PA Ag Lending Programs

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1 Growing Business, Growing Smart Its People PA Ag Lending Programs Gary Smith President and CEO Chester County Economic Development Council Places Investing in the Economic Health of Chester County & Prosperity

2 CCEDC Core Services Commercial Loan and Financing Services Workforce Retention, Expansion, and Training 5 Industry Partnerships Business Retention, Expansion and Site Selection Services Community Revitalization (Economic Development Partners Initiative) Agricultural Economic Development Grant Management and Support Technology Development Services i2n Virtual and Physical Incubators Tax Credits International Business Assistance

3 Mission Statement AgConnect is a vibrant network of farmers, business owners, and service providers connecting farmers to the business resources, training, and financing to grow business and promote smart agricultural economic development.

4 Agricultural Economic Development AgConnect started in 2009 as SE PA Ag Partnership Identify Successes/Challenges in Industry Support trainings that fill gaps Hold topic-specific panel discussions Share Experiences, Business Resources Preserving the Farm AND the Farmer Site Location Capital Workforce

5 Programs Utilized in PA PAgrows ( Next Generation Farmer Loan Program SBA 504 and 7A Loans First Industries Fund Loan Guarantee Program Small Business First

6 Ag Lending History March 1998 Next Generation Farmer Loan Program Since that time over 150 loans exceeding $47 million in private funds have been made to first-time farmers in PA PA one of 17 states in US with program and only one in NE 2005 First Industries Fund Small Business First Machinery & Equipment Loan Fund

7 Next Generation Farmer Loan The Next Generation Farmer Loan Program is a taxfree mortgage financing program to help beginning and first-time farmers to purchase land, farm equipment, farm buildings and breeding livestock Program goes through similar process as manufacturing or nonprofit tax-exempt loans Next Generation Farmer Loan Program comes out of program known nationally as the Aggie Bond program

8 Next Generation Farmer Loan Agencies: Industrial Development Authority with application to DCED and PDA States with programs coordinate the creation of a bond that allows lenders to earn federally taxexempt interest income on loans to eligible farmers Tax savings allows lenders to provide the loans at a reduced interest rate. Lender retains credit decision and risk

9 Next Generation Farmer Loan - Eligibility Credit Quality borrower must meet lender s credit standards Residency must be resident of PA Age at least 18 at time of application Capital requirements must document to lender access to adequate cash flow, working capital, farm equipment and livestock, if appropriate Ownership and Active Participation borrower must be sole owner and principal user of the project

10 Next Generation Farmer Loan - Eligibility Prior Ownership of Agricultural Land borrower must not have had any prior direct or indirect ownership in a substantial amount of land. Substantial = parcel which exceeds 30% of the median farm size of the county in which the land is located. Blair County 26.7 acres Chester County acres Net Worth - of borrower cannot exceed appx. $500,000 if filing as an individual or $1,000,000 as a partnership

11 Next Generation Farmer Loan Maximum loan is $517,700 per person/couple Maximum loan amount indexed annually with 2008 Farm Bill Purchase of Agricultural Land and Buildings Cannot be used for purchase of residence Agricultural Improvements Depreciable Agricultural Property (Buildings)

12 Next Generation Farmer Loan Fixed-price bond counsel Pay back of fees after 2-3 years Building relationships with ag lenders in your community This program is one that can be combined with others to make farming more affordable for the next generation. It can be layered with a First Industries Small Business First loan or Farm Service Agency Direct loan* * Next Generation loan cannot be guaranteed by FSA guarantee

13 504 Financing Structure 50/40/10 90% Financing 50% Private sector loan Lender is in first lien position with 50% LTV 40% SBA 504 loan 40% loan portion is below market, 10-year or 20-year fixed rate 10% Equity (*Startup/ Special use*) Equity injection of 10% preserves working capital

14 SBA 7a Financing Structure Loan Specifics Deficiency guaranty program (75 to 85%) Collateral requirements (business/personal) Project Maximum loan size of $5 million Up to 90% financing Longer term financing 7-10 years: working capital years (useful life): machinery & equipment years: real estate Bank Requirements Lend in accordance with conventional/ small business policies Guaranty does not make a bad loan a good loan

15 SBA 7a Use of Proceeds Purchase, construct, renovate, or improve owner-occupied building(s) Leasehold improvements Machinery and equipment Business acquisition or expansion, including franchises Working capital Inventory and supplies Energy conservation loans Debt refinance/ restructure

16 PIDA < $400,000 Agency: Certified Area Loan Organizations Maximum 50% of project cost or $400,000, whichever is less Rate (changes quarterly): 3.50% fixed or variable rate option after 7 years Term: 15 years real estate; maximum 10 years equipment Finances: Land, Capital Improvements, Machinery, Working Capital 80% Loan-to-Value still in force

17 Loan Packaging $1M Duck House Project on Leased Land $250,000 Next Generation Farmer Loan $200,000 Small Business First Ag Loan $550,000 Traditional Commercial Ag Loan

18 Loan Packaging $1.2M Dairy Farm Purchase Non-family $500,000 Next Generation Farmer Loan $200,000 Small Business First Ag Loan $300,000 FSA Direct Loan $200,000 Traditional Commercial Ag Loan

19 Collaborating for Borrower Success AgChoice Farm Credit s AgBiz Masters Program Business Planning and 1:1 Consulting from SCORE BMP Training from Penn State Extension PA Farm Link for leasing/rent-to-own, succession planning

20 AgConnect s Impact Since 2000, administered the Next Generation Farmer Loan Program, a tax exempt loan program for first time farm buyers, closing 156 loans for more than $47 million helping farmers purchase 8,420 acres in PA. Supported training of 2,003 workers from more than 927 companies through grants from the PA Department of Labor and Industry and USDA s Specialty Crop Block Grant program from Promoted agriculture as a viable career option to 4,464 students through career exploration showcases, career fairs, and events.

21 For More Information Gary Smith: or Jodi Gauker: