As producers’ needs for more efficient storage solutions increase, so does the demand from producers, and the USDA helps out with its Farm Storage Facility Loan program. Through the program, funds needed by producers are delivered in the form of low-interest loans to upgrade, build, or buy storage facilities and equipment for the handling of commodities. Here are five of the best FSFL options for the year 2024
1. USDA Farm Storage Facility Loan
USDA Farm Storage Facility Loan—this is a facility loan that helps farmers to construct or upgrade storage facilities. This includes no or low-interest loans for all types of storage, hence an exciting prospect for many agricultural producers.
The FSFL is a loan program with the USDA’s Farm Service Agency. It provides financial assistance to farmers for constructing, repairing, or improving storage facilities. Such facilities may store all types of nationally inspected grains and other commodities, including oilseeds, fruits, vegetables, and even livestock.
Key Benefits of the FSFL
- Low-interest rates: Farmers can borrow at competitive interest rates compared with traditional commercial loans.
- Flexible loan terms: The program has loan terms that range from 3 to 12 years, so farmers have the opportunity to select one that best fits their personal financial situation.
- Eligible commodities: Different agricultural products are eligible for storage under this program, hence versatile for farms running different farming operations.
- On-farm storage: FSFL helps farmers efficiently manage their inventories and can obtain better prices at market.
Eligibility and Requirements
Eligible farmers who may obtain an FSFL must, at a minimum, meet the following requirements:
- Be a landowner, landlord, leaseholder, tenant, or sharecropper producing eligible commodities.
- Show a determined need for additional storage based on production history.
- Have the financial ability to repay the loan.
- Loan amounts vary, but the maximum amount one can get is $500,000 for storage facilities, while there is a microloan option for small loans with less down payment required.
How to Apply
The farmer must contact the local office of the FSA to apply for the USDA Farm Storage Facility Loan. The FSA is to guide on the application procedure, eligibility, and documentation.
2. Farm Credit Storage Facility Loan
Farm Credit is a cooperative financing institution aimed at serving farmers and ranchers. One of the ways they do this is through storage facility loans. Such loans will help in the construction, repairing, or expansion of storage facilities that are to safely keep all your agricultural products and equipment.
Benefits of a Farm Credit Storage Facility Loan
- Competitive Interest Rates: Farm Credit typically provides interest rates that are lower than those for which the traditional commercial lender settles, so you’ll save on your loan.
- Flexible Repayment Terms: Customized repayment plans that fit your cash flow provide the flexibility to handle financial matters.
- Understanding of Agriculture: Being a farmer-owned cooperative, Farm Credit has an in-depth understanding of the agriculture business and, more importantly, you.
- Local Decision Making: Most of the decisions are locally made, hence quick in processing and service provision is personalized.
Eligibility for a Farm Credit Storage Facility Loan
For one to get a Farm Credit storage facility loan, you must be an association member of Farm Credit. The membership requirement therefore means that you must be an active player or engaged in agriculture and meet the requirements of the membership of the cooperative. Your credit history, income, and reason for taking the loan are also put into consideration.
How to Apply for a Farm Credit Storage Facility Loan
Application for a Farm Credit storage facility loan usually involves the following steps:
- Call your local Farm Credit association and discuss your project and your needs for the loan with a loan officer.
- Provide financial information in a loan application and also include details of the storage facility that you are proposing to construct.
- Have your loan approved by Farm Credit after your application and creditworthiness have been evaluated.
- Loan Closing: Once you are approved, you will finalize your loan terms and sign on the dotted line.
Keep in mind that shopping around by comparing loan options with various lenders is very critical to obtaining a loan that best serves your needs. While Farm Credit has very competitive rates and terms, the bottom line is that you should consider the other options out there to make an informed decision.
3. Commercial Bank Storage Facility Loan
Commercial banks offer so many loan products. Their farm storage facilities are just a few of the many. Their reach is also wider compared to cooperatives, which are specialized in agriculture as their only significant distinction. These make commercial banks a preferred choice for many farmers in need of the storage infrastructure.
Pros of a Loan for the Construction of Farm Storage Facility Offered by a Commercial Bank
- Accessibility: Commercial banks offer a more extensive reach for farmers than cooperatives.
- Potential for Flexibility: Depending on the bank and your relationship, you might find more flexibility in loan terms and structures.
- Additional Financial Services: Many banks offer a range of financial products, such as checking accounts, savings accounts, and investment services, providing a one-stop shop for your financial needs.
Challenges of a Commercial Bank Storage Facility Loan
- Higher Interest Rates: The cost associated with the interest charged by commercial banks may be higher compared to Farm Credit and other specialized agricultural lenders.
- Less Agricultural Expertise: Commercial banks may exhibit a lessened understanding of the special problems and opportunities that farmers often must handle.
- Probability of Stricter Requirements: Stricter criteria for loan approval, demanding more documentation and greater collateral, may be necessary.
Some of the things to consider for your storage facility from a commercial bank loan are as follows:
- Interest Rate: Shop interest rates and get the best deal possible from several banks.
- Repayment Terms: The tenure of the loan should be as per your ability and project timeline.
- Loan Amount: Justify the exact amount you are seeking for your storage facility.
- Collateral: Arrangement for collateral will be expected, such as the facility itself or other assets.
- Fees: Check if there are other charges for the loan.
Procedure of Application
The application for a storage facility loan from a commercial bank normally proceeds as follows:
- Research: Source nearby banks that offer financing for agricultural loans.
