The Beginning Farmer Loan Program was established to help people who want to farm in Minnesota. The program offers affordable financing, a reasonable down payment and built-in safeguards, such as farm management training and financial planning to help minimize the risk all farmers face. This is a partnership approach backed by the State's financial participation. You may finance a purchase or possibly refinance an existing farm debt. Funding an improvement may be possible if done in conjunction with the requested financing package.
A beginning farmer is a person who intends, over time, to become a full time farmer. This definition may exclude some established farmers who are expanding their operations. Land speculators and investors looking for tax advantages are not eligible.
The farmer candidate must also meet the following eligibility tests which were established to protect them as well as the lender and the state. A farmer must:
- Be an individual who is a resident of Minnesota, a domestic family farm corporation, or a family farm partnership.
- Have sufficient education, training or experience to succeed in the type of farming that they intend to practice.
- Have a total net worth of less than $816,800, (indexed for inflation; please call the RFA for current limitation) including the assets and liabilities of their spouse and dependents.
- Have the financial need for a loan and the ability to repay the loan.
- Agree to be the principal operator of the farm to be purchased and intend to make farming their principal future occupation.
- Agree to consult with a local adult farm management instructor and enroll in a farm business management program approved by the Minnesota Commissioner of Agriculture for at least the first three years of the loan, if an approved program is available within 45 miles from the borrower's residence.
- Agree to consult with a local Board of Water and Soil Resources office or the county Natural Resources Conservation Service.
- Agree to obtain credit life insurance for the amount of the debt incurred to purchase the property.
Additional income may be earned off the farm by an eligible family member. The RFA recognizes that many farm families will need non-farm incomes to supplement farm earnings, especially in the early years of farm operations.
These eligibility tests allow people who currently farm rented land and those who have very limited ownership to be eligible for RFA loan participation and work toward becoming full time farmers.
Consultation with a Farm Business Management Instructor will help you determine if the farming operation you are planning can be profitable and self supporting.
While all lending institutions are eligible to be part of the program, they are not required to do so. Their decision to join the RFA program is voluntary.
The number of local community banks participating in RFA programs is growing. Once they agree to join, each lender must enter into an agreement with the RFA and offer basic farm loans based upon certain pre-established rules in order to qualify for RFA participation.
Interest rates and other specific terms will vary from lender to lender depending upon the conditions of its agreement with the RFA. The RFA suggests that applicants contact more than one lender to determine the best available terms.
Under the program currently being offered by the RFA, each loan will have a loan-to-value of no more than 90%. In most cases, the loan-to-value will be determined by the lender. Loan amortization will be scheduled on a flexible term of 15, 20, 25 or 30 years negotiated between the lender, applicant, and the RFA. However, loans will balloon and require full payment of the RFA loan in 10 years from the effective date of the loan. At the time of the balloon, the RFA participation will end, and the borrower will repay the loan. Loans carry a prepayment penalty equal to 10% of the outstanding balance in the first 5 years. The penalty is decreased by 2% annually.There is no maximum on the size of loan that a participating lender may make under the program. However, the RFA participation in a qualifying loan is limited to 45% of the lender's loan up to a maximum of $400,000.
The RFA will charge a reduced interest rate (call for a quote) on its portion of each loan. Each buyer should confirm the RFA's current rate when making application with the lender. The RFA interest rate is basically fixed for 10 years. However, the RFA rate may change at any time for failure to remain in compliance with the rules or statutes that govern the program.
The originating lender will retain the balance of each loan. The borrower must satisfy the local lender's guidelines. The local lender will control the day to day operation of the loan. Participating lenders are allowed to charge either fixed or adjustable interest rates consistent with their normal farm real estate lending practices and their agreement with the RFA. Therefore the actual interest rate paid by the farmer will be an average of the RFA and lender rates. For example, if the loan to purchase a farm was $300,000 after down payment, the RFA could purchase a $135,000 participation interest (45%) in the loan.
A borrower may use the program more than one time to an aggregate amount of $400,000. For example, a borrower could have two loans - one for $225,000 and one for $175,000 or four loans of $100,000 loan from the RFA.
A borrower would have to make a new application for each loan. Approval would be determined by the current guidelines in effect at the time of the application.