An FSA Farm Ownership Loan may or may not work for your group.
In the the first section of this Cooperative Land Purchasing and Financing Guide, we addressed how groups of people who aren’t related or married can apply for FSA farm ownership loans. There are several limitations to that financing source; for example, all members/owners of the farm must meet the FSA’s criteria, including citizenship and creditworthiness requirements, among others. Many groups can structure themselves and their membership to meet FSA regulations. However, some of your co-owners might not meet FSA criteria, requiring your business to seek alternative funding. The truth is that all financing institutions will be of limited use for groups of unrelated people who want to finance the purchase of farmland.
Financing institutions don’t prioritize creativity and inclusivity with their financing strategies. Instead, they prioritize the ability to cleanly and quickly exit a bad investment if things go wrong. A clean and quick exit is most efficiently achieved with a single borrower, owner, and business. Those who need to pool money to afford access to land find themselves without access to financing solutions. Others affirmatively seek opportunities to work and manage land collectively in an effort to redefine relationships with our community and with the land itself. This creative urge can be all too quickly snuffed out when interacting with financial institutions.
What can we do about this?
Here in this guide, we will be looking at various strategies that may appeal to people interested in collective land purchasing.
First, just like the financial institution that wants to be able to offload a bad investment easily, any farmer contemplating entering a business or land deal with a group of other people will need a strong exit plan in case things go wrong. How do you protect your own interests when you join forces with others? In this section, we’ll discuss typical ways business owners strategize to leave businesses or, for those remaining, how they protect the business. We’ll also share some legal strategies for supporting buy-outs of departing members and the continued existence of the collective.
Second, we will talk about the legal and tax implications of raising capital. If you raise money from your community, how is that money taxed? Where is it reported? Are there restrictions on how much you can raise? We will discuss the basics of crowdfunding and new options that have developed recently. We’ll also share resources for private businesses that want grants, new forms of crowdsourced funding, and the pros and cons of doing this as a for-profit business and as a non-profit organization. We’ll briefly delve into various forms of nonprofit entities that can hold land with less restriction than a typical 501(c)3 organization.