Farm Land Loans
The United States has a rich heritage of farming from the colonists and founding fathers who helped create our country to the hard-working men and women who put 80 percent of the food on American tables today, while helping to feed the rest of the world. Between 2009 and 2016 the U.S. exported over a Trillion dollars in agricultural products – the largest ever in history.
The Great Plains of the United States from Montana and North Dakota down to New Mexico and Texas provide a large portion of the crops grown for use in the country and for export.
But not all large agriculture is centered in the states of the Great Plains. The top ten agricultural producing states are California, Iowa, Texas, Nebraska, Minnesota, Illinois, Kansas, North Carolina, Wisconsin, and Indiana. There are approximately 2.1 million farms with an average size of 434 acres in the United States. The majority of these farms are owned by families or individuals.
The farmers and ranchers of America have a proud history of working the land and providing for the health of our nation and stoking our nation’s economy. Agriculture is still big business and it takes a lot of land.
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Uses For Farm Land Loans
Whether you are a beginning farmer or already established, one of the largest expenditures you will have is for land. Farm land loans are the common source of capital for the purchase of farm land.
These can be used for the initial purchase of land to start a farm, to purchase an already existing farm or for the expansion of acreage for a farm.
There is no minimum or maximum acreage requirement for these loans. Whether you are a full-time farmer buying hundreds of thousands of acres to grow wheat or a part-time farmer needing a few acres to grow organic produce for a truck farm, there are a variety of farm land loans to suit your requirements.
Traditional commercial banks and lending institutions are one source of capital for agricultural loans. Banks can range from small, local institutions that have the advantage of employing loan officers who live and work in the agricultural community they serve.
They know the people they do business with and they are knowledgeable about the state of the ag industry in their area. Many small, rural banks take advantage of the services of the Federal Agricultural Mortgage Corporation (Farmer Mac).
Farmer Mac, similar to the more well-known Freddie Mac and Fannie Mae, is a government sponsored enterprise that is formed to provide a secondary market for
rural agricultural loans (including farm land loans), rural housing mortgage loans and rural utility loans. These services allow smaller, rural banks to be more competitive and offer a broader portfolio of loan products to their customers.
A large commercial bank or lending institution can also be of service to an established or beginning farmer. Many have departments devoted solely to the agricultural customer.
Their loan officers may have a broad knowledge of the agricultural industry in general, or they may have people who specialize in particular areas of the country or ag industries such as smaller farms or cattle ranching. Larger banks will also have a variety of loan products for their customers.
Farm Land Loan Rates
The farm land loans from any size or type of institution can encompass traditional mortgages with a fixed rate or any number of variable rate loans based on either the Prime Rate or the London Interbank Offered Rate (LIBOR) which is the interest rate that banks charge one another to borrow money.
Variable rate loans can be packaged with or without interest rate caps. An interest rate cap is the highest interest rate you can be charged for the life of the loan.
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Guaranteed Farm Loan Programs
Loans can also be obtained from certain commercial lenders participating in the Guaranteed Farm Loan Programs. Farm land loans made through this program are guaranteed by the U.S. Federal Government.
They are processed, funded, serviced and owned by the commercial lender, but the Farm Service Administration (FSA), a department of the United States Department of Agriculture (USDA) guarantees the loan.
There is another type of loan available under the Guaranteed Farm Loan Programs; it is the EZ Guaranteed Loan. It has been streamlined with a simpler application procedure for easier processing.
The maximum that can be borrowed under the EZ Guaranteed Loan is 100,000 dollars. This loan is designed to assist new or underserved farmers. Both types of guaranteed loans can be used for a farm land loans whether buying a new farm or expanding.
Microloan Program
The USDA was established in 1862 and became a cabinet-level department in 1889. Billed “The People’s Department” by President Lincoln, who signed the bill into law, the USDA was set up to support farmers and farming communities.
And while the percentage of the population engaged in farming as a livelihood has decreased since the inception of the USDA, the department continues to touch the lives of all Americans with its agriculture and food research and natural resources conservation, as well as in other areas.
One mission of the USDA, through the FSA, is to facilitate farming for the traditionally underserved such as women or minorities. Minority farmers include African Americans, Native Americans, Hispanics, and Native Hawaiians and Pacific Islanders, as well as other groups.
Each year a certain amount of funds are set aside to assist the underserved through the USDA Microloan Program. There are two types of loans available under this program, the Direct Farm Ownership Microloan to assist with ownership and the Direct Farm Operating Loan to assist with operating expenses. Both of these loans have a cap of 50,000 dollars.
The focus of the program is the needs of small, beginning or niche farmers. The Direct Farm Ownership microloan provides farm land loans for a purchase or it can be used as a down payment on a Farm Ownership Loan.
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Direct Farm Ownership Loan
The FSA also has a program called the Direct Farm Ownership loan. This is a valuable capital source for the beginning farmer since no previous farming experience is required.
There are three types of loans available based on the needs of the applicant(s): regular, joint financing, and down payment. For a qualified buyer, the loan can cover 100 percent of the financing of a farm purchase.
The USDA funds these loans as part of the expenditure of its yearly budget appropriated by Congress. They are serviced through the agency by local Farm Loan Officers and Managers. This is an excellent source of farm land loans.
Shopping For A Farm Land Loan
Farming is still a vital part of the American business landscape with family- or operator-owned farms accounting for 90 percent of U.S. farms and ranches. As global demand for food and other agricultural products increases, more farms will be needed to meet that demand.
Whether you are a beginning farmer or already in business and considering expansion of your operation, capital is one of the many tools you can make work for you. Hard working capital increases business profitability and stability. But finding the right farm land loans means looking at the products offered by many types of lending institutions, comparing those products and deciding which one is right for you.
Don’t just look at monthly payment amounts. Be certain you know the loan terms, what the cap is if it a variable loan, and the overall cost of the money you are borrowing. With this information, you can find the right product at the right price for your needs.
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