Getting startup money a problem for many, especially the farmer

150 150 Alexandra Bjerg

Access to capital is the most troubling issue for California’s farmers. (Photo Credit: Artur Staszewski)

“God said, ‘I need somebody willing to get up before dawn, milk cows, work all day in the fields, milk cows again, eat supper and then go to town and stay past midnight at a meeting of the school board.’ So God made a farmer.”

If you were one of the 108 million people that watched Super Bowl XLVII, you probably heard that excerpt of a 1978 speech paying homage to the American farmer by legendary radio broadcaster Paul Harvey in a Dodge Ram commercial. While God may have made a farmer, God forgot to create a steady and reliable source of capital for his “caretaker.”

Much like a farmer needs seeds for his crops to grow, he needs seed money for his small farm business to grow. But small-scale farmers have historically faced limited access to capital, an obstacle only exacerbated by the economic downturn as banks have significantly pulled back from making small business loans under $250,000.

“Access to capital and access to land are definitely two of the most significant barriers faced by farmers in terms of creating viable businesses,” said Anthony Chang, Director of Lending for California FarmLink, a non-profit organization committed to helping small to mid-sized farmers and ranchers launch and expand their business. Access to working capital can mean the difference between success and failure of a new business.

The inadequate access to cash is the central challenge contributing to the graying of America’s farmers. The correlation is evident in California, where the average farm operator is now nearly 60 years old and 20 percent are over 70.

A survey of more than 1,000 young farmers, conducted by the National Young Farmers Coalition, found that 78 percent of respondents ranked “access to capital” as the top challenge for beginning farmers.

Agriculture is fundamentally capital intensive. Aspiring farmers don’t have the option of working out of mom and dad’s garage to save money. Land, among other expensive factors of production, is required to grow crops and raise livestock. Despite the recession, the value of farm real-estate per acre in California has surged, more than doubling during the last 10 years.

Budding agribusiness entrepreneurs lacking personal wealth face two major hurdles trying to raise sufficient capital to kick start their business. The tightening credit market diminished any incentive to make small loans. Underwriting a $50,000 loan or a $500,000 loan costs the same, says Chang, but banks only make money on the latter. Additionally, very few lenders understand the complex agricultural industry and therefore are reluctant to lend to this sector due to its perceived high risk.

California FarmLink and the U.S. Department of Agriculture (USDA) are working hard to fill this lending gap.

Since the launch of its new loan program 18 months ago, FarmLink has made 30 microloans to small and mid-scale farmers that would otherwise have been shut out of the credit market, preserving and creating 70 jobs. The program, headed up by Chang, specializes in assisting farmers and ranchers with little to no credit history and/or limited proficiency in English in need of small operating and infrastructure loans.

In addition to making direct loans ranging from $5,000 to $100,000, FarmLink provides borrowers with a level of bilingual individualized technical assistance commercial banks, even those specializing in agriculture, simply cannot deliver.

“Ultimately our objective is not access to capital for the sake of access to capital, although we are trying to fill that gap. It’s access to capital so these small farm businesses can survive and thrive,” said Chang. “The groundwork that we lay today equipping borrowers with financial literacy and an understanding of credit will serve them five years down the line,” when they attempt to graduate to the mainstream financial system.

The USDA aims to expand farm finance opportunities nationwide. “In January, USDA announced a new microloan program designed to assist small farmers with loans less than $35,000 for a variety of operating costs,” said Glenda Humiston, State Director for USDA’s Rural Development in California and Action Team Leader for the Access to Capital Signature Initiative of the California Economic Summit. “This is a great tool to assist beginning and socially disadvantaged farmers and is similar in nature to the Intermediary Relending Program and the Rural Microentrepreneur Assistance Program we offer to rural small businesses at Rural Development.”

Although a positive step, Chang believes the government can do more to ensure the next generation of small farms survive and flourish. Guaranteeing continued or increased funding of the tapestry of nonprofits and public agencies that support small and beginning farmers should be of top priority.

The sustainability of California’s booming agriculture industry depends on our ability to encourage a younger and more diverse set of Californians to enter the farming profession, although, limited access to capital currently bars many from entry.

Removing barriers and expanding access to capital is vital to ensuring the next generation of farmers and ranchers can start businesses that will thrive and strengthen California’s vital agriculture economy. 


Alexandra Bjerg

All stories by: Alexandra Bjerg