Maintaining a small farm can be a particularly rewarding endeavor. Many people find it’s good for the soul, and with a bit of ingenuity it can pay off financially as well.
Here are a few important factors you’ll need to consider when looking to start a hobby farm. The following tips should help give you a better idea of whether this is an activity you’ll truly enjoy, and also serve as a guide to help you get started.
Determining your objectives
The benefits of operating a working farm are vast and significant. If you play your cards right and keep your operation small, simple, and within your means, a small farm could not only make you a few extra dollars but bring you many years of joy as well.
Before you get started, ask yourself the following questions:
How much time are you prepared to devote to your hobby farm?
Do you have a partner to help you with the numerous daily tasks that are required, and are they as enthusiastic about the idea as you are?
If not, are you prepared to hire extra farm help when you need it? You might find you have no choice but to recruit outside help, but it will inevitably cut into your profits.
Crops, livestock, or both?
Is this a farm you want to maintain year-round, or does it make more sense to operate it for one or two seasons of the year? A good idea is to speak with experienced farmers and get their thoughts on what kind of produce makes the most sense for someone in your position.
If you’re only intending on maintaining a relatively small garden and raising a few chickens, your start-up expenses will be fairly minor, albeit not insignificant. However, if you’re thinking about planting 30 acres of soybeans and raising cattle, you’ll need to make a significant investment in machinery, outside labor and infrastructure.
Also bear in mind that the market for agricultural products is constantly changing, so while growing soy beans might have made sense last year, that doesn’t mean it will be lucrative in a year from now.
How can the land you own or plan on buying be best put to use?
Do you already own a suitable piece of property to farm on or will you need to purchase land? Either way, you’ll need to investigate local zoning laws, as owning land doesn’t necessarily come with the right to farm on it. Finding a good real estate agent who specializes in agricultural land should help you immensely so far as these questions are concerned.
Another essential element to building a profitable small farm is determining the comparative advantages and disadvantages of the land you’ll be farming and plan accordingly.
For example, if the soil on your property is acidic, you’ll want to grow crops that thrive under these conditions, such as blueberries. If the land you have is rocky, you may want to look into growing produce that does well in raised beds or consider investing in a hydroponic system. Visit Natural Resources Canada’s website to find out more about plant hardiness zones across the country.
Is your primary objective to earn a profit?
For the first few years, profits are likely to be small and hard-earned. You could even lose money if you’re hit by a stroke of bad luck. For example, inclement weather could severely compromise your crops, possibly even destroying your entire harvest, or natural predators could sweep through your land and kill all your livestock.
It should also be noted that not all hobby farmers are motivated by financial gain. You may be more interested in subsistence farming, growing enough food to feed your family with a little left over to sell locally.
Either way, you’ll need a business plan once you’ve determined your goals and objectives.
A well-thought-out business plan is essential to help you determine the scale of the operation you’ll require for your farm to become profitable. It’s also a pre-requisite should you need to secure a business loan to get your farm off the ground.
Financing your hobby farm
Will you need outside funding to purchase the initial supplies and get started?
As you probably already know, farm equipment alone can get quite expensive, plus there’s the cost of the land you may need to purchase as well as your initial livestock and seeds. Much of your business plan will therefore be determined by the scale of your operation.
All to say that no matter the scale of your operation, there’s an excellent chance you’ll need outside financial help to get your hobby farm off the ground.
Residential vs. business loans
There are several approaches you can take to financing your hobby farm, with the most common strategy being to apply for either a residential or business loan.
Typically, a residential loan is preferable for those just starting out in farming or looking to run a smaller scale operation. That’s because residential loans are granted by lenders to help you finance your own property, so the fact you’ll be farming on it is less important to them, just so long as you can show you’ll be able to repay your debt.
This eliminates the requirement to first submit a viable business plan, but you’ll still need to show you have an excellent credit score and will be obliged to come up with as much as 25% of the cost of your property upfront -- considerably more than if you were to apply for a business loan.
Applying for a residential loan is a relatively simple process, if only because you won’t need to provide any business-related insurances to the lender, which can get complicated. These are the documents you’ll need to produce:
- Your tax returns and pay stubs as proof of income
- A bank statement and list of your assets
- Your credit history
- The property information and price
- Between 10-25% of the property price upfront
If you intend on making your hobby farm a full-time activity and the major source of your future income, a business loan will be more appropriate. It’s also important to remember that many conventional lenders are reticent to loan money to farm businesses, so if you choose to go this route you may need to find an alternate lender -- namely for equipment leasing and financing.
Borrowing money from alternate lenders offers a few key advantages, not the least being they’re typically much more flexible with their terms and the kind of businesses they’ll fund.
Our experts can help you build a financing program that fits your needs. Contact us to find out more about Hitachi Capital’s solutions for Canadian businesses in the agricultural sector.