Farm Grants vs Loans: Expert Guide to Agricultural Funding

Whether your goal is to buy new equipment for your family farm, bring local goods to new markets, or revolutionize access to fresh food, when you need funding for your agribusiness, what are your options? Both agricultural grants and farm loans can be a part of your funding plan, but there are important differences between them. Understanding these options can help you optimize loans, grants, or both.

Understanding agricultural grants

Agricultural grants are funds provided by an organization or government agency to support specific projects, business types, or goals. Unlike loans, grants do not need to be repaid if you use the funds as agreed. If you don’t, repayment may be required. Types of agricultural grants include:

1. Federal grants: These are grants from the U.S. government. For agribusinesses, the most common source is the U.S. Department of Agriculture (USDA).


2. State and county grants: These are provided by the state or county in which you live or operate. Your state’s economic development agency or department of agriculture are good places to begin research for these opportunities.


3. Private grants: These are from non-profit and corporate foundations. An online search for agribusiness grants can help you find opportunities.


In general, you can learn about grant opportunities by researching agencies and organizations that support agriculture in your area. Then, join their email lists and follow them on social media to be informed of upcoming grant opportunities.

Making grants work for you: Essential considerations

Agricultural grants can be an impactful part of your financing strategy, as long as you keep the following considerations in mind:


• Grants are competitive. Funding is limited and your application will be judged against others submitted for the same opportunity and cycle.


• Grant decisions take time. If you have an urgent funding need, grants may not be the right option. It can be 6-12 months before notifications are made and funds are awarded. In addition, some grants may only release funds on a reimbursement basis when project milestones are reached or a project is completed. In these cases, if you need the funds immediately, you may want to seek out a lender who can give you a bridge loan that can cover the “funding gap” until the grant funds are released.


• Your project must match the grant's eligibility and goals. Be careful about changing your business plans just to qualify for grants. While funding is appealing, creating new projects solely to meet grant requirements can create lasting financial and time burdens that outweigh the temporary benefits.


• Some grants have requirements that can be difficult or time-consuming for small agribusinesses. This can include financial requirements, such as matching funds, for example, or processes like pre-registration and mid-point, quarterly and/or final narrative and financial reports.

Before applying, thoroughly review opportunities and requirements to save you from applying for grants that aren’t suitable for your goals.

Understanding business loans

Loans, including farm loans, are borrowed funds that are repaid with interest. Unlike grants, you aren’t competing with your peers to receive funding. Instead, to secure a loan, you need to meet the lender’s eligibility criteria. Loans can be secured for a variety of uses such as equipment, real estate, working capital, and more. Common types of agribusiness loans include:

• Traditional commercial agribusiness loans: These loans are available from banks, credit unions, and non-bank lenders (such as Farm Credit East) and typically have the strictest qualification criteria.


• Community Development Financial Institution (CDFI) financing: Loans from CDFIs, like those available through HVADC’s Agribusiness Loan Fund, often feature lower interest rates and/or longer repayment terms. CDFIs have more flexible eligibility and approval criteria than traditional lenders.


• Equipment financing: Often, equipment manufacturers and distributors offer financing to make it easier for customers to buy their equipment. This can be beneficial, but be sure to compare this option to term loans that may offer better rates.

Making loans work for you: Essential considerations


Begin research before you need financing to find the most beneficial loans. The types of loans available, allowable uses, loan amounts, and repayment terms vary between lenders, and different loans and lenders can help you achieve different business goals. In addition, if one lender isn’t able to help, another may, so don’t be discouraged. Instead, take time to explore your options. Keep in mind that:


• Interest rates and loan terms matter. Borrowers often look for the lowest interest rate. However, your repayment term is another important factor. For example, a loan with a 6% interest rate that’s repaid over 10 years has higher monthly payments than a 20-year loan at an 8% rate.


• Be prepared for the loan process. Lenders review documents that include your credit history, business plan, financial statements, tax returns, and financial projections. Before applying, gather and update these.


• Your ability to repay is essential. Ensure that you’ve worked out the financials and considered risk factors so you can repay the loan as agreed.


• You may be required to offer collateral for your loan. If you use funds to purchase equipment or real estate, a portion of the value of those assets may cover a portion of your collateral requirements. You may be required to offer other collateral that you own to secure your loan.

Bridge loans: Connecting grants and loans

If you want to apply for agricultural grants but don’t have the savings needed to fulfill any reimbursement-grant terms, bridge loans can be a great option. They’re short-term loans that cover “funding gaps” that can occur between notification of grant awards and completion of the requirements. Here’s how this works:


• When you receive a grant notification, contact a lender that offers bridge loans for agricultural grants in your area. For example, HVADC Agribusiness Loan Fund bridge loans are available to eligible agribusinesses in its Hudson Valley, NY, service area.


• With the grant notification, a lender can approve a bridge loan for the funds needed to move your project forward. While a bridge loan is active, you only pay interest, which makes it more affordable.


• The bridge loan is paid off when the grant funds are released, which is typically when required paperwork is submitted to and approved by the granting organization.


• A bridge loan can be an excellent solution that makes it easier for agribusinesses to meet reimbursement-grant requirements without unnecessary financial stress.

Success in action: How Ronnybrook Farm used bridge funding


In 2023, Ronnybrook Farm in Dutchess County, NY, urgently needed to upgrade its equipment. While the farm secured a grant from the Northeast Dairy Business Innovations Center to fund the project, only 25% of the costs were provided upfront. The remaining funds would only be released after the equipment was operational.

To bridge this funding gap, the HVADC Agribusiness Loan Fund provided a loan to cover the upfront costs for the equipment purchase. As a result, Ronnybrook obtained its new equipment, and the generations-old family farm was set on a path toward a stronger future.

HVADC helps agribusinesses achieve funding goals

There are many options to consider when it comes to funding your agribusiness, including grants and loans, but you don't have to go it alone. HVADC can help you navigate these options and secure the financing you need to achieve your goals.

When you’re ready to explore funding options, reach out to start your journey.