The Aggie Bond Loan Program is a federal bonding program administered by the State through its Rural Finance Authority. The program offers affordable financing for a qualified beginning farmer. This is accomplished by securing for the applicant a reduced interest rate on the loan they are submitting for approval under the program.
A beginning farmer is a person who intends, over time, to become a full time farmer. This definition will exclude established farmers who already own farmland and are expanding their operations. Land speculators and investors looking for tax advantages are also not eligible.
The beginning farmer candidate must also meet the following eligibility tests. A beginning farmer must:
- Be an individual who is a resident of Minnesota.
- Must have a net worth of less than $851,000 (indexed for inflation; please call the RFA for current limitation), including assets and liabilities of their spouse and dependents.
- Must never have owned more than 30% of the county median size farm where they reside.
- Have a financial need for a loan and the ability to repay the loan.
- Have sufficient education, training or experience to succeed in the type of farming that they intend to practice.
- Be purchasing land, animals or machinery that will be located in Minnesota.
- Must intend to be the principal operator of the type of operation involved in the application.
- Agree to 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 of the borrower's residence.
- Agree to consult with a local Board of Water and Soil Resources office or the county Natural Resources Conservation Service.
- May wish to obtain credit life insurance for the amount of the debt incurred to purchase the security.
Additional income may be earned off the farm by an eligible family member. The RFA recognizes that many farm families will need non-farm income to supplement farm earnings, especially in the early years of farm operations.
These eligibility tests also allow people who currently rent farm land and those who have very limited ownership to be eligible for the Aggie Bond Program.
Consultation with a Farm Business Management Instructor may help you determine if the farming operation you are planning can be profitable and self supporting.
Qualified beginning farmers may purchase productive agricultural farmland; new or used depreciable agricultural property such as livestock used for breeding purposes or dairy products (feeder cattle, feeder pigs or feeder lambs do not qualify), and farm machinery including trucks. Making an improvement to a farm is also an eligible purpose.
Who Finances an Aggie Bond Loan
This program may be financed by your local commercial lender. The program also allows for private financing from an individual or an estate (neither of which can be a close relation).
The financing entity is required to give a reduced interest rate on the type of loan being made. While there is no set discount required by program rules, the RFA will generally expect that the interest rate being offered is a minimum of two to two and one-half percent below the current rate being charged for said type of loan.
You may borrow up to an aggregate of $558,000 under this program. In other words, you may have more than one loan under this program as long as each time that you apply, you remain eligible under the current rules.
For example, you could have borrowed $200,000 to buy new equipment, another $50,000 to purchase some animals, and still have $293,800 remaining to purchase real estate.
Note, that when purchasing used depreciable property you are limited to a total of only $62,500. Also, when purchasing new depreciable farm property, such as buildings, machinery and breeding livestock, you are limited to a total of $250,000.
Other Loan Terms
All other terms of the loan are negotiated between the beginning farmer and the lending entity. While not practical in most lending situations, zero down is acceptable to the program, if someone is willing to finance a loan in that manner.
Real estate loans may be made for up to forty years. However, the average for real estate loans, is generally around 20 years. Usually for depreciable property the loan will not be made for more than 10 years and is subject to the Internal Revenue Code. Again, this is a negotiable item between parties.
The same can be said for the frequency of the payment. Monthly, annual, semi-annual and quarterly are all negotiable.
The RFA collects an allocation fee and a loan origination fee.
For program summary and additional details, contact the RFA at 651-201-6556.