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As a group, growers are going gray faster than newcomers are entering the profession.

In the next two decades, about a quarter of all U.S. farmers are expected to retire. Meanwhile the number of new people entering farming has declined.

In 2012, the number of people farming for 10 years or less was 523,000, a 20 percent reduction from 2007. If you compare numbers for farmers with five years or less experience, the percentage drop is 22 percent.

There are six times as many farmers over 65 years old as there are farmers who are 35 years old or younger.

Reasons for the shrinking number of beginning farmers are many, but two of the biggest challenges cited in a nationwide survey of young growers are lack of access to capital and access to land. To help remedy this, the 2014 Farm Bill included development and loan programs for young farmers.

Competitive grants

USDA’s Beginning Farmers and Ranchers Development Program provides about $20 million per year, from 2014 to 2018, for competitive grants to community organizations, agriculture groups, academic institutions and extension. The grants must support education, training, outreach, and mentoring programs for the next generation of farmers.

Help from the federal government also comes in the form of a loan program for young, beginning growers administered by USDA’s Farm Service Agency.

FSA recently increased the amount given for microloans, from $35,000 to $50,000. These can be used for operating expenses, for example. FSA also gives direct loans of up to $300,000 and guaranteed loans of more than $1 million. The direct and guaranteed loans are designed for those unable to obtain financing through commercial lending sources.

Other loans exist for young growers. Nearly 20 states, including Washington, Oregon, Minnesota, Wisconsin, Pennsylvania, and New York, and have created tax-free bond programs called “aggie bonds” to assist beginning growers. There is joint financing between FSA loans and private and public lenders, and Farm Credit cooperatives, too, have loan programs for young beginning farmers.

Aggie bonds

An example of help given from state tax-free bonds is the Washington State Housing and Finance Commission’s Beginning Farmer and Rancher Program. The program was launched in 2008 to help beginning growers acquire agricultural property at lower interest rates. Because states cannot loan money to private individuals, a lending partner is needed.

In the Washington program, the state determines if applicants meet their agricultural producer qualifications, which follow Internal Revenue Service agricultural tax codes, while Northwest Farm Credit Services, a grower cooperative, is the lender and makes the lending decisions, according to Wendy Knopp, vice president of AgVision for Northwest Farm Credit Services.

More than 25 loans have been approved through the program. Because the tax codes are very specific in defining beginning farmers,  the state program is limited in its reach, Knopp says. However, by using tax-exempt bonds, the state program can help beginning farmers with significant interest rate savings.

All Farm Credit cooperatives have some type of loan program for beginning farmers who may or may not meet regular underwriting standards. Since 2001, Northwest Farm Credit Services, the lending cooperative for growers in Washington, Oregon, Montana, Idaho, and Alaska, has offered the AgVision program to give young and beginning producers preferred rates and flexible terms.

Wendy Knopp

Wendy Knopp

Northwest Farm Credit recently added another tool called JumpStart loans to reach even more beginning growers.

“We’re really trying to find ways to help these folks get started,” said Knoop, who is based in Spokane, Washington. “We understand the challenges faced by beginning producers today, which includes access to credit.”

AgVision and JumpStart work together. Both programs are available to producers who:
—are 35 years or younger
—have been in farming for ten years or less
—have an annual gross agricultural income less than $250,000.

“Through AgVision, we’ve modified our regular underwriting standards to make them less restrictive and easier for folks in the young, beginning category to get a loan,” Knopp told Good Fruit Grower. “We’ve done things like reduced the amount of down payment needed, waived out-of-pocket loan origination or appraisal fees, stretched debt-to-asset ratios and working capital ratios to make loans easier to qualify for. We also offer educational opportunities to help the next generation improve and refine their financial and management skills.”

AgVision loan recipients are in the program for six years before graduating to regular Northwest Farm Credit loans.

“Our goal is to get the beginning producer off to a good start financially, and in six years, their balance sheets are strong enough to qualify through our regular underwriting channels,” said Knopp.

Since AgVision’s inception in 2001, more than $400 million in AgVision loans and more than $500,000 of reimbursements have been made to Northwest Farm Credit member-owners, according to Knopp. Northwest Farm Credit’s AgVision program currently has around 1,200 customers and graduates 80 to 90 producers each year.

But even with AgVision’s reduced underwriting standards, loan fee waivers, and partnering with other loan sources, Northwest Farm Credit was turning away some beginning growers, Knopp said. “We’ve had some applicants that we had to deny—not because they didn’t have a solid business plan—but because they didn’t have enough business history and financial strength.

“We’ve had instances where we had to say no, but thought, ‘Gosh, I wish I could have made that loan.’ The applicant was so passionate and had a solid business plan but didn’t meet even AgVision loan standards.”

JumpStart

That’s why JumpStart was developed—to reach those who couldn’t qualify under AgVision, Knopp explained. Northwest Farm Credit launched JumpStart in October 2013.

The program offers interest-only operating loans to provide working capital to help beginning growers establish their businesses. Up to $100,000 can be borrowed for down payments, annual operating expenses, or capital purchases.

To qualify, growers need at least one year of relevant management experience; the operation must be in the start-up phase; a solid business plan must be developed; and the producer must be independent and not affiliated with another established operation unless the business plan includes transitioning farm assets and full management responsibilities.

JumpStart also has a mentoring program to help customers develop financial management skills. Customers work closely with Northwest Farm Credit relationship managers who help customers analyze income and expenses and assist with management decisions.

JumpStart customers also receive all the benefits of the AgVision program and may be reimbursed for up to $1,500 for purchases made toward technology and continuing education.

For JumpStart’s inaugural year in 2014, Northwest Farm Credit provided loans to more than ten diversified producers who otherwise would have been denied. Program results have exceeded Knopp’s expectations. •

To learn more about JumpStart or AgVision, call Northwest Farm Credit Services at (800) 827-6505 or visit their website at: www.northwestfcs.com.

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For other young beginning farmer programs, contact your local Farm Credit Services or visit the following websites:

www.start2farm.gov/usda/programs
www.youngfarmers.org
www.beginningfarmers.org
www.cfra.org (Center for Rural Affairs)
http://sustainableagriculture.net/publications/grassrootsguide/farming-opportunities/

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Five C’s of credit analysis

Regardless if you’re young or old, a beginning or established grower, or whether you seek credit from a bank, cooperative, or relative, the lender will review your creditworthiness.

A business plan developed for the next three to five years, in addition to the completed loan documents, is a good idea because it helps the lender better understand you and your business, according to the Minority Business Development Agency’s website.

And be prepared for the Five C’s, the basic components of any credit analysis:

Character is the general impression you make on the lender. Your educational background, experience, and quality of references will be part of an opinion formed as to your trustworthiness in repaying the loan.

Collateral, or guarantees, are additional forms of security you provide to the lender, such as pledging assets you own or someone else’s guarantee promising to repay the loan if you can’t.

Capacity to repay is critical to a lender. Exactly how do you intend to repay the loan? Considerations include cash flow from the business, timing of repayment, probability of success, payment history on existing credit relationships, and possible other sources of repayment.

Capital is the money you have invested in the business and indicates how much you have at risk should the business fail.

Conditions are the intended purposes of the loan. Is the money being used for operating expenses, additional equipment, or such? What are the economic conditions and overall climate that could affect your business?