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Farm Bill expands loans for start-up farmers

Tuesday, July 15, 2008 | 2:59 p.m. CDT; updated 4:10 p.m. CDT, Tuesday, July 22, 2008

COLUMBIA — The 2008 Farm Bill has increased the size of loans under a program in effect since the early 1980s that’s designed to encourage new farmers.

The Beginning Farmer Loan Program provides loans for up to $450,000, an increase from the previous amount of $250,000.

Eligibility rules

The Missouri Department of Agriculture has these guidelines listed on it Web site: Who is eligible?

— Borrowers must be Missouri residents at least 18 years old. — The project must be in Missouri. — The borrower’s net worth must not exceed $200,000. — The borrower must have adequate working capital and experience in the type of farming operation for which the loan is sought. — The beginning farmer is one who has not owned, either directly or indirectly, more than 30 percent of the median size of a farm in the county. — After the loan is closed, the borrower’s chief occupation must be farming or ranching, gross farm income must exceed any off-farm income (spouse’s off-farm income does not count in determining eligibility). — Individuals in partnerships are eligible for loans if all partners meet the eligibility requirements.

Restrictions

— Loans cannot be used to refinance existing debt. — Loans cannot be used for operating expenses or to purchase inventory, supplies or livestock other than breeding livestock. — Loans cannot be used to purchase property from a related person unless the acquisition price is for fair market value, and, after acquisition, the related person will have no financial interest in the property financed with the loan proceeds. n Not more than 5 percent of the tax-exempt loan proceeds can be used to finance a house and the costs of issuance. Any down payment may apply toward payment on the house. — The borrower should not enter into a binding contract for any type of property until the application is approved by the authority.


“It’s a fairly popular program,” said Tony Stafford, executive director of the Missouri Agriculture and Small Business Development Authority. He estimated that the loans attract, on average, about 20 participants a year. “The increase to $450,000 should increase participation.”

This program is not meant for hobby farmers, Stafford said. Rather, he said, it’s intended to help people start farming on a larger scale because it’s expensive to get started and be successful.

The increase in the size of the loans to $450,000 is more proportional to the price of farmland, Stafford said.

The loan can be used to buy agricultural land, farm buildings, farm equipment or breeding livestock. The full amount of $450,000 can be used for new equipment, or $62,500 can purchase used equipment, according to the Missouri Department of Agriculture.

Under the loan program, Stafford said, the Missouri Agriculture and Small Business Development Authority issues a tax exempt bond to the bank. This means that what the bank earns is tax exempt, he said, so the beginning farmer can get a better interest rate on the loan to start a farming operation. The program can save the farmer about $9,000 per year in interest, he estimated, which would make the farm payments lower.

“It gives some beginning producers a chance to get involved in Missouri farming,” said Scott Brown, an agricultural economist at MU.

Another opportunity for farmers is the Farm Loan Program issued by the Farm Service Agency. There are two parts to the program: the Guaranteed Loan Program and the Direct Loan Program. Both are designed to provide farmers financing if they can’t get it elsewhere, said Dan Gieseke, chief of the Farm Loan Program for the Farm Service Agency. In the Direct Loan Program, the 2008 Farm Bill raised the amount that can be loaned to $300,000 this year.

The loans are available to any farmer and can be used for smaller operations in production agriculture, Gieseke said. Although the Farm Service Agency’s programs aren’t specifically for beginning farmers, 46 percent of the $90 million the agency loaned last year went to first-time farmers.

“Farming is very expensive, and we are able to help especially beginning farmers when other conventional lenders can’t help them,” Gieseke said.

There are other programs from other institutions that provide loan to farmers, Gieseke added.

The overall hope is that the older farmers will be replenished with younger farmers because the average age of farmers keeps going up. At some point the production will decrease without new farmers filling in the gap, Stafford said.

“The reason there is a need for these beginning farmers is that agriculture is so capital intensive those without capital have no way of getting into agriculture,” Brown said. “I believe these programs are very important to the agriculture industry,” Gieseke said. “We need young farmers to continue to produce food and fiber we need for our nation.”


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