By Tom Driscoll, Director of NFU Foundation and Conservation Policy
As we’ve discussed here on the Beginning Farmer Forum, access to markets is among the greatest challenges for new producers. Oftentimes, beginning farmers face fewer obstacles in emerging markets than in well-established ones. For example, beginning farmers may be able to grow products appropriate for local and niche markets, relying more on labor and marketing than a large investment in land or equipment.
But in many areas, the infrastructure that would help these farmers connect with emerging markets, such as federally-inspected livestock processing facilities for smaller orders and mills that service demand for local feed or flour, doesn’t exist. The U.S. Department of Agriculture (USDA) Rural Development (RD) agency can help connect rural businesses with credit, enabling them to bridge the gap between beginning farmers and consumers. Additionally, new or growing rural businesses may offer opportunities for farmers to gain off-farm income close to home or in ways that employ their farm experience.
Rural businesses often face challenges accessing credit, just as beginning farmers do. RD’s Business & Industry Loan Guarantees can reduce the risk lenders face when lending to rural businesses. Lenders can apply to RD to guarantee a loan for a project located anywhere other than a city or town with greater than 50,000 residents, or the urbanized area around such municipalities. However, some projects in those areas may also be eligible if they fall within the Local and Regional Food System Initiative.
RD can guarantee loans made to:
- Change, grow or modernize the businesses;
- Secure and development real estate;
- Purchase equipment, inventory, or supplies;
- Refinance debt if it improves cash flow or creates or saves jobs; and
- Acquire a rural business if it creates or saves jobs.
There are also specific purposes for which loan guarantees are not available, including golf courses, racetracks, churches, and, with some exceptions, agricultural production.
RD can guarantee loans for up to $25 million; the percentage of the loan that RD will guarantee shrinks as the size of the loan grows. Terms vary based on the intent of the loan, from 7 years for working capital and up to 30 years for real estate.
If you’re seeking funds for a non-farm rural business, you can ask whether your prospective lender is familiar with RD’s Business & Industry Loan Guarantees. If not, the lender can learn more from the RD Business Programs Director in your state. To learn more, visit Rural Development here.
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