SALEM, Ohio – When Robin Boggs’ Alfa-Creek Farm in Andover, Ohio, decided to put up a new 200-cow tunnel ventilated freestall barn in 2000, a state-run program helped him finance the project and get a lower interest rate on a portion of the loan than what his local lender could offer.
And back then – when interest rates were higher than they are today – the Ohio Family Farm Loan Guarantee Program’s help was a big deal.
“It’s really helped with the cash flow, especially with the milk prices being so low. Any time you go through an expansion, it’s tough those first few years,” Boggs said.
Still available. Ohio farmers who would like to enhance or expand their operations to keep their family farms in agricultural production can still apply for low-interest, guaranteed loans through the Family Farm Loan Guarantee Program.
More than $1.75 million is still available.
The program will guarantee 40 percent of a bank loan up to $200,000 – a total bank loan of up to $500,000 – for farmers who qualify.
Primarily designed to allow farmers or agricultural enterprises to substantiate their operations and get their feet on the ground, the program’s interest rate on the guaranteed portion will not exceed 5 percent.
Funding for the program may cease if the program is not renewed before its scheduled sunset June 30, 2003.
Incentive. “Agriculture can be a very capital-intensive industry,” said Ohio Agriculture Director Fred L. Dailey.
“This program serves as an incentive to help beginning farmers who may not be able to realize their aspirations to farm through traditional financing options.”
Not entirely geared toward beginning farmers, the program can also help expand and improve existing farms and agriculture-related industries.
Loans falling under the program can be used to buy land; construct, reconstruct or remodel existing structures; or to acquire fixed machinery and equipment such as grain bins and dryers, feed grinders, or to build a milking parlor, according to Gene Jackson, executive director of the Ohio Rural Development Partnership.
The partnership administers the program for the Ohio Department of Agriculture.
Loans may not be used to buy working capital or rolling inventory, such as tractors or combines; or for relocation costs, livestock or speculative real estate development.
“If somebody is going to buy a farm and put a bunch of apartments on it, they can’t use this program. That’s not what we’re about,” Jackson said.
Eligibility. To be eligible, farmers must be residents of Ohio unable to obtain traditional financing from commercial or agricultural lending sources.
Loan guarantees help the borrower demonstrate to the bank that he or she has the ability to repay the loan.
“In most situations, [beginning farmers] don’t have enough capital assets to qualify for regular bank loans,” Jackson said. “This gives them that tool.”
In addition, banks usually require 20 percent to 25 percent down. However, the loan guarantee program only requires 10 percent down, which can come in the form of a cosigner or equity.
For instance, an applicant hoping to build a new structure can use the equity of the farm he or she already owns toward the down payment.
For farmers living along Ohio’s borders with other states, there’s also another stipulation: At least 51 percent of the operation has to be located in Ohio, and the landowner must also be an Ohio resident, Jackson said.
Land use, education. The applicant must also demonstrate education, training, or experience in the type of agricultural enterprise for which he requests financial assistance, and meet land-use requirements.
During the 10-year guarantee, the land must be kept in agricultural use.
Local lending institutions will help the Ohio Department of Development and Ohio Rural Development Partnership monitor land use to the terms of agreement, Jackson said.
In addition, a business plan is required to prove the enterprise’s profitability and to prove the applicant has done research on what’s needed to be successful, he said.
Applicants are also encouraged to add value to their products and operations.
“We want to see some diversification, not just have them be another producer” of a commodity, Jackson said.
Proven track record. The program came about when House Bill 621 was signed into law in March 1998.
Now in its fifth year, 87 of 94 applicants have benefited from the program.
Of those loan guarantees issued, there have been no nonpayment situations or foreclosures, according to Jackson.
“When you really stop and think about it, these are the [loan recipients] that have been tagged marginal and higher risk. You would think they are at a higher risk of defaulting, but that’s not the case,” he said.
In addition, farmers can take advantage of the program more than once and use it to secure multiple loan approvals.
Call your banker. Farmers must apply for a loan with an eligible financial institution, which will file all paperwork with the state.
“Part of the problem in the past was that banks weren’t knowledgeable” about the program or its requirements, Jackson said.
The state is revamping the easy-to-understand application. Bankers are encouraged to call for more information.
“We want to get as many farmers involved as possible to continue this program. It’s a tough industry and anything we can do to help, we’ll do,” Jackson said.
For more information, contact your local lending institution or call the Ohio Rural Development Partnership at 1-800-282-1955 or visit www.state.oh.us/agr.
(You can contact Andrea Myers at 1-800-837-3419, ext. 22, or by e-mail at amyers@farmanddairy.com.)
Related Link:
Ohio Department of Agriculture’s Family Farm Loan Guarantee information www.state.oh.us/agr/familyfarmloanguarantee.htm
Sidebar:
Pa. loan program assists next generation of farmers
HARRISBURG, Pa. – Funding is available to eligible Pennsylvania farmers through the Next Generation Farmer Loan Program.
Loan program use. To assist eligible farmers, federal tax-exempt mortgage financing is used to reduce a farmer’s interest rate for capital purchases.
The Next Generation Farmer Loan may be used between a borrower and a lender for a loan to make a direct purchase of a farm and agricultural machinery and equipment or between a buyer and seller for a contract purchase.
Through the program, interest is exempt from federal, state and county taxes.
Assistance is limited to amounts and terms determined by the lender and contract seller.
Eligibility. Eligible candidates must meet the following guidelines:
* Meet the lender’s credit standards.
* Permanent resident of Pennsylvania.
* At least 18.
* Access to adequate working capital, farm equipment and livestock, if appropriate.
* Sole owner and principal user of the project.
* No prior ownership interest in a substantial amount of land.
A substantial amount of land is a parcel that exceeds 30 percent of the median farm size in the county in which the land is located, or which had at any time during ownership a fair market value in excess of $125,000.
The maximum amount of the loan under this program is $250,000.
More information. For more information or to receive an application for assistance contact your local economic development agency or agricultural lender or contact the state Department of Agriculture at 717-787-6041.
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