New Options Offer Farm Loans for Organic Transition

If securing farm loans for organic transition feels daunting, we have some good news. It’s not as hard as it used to be. In fact, there’s a number of new options that could provide a solution for you and your operation.

Traditional lenders, farmland investors, non-profits, and even big food companies are starting to create more financing options to help farmers make the transition to organics.

We’ve put together a list of some options worth considering along with advice on how to evaluate them. And, just as important, we’ll discuss how you can develop a realistic plan that makes your lender say, “Yes!”

Traditional lenders with farm loans for organic transition

More banks and lenders are creating loans specifically designed for the organic transition process.

One such lender is Rabo AgriFinance. Their organic transition loan gives farmers the capital they need for the upfront costs associated with organic farming. Then when a farmer receives additional revenue from their certified organic crops, they can schedule repayments.

Compeer Financial, an Upper Midwest-based Farm Credit Cooperative, offers a similar product. Their organic bridge loan requires farmers to only pay interest on the loan for the first 2-3 years, with a declining balance operating loan. Once they receive organic certification, it converts to a standard 5-year intermediate-term loan with fully amortized principal and interest payments.

Land investors and rental agreements

Another option for financing the transition is through farmland arrangements.

Some investors want to invest in organic farmland. To help make that happen, they’re creating leases for farmers who will transition to organic and continue farming using sustainable and regenerative practices.

One example is Clear Frontier Ag Management, which offers long-term, flexible lease structures to family farms transitioning to organic production. They work with farmers in four phases: lease structuring, land stewardship practices, operations, and offtake arrangement. Currently, they own and manage more than 3,000 acres of farmland across six family farms.

As of March 2021, Clear Frontier is actively investing in conventional and organic land across the U.S. and seeking organic farmers for long-term leases.

But you don’t need to work with an investment group to create a similar arrangement on your own farm. If you already rent land, consider whether your landlord would be willing to do a crop-share agreement. Look for creative ways to engage those who already have a stake in your success that could help reduce your financial burden.

Non-profits invested in sustainable practices

Another emerging group of lenders is non-profits, like Mad Agriculture. In support of their mission for restoring our relationship with the earth, they help farmers adopt regenerative and organic practices. That includes farm loans for organic transition.

Just this year, they launched the Perennial Fund, which provides long-term financing to farmers making the transition. Whether a farmer needs new equipment, infrastructure, or operating capital, the Fund’s goal is to give farmers the financing they need to successfully manage the transition period.

And to help their farmers succeed in organic, they’re working on ways to assist them with marketing and create a community among their growers to foster support.

Grants and programs that can help with expenses

Food companies that need to source organic ingredients also want to lend their financial support to farmers. Michelob ULTRA — which produces Pure Gold, a USDA-certified organic light lager — is one example. In partnership with the non-profit CCOF (California Certified Organic Farmers), the brewery is providing $5,000 grants to eligible farmers who want to transition.

Michelob ULTRA is also guaranteeing to purchase barley from farmers during the transition once they’re certified organic.

Other programs assist with expenses associated with organic farming, such as cover cropping. The NRCS Environmental Quality Incentives Program (EQIP) is one that gives farmers a payment for seeding cover crops. Your local watershed and state-based organizations may have their own financial incentives for adopting environmentally friendly practices.

Since this type of funding is on a much smaller scale — and there’s no guarantee you’ll receive it — think of them as more of a “nice to have” versus a necessity. Focus your time and energy on securing the finance you need to stay economically sound during the transition first. Then if you have the time and desire to pursue smaller amounts, go for it.

Evaluating options with farm loans for organic transition

With several funding opportunities on the market now, how can you determine the farm loan for organic transition?

First, consider the motivation of the lender and the dynamics of the loan.

Traditional lenders that offer transition loans probably hope to play a more significant role in your farm’s overall financing. So when evaluating these opportunities, you need to ask yourself: Do I want to move my business to them?

And consider the impact that would have on your farm. Transitioning to organic is already a big change. A complete overhaul of your financing situation might create too many unknowns all at once.

With non-traditional lenders, their intention might be a little more altruistic. But you still need to consider what their rate of return is going to be and what you’re going to have to pay for it. Are there any stipulations around what you can and can’t do? What kind of support do they offer?

If they offer support beyond lending, consider their experience and expertise with large-scale organics. If they’ve only worked with small operations or academic settings, they may not understand the reality of larger scale commercial organic farms.

When evaluating a lender, always ask yourself the following questions:

1. When will I need to repay my loans and how does that help support the transition?
2. What’s the interest rate I’ll be paying?
3. What source of assets do I need to pledge to provide a lien against, if any, to provide the security they need?

Don’t dismiss your current lender

Before pursuing a new lender, see if there’s a way you can work with your current one. If they can create an option that works for you, it’s probably your best choice. It brings the smallest degree of change during a time that’s full of them.

Most of the hesitation that comes from traditional lenders is because they’re not familiar with organic. When you present a clear path to profitability, you’re more likely to win their support. Check out the blog post “5 Steps for Financing the Transition to Organics” to see what lenders look for in farmers pursuing organic and how you can improve their odds of saying, “Yes.”

Create a plan to secure financial support

Financing the transition to organic isn’t always easy. But we’ve found that when you’re working with an experienced partner like AgriSecure, lenders have more confidence in you.

No matter whether you pursue a creative engagement with your farm’s stakeholders or work directly with your traditional lender, you need a plan. It’s important to know how you’re going to transition successfully and deliver long-term profitability.

That’s where we can help. With our MyFarm platform and first-hand experience in large-scale organic farming, we can partner with you to create a plan that helps you win financial support and sets you up for organic success. We can also help you evaluate which lending opportunities are the best fit for your business.

Your first consultation with us is free. Schedule a call and get your plan to organic started today.