Also reserved for beginning farmers until September 1 is 35% of direct operating loan funds.

Twenty-five percent of guaranteed farm ownership funds and 40% of guaranteed operating funds are also targeted to beginning farmers until April 1. Guaranteed loans are made by commercial lenders and then guaranteed against most loss by FSA. The loans are usually made at commercial rates and terms unless FSA provides assistance in reducing the interest rate.

The second factor in determining whether beginning farmers have access to targeted funds is the amount of funds given by Congress. As appropriations for FSA decline, so does the overall pool of money available for beginning farmers.

One provision intended to use up whatever limited funds are available allows unused guaranteed operating loan funds to be transferred to fund direct farm ownership loans on September 1 of each year.

Sixty percent of the funds targeted to beginning farmers is targeted to the downpayment loan program until April 1 of each year. Unused guaranteed operating loan funds can also be transferred to fund approved downpayment loans beginning August 1 of each year.

Under the program, FSA provides a downpayment loan to the beginning farmer of up to 40% of the farm’s purchase price or appraised value, whichever is less. This loan is repaid in equal installments at a rate of 4% interest for up to 15 years and is secured by a second mortgage on the land.

The beginning farmer must provide an additional 10% of the purchase price in cash as a downpayment. The total purchase price or appraised value, whichever is less cannot exceed $250,000.

The remaining 50% of the purchase price must be financed by a commercial lender or a private seller on contract. This financing may use assistance from a state beginning farmer program, which can frequently provide lower interest rates and longer repayment terms than other loans from commercial lenders. The loan or contract must be amortized over a 30-year period but can include a balloon payment due anytime after the first 15 years of the note.

A commercial loan (either farm ownership or operating) made to a borrower using the downpayment loan program may be guaranteed by the FSA up to 95% (compared to the regular 90%) of any loss, unless it has been made with tax-exempt bonds through a state beginning farmer program.

Here’s an example of how the downpayment loan program works: For a farm with $200,000 purchase price or appraised value, a beginning farmer would have to put up $20,000 in cash as part of the downpayment. FSA would provide a downpayment loan of $80,000 (40% of the purchase price) at 4% interest to be paid in 15 annual equal installments of $7,195. The $100,000 remainder of the purchase price would be financed by a commercial or private lender, and rates and terms will vary.

The commercial lender or contract seller would be given a first mortgage ahead of the FSA downpayment loan. A $100,000 loan at 8% for a 30-year term, for example, would require an annual payment of $8,883.

FSA is required to widely publicize the availability of the downpayment loans among potential beginning farmers and retiring farmers, and to encourage retiring farmers to sell their land to a beginning farmer. They are also required to coordinate the downpayment loan program with state beginning farmer programs. Guaranteed loan fees are to be waived if a loan from a state beginning farmer program is guaranteed under one of these formal partnerships.

The low interest rate on the FSA downpayment loan and the favorable terms should help beginning farmers build equity during the first 15 years of ownership. However, careful financial management will still be needed and a beginning farmer should not take on more debt than he or she can handle.

"Graduation" to commercial credit is mandatory for all operating loan borrowers after 15 years. A direct loan, however, can only be obtained for seven years, with guaranteed loans possible during the remaining years. The seven years can be consecutive, non-consecutive, or a combination thereof. Each year an advance on a line-of-credit is taken counts toward the limit on the number of years a farmer is eligible for a loan.

If there are no direct farm ownership loan funds or "credit sale" funds available for the beginning farmer to use, FSA may lease or contract to sell the property to the beginning farmer for up to 18 months or whenever funds do become available, whichever comes first. The rental rate must reflect the income-generating potential of the property during the period of the lease. If no beginning farmer buys or leases the property within 135 days, FSA is required to sell the property at a public sale within 30 days following the 135 day period.

Inventory land has a tremendous potential for providing opportunity and entry to a new generation of farmers.

Borrower training courses are to include training in goal setting, record keeping, cash flow planning, and crop and livestock production. Congress has also encouraged FSA to incorporate information on sustainable agriculture and integrated farming systems into the training curricula as well.

FFSA must contract with a state agency or a private entity (including a community college, extension service, State Department of Agriculture, or a non-profit organization) to provide training. The training is open to the public, but FSA borrowers will be required to participate as a condition of eligibility for new loans. Participants must pay for the training but can use operating loan funds for this purpose.