FSA Offers Help for Beginning Farmers

FSA Offers Help for Beginning Farmers

USDA's Farm Service Agency announces new land contract guarantee program to help beginning farmers build a successful career in agriculture.

FAQ: USDA's Farm Service Agency has a new land contract guarantee program to help beginning farmers get started. What is that? What other programs does FSA offer for beginning farmers?

Answer: USDA's Farm Service Agency is working harder than ever to assist new farmers, to help the next generation get a good start and succeed. The agency 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, for example. The agency is providing options to help them work through this challenging start-up 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 right now.

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 in Iowa. If you need more information, contact a local office or visit www.fsa.usda.gov.

Question: There seems to be a lot of discussion about beginning farmers. It is exciting to see new producers entering 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: The agency 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 to obtain credit at competitive rates of interest.   

FSA offers a wide range of financial products, including several direct and guaranteed loan programs. Direct loans are administered through the agency and farmers can apply for these loans at county offices. Guaranteed loans are originated and held by banks and other agricultural lenders. Loans are available for many farm uses, including purchasing or improving real estate, purchasing livestock and machinery, and providing annual operating funds.

The agency has a unique blend of programs offering a variety of financing options, attractive interest rates and a consultative lending relationship. One of the strengths of the agency's program is the supervised credit initiative. The loan staff works with clients to increase their profit and strengthen their farm operations. Our loan officers provide new perspectives, alternatives and creative ways of growing farm businesses by coordinating resources and tailoring a financial solution that works for unique lending situations.

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

Keep in mind, when applying for farm loans, farmers are urged to apply early so that a loan can be processed and funded in a timely manner. Applications and more 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 beginning farmers.  The agency does not define a beginning farmer by age.  In general terms, loan programs define a beginning farmer as a person who has operated a farm for not more than 10 years and who will materially and substantially participate in the operation of the farm. 

In addition to those basic criteria, FSA's real estate loan programs include a limit on 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 transition not just to a family member but to others? I just found out my father has been talking to a young couple about buying his farm on contract. Dad is excited about starting someone in farming, but I'm concerned about his finances and the risk 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 of farmers. As an incentive to promote the sale of land to a beginning, female, or minority farmer, FSA now 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. The agency 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. The 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 additional options for transitioning their farms, while also providing incentives for sellers to give opportunities to beginning, female or minority farmers.

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