A blog series that focuses on challenges and opportunities faces by aspiring entrepreneurs and small business owners.
How You Can Remove Common Financial Barriers With the Beginning Farmer Loan Program
As a farmer, you may be facing an uphill battle in establishing yourself in agriculture due to a variety of financial barriers, including increasing land prices, not enough credit to build capital or lack of funds for a down payment. Don’t worry; you aren’t alone. According to the National Young Farmers Coalition 2017 annual report, 61% reported that access to land, including not having enough income to support the purchase of land, was the biggest challenge.
If you’re a first-time farmer — someone who has been a farmer for 10 years or less — you may have to look for a financial partner who can help with securing a loan for farmland, a piece of equipment or a building project. Even if you’re a generational farmer and have recently taken over your family’s operation, you may need financial assistance to purchase or expand your family’s property.
Whether you’re new to farming or taking over your family’s farming operations, there are many beginning farmer loan programs available that can be the right fit for you. In this article we will be sharing how the Beginning Farmer Loan Program (BFLP) through the Iowa Finance Authority (IFA) can help you by offering loans at reduced interest rates.
What Is the Iowa Finance Authority?
The IFA was established in 1975 to finance, administer, advance and preserve affordable housing as well as promote community and economic development for Iowans. They offer programs to create opportunities for homebuyers, business developers, renters, local governments and beginning farmers.
Many of the loan and tax credit programs available for beginning farmers can provide the capital you need to pursue your dream in agriculture. The BFLP is one specific loan program that is designed to help you achieve your farming goals.
Benefits of the Beginning Farmer Loan Program
Building your farming operation is a big financial undertaking. The BFLP can help you acquire agricultural property or continue your family’s farming operation by offering loans at reduced interest rates. With the BFLP, you can get loans up to:
$575,400 for land
$250,000 for a building project, whether it be a cattle or hog confinement or a machine shed
$62,500 on depreciable properties, such as equipment
The IFA issues a tax-exempt bond note to your bank up to those maximum amounts. In return, your bank can offer you a lower rate as a first-time farmer.
You can typically get interest rates between 20% and 25% below prevailing market rates. The low rate can be stretched out between 20 to 25 years in order to help you make the payments on such a steep purchase. If you need a longer term loan, the Farm Service Agency (FSA) provides a direct ownership loan which can be spread out to 40 years and can cover your entire farming career.
Another advantage is that the down payment amount is negotiated with your bank. If you’re eligible, the BFLP can be paired with the Loan Participation Program (LPP), which is a down payment program that assists farmers through the IFA. The LPP can be used jointly with the FSA direct ownership loan but the FSA does not offer a specific down payment program that can be used with the BFLP.
For example, I worked with a beginning farmer who constructed a cattle confinement that utilized the BFLP and LPP jointly. The LPP can finance up to 30 percent or cap out at $200,000 on the participation. Not only did we help him get a lower rate utilizing the BFLP, but the LPP provided him with the down payment to get the project underway.
The BFLP can also be used for transactions between parents, grandparents or siblings through a third-party lender at a fair market value.
Eligibility Requirements for the Beginning Farmer Loan Program
If you’re interested in applying for the BFLP, you must meet the following eligibility requirements:
Be a resident of Iowa and 18 years of age at the time of application
Be the owner or operator
Have a net worth of no more than $737,000
Own no more than 30% of the county median acres
Have access to working capital, equipment and other items necessary to operate the farm
Have sufficient education, training or experience for anticipated farm operations
Visit With Your Northwest Agriculture Banker To Begin the Application Process
Filling out paperwork can be a tedious process, but don’t let it deter you from pursuing this opportunity. If you're interested in applying for the BFLP through the IFA, your commercial banker can help you get started. In addition, there are many other loan options available to farmers. Our team of agriculture bankers can help you determine which loan best suits your operation.
Reach out to one of our agriculture bankers today to learn more about the programs offered through the IFA.