Ag Loan Rates
Farming and ranching are long-standing American traditions. Early US farmers and ranchers had to depend on personal wealth amassed over generations or funding from abroad in order to expand their businesses, while others got by on their own. Nowadays, agriculture and agricultural products still form the lion’s share of US exports and the US economy as a whole.
In order to encourage the growth of US farms and ranches, encourage new farmers to get into the business, and support the crucial efforts of American farmers, the federal government offers financing to farmers and ranchers with competitive ag loan rates.
Since the 1930s in particular, when Franklin Delano Roosevelt conceived of a series of programs to lift the American economy from the throes of the Great Depression, the United States Department of Agriculture, or the USDA, and the Farm Services Agency, called the FSA, have been working to support the growth and sustainability of United States farms and rural communities.
These federal agencies provide an array of resources to US farmers, including farm management techniques, tax credits, and the technological support needed to move agricultural operations into the 21st century.
Farmers and ranchers can access this support through the federal government directly or through banks that manage these government loans. Low-interest rates along with newly simplified application processes make acquiring these resources a relatively straightforward process.
Below is some detailed information about some types of assistance that are available to farmers and ranchers. The ag loan rates listed are current as of July 2017.
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Direct Farm Ownership Loans
Not every aspiring farmer has the capital to get a farm started, and experienced farmers might need an extra boost to buy new land or expand their existing operations.
In addition to land, farmers need financing for equipment, machinery, and buildings, whether they are starting a family-owned farm or looking to expand or increase the profitability of an existing agricultural operation. One type of loan, called a direct farm ownership loan, is available through the FSA and aims to get new farmers and ranchers started in the business.
A notable advantage of this type of loan is that previous farm ownership is not a requirement of accessing the loan, which makes this type of loan particularly attractive for people just entering into farming or ranching. Additionally, for many applicants, 100% financing up to $300,000 is available.
Like many other USDA loans, direct farm ownership loans have competitive
ag loan rates. The interest rate for these loans is 3.875%. While previous farm ownership is not a requirement of these loans, successful applicants will have a strong background in all aspects of the type of operation they are looking to set up. This experience comprises the usual daily responsibilities of running an agricultural business.
For ranchers, this management experience includes but is not limited to duties such as choosing and buying breeding stock, choosing which livestock to cull and when to cull, creating feed formulations, and decision-making about equipment and machinery purchase.
For farmers, successful applicants should have knowledge and background in the logistics of moving product from the field to the marketplace, crop rotation strategies, and approaches to pest control.
Both farmers and ranchers should be able to demonstrate experience in maintaining outbuildings and other facilities, creating marketing strategies, and setting short-term, medium-term, and long-term goals.
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Direct Farm Operation Loans
Unlike direct farm ownership loans,
direct farm operating loans are not intended for the purchase of property, buildings, and large pieces of machinery, but instead they are aimed at supporting new farmers and ranchers in managing the costs of daily operations, including buying equipment and smaller machinery, making minor repairs on buildings and existing equipment and machinery, and purchasing other needed supplies such as feed, seed, pesticides, livestock, poultry, and soil inputs.
Direct farm operation loans also have the goal of assisting farmers increase the profitability of their operations by transitioning from one focus or method to another.
This is a good type of loan for farmers and ranchers looking to make changes to their business, for example, from conventional farming approaches to no-till organic methods, for stock ranchers who want to get into cow-calf operations, or for anyone who wants to buy shares in value-added marketing or processing cooperatives.
In addition to funding the necessary materials to run a farm on a day-to-day basis, direct farm operation loans may be used to finance certain existing loans, pay rent or cover other family living expenses, or support land and water conservation efforts. The ag loan rates for operation loans are 2.875%, and the maximum amount that can be borrowed is $300,000.
There are several different criteria for background knowledge and experience, and a combination of these criteria is required. Applicants should have some educational background in agriculture such as a two- or four-year degree in an agriculture-related field, successful completion of a Cooperative Extension
Service certification, high school vocational training in agriculture, or participation in and completion of youth organization projects such as those done through the 4H.
Additionally, applicants should have recent or ongoing experience with farm management duties and day-to-day decision-making, which may include internships or mentorships with managerial focuses. Managerial experience may also include taking on managerial duties in rural or urban community-supported agricultural projects.
Lastly, applicants may have recent experience working as a farm manager for one full production cycle, or an extensive farming background from being raised on a farm and participating in all aspects of the daily management and running of a farm. Additionally, applicants who have previously received and paid off a FSA Youth Loan receive priority in the loan-awarding process.
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Farm Ownership and Operation Microloans
Similar to direct farm ownership and operation loans, farm ownership and operation microloans are aimed at aspiring farmers and ranchers. Microloans, however, are not intended for big purchases to start or expand a large operation. Instead, this type of loan is generally used to start or help operate non-traditional farming and other niche agricultural operations.
For beginning farmers whose goal it is to start a smaller operation such as a shipping container farm or an operation that uses vertical growing methods, hydroponics, or aquaponics, a farm ownership microloan is a good choice.
Additionally, farmers looking to use more direct methods of marketing and sales such as CSA (Community-Supported Agriculture), farmers’ markets, or direct sales to grocery stores or restaurants may be suitable candidates for this type of loan.
There is no minimum amount for a microloan, and the maximum amount available for borrowing is $50,000. The ag loan rates for farm ownership microloans are 3.875%, and the ag loan rates for farm operation microloans are 2.875%.
Like direct loan applicants, microloan applicants need to demonstrate background experience and knowledge in the day-to-day responsibilities of the type of operation they are looking to start, including but not limited to small business management, agricultural internships, or an academic background in business management or an agriculture-related field.
For operation microloans, applicants have the option of selecting a mentor to help out with the process. The mentor should be available to offer his or her services unpaid, and should also demonstrate expertise in the type of operation she or he wants to mentor the applicant in.
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