed within a financial institution. This allows for a new farmer to get started with minimal money needed for a down payment.
There are also great programs for existing farm owners to help expand their operations, purchase equipment and fund working capital. Equipment and working capital repayment periods can be up to 10 years through both agencies. Longer repayment term options are available when real estate is involved. The SBA 7(a) loan program in particular allows a full 25-year repayment on a real estate expansion while also allowing for funding of working capital or equipment purchases if over half of the total financing request is allocated to the real estate portion. Lengthening the repayment window can allow for the new purchase or expansion to take place without hindering a borrower’s liquidity position in the short term.
FSA loans are geared specifically toward farming operations, while SBA loans tend to be aligned with business owners more broadly across multiple sectors. Farmers can benefit from both agency’s programs, making it extremely important for these operators to review all of their financing options. If you’re exploring a loan through either the FSA or SBA, be sure to talk with an experienced financial partner to make sense of what’s available to you.