Tips For Financing And Managing A Small Farm

Posted on: 18 December 2018

Owning a small farm can provide you with a comfortable and peaceful home while also providing economic opportunities. However, the process of buying a farm can be different from buying a normal home or a standard commercial property. Individuals that are looking to make this type of investment should be well-served by increasing their understanding about some of the key considerations and steps that come with buying a farm.

Appreciate That Farm Financing Is A Type Of Business Loan

Farms will often have fairly high purchase prices due to the large amount of land that they require. This makes financing this purchase a requirement for most individuals to be able to afford it. However, it can be common to fail to realize that financing this type of property will likely require a commercial loan. As a result, you might need to prepare a business plan for this purchase. While this can seem intimidating, there can be an added advantage in that some lenders will allow the expected revenue of the business to be considered when evaluating the creditworthiness of the applicant.

Analyze The Soil Quality And Drainage Before Committing To A Property

There are many different factors that will need to be reviewed before you can determine whether a property will make a good farm investment. Special attention needs to be paid to the quality and drainage of the soil. If the soil is unable to effectively drain or lacks vital nutrients, your ability to grow crops will be severely undermined. While some sellers will provide buyers with soil quality reports, it can be prudent to invest in having your own soil evaluation done before committing to a binding bid. While it may be possible to improve the soil conditions of a property, this can be very expensive and require constant work.

Keep A Reserve Fund For Your Payments And Operation Costs

It is an unfortunate reality of farming that it can take some time for crops to be ready for sale. During this time, you will still need to meet the operational expenditures of the business. Furthermore, you will also need to meet the loan payments. Keeping an emergency reserve fund available at all times is an essential practice for small farm owners. These funds can help to sustain the farm until the next crops are ready to be sold at market. To avoid tapping into this fund when it is not necessary, it should be kept in a separate account, and you should always replenish it whenever you are forced to utilize it.

For more information about farm financing, reach out to a local lender.