Ask an Expert
Financing After a Bankruptcy
I am under 30 years old and have went through bankruptcy once in the last few years and now my credit is bad, but before that had excellent credit. I am looking for financing to buy a farm and get into farming but would only be able to offer either a small downpayment(up to 15%) to start with and/or the actual farm as security. Any suggestions as to where to find financing if such a thing would be available for a high risk entraprenor as myself?
Sarah, thanks so much for your question. Before you consider where to find financing for a farm purchase, you need to think carefully about what you're getting into. Farming today can be a tough challenge — many farmers aren't covering their costs, and they're really struggling financially. The quota systems in certain provinces (for milk, eggs and chickens, for example) tend to be profitable, but they're expensive to get into: a quota for a milk cow is in excess of $25,000 in Ontario, for example, and experts suggest that you'd need 200 to 250 cows to make it work.
One possible option for you is to go into farming on a small scale, in a niche market such as organic produce, so that you can build market share. You'll likely need to start this on a shoestring, and it would be a good idea to build in both primary and secondary product lines. For example, a strawberry U-pick operation can provide a source of cash, but if you're also using part of the crop to create additional, value-added products (such as selling baked goods to local caterers), you can leverage the crop's value more effectively.
You could even go one step further, by having a small gift shop at the U-pick location, for example — perhaps you could sell local crafts on consignment. You might also want to think about a crop that offers several harvests a year, depending on the growing season in your area, and the technology available to extend it.
The key is going to be controlling your expenses, and ensuring that the farm pays for itself right from the beginning. With your credit record showing a bankruptcy, it's going to be very difficult to obtain financing from many lenders. In fact, you may not qualify at all unless you have a guarantor with a substantial income who can co-sign for you.
For this reason, you may also want to consider renting farmland. This might enable you to raise a crop while living in less expensive accommodation in a nearby town — and you'd avoid the need for a large mortgage on the land, the house and the farming equipment.
You can help to reduce your expenses even more by purchasing used equipment that's still good quality — remember that by starting small, you keep the financial risk smaller for yourself, your lender, and your guarantor if you have one.
If you decide to seek a mortgage for the farm, your best option might be Farm Credit Canada (http://www.fcc-sca.ca), which specializes in the needs of farmers.
However you proceed, whether you're renting or buying farmland, you'll need to write a very detailed business plan, which is invaluable for guiding your success. Industry Canada and local small business development centres can offer plenty of background information (Industry Canada's at http://www.ic.gc.ca, and you can find local resources on an Internet search engine by typing the keywords "small business development" with your geographical area). Small business development centres may also offer micro-lending, often up to $20,000, which may be enough to provide you with start-up supplies, although not a full mortgage.
I'd also suggest seeking out farmers associations, farmer's market cooperatives, organic growers associations, marketing groups, and even local chambers of commerce. You'll find that they can be excellent sources of contacts and information as you build your business plan and launch your farm. I wish you much success!
About the author
A leading authority on solving – and avoiding – financial disasters, Stanley J. Kershman has been helping people get out of debt for more than 25 years. His down-to-earth book, "Put Your Debt on a Diet: A Step-by-Step Guide to Financial Fitness" is packed with powerful money management techniques and tips, and can be found at www.debtonadiet.com and at www.amazon.com.
Mr. Kershman is a certified specialist in bankruptcy and Insolvency Law with the law firm of Perley-Robertson, Hill and McDougall LLP. He is the author of Credit Solutions: Kershman on Advising Secured and Unsecured Creditors (Carswell www.carswell.com). He is the former Co-Chair of National Legislation Committee for the Credit Institute of Canada.