Hobby Farm Loans and Financing: Advice for Canadian Borrower

Hobby Farm
By Marketing team
July 07, 2020Articles

Financing your Hobby Farm: Advice for Aspiring Farmers in Canada

Owning and operating a hobby farm can be a tremendously rewarding experience, and not only in financial terms. As many small-scale farmers are quick to tell you, being closer to nature is, quite simply, good for the soul.

If this is a dream you’ve long harboured, the following will provide you with a basic idea of what’s involved and how to carry out your project.

What it costs to start a hobby farm

The upfront costs vary greatly depending on a few key factors:

  • The scale of the operation you’re planning to develop
  • The types of heavy equipment required
  • The amount of labour and time you’re prepared to devote to your hobby
  • The cost of buying or renting a property suitable for small-scale farming

This will probably be your first real experience as a farmer, and as such you’re liable to discover that you still have a lot to learn about commercial agriculture. Even with the most modest of hobby farms, there are still risks to consider.

Take inclement weather, for example. Should your crops be severely compromised by a poor growing season, as can happen sometimes, you could easily find yourself with nothing but aching muscles and debt to show for all that hard work you put in to your farm all year.

The most important thing to remember is not to get too far in over your head financially. When you’re first starting out, small and simple are the words you want to live by.

For instance, a henhouse with ten chickens is obviously a lot easier to manage than a barn housing 100 of them. Keeping a few chickens for the eggs they produce every morning doesn’t require you to find, hire, and pay for the additional outside labour you’d need to nurture a barn-full of the birds, let alone build or otherwise devote a structure to house them. According to experts, a flock of 6 to 10 birds is a good number to aim for at first.

Furthermore, you’ll save yourself a small fortune in up-front costs if you can raise animals or grow crops that don’t require you to invest in heavy machinery. Remember that if you go large-scale and start needing to invest in heavy equipment, you’ll be faced with the additional financial pressure of needing to pay off your monthly equipment loans.

Too large or intensive a farm operation could also wind up being so labour-intensive that it becomes a full-time job. Better to start small and if you so choose, slowly begin to grow your business after a few successful seasons.

Financing a hobby farm

Whether you already own land or need to buy -- or rent -- property, most experts agree that you should dedicate no more than one or two acres to a hobby farm. Consistent with real estate in general, over the long run it typically pays to own the land you’ll be working over renting it, which in turn means you will likely need to secure financing.

Many lenders consider financing rural properties to be high risk affairs, particularly when the primary purpose for owning such a property is commercial. However, what you’re looking to establish is less an actual agribusiness than a hobby. Although it’s expected to become a potential secondary source of income, your ability to meet your mortgage payments isn’t predicated on your enjoying bumper crops every harvest.

Consequently, you can apply for a standard property/home ownership loan through a conventional lender like a bank or credit union, which are more straightforward and easier to secure than business loans to purchase strictly commercial properties.

Equipment financing

While much will depend on the crops you choose to grow and animals you’ll be raising, there’s a good chance you’ll find yourself in need of some heavy machinery -- a tractor, for example. These items can be costly and will likely require financing as well.

When borrowing from a conventional lender is out of the question -- or more trouble than it’s potentially worth -- securing equipment financing from an alternative lender is the next most common, pragmatic option, and probably your best bet.

There are a few different approaches commonly employed to finance farm equipment, including the leasing option, which can make a lot of sense under the right circumstances. Another plus to working with an alternative lender is that they’re infinitely easier to deal with and their terms considerably more flexible than those of conventional lenders.

The takeaway

Starting a hobby farm should be looked upon as a fun, personally rewarding activity that will ideally lower your grocery bills and generate a little revenue whenever you take your goods to market.

The trap some novices fall into is mistaking their hobby farm for a genuine agribusiness, going into debt to finance the enterprise, and then, with these new financial responsibilities to contend with, finding themselves needing to generate a lot of money every month just to alleviate the financial pressures they’ve brought upon themselves.

While a running hobby farm could potentially turn out to be more stressful than you bargained for, it certainly doesn’t have to be that way. If you plan accordingly, keep your operation simple -- and most crucially, within your means -- a small hobby farm should not only put fresh food on your table and earn you a few extra dollars, but provide you with a lot of personal satisfaction to boot.

Our experts can help you secure the funding you need for your hobby farming project. Contact us to find out more.