Better Beginnings

FarmStart offers a
helping hand to new
farmers and ag co-ops

By Stephen Thompson, Assistant Editor

eginning farmers and small agriculture cooperatives often find it hard to raise the necessary working capital for a successful launch. But in the Northeast, there is a new resource they can tap into. Farm Credit East and CoBank are offering a new program — FarmStart LLP — a credit and training program designed to help new farmers and farm-related businesses get off to a solid start. As part of the producer-owned Farm Credit System, both of these cooperative lending institutions have service to agriculture as their top priority.

“Our field consultants noticed that new farmers needed working capital,” says David Boone, program manager. “They’d put everything they had into their new businesses, they were carrying mortgages and equipment loans, but they had nothing to spend on operating expenses. They were using credit cards to buy what they needed.”

Both the management and the board of directors of Farm Credit East thought that a program addressing this problem would mesh well with the Farm Credit Administration’s mandate to its member banks to help more beginning farmers. The board decided to set aside funding for high-risk loans to small beginning farmers and small farm-related businesses and cooperatives.

In partnership with CoBank, Farm Credit East established FarmStart as a separate limited liability partnership (LLP) to administer the program. FarmStart offers loans of up to $50,000 for working capital to qualifying applicants.

Solid business plan a must
The requirements are stringent. The applicant must be able to show that he or she is of good character, demonstrate business ability and produce a solid business plan that shows that the borrower has the capacity to repay the loan. He or she also must agree to accept help and supervision from a FarmStart representative, to undergo regular reviews of the business’ books and to attend educational seminars on financial management.

To help participants keep on top of their finances, Red Wing Software, a firm specializing in farm and business software, donates a copy of its CenterPoint accounting software to each participant. Participants are expected to graduate to conventional credit within five years of enrolling in the program.

Good character and good credit rating requirements are key to making the program work, says Boone. “A credit score under 650 probably isn’t going to work. We ask for two character references; sometimes our loan officers know the [people used as] references. And we do a little research on our applicants.”

The program’s first participant, in 2006, was a young producer who grew his crops in greenhouses. Farm Credit East had provided him with a long-term real estate loan of $150,000, an equipment loan of $50,000 and a Farm Service Agency-guaranteed operating loan of $100,000. However, the young farmer still needed additional operating money. With only 16 percent equity in his operation, he wasn’t very likely to get it through conventional credit channels. A $50,000 FarmStart loan gave him what he needed to get over the top; three years later, he’s well on his way to paying off the loan.

The FarmStart program currently has 52 participants; only one borrower is currently delinquent. Since the program started three years ago, only one loan has shown a loss. Advisors are all qualified business consultants and are required to take a one-day training course every year.

“They help the borrowers develop a monthly cash-flow budget,” says Boone. “They sit down with them and talk about how things are going and do a review every two or three months. If they’re getting off budget, they talk about how to get back on track.”

Generation to generation
The program also tries to address the problem of passing a farm business down between generations. “We have a program called Generation NeXt, where we sit down with father and son and discuss how to make the transition,” says Boone. “And we do a seminar on taking over the family business.”

Ben Fisk, a 21-year-old maple syrup producer in New Hampshire, had different problems. He’d started his business as a child, using gifts and inherited equipment from parents and relatives and, later, with funds from a full-time job. He slowly built up the business by reinvesting the profits. All was going well until a severe ice storm ruined much of his equipment.

A FarmStart line of credit helped him rebuild the business. However, Fisk found the training offered by the program just as helpful as was the loan. “It wasn’t just borrowing money — it was help in learning how to budget,” he says. “You learn different ways to look at your operation and to use money.”

Help he received learning how to use bookkeeping software was also important. And although he hasn’t been able to yet use everything he’s learned, he says: “If I can learn what I need to before I get there, all the better.”

Advisor proves invaluable
In March 2006, Teresa Lawton started a small dairy on a 25-acre Massachusetts farm that’s been in her family for 200 years. “I needed to find a way to make a small operation pay, because you can’t expand here like you can in other places,” she says.

Lawton had worked for the Massachusetts Department of Agriculture as a dairy inspector, where she learned about the growing market for whole, unpasteurized milk. She decided to try producing raw, grass-fed milk, which would fetch a premium price.

With the proper license and labeling, farmers are permitted to produce and sell raw milk in Massachusetts. However, the milk must be sold on the farm; retail stores are not allowed to stock it.

She started out with just five Ayrshire cows, a hardy breed known for low somatic cell counts and efficient milk production from a grass diet. After she started to expand production, she applied to Farm Credit East for a line of credit to buy hay, and learned about FarmStart.

“I don’t like to borrow,” says Lawton, “but sometimes, I’m just a little short. Now I don’t have to use credit card debt.”

However, like Fisk, she found the training just as helpful as the credit. Lawton sees her relationship with her FarmStart advisor, Briana Bebee of Farm Credit East, Middleboro, Mass., office, as one of the great benefits of the program. “She’s incredible,” Lawton says. “I really enjoy meeting with her and going over things. She makes it easy to see the business’s strengths and weaknesses.”

Lawton says that the methods she’s learned under the program have given her a new understanding of her operation’s efficiency and profitability. “I’m now milking 25 cows,” she says, “And I’m making less profit per cow than when I only had five or six.” That kind of knowledge is vital in making investment decisions.

Other new ventures owned by young operators that have been helped by FarmStart include a dairy cow hooftrimming service, a welding business and a fertilizer- and lime-spreader. A trucker and various types of small farming operations have also received help from FarmStart.

However, so far no new farm cooperatives — one of the primary targets the program was designed to help — have yet applied for assistance.

“We’d like to find some co-ops to work with,” says Boone. “We’ve had some discussions, but nothing definite.” Interested co-ops, or farmers interested in starting one, can contact Boone at dave.boone@ for more information.

Merger creates Farm Credit East

Farm Credit East is a new association with 19 offices that combines the credit and financial services teams of First Pioneer Farm Credit and Farm Credit of Western New York. The merger of these two co-op lending institutions, which became effective Jan. 1, 2010, was approved by more than 90 percent of both associations’ stockholders in separate votes conducted last November.

With more than $4.2 billion in assets, the merger allows Farm Credit East to offer more capacity and resources to its members. It has nearly 11,000 customers in a six-state territory that includes New Hampshire, Massachusetts, Connecticut, Rhode Island, New York and New Jersey.

Both predecessor associations have a shared history providing tax, record keeping, consulting, appraisal and other services to members. Farm Credit East is part of the cooperative Farm Credit System.

“We will continue to work everyday on the credit and financial services needs of farmers, commercial fishermen, forest products businesses and farm related businesses,” says CEO Bill Lipinski.

In a recent column, Lipinski noted that the real value of being a Farm Credit member is in knowing that agriculture remains the focus of Farm Credit in good times and bad. And times have been pretty rough recently for many members in the Northeast, including those in the dairy, nursery, tobacco and timber industries.

Lipinski notes that the staff has worked hard to develop contingencies with many customers suffering through the slump. “We did careful projections and credit analysis,” Lipinski writes. “Based on the best industry advice, we recommended and approved substantial increases in operating lines to help keep many businesses afloat. For some, we added new conditions and FSA [USDA Farm Service Agency] guarantees. And, most importantly, our customers stepped up with more collateral, better business plans and more frequent financial reporting.

“Sometimes, even with our best efforts, a single increase in a line of credit was not enough. That’s when we considered an additional increase to fund operating losses above those of our original projection.” While these efforts can’t save the day in every case, they have proved the difference for many.

March/April Table of Contents