Iowa Finance Authority
Obtaining enough capital to pursue a career in production agriculture can be challenging, but the Iowa Agricultural Development Division (IADD) has programs designed to assist Iowa beginning farmers in overcoming these obstacles. The IADD has Iowa Beginning Farmer Loan and Tax Credit Programs to help new farmers in acquiring agricultural property by offering financing at reduced interest rates and Iowa tax credits to landowners who lease to beginning farmers.
Beginning Farmer Loan Program
The Iowa Beginning Farmer Loan Program (BFLP) assists new farmers in acquiring agricultural property, equipment, breeding livestock or farm improvements. Beginning Farmer Loans are financed by participating lenders or contract sellers with the issuance of federal tax-exempt bonds offered by the IADD. Interest received on contract sales is also exempt from state income taxes. The tax-exempt interest income earned by lenders and contract sellers enables them to charge the beginning farmers a lower interest rate. Beginning farmer loans typically carry interest rates approximately 25 percent below prevailing market rates. Applications are due the first of each month.
Loan Participation Program
The Loan Participation Program (LPP) assists low-income farmers in securing loans and making down payments. IADD’s participation can be used to supplement the borrower’s down payment and in turn helping a farmer secure a loan. The lender’s risk is reduced since the IADD’s position for the loan participation is "last-in/last-out". The lender can also arrange an FSA guarantee on the bank’s portion of the loan participation. This is a unique arrangement that encourages the lender to take that extra step to support a beginning farmer in their community. The IADD collaborates with all programs designed to support beginning farmers.
The LPP interest rate is currently 2.5%. It’s set as 1.0% over the FSA Direct Farm Ownership Down Payment Loan Program (which is currently at 1.5%). The rate is fixed for the first five years then re-adjusted to the same index and fixed for the final five years. LPP’s can be used with the Beginning Farmer Loan Program. Applications are due the first of each month.
Beginning Farmer Tax Credit
The Agricultural Assets Transfer Tax Credit is commonly referred to as the Beginning Farmer Tax Credit (BFTC) program and was created as an incentive to encourage agricultural asset owners to lease their agricultural assets to beginning farmers. The program provides tax credits for the leasing of agricultural land, depreciable machinery or equipment, breeding livestock and buildings.
The asset owner receives a 7% tax credit on their Iowa income taxes if the lease is cash rent or a 17% tax credit with a crop-share lease. This program allows parents to lease their agricultural assets to their children and receive a tax credit. The annual deadline to apply is October 1.
Custom Farming Tax Credit Program
The Custom Hire Tax Credit Program (BFCF) offers a tax credit to anyone hiring a beginning farmer to do agricultural contract work for the production of crops or livestock in Iowa. This program does not permit parents to custom hire their children and receive a tax credit. The beginning farmer must provide all of the equipment and labor to complete the custom work. The annual deadline to apply is December 1.
DNR Lease to Beginning Farmer Program
The DNR Lease to Beginning Farmer Program is an additional opportunity that provides leasing opportunities to beginning farmers. This program is administered by the Iowa Department of Natural Resources (DNR). To be eligible to lease DNR land through this program, a beginning farmer must be certified as eligible by the IADD. For more information on this program, please visit IowaDNR.gov.
Iowa bankers have been very active in helping beginning farmers establish a profitable venture. Farm management firms have also been sensitive to the tight cash flow demands that beginning farmers experience. Due to the support of ag lenders, contract sellers and farm managers, more beginning farmers are being encouraged to use IADD programs.
The requirements to qualify as a beginning farmer are similar for all IADD programs. The farmer must be at least 18 years old and a resident of Iowa. For 2016, the maximum net worth to qualify is $672,171. The beginning farmer must be the owner/operator of the farm and have sufficient education, training and experience for the anticipated farming operation. For the BFLP, there is a limit on the amount of land the beginning farmer can own.
The IADD is a creative source of capital, ready to help with the financing challenges of beginning farming. For more program details, please visit our web site, IowaFinanceAuthority.gov/IADD or call 515-725-4900.