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AG Loan Types
The United States Department of Agriculture (USDA) is a federal executive department that is in charge of developing and executing federal government policy on farming, forestry, agriculture, and food. It is also known as the Agriculture Department (AD). It aims at meeting the needs of farmers and ranchers in the United States, promoting agricultural trade and production to ensure food safety, protecting natural resources, and fostering rural communities in order to end hunger not only the in the United States, but also internationally.
One of the ways through which the Agriculture Department fosters farmers in the United States is by supplying agriculture loans. Even though you might still be able to find agriculture loans at local and state level, the federal loan programs are the best because they are easy to secure and are often well-funded. Consider the following AG loans if you are thinking of getting an agriculture loan in this country.
1. Agricultural Management Assistance Program
This is a voluntary loan program that provides both financial and technical assistance to farmers on private lands to construct or make improvements on irrigation or water management structures. When you acquire this loan, some of the things that you can use it for include planting trees for windbreaks or improving the quality of water. You can also use it to mitigate risk through production diversification or resource conservation practices such as integrated pest management, control of soil erosion, or transition to organic methods of farming.
For you to qualify for the Agricultural Management Assistance (AMA) program, you must own or be in control of land within an identified AMA state. You also need to comply with the gross income limitation provisions that this program requires you to meet. What is considered as eligible land to be able to qualify for this program include rangeland, cropland, grassland, non-industrial forestland, pastureland and other private land that is used for livestock farming or crop production where risk can be mitigated through change in resource conservation practices or operation diversification.
AMA is available in sixteen states, and they include Delaware, Connecticut, Hawaii, Maryland, Maine, Nevada, Massachusetts, New Jersey, New Hampshire, Rhode Island, New York, Pennsylvania, Vermont, Wyoming, West Virginia and Utah.
2. Commodity Marketing Assistance Loans and Loan Deficiency Payments
This program aims at providing loans (which are made by the Commodity Credit Corporation) that can help farmers to market their crops. By doing so, the farmers can improve and stabilize the income that they get from their farming activities. They are intended to facilitate orderly distribution of crops throughout the year.
Non-Recourse Marketing Assistance Loan
A non-recourse marketing assistance loan allows a farmer who grows an eligible crop to store it instead of selling it immediately at harvest. The farmer pledges that crop as collateral. This program also allows the farmer to pay bills without necessarily selling the harvested crop especially if it is the time of the year when the price is at the lowest. They can sell the crop and repay the loan later on when the market conditions become more favorable.
Under certain circumstances, market loan repayment provisions for a non-recourse marketing assistance loan specify that producers may repay the loans at an amount that is less compared to the principal plus interest accrued on it and other charges. Alternatively, the producer may repay the loan by adhering to loan deficiency repayment (LDP) provisions that specify that producers may be eligible for loan deficiency repayment in lieu of securing a loan. However, LDP provisions do not apply for cotton marketing assistance loans which are supposed to be repaid fully at the loan rate together with the interest.
Recourse Marketing Assistance Loan
Unlike non-recourse marketing assistance loans, recourse marketing assistance loans are supposed to be repaid at principal plus the interest accrued. A recourse loan commodity cannot be forfeited or delivered as a way of satisfying or clearing the outstanding loan.
In order to qualify for commodity marketing assistance loans and loan deficiency payments, you need to be or must have been a rancher with professional experiences in farming or agricultural production. The maximum loan amount and interest rate may vary, but the maximum loan length is usually 10 months. These loans usually do not have prepayment penalties, and the payment frequency is usually once.
3. Farm Operating Loans (Direct and Guaranteed)
These loans are offered by the Farm Service Agency (FSA) to farmers that are temporarily not able to obtain private commercial credit. You can use the farm operating loans to buy items that are required for successful farm operation, including farm equipment, livestock, seed, feed, fuel, repairs, insurance, farm chemicals and other operating expenses. You can get both direct and guaranteed loans through this program.
Under the direct loan program, FSA loans officers are required to take responsibility for every aspect of the application process. Funding is usually facilitated through Congressional appropriation. You can also get microloans, which are simply direct farm operating loans that have a shorter application process compared to the usual direct loans. The microloans usually have reduced paperwork and are designed to meet the needs of niche type operations that are smaller and non-traditional.
You cannot use a farm operating loan to finance nonfarm enterprises such as exotic birds, earthworms, tropical fish, horses and dogs that are used for nonfarm purposes, including racing, show, pleasure and boarding. There is usually no minimum loan amount, but the maximum that you can take for a microloan is 50,000 USD while the maximum for a direct farm operating loan is usually 300,000 USD. The loan does not have any down payment requirement.
Under the guaranteed loan program, conventional lenders that include credit system institutions and banks among others will make the loan, and then the Farm Service Agency will guarantee it for up to 95% of the loss of principal plus the interest. The maximum amount that is given for an FSA guaranteed operating loan is usually $1,119,000.
