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Beginning Farmer Financing

December 1, 2010
By: Jeanne Bernick, Top Producer Editor

Every producer, young or old, has to deal with how to finance his or her operation. In our exclusive Tomorrow’s Top Producer survey this past year, the majority of respondents age 39
and under said access to credit is a concern, with 14% citing it as a major concern.

Most young producers seek local banks for financing, says Gary Hachfeld, University of Minnesota Extension educator. “Young farmers are most successful getting loans if they start early in their career, borrowing money and repaying it in a timely fashion,” he says.

Here are some other sources of young farmer financing:

Aggie Bond Programs. Several states have created a tax-free bond program to help beginners acquire farmland, buildings, equipment, etc.

USDA Beginning Farmer Loan Programs. USDA’s Farm Service Agency (FSA) provides loans with funding that Congress appropriates each year, with a portion targeted to beginning farmers. For more information, contact your county FSA office. FSA loan options include:

• Land Contract Guarantee Program. Landowners who sell land to beginning farmers on contract qualify for a government guarantee.

• Operating – Direct Loan. The limit for a direct operating loan, which can be used to purchase livestock, equipment, feed, seed, etc., is $300,000. A five-year line of credit is also available.

• Operating – Guaranteed Loan. Financing is through local banks or Farm Credit Services, and FSA provides a guarantee to the lender of up to 95%.

• Ownership – Direct. This loan can be used to buy farmland, construct or repair buildings or promote soil and water conservation. The per-farm loan limit is $300,000.

• Ownership – Down Payment Loan Program. The farmer provides a 5% down payment and FSA provides up to 45% toward the purchase, not to exceed its appraised value and $500,000. With this $500,000 cap, the maximum FSA loan amount is $225,000. Note: This is a cap on the amount of the FSA portion of the loan, not on the value of the land to be acquired. The remaining 50% then comes from conventional sources.  

• Ownership  – Joint Financing 50/50 (“Participation Loans”). This program does not require a down payment. FSA provides up to 50% of the financing at the same interest rate as the direct farm ownership loan program.

Farm Credit Services “Young & Beginning” Program. Farm Credit Services offers a Young & Beginning loan for producers age 35 and younger for real estate, operating expenses and insurance.

TP Web Extra IconOther Beginning Farmer Finance Programs. Numerous states provide beginning farmer finance programs, ranging from direct loans for special projects to guarantee financing.

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