Credit for start-up farmers
We all know that many farmers do not retire. One of the reasons some give is that young people are not attracted to hard work.
Don’t tell that to Alison and Jim Deutsch from Osseo, Wisconsin. Neither of them grew up on a farm. They spent 10 years looking for land to rent before starting a hog farm in 2007. In 2010, they were able to buy 160 acres from retired dairy farmers, so their first corn crop was pockmarked. A poor year was followed by two years of drought. Yet they’re still building a business that sells meat to consumers as far away as Milwaukee and pork at the upscale Niman Ranch.
Don’t tell Dave and Annette Hill either. Dave grew up on a farm near Rushford, Minnesota, but, as he puts it, “I graduated in the mid-1980s, and there really was no opportunity for me.” He became an electrical engineer, working for IBM in Rochester. One day, he visited a nearby farmers market, talking to a beef producer who lived comfortably on 80 acres selling direct to consumers. From the farmer’s prices, “I get it, saint smokes, this guy brings in five thousand dollars an animal,” he recalls.
FSA helps beginners
Dave saw an opening. He too could start raising beef for direct sale. He found a farm for sale 5 miles from his parents. With a good job and his farming background, “I thought arrogantly that I would have no problem getting a loan,” he recalls.
When he applied to AgStar, a farm credit system lender, he was told he needed a larger down payment and his debt-to-asset ratio was too low. “I didn’t have enough stuff,” he says. He contacted several banks. “They never came back to me; they didn’t even call, ”he says.
Eventually, the Hills moved to Holy Cross, Iowa, and leased land that belonged to Annette’s family. Three years later, they secured an entry-level farmer loan from the USDA’s Farm Service Agency (FSA) to purchase the crop and the 150-acre hay farm.
“Without the Beginner Farmer Program, we wouldn’t have been able to get a loan,” says Hill.
The Hills and the Deutsches are early stage FSA borrowers.
FSA’s early-stage farmer programs got improvements in the new farm bill. This is often the only way for young farmers with modest resources to become owners of their land. Banks provide loans to beginning farmers. They are the biggest partners in an FSA program, the early stage farmer down payment. The farm credit system lends almost seven times as much to farmers with less than 10 years of experience, the USDA definition of a beginner. (The USDA has no age limit.)
Yet the FSA remains, as the agency calls it, the “agricultural lender of first opportunity”.
New and improved
For years, the National Coalition for Sustainable Agriculture has worked to improve FSA’s services to young farmers, leading the USDA to devote a significant portion of FSA loans to beginning farmers and ranchers.
Ferd Hoefner, group policy director, describes the new improvements. The Farm Bill makes a microcredit program permanent – seven-year term loans of up to $ 50,000 for livestock, equipment and operating costs. It brings the total value of the down payment loans for the farm property to $ 666,000, which is equivalent to $ 300,000 of FSA loans. The starting farmer has to pay 5% of the purchase price, the FSA covers 45% and a lender (bank or agricultural credit) provides 50%.
“Even with a 5% share, your chances of success are significantly improved,” says Hoefner.
Down payment loans also have the lowest interest rate on the FSA share, currently 1.5%.
Hoefner is also pleased that the USDA is calling for a sharp increase in FSA funding in the president’s 2015 budget, $ 1.5 billion for direct farm property loans. “It’s almost triple the current funding level,” he says. Presidential budgets usually die in Congress, but Hoefner thinks there is a good chance of an increase in FSA loans.
The Farm Bill itself does not fund FSA loans. Congress does this every year, says Jim Radintz, USDA deputy assistant administrator for agricultural loan programs in Washington, DC. direct programs, ”he says. “In the direct farm ownership (real estate purchase) program, 75% of the funds are reserved for entry-level farmers during the first 11 months of the fiscal year.” Half of the direct operating loan funds are reserved for beginning farmers for the first 11 months. The FSA also guarantees loans from commercial lenders, 40% of which are held for beginning farmers for the first six months. All of this gives start-ups an edge over limited funds, he says.
Tips for success before and after a loan
The FSA requires young borrowers to have three years of experience, including some management before buying a farm, says David Manley, an agricultural loan specialist at the FSA’s Minnesota state office in St. Paul. “If you grew up on a farm or have some experience, you can get an operating loan,” he says. The FSA also generally requires that beginners take courses in farm financial planning, such as those offered at community colleges.
Amy Bacigalupo, director of the Farm Beginnings program at the Land Stewardship Project in Minnesota, says young farmers often focus on acquiring land, but “the best choice might be to wait a year or two until you get a feel for your business. ” The LSP Farm Beginnings program offers one-year management training sessions and connects participants with established farmers who act as mentors and sometimes provide work experience.
One of the downsides of FSA land loans is the time it takes to process and the risk of running out of funds. Jim and Alison Deutsch, who went through Farm Beginnings, were prepared. “We had everything lined up before we found the farm, so it went pretty well,” Jim says. “That takes time. We probably had two to three months of paperwork. ”
Even beginners can’t be newbies, Alison adds.
“You pretty much have to have a well-established business – an income-generating business – or they’re not going to waste their time,” she says.
Having realistic projections for this business is essential, adds Aimee Finley, an entry-level dairy farmer and farm business management instructor at Western Technical College in La Crosse, Wisconsin. It’s more than numbers, however.
“Know yourself, know your strengths and weaknesses,” she said. Get help where you don’t have the expertise.
Dave Hill couldn’t agree more. Neighbors help out, and her father and Annette’s adopted brother, a machine dealership mechanic, maintain her old equipment. “It’s not minor things these guys do to help me,” he says. “They are irreplaceable.”
FSA loans are not for everyone. You must not be eligible for trade credit. Size restrictions apply to mortgage loans.
Other paths to come
For other young farmers, banks and the farm credit system provide loans. In 2013, the farm credit system provided $ 11.1 billion in loans and commitments to 73,902 young and beginning farmers, says Gary Matteson, Youth, Beginners and Small Farmers Program Manager for the Farm Credit Council. “Each of the 79 associations has some kind of program for beginning farmers,” he says.
The USDA also has other programs for beginners beyond FSA loans, Bacigalupo says. FSA is a good place to start. Finley agrees. “Most of the FSA lenders I work with are great people,” she says.