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@ farmcrediteast.com 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.