- Pre-approval: Certain banks offer a preliminary approval to understand your borrowing capacity.
- Loan Application: Application must be filed with the necessary paperwork, such as financial statements and project details.
- Loan Approval: The bank will assess the creditworthiness of the individual and the project feasibility.
- Close the Loan: Finalize the loan conditions and sign the loan closing documents.
Note: Establishing your good relationship with the local bank certainly helps to create a good scenario. Be as detailed as possible in information provided relating to the specifics of your farming operation and in the detail for the storage project to best the chances of the loan being awarded to you.
Whereas it remains a very plausible and flexible source to finance your storage facility, it is quite primary to weigh its pros and cons against other sources of credit packages, including Farm Credit or government-backed loans.
4. Equipment Leasing
You can lease all your farm storage needs instead of raising enough money to buy the equipment. In this kind of arrangement, you can make use of the equipment for an agreed time in consideration of regular payments.
How Equipment Leasing Works
- Contract: You enter into a lease agreement with the owner of the equipment, the lessor, for a certain period of time.
- Payments: You pay periodic rents to the lessor for using the equipment.
- Ownership: The lessor owns the equipment through the lease tenure.
- Options: At the end of the lease, you can normally purchase, renew the lease, or just return the equipment.
Benefits of Leasing Equipment
Preserves Cash Flow: Leasing enables one to conserve capital for other operational needs.
Tax Advantages: Most of the payments made as rent are usually allowed to be deducted against tax as a business expense.
Up-to-date Equipment: You have the option of using newer equipment while avoiding the headaches of ownership.
Flexibility: The lessee can often negotiate the length of the lease to fit their business needs.
Things to Consider in Equipment Leasing
Cost: Leasing tends to be more expensive in the long run than buying, primarily if you will use the equipment for an extended time period.
Ownership: You do not own the equipment when the lease is complete, unless you purchase it.
Maintenance: The lease will spell out who is responsible for maintenance and repairs.
Types of Equipment Leases
Operating Lease: A short-term lease requiring lower monthly payments. In this case, the lessor is usually required to maintain and repair within his own discretion the equipment leased.
Capital Lease: A long-term lease in which the payments are high and where, for accounting purposes, the lease is regarded as tantamount to the purchase of the asset.
When to Consider Equipment Leasing
If your needs are short-term, needing to use the equipment over a short period only.
If budgeting constraints are tight enough that paying for the acquisition of equipment is hard.
For technological progress, in a case where equipment quickly becomes obsolete.
Remember: While equipment leasing may be sufficient for some, one needs to consider their position carefully and evaluate their financial state. You can seek advice from a financial advisor in order to make a decision that best suits your farm.
5. SBA-504
There’s one more unusual financing strategy for expanding your storage capacity: the SBA 504 loan program. While not targeted as directly toward agriculture as, for example, Farm Credit or USDA loans, this program can be a powerful tool under the right circumstances
An SBA 504 loan is a long-term, fixed-rate financing product of the U.S. Small Business
Administration. It assists small businesses in funding fixed assets, such as real estate and equipment.
How Does it Apply to Farm Storage?
An SBA 504 loan can be obtained to construct, purchase, or renovate storage facilities such as barns, grain silos, equipment sheds, and any other miscellaneous structures on a farm.
Benefits of the SBA 504 Loan
- Long-term financing: Fixed-rate financing is possible for as long as 25 consecutive years, which puts farmers on firm ground.
- Partial government guarantee: Part of it is guaranteed by the SBA, and this partial guarantee makes it easier for lenders when approving applications.
- Smaller down payment: The 504 loan tends to have less of a down payment than most conventional commercial loans.
Eligibility and Requirements
Your farm will need to meet some few requirements to qualify for an SBA 504 loan, including:
- Be a for-profit business.
- Be classified and operate as a small business concerning SBA size standards.
- Have an acceptable credit history.
- Be able to repay the loan.
How to Apply
An SBA 504 loan is obtained through a Certified Development Company in cooperation with a traditional lender. The CDC will process the application and provide part of the financing; a lender will also provide part of the financing.
Key Points:
The SBA 504 loan can be a helpful tool but won’t be appropriate for every producer.
The process to secure an SBA 504 loan is more involved than for most farm loans.
One has to work with experienced lenders and CDCs who can help guide one through the application process.
The SBA 504 loan can be one viable way to fund farm storage facilities. However, carefully evaluating your special needs and availability of other loans can help you make a more informed decision.
Factors to consider in selecting a farm storage facility loan
- Interest rate: The interest rate is what you pay for money borrowed. You want to secure a loan with the lowest interest rate.
- Repayment terms: The repayment terms refer to the amount of time you have to pay back the loan. You want to select a loan that allows for repayment on terms that will not burden your wallet.
- Amount of loan: This is the size of the loan, meaning the amount you are borrowing. You will want to select a loan that covers your project cost.
- Eligibility requirements: Each program will have its eligibility criteria. You should make sure that you are eligible for the loan before applying for one.
- Closing costs: These are fees that are charged to a consumer for closing a loan. You would want to compare the closing costs from various loans in search of the best deal.
Additional tips for getting a farm storage facility loan
Shop around: Compare rates and terms from different lenders before you choose a loan.
Have good credit: Good credit will help you achieve the best interest rate.
Be prepared to provide documentation: Be prepared to furnish documents related to your income, expenditure, and assets during the time of application.