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The Progressing Farmer Goes to the Bank…and Another Bank…and Another…

This is Part 4 in a series from Jenn Colby describing her process of buying a farm in Vermont. In Part 1, “How to Start Your Own Farm From Scratch,” Jenn described her drive to farm, how hard she worked to make a go of it on a tight budget and the business plan that told her, “don’t quit your day job” and how she persisted and moved forward. and maybe get a better paying job so you can afford your farming dream, and how that led her to grad school AND 4 foundation ewes for the farm she dreamed of. In Part 2, “Getting Your Head Right,” she described how thinking about things in a new way helped her and her husband get together on the farm dream to move forward.  Part 3, “How to Pick the Right Farm” covers what she did to make sure the farm worked, looking at pros and cons and the enterprises the farm could support.

Now we’ve made it to Part 4. Jenn and her husband have a farm picked out and all they need is the financing. See how they fight their way through the forest of forms and red tape to finally buy the farm! Their lessons will be useful for your own journey.

We found the right property, had a sweet business and grazing plan written up, went right to the bank where we secured financing smoothly, and closed on the farm in six weeks.  And we all lived happily ever after.  The End.

Not quite.

Remember that graphic about “your plan” vs. “reality”? 


Prior to selling our old house, we had reached out to a farm finance acquaintance working for one of the more traditional farm (read: dairy) lenders in our region.  He agreed to run our credit and look at our equity to talk about the loan we might be able to secure before looking in earnest for the right farm.  He was polite and professional, but it didn’t take long to come back to us; our credit wasn’t good enough, our debt load was too high (those student loans had not gone away, and actually increased over time), and we did not have enough assets in animals or equipment.  We also did not have a down payment on the mortgage. All of this was a major setback.

We decided to move forward anyway and trust that things would eventually work out.  We focused on selling our house, building assets and writing the business plan—all the stuff detailed in Part 3. Selling our house left us owning a chunk of land free and clear and we put it up for sale hoping to use the sale income as a down payment.

As we looked at various places, I began talking with every farmer I could about their mortgage lenders and situations (What sorts of terms were they able to secure?, What kinds of assets did they have to offer?, What lenders worked best for their types of farm?, etc.).  I can’t speak for other places, but in Vermont, most of the lenders are very well oriented toward lending to dairy farmers.  There is plenty of benchmark business data on dairy. There are tangible assets like cattle and equipment to collateralize loans, and an element of predictability (for the lender, if not the farmer) in dairy scenarios.  There is a built-in market, even if the price itself fluctuates.  It’s hard to blame these lenders; things fit neatly into spreadsheets and build lending confidence.

I approached a state [farm and local business] lending agency and our local USDA office.  They offer a combined loan program with a lower interest rate, and split loans 50/50 to share the risk.  Sounded like a perfect fit, and I invited them both to visit the farm and talk through the details.  We had also done this on the first serious farm attempt, although things stalled quickly due to the previous farm’s sale price.

Both lenders required a full business plan, cash flow statements, lists of debts and assets, and applications.  In the process of writing the business plan and working backward from a realistic (I felt) production level for the land, it became extremely clear that grass-based livestock (unless valued at $10,000/lb.; please note sarcasm), would not pay the farm mortgage.  There simply is not enough acreage to do that.  While the farm is 88 acres (stop laughing, Midwest readers!), the open pasture is only about 23 acres.  That’s extremely typical for the hill farms in our area of Central Vermont and the soils on our farm do not map as prime or even agricultural soils.  The business plan included three livestock enterprises, and an AirBnB yurt rental.  During the three years since meeting with the first lender, our retirement funds had grown; we had built some investments in livestock numbers and equipment, and had been concentrating on improving our credit scores.  The land we owned still had not sold, but these lenders would make loans based on appraisal value.  We would only have to cover closing costs with our own cash. A quick call to my retirement company revealed an estimate that we would have those costs covered.

I submitted the requested information and we waited.

