Beginning Farmer Funding Sources and Financing Options

After considering their financial situations, new farmers and ranchers should look to five main funding sources:

Additional funding sources may also be available:

  • a few grant opportunities may be relevant
  • more funding sources

Main Funding Sources

Local banks

  • Many banks participate with agencies in providing financing to beginning farmers including Aggie Bond programs and guarantee financing through USDA
  • Although it is uncommon, some banks have created local beginning farmer financing initiatives that link funds from depositors to a special lending pool available to beginning farmers. Inquire with your local bank if such a program is available. 

Private Contracts

  • Many property owners are willing to contract directly with a beginning farmer for sale of land, machinery, livestock, or other assets
  • Contracts can range from cash deals to share rent to work-in arrangements in which labor pays for part or all of the property
  • Examples of successful linking strategies

Farm Credit Services “Young & Beginning” Program

  • Farm Credit Services of America offers a Young & Beginning loan for less-established producers
  • Designed for producers age 35 or younger, or with 10 years experience or less. Farm Credit Services offers real estate loans, operating loans, and insurance
  • Business Education Reimbursements for business classes and financial management tools
  • Youth in Agriculture Loans of up to $2,500 for students
  • College Scholarships

Aggie Bond Programs

  • Several states have created a tax-free bond program to assist beginners acquire farmland, buildings, equipment, etc.
  • Some require management courses or business plans (a good idea for any investment)
  • Nebraska: www.nifa.org or call 800.204.6432
  • Other states: http://www.stateagfinance.org/directory.html

USDA Beginning Farmer Loan Programs
USDA Farm Service Agency (FSA) is the traditional lender of last resort and has its roots in providing funds to beginning farmers. They provide loans with funding Congress appropriates each year with a portion targeted toward beginning farmers. 

  • Land Contract Guarantee Program: Landowners willing to sell land to beginning farmers and ranchers on contract can qualify for a government guarantee through FSA. This program will provide one of two types of guarantees, to be in effect for 10 years:
    • “prompt payment” guarantee
    • 90% principal loan value guarantee
  • Operating – Direct Loan: FSA can be used to purchase livestock, farm equipment, feed, seed, fuel, insurance or other operating expenses.  Operating loans can also be used to pay for minor improvements to buildings, costs associated with land and water development, and to refinance debts under certain conditions.
    • Per farm loan limit for direct operating is $300,000
    • Five-year line of credit is also available
    • “Graduation” to guaranteed or commercial credit is mandatory after 7 years. The 7 years can be consecutive or non-consecutive. 
  • Operating – Guaranteed Loan: FSA guaranteed loans are available through local lenders or Farm Credit Services. While the financing is through the local bank, FSA provides a guarantee to the lender up to 95 percent. Interest rates cannot exceed the lender’s average farm customer rate. In certain instances under the Interest Assistance Program, FSA will provide assistance in lowering the interest rate up to 4 percent. The loan limit for guaranteed loans is $1,094,000 (2008), a rate adjusted for inflation each year.
    • Applicant must be unable to obtain credit elsewhere and have an acceptable credit history
  • Ownership – Direct: Loan can be used to purchase farmland, construct or repair buildings, or promote soil and water conservation. The loan limit for direct ownership loans is $300,000. Program eligibility criteria for a direct loan from FSA include:
    • sufficient education, training, and experience in managing or operating a farm
    • applicant must have participated in the operation of a farm or ranch for at least 3 years out of the past 10 years
    • applicant must be unable to obtain credit elsewhere and have an acceptable credit history
  • Ownership – Down Payment Loan Program: Assistance with a down payment is provided by FSA
    • Beginning farmer provides a 5 percent down payment
    • FSA will then provide up to 45 percent toward the purchase, not to exceed its appraised value and not to exceed $500,000.
    • With this $500,000 cap, the maximum FSA loan amount is $225,000.  Note, however, that this is a cap on the amount of the FSA portion of the loan, not a cap on the value of the land to be acquired. The remaining 50 percent then comes from conventional sources, such as the local lender or seller-financing, with amortized payment over a 30-year period
    • FSA loan term is 20 years, with an interest rate that is 4 percent lower than the regular FSA direct farm ownership loan interest rate, but no less than 1.5 percent.  
  • Ownership  – Joint Financing 50/50( “Participation Loans”): This program does not require a down payment by the beginning farmer. FSA will provide up to 50 percent of the financing at an interest rate the same as the regular direct farm ownership loan program. 
  • Ownership – Guaranteed Loans: This is similar to guaranteed operating loans, above. 

For more information on FSA loan programs for beginning farmers, contact your county USDA FSA office or get an overview from the Center for Rural Affairs - contact Traci Bruckner at tracib@cfra.org, 402-687-2100. Also, check out A Plain Language Guide to Applying for A Farm Service Agency Loan (PDF).


Additional Funding Sources and Information:

Grant Funding: Unfortunately, there are very few grant opportunities available for beginning farmers and ranchers. Check to see if any of these may apply to your operation.

Other Beginning Farmer Finance Programs

  • Carrot Project is a privately funded loan program in the northeast
  • Various states provide beginning farmer finance programs, ranging from direct loans for special types of projects to guarantee financing
  • List of states and programs - contact your state department of agriculture for details in your state

General Production and Marketing Information - ATTRA

  • Free information source for sustainable farmers
  • ATTRA specialists research and send you publications about your interest area
  • A number of topics are available online or by calling 800.346.9140. 

Download our Beginning Farmer Financing Strategies pdf file


 

Contact Wyatt Fraas, wyattf@cfra.org or 402.254.6893 for information about Center for Rural Affairs' beginning farmer programs.