So You Want to be a Farmer?
As is always the same each year, everyone makes resolutions on what they would like to do differently than in the past over the next year. Generally, saving money, eating healthier, and losing weight are atop of these lists, which are difficult and one must do without any help; however, for those whose resolution it is to get involved in farming or to start buying their own land, there are available programs to help beginning farmers complete their resolution.
Beginning Farmer Loan Program
The Minnesota Department of Agriculture has a Beginning Farmer Loan Program that offers affordable financing, a reasonable down-payment, and built in programs to help new farmers, such as farm management training and help with financial planning. This program is not only for brand new farmers, as funding an improvement is possible if completed along with the requested financing package.
The program is only for beginning farmers. The State considers a beginning farmer to, over time, become a full-time farmer. This means that the program may not be available to farmers who are expanding or to investors looking for a tax break. The beginning farmer must also satisfy the following:
Be an individual who is a resident of Minnesota, a domestic family farm corporation, or a family farm partnership.
Has education, experience, or training in farming.
Has a total net worth of less than $836,000.00, which includes assets and liabilities of spouse and descendants.
Have the need for a loan and means to pay back the loan.
Will be the principal operator of the farm.
Farming will be the principal future operation.
Will consult with a local adult management instructor and enroll in a farm business management program. This program must be approved by the Minnesota Commissioner of Agricultural for the first three years of the loan.
Must agree to consult with a local Board of Water and Soil Resource office or the Natural Resources Conservation Service.
Will obtain credit life insurance for the amount of the debt incurred to purchase the farm.
The main focus of these eligibility requirements are to qualify those who currently farm rented land or have limited land ownership.
What Lenders Participate?
All lending institutions are eligible to become part of this program; however, none are required to. Once an institution determines that they would like to become part of this program, they must enter into an agreement with the Rural Financing Authority and offer basic farm loans based upon pre-established rules in order to qualify for Rural Financing Authority (RFA) participation.
To view all participating lenders please click here.
In the majority of cases, the loan-to-value will be determined by the lender, but in the current program being offered by the Rural Finance Authority, the loan value will have a loan-to-value of no more than 90%. The loan amortization may be scheduled anywhere between 15-30 years, as negotiated between the lender, applicant, and the Rural Finance Authority. This loan will balloon and require repayment of the loan in 10 years from the effective date. This loan will also carry a prepayment penalty that is equal to 10% of the outstanding balance in the first 5 years and then decreases 2% annually. There is not a set maximum amount on the loan size but the Rural Financing Authority participation in a qualifying loan is limited to 45% of the lender’s loan up to $400,000.00.
There will be a reduced interest rate for the portion of the RFA loan, which is basically fixed for 10 years. This RFA rate may change at any time for failure to remain in compliance with the rules of the program. The lender will retain the balance of the loan and lenders are allowed to charge either fixed or adjustable interest rates which are consistent with their normal lending practices.
Loan of $300,000.00 after down payment, the RFA could purchase a $135,000.00 participation interest (45%)
Can be used multiple times for an aggregate among of $400,000.00
One loan for $225,000.00 and one loan for $175,000.00
Four loans of $100,000.00
A new application is needed for each new loan and approval for the program would have to be determined at each new loan.
The process of buying land or becoming a farmer can be a complicated process. Our attorneys are here to discuss the opportunities and to help you get started.
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