USDA’s Farm Service Agency is working harder than ever to assist new farmers and help the next generation succeed. FSA recently unveiled a new Land Contract Guarantee Program, along with several other tools, to help beginning farmers build the foundation for a successful career in agriculture.
New farmers face many challenges, like obtaining land. FSA is providing options to help them work through this challenging issue. Peak land values, tight commercial credit, minimal credit history and less collateral make it difficult for new and smaller farmers to get a commercial business loan.
Beth Grabau, public information and outreach specialist for the FSA state office in Des Moines, answered the following questions. She was assisted by Brian Gossling, FSA farm loan program director. If you need more information, contact a local FSA office or visit www.fsa.usda.gov.
Question: There is a lot of discussion about beginning farmers. It is exciting to see new producers enter farming, as well as those coming back to agriculture after other careers. As access to capital is such a barrier for these new operations, what type of financing and services does FSA provide? Do you have programs for beginning farmers or those starting a new ag enterprise?
Answer: FSA makes and guarantees loans to promote, build and sustain family farms. The goal of the loan program is to help eligible farmers to not only get access to capital, but also to obtain credit at competitive rates of interest.
FSA offers a range of financial products, including direct and guaranteed loan programs. Direct loans are administered through FSA, and farmers can apply for these at FSA offices. Guaranteed loans are originated and held by banks and other ag lenders. Loans are available for many farm uses, including buying or improving real estate, buying livestock and machinery, and providing annual operating funds.
FSA has a blend of programs offering a variety of financing options, attractive interest rates and a consultative lending relationship. One of the strengths of FSA’s program is its supervised credit initiative. FSA’s loan staff works with clients to increase their profit and strengthen their farm operations. FSA specializes in:
• loans for beginning farmers, disaster recovery, operational financing and farm ownership
• farm planning and counseling
• supervised credit and assistance throughout the life of the loan
• sustained financial planning services
• guaranteed loan products
• lending for niche markets and alternative crops
When applying for farm loans, producers are encouraged to apply early so a loan can be processed and funded in a timely manner. Applications and additional information are available at your local FSA office or online at www.fsa.usda.gov.
Question: We have a child who is currently working for us and is interested in starting a separate farming operation. What is FSA’s age limit or definition of a beginning farmer?
Answer: FSA is uniquely positioned to assist beginning farmers, with funds and programs targeted specifically to these farmers. FSA does not define a beginning farmer by age. In general terms, FSA’s loan programs define a beginning farmer as a person who has operated a farm for not more than 10 years and will materially and substantially participate in the operation.
Also, FSA’s real estate loan programs limit the amount of land owned. Specially, to qualify as a beginning farmer, an applicant cannot own farm acreage greater than 30% of the median size farm in the county.
Question: What about transitioning the farm not just to a family member but to others? I found out my father has been talking to a young couple about buying his farm on contract. He is excited about starting someone in farming, but I am concerned about his finances and the risk that he might be taking on.
Answer: FSA has a new lending program that might fit well in such a situation. The Land Contact Guarantee Program is a tool to transfer farm real estate to the next generation. As an incentive to promote the sale of land to a beginning, female or minority farmer, FSA offers options to guarantee the seller’s interest in a land sale contract.
The seller has a couple options to consider for the land contract guarantee. FSA can either provide a guarantee on the outstanding principal portion of the contract, or a prompt payment guarantee. When guaranteeing the contract balance, the guarantee is designed to reimburse the seller for up 90% of the loss if the buyer defaults on the contract.
As an alternative, the seller can request a prompt payment guarantee. In the event of default by the buyer under this program, FSA’s guarantee will cover three annual installments, plus the cost of any related real estate taxes and insurance.
Land sales under this program are limited to a $500,000 purchase price. FSA’s guarantee is also limited to the first 10 years of the contract. The contract balance must be amortized for a minimum of 20 years, with equal payments during the term of the guarantee.
The Land Contract Guarantee Program offers another level of protection for the seller in case of default by the buyer. The program is designed to give existing producers more options for transitioning their farms, while providing incentives for sellers to give opportunities to beginning, female or minority farmers.
This article published in the March, 2012 edition of WALLACES FARMER.