New Farmer Loans

At least five sources of potential funding are available including the local bank, Farm Credit Services, U.S. Department of Agriculture (USDA) Farm Service Agency (FSA), Aggie Bond programs, and private contracts.

Local banks.
Many banks participate with agencies in providing financing to beginning farmers including aggie bond programs and guarantee financing through USDA. Although it is uncommon, some banks have created local beginning farmer financing initiatives that link funds from depositors to a special lending pool available to beginning farmers. Inquire with your local bank if such a program is available.

Aggie Bond Programs. Several states have created a tax-free bond program to assist beginners acquire farmland, buildings, equipment, etc. Some require management courses or business plans (a good idea for any investment). In Nebraska look at www.nifa.org or call 800.204.6432; for other states look here: http://www.stateagfinance.org/directory.html.

USDA Beginning Farmer Loan Programs.
USDA Farm Service Agency (FSA) is the traditional lender of last resort and has its roots in providing funds to beginning farmers. They provide loans with funding Congress appropriates each year with a portion targeted toward beginning farmers.

  • Land Contract Guarantee Program. Landowners willing to sell land to beginning farmers and ranchers on contract can qualify for a government guarantee through FSA. This program will provide one of two types of guarantees: 1) a “prompt payment” guarantee or 2) a 90% principal loan value guarantee. The guarantee will be in affect for 10 years.
  • Operating – Direct Loan. FSA can be used to purchase livestock, farm equipment, feed, seed, fuel, insurance or other operating expenses.  Operating loans can also be used to pay for minor improvements to buildings, costs associated with land and water development, and to refinance debts under certain conditions.  The 2008 Farm Bill increased the per farm loan limit for direct operating from $200,000 to $300,000. A five-year line of credit is also available. “Graduation” to guaranteed or commercial credit is mandatory after 7 years. The 7 years can be consecutive, non-consecutive, or a combination thereof.
  • Operating – Guaranteed Loan. FSA guaranteed loans are available through local lenders or Farm Credit Services. While the financing is through the local bank, FSA provides a guarantee to the lender up to 95 percent. Interest rates cannot exceed the lender’s average farm customer rate. In certain instances under the Interest Assistance Program, FSA will provide assistance in lowering the interest rate up to 4 percent. The loan limit for guaranteed loans did not change under the 2008 Farm Bill, remaining at a combined limit of $1,094,000 (2008), a rate adjusted for inflation each year.
  • Ownership – Direct. Loan can be used to purchase farmland, construct or repair buildings, or promote soil and water conservation. The 2008 Farm Bill increased the per farm loan limit for direct ownership loans from $200,000 to $300,000. Program eligibility criteria for a direct loan from FSA include: sufficient education, training, and experience in managing or operating a farm.  For all direct farm ownership loans, an applicant must have participated in the operation of a farm or ranch for at least 3 years out of the past 10 years. Applicants for direct and guaranteed loans must be unable to obtain credit elsewhere and have an acceptable credit history
  • Ownership – Down Payment Loan Program. Assistance with a down payment is provided by FSA. FSA requires the beginning farmer to provide a 5 percent down payment and will then provide up to 45 percent toward the purchase, not to exceed its appraised value and not to exceed $500,000.  With this $500,000 cap, the maximum FSA loan amount is $225,000.  Note, however, that this is a cap on the amount of the FSA portion of the loan, not a cap on the value of the land to be acquired. The remaining 50 percent then comes from conventional sources, such as the local lender or seller-financing, with amortized payment over a 30-year period. The FSA loan term is 20 years, with an interest rate that is 4 percent lower than the regular FSA direct farm ownership loan interest rate, but no less than 1.5 percent. 
  •  Ownership  – Joint Financing 50/50( “Participation Loans”). This program does not require a down payment by the beginning farmer. FSA will provide up to 50 percent of the financing at an interest rate the same as the regular direct farm ownership loan program.
  • Ownership – Guaranteed Loans. This is similar to guaranteed operating loans, above.


For more information on FSA loan programs for beginning farmers, contact your county USDA FSA office or get an overview from the Center for Rural Affairs website: http://www.cfra.org/resources/Publications/Beg_Farmer_loan_programs.htm.

Farm Credit Services “Young & Beginning” Program. Farm Credit Services of America offers a Young & Beginning loan for less-established producers (http://www.fcsamerica.com/products/YoungBeginningProgram.aspx). This program is designed for producers age 35 or younger, or with 10 years experience or less. Farm Credit Services offers real estate loans, operating loans, and insurance. In addition, it offers Business Education Reimbursements for business classes and financial management tools; Youth in Agriculture Loans of up to $2,500 for students; and College Scholarships.

Other Beginning Farmer Finance Programs. Various states provide beginning farmer finance programs. They range from direct loans for special types of projects to guarantee financing. A list of states and the types of programs they offer can be found at http://www.stateagfinance.org/ . Contact your state department of agriculture for details in your state.

Beginning Farmer Tax Credit. Available in Iowa and Nebraska, the tax program provides an incentive to current and retired farmers who rent agricultural assets to a beginning farmer. The owner receives a tax credit for several years based on the value of the lease. Learn more about Iowa’s program at 515.281.6444, http://www.iada.state.ia.us/BFTC/index.html or Nebraska’s program at 800.446.4071, http://www.agr.state.ne.us/division/beg/beg.html.

Private Contracts. Many property owners are willing to contract directly with a beginning farmer for sale of land, machinery, livestock, or other assets. These contracts can range from cash deals to share rent to work-in arrangements in which labor pays for part or all of the property. Examples are on the Center for Rural Affairs’ website, successful linking strategies.

General Production and Marketing Information: ATTRA is a free information source for sustainable farmers. ATTRA specialists will research and send you publications about your interest area. A number of topics are available online: http://www.attra.org, or by calling 800.346.9140.

 

Courtesy Center for Rural Affairs

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