Loan options serve farmers at various experience levels

MARSHALL, Minn. (AP) — The adage that it takes money to make money applies to farming as much as anything else.
U.S. Department of Agriculture offices have steadily expanded loan options for beginning farmers since the mid-1980s. USDA programs often lead to a three-way partnership between agencies, borrowers and lenders — a relationship that results in credit for farmers who might not have qualified otherwise.
Rodney DeGraaf, a Farm Service Agency loan administrator in Marshall, said the key to loans for farm purchases or operating expenses is a government guarantee. The policy was implemented during the farm crisis of the mid-1980s, when there was widespread reluctance to grant new loans.
“Our first priority is to find out if people can get credit on their own without guarantees,” DeGraaf said. “If they can’t, we look at the other options. It could make the difference for both the farmer and the lender.”
One of the options for purchase loans leaves the financing in the private sector but guarantees against a loss of up to 90 percent. Other possibilities, including downpayment loans and participation loans, divide the loan support between the government and a private lender.
One possibility involving direct farm ownership loans takes financing directly from FSA in an amount not more than $200,000. Since the direct loans are the hardest to fund, they’re usually viewed as a last option.
“The more we get involved, the more difficult it becomes to provide the funds,” DeGraaf said. “We can only make a certain number of loans around the country, particularly direct loans. We start by looking at the more feasible options.”
Some restrictions are placed on purchase loans based on farm size and farming experience.
To qualify for any FSA purchase assistance, operators can’t already own acres that total more than 25 percent of the average farm size in their counties. For instance, the maximum total in Lyon County is 104 acres and in Yellow Medicine County it is 111.
Direct loans require at least three years of farm operation experience, but not more than 10 years. DeGraaf said operating loans that cover machinery, foundation livestock, buildings or other start-up costs might help operators who are not eligible for a purchase loan.
“There has to be a balance,” he said. “The loan support is for people who can’t get the credit elsewhere, but who have a capability to repay.”
DeGraaf said USDA changes made in 1994 set aside loans for beginning farmers. Although first-time farmers previously had a chance to apply for FSA loans, there are advantages to specialized funding since it does not require competition with other farm operators.
Young people who want to start farm-related businesses can apply for FSA youth loans. They offer as much as $5,000 for people up to age 21. An adult supervisor generally oversees such projects, which are expected to produce enough income to repay the loan.