Most small scale farmers are often faced with the challenge of raising capital for purchase of inputs or expansion of their farming business. In event of financial shortage, farmers can opt for financing from financial institutions. The common financial options available in the market include farm loans, grants, joint saving initiatives, private contracts and federal funding.
Lending from banks for the various financial needs of farmers is mainly attractive because of the availability of lending from banks. Grants, private contracts and any other financial options are not as available to farmers as financing from banks. Grants are particularly not so common because very few institutions offer grants and chances of getting one are quite low as there are normally huge applications.
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.
Federal funding is another less attractive option because of constrains of availability and many applicants. The two factors make it extremely difficult for farmers to secure funding from the federal government. Additionally, eligibility requirements for federal funding periodically changes and may limit the number of farmers who can access such funding.
Private contracts are also a viable financing option to farmers. In this financial arrangement, the farmer and the other party choose to either share returns from the farm proceeds or for the farmer to compensate the other party. Such agreements range from the sale or renting of land, sale of inputs and acquisition of machinery.
The last type of borrowing, long term, is most commonly used for acquisition of large pieces of land and costly constructions. The term of such financial arrangements often last for a minimum of ten years. Farmers can therefore use the funds to construct a large storage facility for their inputs if their produce is voluminous.
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.
Lending from banks for the various financial needs of farmers is mainly attractive because of the availability of lending from banks. Grants, private contracts and any other financial options are not as available to farmers as financing from banks. Grants are particularly not so common because very few institutions offer grants and chances of getting one are quite low as there are normally huge applications.
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.
Federal funding is another less attractive option because of constrains of availability and many applicants. The two factors make it extremely difficult for farmers to secure funding from the federal government. Additionally, eligibility requirements for federal funding periodically changes and may limit the number of farmers who can access such funding.
Private contracts are also a viable financing option to farmers. In this financial arrangement, the farmer and the other party choose to either share returns from the farm proceeds or for the farmer to compensate the other party. Such agreements range from the sale or renting of land, sale of inputs and acquisition of machinery.
The last type of borrowing, long term, is most commonly used for acquisition of large pieces of land and costly constructions. The term of such financial arrangements often last for a minimum of ten years. Farmers can therefore use the funds to construct a large storage facility for their inputs if their produce is voluminous.
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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