Understanding the Different Funding Programs for Farmers
March 11, 2022
Farming can be costly - especially if you do it on a large scale. From starting the farm to buying tools to marketing, you need finances to make the project a success. This is where an agricultural loan can help. If you are in the farming business, you should be aware of the available funding options for farmers and how you can use them. This blog contains information on the available funding programs for farmers.
1. USDA: Farm Service Agency (FSA) Farm Loans
FSA firms help farmers and ranchers to get loans from USDA-approved lenders at reasonable terms. The FSA loans are available to the farmers or ranchers who cannot secure commercial credit from banks, farm credit institutions or other lenders. Farmers can use this loan to acquire new land, add more livestock, buy seeds, supplies and other needed materials. Here are the main types of USDA FSA loans:
Farm Ownership Loans
Farm ownership loans are used to enlarge an existing farm/ranch or buy a new one. You can use this loan to settle closing costs for the land purchase or invest in soil and water conservation on the farm.
Operation loans are used to settle the daily operating costs in the farm. You can use them to buy new equipment, pay for minor repairs in the estate, add more livestock or order more seed supplies.
Microloans can either be an operation loan or farm ownership loan. They are best suited for small or beginning farmers who need smaller loans.
As the name implies, emergency loans only apply in emergencies. For instance, you may need this type of loan when you suffer a farming loss resulting from floods, drought or other natural disasters.
Emergency loans tend to have a short application process and fewer requirements, provided you have proof of loss. You can use emergency loans to do the following:
Restore or replace the damaged property
Pay for the production expenses associated with the natural disaster
Refinance farming debts caused by the loss
Settle family living expenses as you recover your farm
Land Contract Guarantees
A land contract guarantee is given to the farm owner who would like to transfer the land or ranch to other people. This loan guarantees the retiring farmer who self-finances the sale of the land to beginning farmers or socially disadvantaged farmers and ranchers.
Farm operating - direct
Farm operating - microloan
Farm ownership - direct
Farm ownership - microloan
Farm ownership - direct, joint financing
Farm ownership - down payment
Emergency loan - the amount of actual loss
Effective as of October 1, 2021
Note: The interest rates for the above USDA-FSA loans vary greatly. Here is a simple representation of the current interest rates, according to FSA.USDA.gov.
2. USDA FSA ARC/PLC Programs
This program protects farmers from significant price drops in crop revenue. Here are the two primary payment programs which fall under the USDA FSA ARC/PLC category:
Agriculture Risk Coverage-County (ARC-CO)
The ARC-CO program provides farmers with income support based on the historical base acres of the land and not the current production. Farmers can only get this payment when the country crop revenue of the covered agricultural products is less than the ARC-CO guarantee.
Price Loss Coverage (PLC)
PLC payments are offered to farmers when the effective price of the covered commodity is less than the current reference price of the particular commodity. The effective price should be higher than the national average loan rate and the market year average price.
3. USDA FSA Market Facilitation Program (MFP) program
Are you a farmer who has directly experienced a loss caused by illegal retaliation of tariffs? The MFP program is the best for you.
An MFP provides financial help to farmers or ranchers who experience a direct adverse impact of an illegal retaliatory tariff, causing the loss of traditional exports. The MFP payment is only eligible to farmers or ranchers who produce the following:
Non-specialty crops such as corn, canola, wheat, upland cotton, dried beans, long cotton, sesame seeds, rice, millet, oats, and mustard seeds.
Specialty crops such as almonds, fresh grapes, macadamia nuts, walnuts, cherries and cultivated ginseng.
Hogs and dairy
In addition to producing the above-covered crops, farmers should have a farm number with any USDA agency and should get 75% of their adjusted income from the farm or ranch. The payments are calculated differently according to the particular type of crop covered.
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