Beginning Farmer and Lending Opportunities
For the past few years, a regular discussion topic in the agricultural community has been the hurdles facing the next generation of farmers. The industry has a high barrier for entry when considering the cost of land, crop input, equipment and livestock. Some young farmers are able clear these hurdles through the family farm or perhaps a mentor, but others not so fortunate need to start from scratch. Still, one of the greatest challenges young farmers face, and arguably the most important, is the acquisition of a finite resource – land.
Purchasing a farm is different than purchasing a house in town. When purchasing a farm traditional banks look at the purchase as not just a house but also a business, an income-producing real estate transaction. For most traditional banks, a loan product does not exist for income-producing property like they do for home loans. But help in this area can come from government joint financing programs available through the Farm Service Agency that banks can utilize to help a young farmer get started.
These programs are great tools for both banks and borrowers to take advantage of in order to get a borrower started in the agricultural industry, provided that borrower meets all the loan requirements. Those requirements include the test of credit (cannot get traditional financing), multiple years of management experience in the industry, and using the proceeds to purchase real estate, among others.
One such program is the beginning farmer down payment loan. This requires a minimum cash down payment of 5 percent from the borrower. Farm Service Agency will finance 45 percent of the loan, up to $300,000, at a low interest rate – currently less than 2 percent – up to a 20-year term. The remaining 50 percent (or more) is financed by the bank at its own rate and terms.
Another program is the direct farm ownership loan joint financing, or 50/50 program. While a cash down payment is not required, additional collateral will most likely be necessary. The bank will again finance 50 percent or more of the loan at its own rate and terms while the Farm Service Agency finances the other 50 percent up to $300,000 at a fixed interest rate – currently less than 3 percent for up to 40 years.
If you are a young farmer looking to enter the agricultural industry, but cannot seem to meet traditional lending requirements for farm real estate, consider talking with your lender about your options and ask if you qualify for any programs. These programs were created specifically for young farmers who might not have the cash flow or down payment requirements necessary for traditional lending.
Jessica Allan is an agricultural lender and commercial relationship manager at Guaranty Bank in Neosho, Mo. A resident of Jasper County, she is also involved in raising cattle on her family’s farm in Newton County and is an active alum of the Crowder College Aggie Club.