By: Anna Brunner
The Purpose of This Document – This document provides brief
coverage for several financial topics:
-Farm Credit System (FCS),
-Disaster Relief Funding,
-Land Contracts,
-Microloans.
Farm Credit System
The Purpose of This Section: This document provides an overview of the Farm Credit System (FCS) and the resources it makes available to beginning farmers.
The Farm Credit System offers a variety of financial services to farmers or people living in rural America. The FCS is run by the U.S. Government. The FCS operates through local banks, and the one serving the Ann Arbor, Michigan area is GreenStone Farm Credit Services. [Source 1] [Source 2]
GreenStone Farm Credit Services
The local branch of the Farm Credit System offers loans for capital or equipment, like most banks, but because they loan specifically to farmers their rates tend to be competitive. They even have a helpful online loan calculator so you can calculate the total cost of a given loan. Their loans are also backed by the U.S. Government, so they are specifically motivated to loan to farmers. Additionally, GreenStone offers real estate loans, real estate appraisal, and crop insurance—all targeted at local farmers. [Source 3]
Screenshot of the Loan Calculator
Young, Beginning, and Small Producers Program (YBS)
The Farm Credit System is also committed to supporting young or beginning farmers who meet one of the following criteria:
-35 years of age or younger
-less than 10 years agricultural experience
-less than $250,000 in annual farm production
The YBS program provides financial advice to farmers in addition to the lending, appraisal, and insurance services offered to every farmer. Online resources, available through the New American Foodshed site, offer basic financial and business planning along with case studies and their business plans and structure. [Source 4] [Source 5] [Source 6]
Why Consider the Farm Credit System
Since the FCS is directly charged with supporting farmers and ranchers, the financial advice and lending is likely to be higher quality than at most banks. FCS is backed by the government, which gives them more lending power to offer lower loan rates for farmers in need. For more information about what to consider when getting a loan, please see the associated Tilian Documentation section on Loans.
Disaster Relief Funding
The Purpose of This Section: To provide an overview of the funding available through the U.S. Government for disasters that have a deleterious impact on crops and livestock.
The Federal Government, through the Farm Service Agency, offers several programs that provide disaster assistance to farmers. The basic emergency farm loans program is covered in the USDA Loans document, but information can be found also on the USDA’s site. The other loans offered by the Farm Service Agency are more specific by crop, and will be discussed in brief here.
Some programs are available only to farmers who live in a federally declared disaster area, or directly adjacent to one. Other programs have their own definitions of disaster. If you have suffered crop or livestock losses of any kind, be sure to check the details on the following sites as you may be eligible for funding even if your county has not been formally declared a disaster. Some programs also require pre-disaster enrollment in FSA insurance plans, or other pre-disaster conditions. In some cases this requirement is waived for beginning farmers—persons defined as having operated a farm or ranch for less than 10 years. The Emergency Forest Restoration Program, Noninsured Crop Disaster Assistance Program, and Livestock Indemnity Program each have pre-disaster eligibility requirements that are not contingent upon beginning farmer status, so if you own livestock or cultivate produce that you know to be uninsurable, please check the linked sites for EFRP, NAP, and LIP to make sure you understand your status as it relates to federal disaster relief funding. [Source 7]
Supplemental Revenue Assistance Payments, SURE
This program offers assistance to farmers who have suffered crop losses due to a natural disaster. To qualify you must have lost at least 10 percent of your production of at least one crop of economic significance because of a disaster. A “crop of economic significance” is a crop that contributes at least five percent of the expected revenue for a producer’s farm. Producers outside of a disaster area who have lost 50 percent or more of their normal farm production are also eligible for SURE funding. For more details on SURE funding, please see this site. [Source 8]
Emergency Assistance for Livestock, Honey Bees, and Farm-raised Fish, ELAP
Honey bees at the farm
The ELAP program provides emergency relief to producers of livestock, honey bees, and farm-raised fish in the case of disaster. Covers losses from disaster such as adverse weather or other conditions, such as blizzards and wildfires not adequately covered by any other disaster program. Details on qualifying for ELAP assistance can be found here. [Source 9]
Livestock Forage Program, LFP
This program provides financial assistance to producers who suffered grazing losses due to drought or fire. Areas eligible for funding are updated on a weekly basis at this site. More information about what kind of foliage applies for LFP funding can be found here. [Source 9] [Source 10]
Tree Assistance Program for Orchardists and Nursery Tree Growers, TAP
TAP provides financial assistance to qualifying orchardists and nursery tree growers to replant or rehabilitate eligible trees, bushes, and vines damaged by natural disasters. Eligible trees, bushes, and vines are those from which an annual crop is produced for commercial purposes. Nursery trees include ornamental, fruit, nut, and Christmas trees produced for commercial sale. Trees used for pulp or timber are ineligible.
