The Ohio Livestock Coalition has collected information about two loan and financial assistance programs for family farms with livestock who wish to make substantial changes in their farms to improve profitability and/or protect the environment. Several agencies have financing available through local banks at reduced interest rates for qualified programs.
The Ohio Family Farm Loan Guarantee Program
The Ohio Family Farm Loan Guarantee Program provides guarantees to conventional lenders who provide loans to persons engaged in agricultural production that enhance the economic viability of the state’s agricultural areas. The program is administered and serviced by the Ohio Department of Development Office of Financial Incentives and the Ohio Department of Agriculture.
The program has a 2000-2001 funding budget of $2.5 million and will close on June 30, 2002 or whenever current funding is depleted.
The Ohio Family Farm Loan Guarantee Program can be used to fund projects that require capital for land acquisition, construction, reconstruction, rehabilitation, remodeling, renovating, enlarging or improving agricultural buildings. Funds may also be used for the purchase of machinery and equipment.
Also, limited “soft costs” related to the expenditure on fixed assets may be included. Examples of eligible soft costs include architectural/engineering expenses, installation costs for machinery and financing costs for loans. Funds from the program may not be used for working capital, refinancing rolling stock, financing of inventory/receivable stocks, speculative real estate development, relocation costs or livestock.
The Ohio Family Farm Loan Guarantee Program allows the state of Ohio to provide a partial guarantee to an eligible lender by placing up to 40 percent of the lender’s loan in an interest-bearing account. The lender agrees to pay the state 1 percent annual interest on the amount of the guarantee. The lender also agrees to lend the guaranteed portion of the loan at a reduced interest rate to reflect the state’s reduced interest rate.
The maximum interest rate allowed on the guaranteed portion of the loan is 5 percent. The remaining non-guaranteed portion is loaned at the lender’s prevailing interest rate.
Financial institutions eligible for participation are any banking corporation, trust company, savings and loan association or building and loan association or other institution engaged in lending or investing funds for agricultural or business purposes that is eligible to become a depository for public monies under Ohio law.
A minimum down payment of 10 percent is required on all loans and the borrowers project must be done in an area in which agriculture is the primary land use. The program will guarantee up to $200,000 or 40 percent of the lender’s loan, whichever is less, for a period of up to 10 years.
To qualify, lenders and borrowers must meet the following criteria:
* The lender must demonstrate need for the state’s loan guarantee.
* The borrower must have the ability to repay the lender’s loan from the proceeds of the agricultural operation and must provide adequate security for the loan.
* The borrower must have sufficient education, training and/or experience in the type of farming being financed.
* Borrowers must provide a business plan that includes the following:
1. An overview of the type of farming to be conducted.
2. A management strategy for operating the business.
3. A five-year marketing plan for the business.
4. A current balance sheet, budget and cash flow projections.
5. The availability of operating capital.
For information about the Ohio Family Farm Loan Guarantee Program contact the Ohio Rural Development Partnership/ODA at 800-282-1955 or the Office of Financial Incentives/ODOD at 800-848-1300.
Water Pollution Control Loan Fund
The Water Pollution Control Loan Fund is administered by the Ohio Environmental Protection Agency’s Division of Environmental and Financial Assistance and the Ohio Water Development Authority.
The WPCLF is experienced in coordinating financing packages with the Ohio Public Works Commission, Community Development Block Grant Program, and other sources of public financial assistance. WPCLF awards loans based primarily on readiness to proceed. The program has always had sufficient funds available to award loans without the necessity of having to select “fundable” projects from a pool applications.
The fund uses the Integrated Priority System as a tool to rate various types of water resource protection projects according to their relative contributions to water quality. The IPS includes the point source and non-point source water quality needs as well as human health factors to form the priority ranking system.
The WPCLF uses a linked deposit program for financing certain projects. Instead of borrowing directly from the WPCLF, a linked deposit loan is made to the applicant by a private lending institution. The below-market interest rate for the loan is supported by a WPCLF-funded certificate of deposit with the lender. Linked deposit loans have been made for best management practices such as manure storage facilities and the use of conservation tillage equipment.
Other funded BMPs include filter strips and grass waterways, fencing and alternative watering sources, and the construction of wetlands to treat milk house waste water from dairy operations.
At the local level, the program is administered by soil and water conservation districts. Interested SWCDs need to contact the OEPA to express interest in developing a non-point source program for a particular watershed. Local banks need to be contacted to see if they would be interested.
When a watershed management plan, finding of no significant impact, memorandum of understanding, and participating bank agreements are completed, linked loans can be made.
Landowners can work with banks that they regularly do business with. Participating banks earn the same amount of profit as they normally would on their loans. The WPCLF’s CD is insured by the FDIC.
The steps for an agricultural non-point source loan are generally as follows:
* The Landowner and SWCD staff develop an individual soil and water conservation plan that conforms with the local watershed management plan.
* The landowner obtains a certificate of qualification from the local SWCD board identifying the proposed improvements in his farm’s soil and water conservation plan that are eligible for funding.
* The landowner applies for a loan from one of the local participating banks.
* The bank evaluates the credit-worthiness of the of the landowner and decides whether to grant the loan.
* The bank sends an investment request form for the project and a copy of the SWCD board certificate to the OEPA DEFA.
* Upon approval the OEPA DEFA and OWDA deposit with the lender a CD equal to the amount of the loan. The term of the CD is equal to the term of the loan, but no longer than 20 years.
For information about the WPCLF and its linked deposit loan program, contact DEFA at 614-644-2798 or 614-644-2832.
(The author is an agricultural extension agent in Columbiana County. Questions or comments can be sent in care of “Farm and Dairy”, P.O. Box 38, Salem, OH 44460.)