4. Farm Ownership Loans (Direct and Guaranteed)
These loans are also made by the Farm Service Agency (FSA). The FSA gives these loans to farmers and ranchers that temporarily cannot be able to obtain loans from farm credit systems, banks and other lenders due to financial hardship or disaster. You can use these loans to purchase a farm or a ranch, construct a building, or you can use it to make real estate improvements. Other projects that you can use the farm ownership loans on include promoting water and soil conservation, and paying loan closing costs.
You can get both direct and guaranteed loans through the farm ownership loans program. There is no minimum loan amount, but you cannot take more than $300,000 for a direct farm ownership loan. No down payment is required. In the event that you decide to apply for a direct farm ownership loan, you will need to be experienced in managing the day-to-day operations of a farm or a ranch for a period of not less than three years. If you are a beginning farmer, you do not have to worry because the FSA makes the farm ownership loans available to you too.
5. Farm Storage Facility Loans
These loans are provided by the Farm Service Agency to encourage the construction of on-farm storage as well as handling facilities for eligible commodities. They are aimed at providing low interest financing so that farmers can be able to build or upgrade permanent facilities that you can use to store crops and other farm commodities. The eligible commodities that can be funded by this loan include oil seeds, peanuts, grains, hay, pulse crops, honey, fruits, vegetables and renewable biomass commodities. The eligible facility types include hay barns, grain bins, and facilities that can be used for cold storage.
This agriculture was introduced way back in 2000, but since then, there have been more than 33,000 loans issued for on-farm storage. This has caused the storage capacity to increase tremendously by 900 million bushels. A series of improvements have also been made over the years in order to make the Farm Storage Facility Loans more suitable for financing on-farm storage as well as handling small and medium sized farms. Due to these improvements, the FSFLs can now cover the structure and equipment that is required for washing fruits and vegetables. Treating and packing of these commodities have also been covered exclusively as a result of the improvements.
The security requirements for Farm Storage Facility Loans have been eased for all types of loans that range from $50,000 to $100,000. You can now secure FSFL loans up to $100,000 by a promissory note only. Fruits and vegetables producers can qualify for special provisions. They are can ask for a waiver of the Non-Insured Crop Insurance and Multi-Peril Crop Insurance requirement annually and provide proof of calculating the cold storage capacity that is required.
6. Fisheries Finance Program (FFP)
This is a direct government loan program that gets an annual loan authority from Congress to avail long term loans for the cost of construction or re-construction of fisheries facilities, fishing vessels, aqua-cultural facilities as well as individual fishing quotas. You can get a loan that can finance up to 80 percent of the project as long as it is eligible.
The Fisheries Finance Program can provide financing as well as refinancing of existing debts for any projects that fall in the aforementioned categories. You can also use loans from this program to buy or refinance an existing vessel, or you can use them to reconstruct an existing fishing vessel provided that the construction does not exceed the harvesting capacity. You can also get funding from the FFP program to construct absolutely new fishing vessels.
For you to be able to get loans from the Fisheries Finance Program, you must be a United States citizen and you must have a good net worth, a good credit and earnings record, and liquidity behind the project. It is also a requirement for your project to be fully secured with your assets, including any personal guarantees. Another requirement for qualifying for the an FFP loan is to have at least three years of history of either owning or operating the fisheries project that you want to fund. If you have at least three years’ experience owning a comparable project, you will also be eligible for this program.
7. Rural Housing: Farm Labor Housing Loans and Grants
This program provides capital financing to facilitate development of housing for domestic farm laborers. You can use the Farm Labor Housing Loans and Grants to purchase, build, improve, or do repairs on houses for farm laborers, including people that earn their income from aquaculture (oyster and fish farms) as well as those that deal with on-farm processing. The loans can also be used for purchasing asite, or leasehold interest in a site. You can use that site to construct housing, community rooms or daycare facilities. Other ways that you can use Farm Labor Housing Loans and Grants include paying construction loan interest and purchasing durable household furnishings.
These loans are meant for farmers, family farm corporations, associations of farmers, nonprofit organizations, Indian tribes, associations of farm workers, and public agencies. Typically, when you apply for Farm Labor Housing Loans and Grants, it is because you are unable to obtain credit elsewhere. However, in some instances, you can still be able to get these loans at an interest rate based on federal borrowing even if you can get the credit elsewhere. Grants are usually made for nonprofit organizations, farmworker associations, public agencies and Indian tribes. You can use the funds in urban areas for nearby farm labor – this is the only exception that this program has.
Farm Labor Housing Loans and Grants are for a maximum of 33 years and they usually have an interest of one percent. The grants can cover up to 90 percent of development costs of the project that you are carrying out as long as it is eligible. The application varies depending on the project that you are carrying out, but some of the things that are mandatory include a business plan, statements providing the current status of the project, licensing permits, a listing of major customers and credit terms as well as a listing of major suppliers, credit terms, and credit limits.
For more information on the United States Department of Agriculture (USDA) or the Agriculture Department (AD), check out https://en.wikipedia.org/wiki/United_States_Department_of_Agriculture
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