To qualify for assistance, tree, bush, or vine losses must exceed 15 percent of planted crop. Additionally, the disaster causing these losses must have occurred while the owner, claiming the loss, owned the product. Replacement of lost foliage must occur within 12 months of the TAP application’s approval. For further information about TAP, please see this site. [Source 11]
Emergency Forest Restoration Program, EFRP
Financial support is available to eligible owners of nonindustrial private forest land in order to carry out emergency measures to restore land damaged by a natural disaster. Subject to availability of funds, locally-elected county committees are authorized to implement EFRP for all disasters except drought and insect infestations, which are authorized at the FSA national office. Eligible land must have had existing tree cover before the disaster and must be owned by a nonindustrial entity that has definitive decision-making authority over the land. Additionally, the natural disaster must have resulted in damage that if untreated would impair or endanger the natural resources on the land and materially affect future use of the land. For further information regarding EFRP funding, please visit this site. [Source 12]
Noninsured Crop Disaster Assistance Program, NAP
NAP provides financial assistance to producers of non-insurable crops when low yields or loss of inventory occurs due to natural disaster. Additionally, if farmers intended to plant crops but were prevented from doing so because of a natural disaster, NAP provides financial assistance to cover this loss of income. Eligible crops must fall into one or more of the following categories:
-Crops grown for food
-Crops planted and grown for livestock consumption, including, but not limited to grain and forage crops, including native forage
-Crops grown for fiber, such as cotton and flax (except for trees)
-Crops grown in a controlled environment, such as mushrooms and floriculture
-Specialty crops, such as honey and maple sap
-Value loss crops, such as aquaculture, Christmas trees, ginseng, ornamental nursery, and turfgrass sod
-Sea oats and sea grass
-Seed crops where the propagation stock is produced for sale as seed stock for other eligible NAP crop production
Additionally, these crops must have been unable to qualify for the catastrophic risk protection level of crop insurance. Natural disasters need not be designated by the government for individuals to qualify for NAP funding. For more information on the NAP program and its restrictions, please visit this site. [Source 13]
Livestock Indemnity Program, LIP
Financial assistance provided through LIP is given to livestock producers for livestock deaths in excess of normal mortality, and that are caused by adverse weather. In order to qualify, the livestock must have been maintained for commercial use as part of a farming operation on the day they died. Other documentation about location of livestock and proof of the date of death is also required. Disasters in which livestock deaths occur need not have a federal disaster declaration in order to be eligible for LIP funding. For more information, see this site. [Source 14]
Overview of Federal Disaster Relief
Federal disaster assistance is designed to help farmers who have been impacted by an unforeseen event. In order to be prepared for a disaster on your farm, look through the requirements for emergency funding before you have the need for disaster relief. The FSA offers email updates on disaster relief available, at this site. [Source 15]
Land Contracts
The Purpose of This Section: To provide information about what land contracts are, how they differ from traditional methods of property transfer, and the pros and cons of this method of financing.
Traditional methods of financing do not necessarily need to be followed when purchasing land for a farm. Loans through banks require a certain amount of credit, and in order to receive a reasonable mortgage rate, a good credit score is also important. Often the land being purchased will require a large sum of money for a down payment, which may be another barrier to ownership. Land contracts offer an alternative way to finance the purchase of land, and are worth considering even if more traditional methods of purchase are available.
What is a Land Contract?
A land contract, in its most basic form, is a way of selling property where the buyer “borrows” from or relies upon the seller for the financing rather than paying cash up front or borrowing from a bank. In some places land contracts are known as Trust Deeds, Contract for Deed, Deeds of Trust, Notes, Privately Held Mortgages, or Installment Sale Agreements . Regardless of the name used, essentially the same arrangement is taking place. [Source 16] [Source 17]
Map of Washtenaw County
Why Would You Consider a Land Contract?
There are a few reasons to consider a land contract if you are a buyer, some of which are mentioned above. If you do not qualify for traditional financing, for example, a land contract would allow you to purchase property in any case. Additionally, if you can provide reliable monthly payments but cannot afford the initial lump sum down payment, a land contract could offer you a pathway to land ownership. As a seller you would face fewer fees from the bank and often receive full payment more quickly. Additionally, older farmers who want to see their land continue to be used for farming could enter into a land contract as one way to form a relationship with the future owner of the farm and to make sure they continue a farming tradition. [Source 16]
Benefits of a Land Contract
With a land contract the buyer and seller are able to work out unique contract terms that are agreed upon by both parties. Some land contracts don’t have a balloon payment; some put one in the beginning, similar to a down payment, and some put them at the end. Depending on local laws and the desires of the seller, the land is legally turned over to the buyer at different points in time. Some contracts will stipulate ownership after a majority of the value of the land has been paid to the seller, while some will state that the seller owns the property until the final payment from the buyer has gone through. This flexibility can benefit both seller and buyer, but be sure you know what legally binding commitments are being made before agreeing to any contract. [Source 16] [Source 18]
Downsides of a Land Contract
Many of the problems with land contracts arise through a violation of the terms of the contract— something that would be a problem even with traditional financing. Often sellers retain the ownership of the land until complete payment is made and if the buyer misses a scheduled payment the contract may be terminated. In many cases this would mean that the seller would retain the land and the money already paid by the buyer towards purchase. Others problems can arise if the seller of the land does not disclose mortgages currently on the land before ownership is transferred to the buyer. Once the buyer owns the property, they become responsible for unpaid mortgages and can be saddled with extra debt.
