Overcoming Farming Financial Constrains With Farm Loans
Farming is a lucrative venture that is commonly faced with financing challenges. Farm loans are the most common form of borrowing that is available to many farmers. This type of lending is attractive because of its high accessibility, competitiveness among providers making it relatively cheaper, seasonality of other lending options and flexible repayment terms suitable for the varying financial needs of the farmers.
One of the most common and the biggest headache to farmers in seeking capital for their operations is the availability of collateral for borrowing. Most banks will require farmers seeking capital from them to provide a security for the money offered. Such assets are necessary for the banks as they guard against any liability that may be fall the bank in the event the borrower defaults in payment.
Both governments and non-governmental organizations offer grants. Unlike most of the other financing options, the amount received is normally not repayable. This would therefore be a more attractive financing option if small scale farmers can be able to identify institutions offering grants for farming projects.
Please note that while governments may provide grants as starting capital for small scale farmers, non-governmental organizations have a focus on research. Applicants for such grants may therefore be required to submit research proposals on the areas that they wish to undertake research in. That notwithstanding, there are still NGOs that solely provide grants to small scale farmers so that they may fund their farming operations.
Medium term lending available from banks often last between four to nine years. They are commonly used to finance farm assets that are more costly such as expensive equipment and making farm improvements. Most of the assets financed using medium term loans are depreciable in nature over their useful life.
Repayment options for financing sought from banks and other financial institutions are flexible. Farmers can either choose to pay interest over the borrowing term then the principal at the end of the borrowing term or they could opt for making periodic payments that consist of both principal and interest. This makes it easier for farmers to choose a repayment option that they are well comfortable with.
It is ideal to keep in mind that small scale farmers can opt to form an association where they can save and obtain credit for funding their operations. The benefit with such associations is that the members can secure financing at very low costs relative to the cost they would have incurred in borrowing from other financial institutions. Additionally, it is easier for banks to lend to such associations as they have a higher credibility that that an individual has.
Farm loans are good financing options for farmers as compared to the other financing options available. It is however important to note that most financial institutions will only lend to farmers who have a good credit record. This makes it difficult for farmers with bad credit to access capital from such institutions and may have to opt for other organizations that accommodate the financial needs of farmers with bad credit.
One of the most common and the biggest headache to farmers in seeking capital for their operations is the availability of collateral for borrowing. Most banks will require farmers seeking capital from them to provide a security for the money offered. Such assets are necessary for the banks as they guard against any liability that may be fall the bank in the event the borrower defaults in payment.
Both governments and non-governmental organizations offer grants. Unlike most of the other financing options, the amount received is normally not repayable. This would therefore be a more attractive financing option if small scale farmers can be able to identify institutions offering grants for farming projects.
Please note that while governments may provide grants as starting capital for small scale farmers, non-governmental organizations have a focus on research. Applicants for such grants may therefore be required to submit research proposals on the areas that they wish to undertake research in. That notwithstanding, there are still NGOs that solely provide grants to small scale farmers so that they may fund their farming operations.
Medium term lending available from banks often last between four to nine years. They are commonly used to finance farm assets that are more costly such as expensive equipment and making farm improvements. Most of the assets financed using medium term loans are depreciable in nature over their useful life.
Repayment options for financing sought from banks and other financial institutions are flexible. Farmers can either choose to pay interest over the borrowing term then the principal at the end of the borrowing term or they could opt for making periodic payments that consist of both principal and interest. This makes it easier for farmers to choose a repayment option that they are well comfortable with.
It is ideal to keep in mind that small scale farmers can opt to form an association where they can save and obtain credit for funding their operations. The benefit with such associations is that the members can secure financing at very low costs relative to the cost they would have incurred in borrowing from other financial institutions. Additionally, it is easier for banks to lend to such associations as they have a higher credibility that that an individual has.
Farm loans are good financing options for farmers as compared to the other financing options available. It is however important to note that most financial institutions will only lend to farmers who have a good credit record. This makes it difficult for farmers with bad credit to access capital from such institutions and may have to opt for other organizations that accommodate the financial needs of farmers with bad credit.
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