Farming without Credit

Farming is generally a capital intensive venture and if you have read some of the other blog posts, you’ll know my number one recommendation is sticking to a budget. There is a story behind that, a personal one. I farm without a line of credit. There is no operating loan, no credit card or demand loan. This was not by choice, my partner and I were not given an option. This is the story of how we farm without a line of credit.

When we started our farm, we had a small flock of sheep and two off-farm sources of income. At that point, we did not have a mortgage payment and the bills for 85 sheep were not crazy. However, when we applied for the mortgage (using CALA – see this post here), the bank said no to our request for a line of credit or operating loan. As a result we had to learn how to farm without one (easier said than done).

We were able to buy an overdraft but even now, at the time of writing this, that overdraft is very small and comes with 12% interest. The overdraft has one main purpose, it keeps those pesky insufficient funds and bounced cheques from happening if there is a calculation error. I was able to maintain a credit card but at 20% interest, I have never carried a balance on that card for more than 30 days.

Why get credit?

The easiest way to explain why we, along with many other farmers, want a line of credit is because it costs money to make money. Feed and other inputs have to be purchased long before any of the products are ready to sell. The money for the inputs can come from several places:

  • Last year’s revenue
  • Line of credit/operating loan
  • Supplier credit – fertilizer/seed distributors may offer financing
  • Advances – borrowing against the crop with a program like APP
  • Savings

The time to produce a lamb or any other product for the market can vary from a couple of weeks with some vegetables to almost a year or more for cattle. Even cropping enterprises need to pay for the inputs long before the crops are harvest-ready (unless other negotiations take place). The money to pay for all of this has to come from somewhere, and this has made operating loans attractive.

The Downfall

The flip side of needing money to make money is that it costs to borrow. This chart from the Bank of Canada shows the various lending rates over the last few decades. While my generation is starting their farms in times of lower interest rates, this has not been the case. Interest rates also vary by the type of farm. Using an operating loan to fund your input costs comes with the risk of changing interest rates.

While we might be able to afford the interest on an operating loan if it was offered at reasonable rates (prime plus 1%), the rates my partner and I were quoted as recently as summer 2020 are well over 10%. That could add up fast. As a result, we’ve been pushed to get creative to make sure we are always cash positive.

How we do it

We do have to plan for the risk that our interest rate on our mortgage will increase but we do not have any short-term loans to worry about. We only have to focus on having enough cash available to cover our expenditures. To do that, we plan out our cashflow and use the following strategies:

  1. Following budgets – Everything and anything has a budget. This includes our personal spending, any capital projects, and overall operating costs. Following these budgets is probably the hardest part and can be a huge source of stress.
  2. Off-farm income – we make no secret of the fact that I have an off-farm job in a small town nearby. This provides us with a consistent reliable cash flow that we can count on.
  3. Doing without and DIY – if it is not absolutely necessary, chances are we do not make a plan to buy it. If we can do it ourselves, we’ll do it ourselves. Our equipment is mostly old and used. On the other hand, repairs are not complex.
  4. Bulk buying – As soon as we had the cash, we bought a used feed bin as buying grain in bulk can lead to significant cash savings. We also buy skids of feed for volume discounts.
  5. Research markets and optimize production – We’ve figured out what our sheep excel at producing and have tailored our production to meet the times of year that those lambs are wanted. This is also how we ended up with sheep instead of meat goats, the market forecasts were better.
  6. Stepping stones – We have to break every step down into manageable pieces. No project ever gets done all at once. We buy what we can when it fits the budget and then save up until we reach the next step.

The spreadsheets do get big and detailed to plan and budget everything out. An error margin always has to be factored in as well.


In the long run, there will be advantages. It is important to me to tell you that is not what we wanted or how we wanted to farm. It is incredibly stressful at times. There is no safety net. Everything has to be a calculated move when it comes to the farm. Sometimes we miss opportunities because there is no extra room in the budget.

There are upsides though. Being cash positive means we have to make serious efforts to remain profitable for every lamb. We do not have to worry about a financial institution calling in our loans. We do not have to provide financial results to the lenders outside of the mortgage renewal period. And when interest rates climb, we only have a mortgage to worry about.

Using these budgets and careful planning, we have been able to expand our flock without ever borrowing money to buy more ewes. Until 2020, we actually only sold 50-60% of our lamb crop and kept the remainder for replacement ewe lambs. That was a major challenge to plan out but we’ve made it this far. One day I might even thank that banker who denied our operating loan application.

Final Thoughts

If you are reading this as a farmer just starting out and struggling to understand how to do it without that line of credit, know it is possible! It can be done. You can be cash-positive even starting out. It is a major challenge, it takes some serious creativity and really big spreadsheets. But it can be done. You can farm without credit.

  1. Rob says:

    Well written & we are on same boat except I use my business to help fund the farm & my business is set up on same financing. No operating loans. It seems unless you’re big business- banks don’t want to deal with you as a farmer or a business.
    Finances are very stressful. But as you said it can be done.

    • Ursina Studhalter says:

      Thank you! Yes, I was told by the bank directly that unless our borrowing was over $750,000, we were not the type of farm business they were interested in. Having cash flow from your other business would definitely be a helpful strategy!

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About the author

I'm Ursina, a farmer's daughter who dreamed of one day owning her own farm and made it a reality. I love reading, big sweaters and trail riding across my farm with my horse. My mission? To help others turn their farm dreams into a reality and build their own farm business.

Agriculture Annotated

For Canadian Farmers • By A Canadian Farmer


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