Financial Resources Available to Beginning Farmers. Peyton Fair Farm Credit Mid-America Les Humpal UT Extension Danny Morris UT Extension

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1 Financial Resources Available to Beginning Farmers Peyton Fair Farm Credit Mid-America Les Humpal UT Extension Danny Morris UT Extension

2 Financial Resources There are several sources of financial resources for beginning farmers and businesses. These can include: Local, community banks Farm Service Agency Farm Credit System Small Business Administration (non-farm businesses) Private Individuals

3 Financial Resources We are going to discuss programs available to producers from two primary sources: Farm Service Agency Farm Credit System

4 What is the Farm Service Agency? It is the branch of the USDA that is designed to: Make and guarantee loans to family farmers Sustain family farms in support of a thriving agricultural economy Administer USDA agricultural programs such as CRP, disaster payments, etc. It is the goal of FSA loan programs to graduate borrowers to commercial credit (i.e. local banks, Farm Credit, other lenders, etc.)

5 Farm Service Agency The FSA provides two main methods of funding for farmers: Farm Ownership Loans Loans to buy land, build new structures, improve existing facilities, develop farmland to promote conservation, or refinance debt. Farm Operating Loans Loans, or lines of credit, to provide working capital for farmers to buy crop inputs, livestock, pay for repairs, insurance, and other operating expenses. If certain circumstances are met, these funds may be used to refinance debt.

6 Farm Service Agency The Farm Service Agency (FSA) appropriates funds to provide funding for loans for Beginning Farmers and Ranchers. The FSA defines a beginning farmer or rancher as someone who: Has not operated a farm or ranch for more than 10 years Does not own a farm or ranch greater than 30 percent of the average size farm in the county as determined by the most current Census for Agriculture Meets the loan eligibility requirements of the program to which he/she is applying Substantially participates in the operation

7 Farm Service Agency Maximum Loan Amounts: Direct Farm Ownership Loan: $300,000 Direct Operating Loan: $300,000 Microloan: $50,000 Guaranteed Farm Ownership Loan or Operation Loan: $1,399,000 Guaranteed loans are funded by lenders other than FSA, but guaranteed by FSA. This takes away part of the risk from the lender and places it on FSA. Making the bank more willing to lend the money. Subject to the lender s underwriting policy.

8 Farm Service Agency Down Payment Program special loan program designed to help beginning farmers purchase a farm. To qualify, Make a cash down payment of at least 5% of purchase price Maximum loan amount does not exceed 45% of the least of: The purchase price of the farm Appraised value of the farm $667,000 (Results in maximum loan of $300,000)

9 Farm Service Agency Down Payment Program continued Term of the loan is 20 years. The interest rate is 4% below the direct Farm Ownership loan rate, but not lower than 1.5%. The remaining balance of the loan needed to buy the asset can be obtained from another lender. FSA can guarantee up to 95% of the amount. Financing from participating lenders have an amortization period of at least 30 years. It cannot have a balloon payment within the first 20 years of the loan.

10 Farm Service Agency Offers other programs: Joint Financing Arrangement participating loans with other lenders Land Contract Guarantees provide certain financial guarantees to the seller of farmland to a beginning or underserved farmer Sale of inventory farmland FSA sells property that it has foreclosed on and acquired; the underserved and beginning farmers are given first priority to buy these farms at their appraised value.

11 Farm Service Agency Key takeaways: FSA provides loans to beginning farmers with relaxed terms and conditions Lower rates Extended terms Lower down payments All loans are subject to credit approval and must satisfy FSA s underwriting standards and credit policy. Additional information can be found at or at your local county FSA office.

12 Farm Credit What is Farm Credit? National system of borrower-owned cooperatives established to provide credit to rural communities and agriculture Created by Act of Congress in 1916 Farm Credit Mid-America is the association which covers Tennessee, along with Kentucky, Indiana and Ohio

13 Farm Credit Farm Credit provides all types of loans to full-time farmers, part-time farmers and rural residents Full-time farmer: primary source of income is production agriculture Part-time farmer: has at least $500 in annual Gross Farm Income (GFI), but whose primary source of income is something other than production agriculture Rural resident: no involvement in production agriculture, lives in a rural area outside of the city limits or in a city with a population less than 2500

14 Farm Credit Types of loans: Operating, Term & Real Estate Agricultural real estate Operating expenses Livestock and equipment Rural homes and lots Crop Insurance and Leasing also available

15 Farm Credit Young and Beginning Farmer Program: Growing Forward Under 35 years old or farming less than 10 years Specialized loan and education program for this market segment

16 Farm Credit Growing Forward Program Business Planning Assistance Each Growing Forward customer works with a local financial officer to create a business plan for his/her operation Simple question/answer format Enhanced underwriting standards Specialized underwriting program for YB farmers Lower down payment requirements Extended terms (up to 30 years) Lower interest rate (Tier 1 with educational requirement)

17 Farm Credit Growing Forward Program Education Two day Know to Grow conference focuses on financial stability, growing your operation, succession planning, and managing risk. Features top speakers from across the country and Farm Credit facilitators. All expenses for Know to Grow paid by Farm Credit Educational reimbursement program for outside education Leadership Beginning farmer advisory committee provides leadership opportunity

18 Farm Credit As a preferred lender, Farm Credit works closely with FSA to support young and beginning farmers 50/45/5 beginning farmer loan program Farm Credit finances 50% FSA finances 45% Farmer puts 5% down

19 Farm Credit Key takeaways: Farm credit provides specialized underwriting considerations, loan conditions and educational opportunities for young and beginning farmers All loans subject to credit and underwriting standards Visit to learn more and find a retail office near you