The first problem arose…I needed to write a “soil recovery plan”, since the farm did not have good soils and was widely acknowledged to have low productivity from the start (documentation of pasture recovery progress will be a long-term project and possibly a future article).  I spent a day soil sampling and several days assembling a six-page plan describing soil types, fertility, and management planned to address the limiting factors.

And we waited.

A good thing to keep in mind is that ag lenders in the spring can be super busy people.  It took a few calls and some light harassment to discover that the USDA lender was dropping out.  I never heard this directly from them, but I suspect that the poor quality (on paper) soils meant that they were not able to lend the funds.  It also removed any concerns about not enough “agricultural enterprises”, and some other federal requirements.  USDA still provided the loan guarantee ultimately, but was not a direct lender.

With the final lender established, they were able to move us forward on getting the land appraised.  Our business plan was based on the estimated selling price and appraised tax value, but the lenders needed their own agricultural appraisal completed.  This was a little extra complicated because they also needed to appraise our mortgage-free land, plus the new farm falls in two separate towns.

At this point, it was late May and we knew that the appraisal would not be ready until mid-late June.  We had to renegotiate with the sellers to extend the financing contingency portion of the purchase & sale agreement to July 1.  They were not happy about the arrangement, but after a few tense days, agreed.    I decided to take a quick pass by our local bank in town to see whether we could work something out and close more quickly, but they do not lend against land, and our credit was still not good enough for a worthwhile rate.


Jenn and Chris – Happiness abounds

The farm and land appraisals came through on June 27, with everything appraised for lower values than expected; about $40,000 less on the farm alone.  This made the whole package much harder for the bank to say yes to, and I spent most of that week back and forth with our loan officer changing cash flow projections and cutting out all of the operating capital planned for equipment, yurt and infrastructure purchases.  We wrote long and detailed answers to all of her questions.  We turned over every rock to find countable assets. My husband wrote an impassioned plea about my experience and character for the consideration of the loan committee.  It felt like our whole future rested on June 30—Decision Day. Every grain of positive thought, farm visualization and gratitude was poured into that day.  I could barely breathe. The decision we were hoping for on June 30 was delayed to July 1; the very last day before breaking the contract.  Just before noon the approval came by email.  We were both emotionally exhausted and went to bed at 7 pm that night.

Waking at 4 am on July 2, there was a major To Do list before us, and suddenly we were energized again.  Being approved for the loan was a major hurdle, but we also needed to plan moving, set up the farm to receive the sheep, and cash in the retirement to cover our closing costs.  The retirement ended up being the next big pothole.  The initial person I had spoken to made estimates based on total retirement, not the portion that might be accessible.  My employer had certain conditions for early withdrawal. No one could or would actually tell me how much money I would be allowed to withdraw, until we completed the paperwork process, which took days, and many emails and faxes back and forth.  Ultimately, I was able to draw about 1/3 of the amount I was originally quoted.  This was an annoyance, but we didn’t know it could derail the entire closing until I was driving to work at 9 am the day *before* closing.  The closing costs were going to be higher than expected due to a new state rule.  We could scramble and beg for short-term loans to cover all but the last $5,000, no more.  We were in a position where we had to go back to the sellers again, to ask them to split the overage.  So near and yet so far…ultimately they accepted, and I’m pretty sure every single one of us breathed a sigh of relief that this would finally happen.  As we had come to find over the previous few months, the farm had been for sale off and on much of the time during the period we’d been looking, and the family was just as relieved to see closure as we were.

The farm we first saw on February 8 took until July 28 to close on, and the journey was a rocky one.  Looking back on my notes to write this story, I see a very thick file.  I’ve learned to be patient, keep checking the vision list, and move forward one step at a time.

Jenn with her motto, and a painting of the new farm from her cousin.

Jenn will be sharing more in the future on how she built the financial pieces and how she and her husband changed their situation so they would be more attractive to a lender. Stay tuned!

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Jenn Colby
Jenn Colby
Jenn Colby has spent over 25 years helping livestock farmers find success and quality of life through non-profit, academic, Extension, and community roles. She writes, farms, consults, and hosts the Choosing to Farm podcast from her home base of Howling Wolf Farm in Vermont.

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