Having someone familiar with state and local laws in regards to land contracts review the document before either party signs it could help alleviate some of these potential concerns. [Source 16] [Source 18]
Microloans
The Purpose of This Section: To provide information about what microloans are, how they differ from traditional loans, and places to go for further information.
Microloans are most commonly used in developing countries to provide small amounts of funding to start up businesses. In the United States, microloans are becoming increasingly available through a variety of sources. Unlike traditional loans, microloans tend to be for small amounts ranging from $500 to $10,000 and sometimes as large as $50,000. Microloans do require a financial background check in order to qualify, but the qualification process tends to be less rigorous than for traditional loans. Microloans are useful for beginning farmers because of their small size and the relative ease with which they are procured relative to traditional loans.
Finding a Microloan
Beginning farmers often do not need a large loan given the size of their farming operation, and often banks or other lenders will not consider micro-sized loans because they are too small to bother with. Specific programs set up to support microloans are therefore needed so that lending agencies will support these small loans.
USDA
The USDA has just announced, in May of 2012, their plan to make microloans below $35,000 available to farmers, regardless of experience. The microloans will have the benefit of a simplified application process along with being a more appropriate scale for beginning farmers. While the loan program has not yet been implemented, the USDA is looking for comments and then hopes the program will move forward to become a reality [Source 19].
Accion USA
Accion started as an international mircofinance company, but has opened a branch specifically serving the United States. Accion offers small business loans ranging between $500 and $50,000, but the average loan size is around $7,000. They offer loans targeting a variety of businesses, with six months or more of experience. To find out more about Accion USA’s loan requirements visit their site [Source 20].
Small Business Administration
The Small Business Administration, SBA, will provide microloans through local intermediaries. In order to find out if your financial profile and business would qualify for a loan, contact your local intermediary. In Washtenaw County, the contact information for the two intermediaries are as follows [Source 21]:
Center for Empowerment and Economic Development (CEED)
2002 Hogback Road, Suite 17
Ann Arbor, MI 48105
Executive Director: Michelle Richards
Phone 734-677-1400
Email: khill@miceed.org
And
Rural Michigan Intermediary Relending Program, Inc.
733 E. Eighth Street
Traverse City, MI 49684
Executive Director: Mike Tucker and Joan Cotter
Phone: 231-421-5251
Email: s.spencer.rm1@gmail.com
National Sustainable Agriculture Information Service
While the National Sustainable Agriculture Information Service does not offer microloans directly, they do have an updated page of microloans with brief summaries and information about when the applications are due. This site contains numerous microloan options, and the National Sustainable Agriculture Information Service site also contains information for beginning farmers outside of financing [Source 22] [Source 23].
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Sources:
1) The Farm Credit Network site. Accessed 2/09/12
2) Greenstone Farm Credit Services. Accessed 2/09/12
3) Greenstone Loan Calculator. Accessed 2/09/12
4) The Foodshed Guide. Accessed 2/09/12
5) Foodshed’s Planning Guide. Accessed 2/09/12
6) Foodshed’s Case Studies Page. Accessed 2/09/12
7) USDA’s Farm Service Agencies. Accessed 3/23/12
8)Text and information based off of or taken directly from here. Accessed 3/23/12
9) Text and information based off of or taken directly from here. Accessed 3/23/12
10) Text and information based off of or taken directly from here. Accessed 3/23/12
11) Text and information based off of or taken directly from here. Accessed 3/23/12
12) Text and information based off of or taken directly from here. Accessed 3/23/12
13) Text and information based off of or taken directly from here. Accessed 3/23/12
14) Text and information based off of or taken directly from here. Accessed 3/23/12
15) Farm Service Agency Updates Subscription. Accessed 5/06/12
16) Text directly or in part from here. Accessed 3/27/12
17) Wikipedia.Org: Land Contract. Accessed 3/27/12
18) Land Contract Questions for Michigan. Accessed 3/27/12
19) USDA: New Microloan Proposal Helps Small Farmers Avoid High-Interest Credit Card and Personal Loans. Accessed 8/16/12.
20) Accion USA: General Loan Requirements. Accessed 8/16/12.
21) Small Business Administration: Microloan Program. Accessed 8/16/12.
22) National Sustainable Agriculture Information Service: Funding Accessed 8/16/12.
23) National Sustainable Agriculture Information Service. Accessed 8/16/12.
