Beginning Farmer Loan Program
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 $558,000 to buy:
- agricultural land
- farm buildings
- farm equipment
- and breeding livestock
The maximum loan is $558,000. 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:
- The borrower locates a local participating lending institution and applies for a beginning farmer loan
- The lender sets the terms of the loan, and submits the completed application to the authority
- Applications are considered at authority board meetings
- If approved, the authority will notify the borrower and lender and work with the lender to close the loan
Who Is Eligible?
- Borrowers must be legal Missouri residents at least 18 years old
- Borrower must be able to provide proof of citizenship, identity and legal Missouri residence. If the borrower employs laborers, he/she must also provide proof of enrollment and participation in the federal work authorization program.
- The project must be located within Missouri
- 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
Loan Amount and Terms
A qualified borrower can borrow up to $558,000 to purchase agricultural land, farm buildings, farm equipment, and breeding livestock. The maximum loan is $558,000. 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.
The Internal Revenue Service has many rules and regulations governing the use and sale of tax-exempt bonds. As a result:
- 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
- Not more than five 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
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.
Borrowers qualifying for the Beginning Farmer Loan Program may also qualify for the Missouri FIRST Program administered by the state treasurer’s office. The Missouri FIRST 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 FIRST 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.