Beginning Farmer Loan Program

Description

The Agricultural and Small Business Development Authority administers a program that enables lenders to receive federally tax-exempt interest on loans made to beginning farmers. The tax savings are passed on to beginning farmers in the form of lower interest rates. A qualified borrower can borrow up to $509,600 to buy:

The maximum loan is $509,600. Of this amount, depreciable agricultural property may not exceed $250,000, with a limit of $62,500 for used depreciable property.

How Does the Program Work?

The authority does not have a "pool" of money to finance loans. Instead, it issues a tax-exempt private activity bond to a lender to finance each loan. The loan and its collateral are assigned to the lender as security for the bond. The lender is able to lend money at below conventional interest rates due to the tax-exempt status of the bond. The steps involved in the loan process are as follows:

Who Is Eligible?

Loan Amount and Terms

A qualified borrower can borrow up to $509,600 to purchase agricultural land, farm buildings, farm equipment, and breeding livestock. The maximum loan is $509,600. Of this amount, depreciable agricultural property may not exceed $250,000, with a limit of $62,500 for used depreciable property.

The terms of the loan are negotiated by the lender and borrower.

Restrictions

The Internal Revenue Service has many rules and regulations governing the use and sale of tax-exempt bonds. As a result:

Fees

A non-refundable $300 fee must be submitted with the application, a loan participation fee equal to one-and-one-half (1½) percent of the loan amount but not less than $500, and a bond issuance fee equal to .05% of the bond amount must be paid at closing. The participation fee and issuance fee may be financed as a part of the loan, not to exceed 2% of the bond amount.

Other Information

Borrowers qualifying for the Beginning Farmer Loan Program may also qualify for the Missouri Linked Deposit Program administered by the state treasurer’s office. The Missouri Linked Deposit Program makes funds available at reduced interest rates to lenders who in turn pass the savings along to agricultural borrowers. To find out more about the Missouri Linked Deposit Program, call the state treasurer’s office at (573) 751-2372 or visit their website at www.treasurer.mo.gov. Borrowers may also qualify for the United States Department of Agriculture’s (USDA) Down Payment Loan Program and Joint Financing Plan for further reduction of interest.

Application Information