Beginning Farmers Start Smart with Tailored Financing
Buying a farm can be challenging – especially as a beginning farmer. Identifying tailored financing programs can give you a leg up to overcome some of the barriers to purchasing your first piece of farm ground.
Local Land Values
One percent or less of Illinois farmland changes ownership in a typical year, causing a tight supply and making it difficult to find the right farm for your operation. Even after identifying farmland to purchase, the price may be intimidating.
According to USDA data, land values have risen 590% over the past 30 years. While recent studies have shown a moderate decline in farmland values in the southern 60 counties of Illinois since the market peaked in 2013, results showed considerable variation. Meaning, the overall decrease may have had no price effect on a specific land tract in your area.
Between land availability and cost, you may think financing ground once you find it will be nearly impossible. Fortunately, beginning farmer loan programs can provide assistance in overcoming this barrier.
50-45-5 FSA Loan Program
The Federal Service Agency (FSA) 50-45-5 loan program provides assistance for beginning farmers purchasing land by participating with a local lender to provide financing. The local lender finances 50% of the purchase, an additional 45% is FSA financed, and the borrower makes a 5% down payment.
To qualify, farmers must be within their first 10 years of farming as determined by the FSA and have a minimum of three years of farming experience.
The FSA loan has a low, cash flow-friendly fixed interest rate – currently 1.5% for 20 years. When determining which local lender to work with, beginning farmers should evaluate financing options available in the marketplace.
Young and beginning farmers in the southern 60 counties of Illinois may consider participating in Farm Credit Illinois’ FreshRoots lending assistance program.
The FreshRoots lending assistance program provides young and beginning farmers a discounted interest rate for the first five years of a 30-year loan term. Relaxed loan standards help farmers qualify for the financing and as an added bonus – FCI subsidizes the FSA guarantee fees, which can be 1.5% of the total loan. Farmers in their first 10 years of farming or up to age 40 are eligible for FreshRoots lending assistance.
FCI has a long-standing FSA relationship and FCI loan officers have experience writing 50-45-5 loans. As an FSA preferred lender, FCI has a high probability of getting loans approved quickly – usually within 14 days.
Finding farmland to buy and securing financing can be daunting for a beginning farmer. Working with Farm Credit Illinois will help provide you a smart start in purchasing your first farm.