Who qualifies as a beginning farmer?

A beginning farmer is defined in the federal tax law as an individual who has not at any time had any direct or indirect ownership in substantial farmland in which such individual materially participated. Substantial farmland is farmland which is equal to or greater than 30 percent of the median county farm size or which has a fair market value of greater than $125,000. An individual may have leased farmland or have been a tenant farmer and still be considered a beginning farmer. Land which a farmer disposed of while insolvent is not taken into account in determining whether a person previously had a direct interest in substantial farmland.

 

How does the Beginning Farmer Program work?

The Beginning Farmer Program involves a three-way transaction between the lender, the borrower and CADA. Because interest paid to the lender under this program is tax-exempt, the lender should be willing to charge interest rates substantially below commercial rates. The first step in getting a loan is for the borrower to locate a lender. This can be a bank, savings and loan, insurance company or other lending institution which will loan funds through this program. It can also be a private individual, including the current landowner, if certain requirements are met. When the borrower qualifies with the lender, a loan application must be submitted to CADA. After the application has been reviewed and approved by CADA, a closing date will be set. The following steps will then be followed:

 

CADA issues a tax-exempt bond to the lender. A bank purchasing the bond should be aware, however, that interest received on the bond will probably have the effect of reducing the interest expense deduction that the bank may otherwise have available for income tax purposes.

 

The lender's payment for the bond will pass through CADA to the borrower to fund his or her project.

 

The borrower's payments on the loan are assigned by CADA to the lender, thereby becoming the payments on the bond.

 

What can funds be used to finance?

Only the following types of agricultural property can be financed with a beginning farmer loan:

 

1. Agricultural land. Agricultural land means land suitable for farming or ranching activities. Any agricultural land financed must be located within the boundaries of the state of Colorado.
2. Agricultural improvements. Agricultural improvements mean any improvements to buildings, structures or fixtures, suitable for use in farming or ranching, which are located on the agricultural land which is purchased through the program.
3. Depreciable agricultural property. Depreciable agricultural property means any personal property suitable for use in farming for which an income tax deduction for depreciation is allowable in computing federal income under the Internal Revenue Code. This includes farm machinery, trucks, etc., but does not include feeder livestock, seed, fertilizer and other types of inventory supplies.

 

What are the loan terms?

Interest rates. Interest rates can be either fixed or floating depending on the agreement between the lender and the borrower.

 

Length of loans. The length of the loan is also agreed upon by the lender and the borrower and reviewed by CADA. Loan lengths cannot exceed 120% of the estimated life of the purchase. Equipment loans, therefore, should not exceed six years in length. Land loans, however, can be as long as 30 years.

 

Are fees charged for obtaining a CADA loan?

There are certain fees associated with obtaining a beginning farmer loan through this program. These fees include:

 

1. A non-refundable $50 application fee payable to CADA.
2. Legal fees ranging from $750-$1,250 for drafting the necessary documents ($750 for loans of $100,000 or less; $1,000 for loans ranging from $100,001 to $200,000; and $1,250 for loans over $200,000).
3. A 1/4 of 1 percent closing fee (minimum of $100) which covers the costs CADA experiences in closing the loan (the application fee will be applied to CADA's closing fee); and,
4. An annual fee equal to 1/8 of 1 percent of the unpaid principal of the bond.
5. The lending institution may also charge usual and customary fees and points which are mutually agreed upon by the lender and borrower and are approved by CADA.

 

Can this loan be used in conjunction with the Farm Service Agency (FSA) Beginning Farmer Program?

YES. These programs can be used together. Under the FSA Beginning Farmer Program, the borrower must provide a 10% down payment. FSA will provide 30% (unless the borrower requests less), and the remainder of the loan (60% or more) can be funded through a tax-exempt bond issued by CADA.

 

Is there anything else a borrower should be aware of?

YES. If you wish to obtain a loan from CADA, the loan must be approved by CADA no later than 60 days after any payment is made to acquire the project. If CADA's approval is not received within such 60 days, the loan is considered refinancing and is not eligible for tax-exempt financing.

 

Where can I get information about this program?

To obtain an applcation form  or receive more information about the Beginning Farmer Program, contact:

 

Colorado Agricultural Development Authority
700 Kipling Street, Suite 4000
Lakewood, CO 80215-8000
Attention: Jim Rubingh
Phone (303) 815-9543
Fax (303) 237-4851
E-mail: jimrcada@comcast.net

 

Key points of the Beginning Farmer Program

• Borrower must be approved by a lender
• Loans are not guaranteed by the government or by CADA 
• Borrower must be a beginning farmer
• Funds can only be used for the purchase of agricultural land and depreciable agricultural property
• Beginning Farmer is defined as an individual who has never owned farmland which is equal to or greater than 30 percent of the median county farm acreage or has a land value of more than $125,000
• The borrower and lender must mutually agree upon the terms of the loan (i.e. interest rate, length of loan)
• Interest rates can be either fixed or floating
• The maximum which can be borrowed is $450,000
• Loan applications must be approved by CADA within 60 days of any payments made on the project
• No portion of the loan may be used for a personal residence

 

 

Colorado Department of Agriculture · 700 Kipling Street · Suite 4000 · Lakewood, CO 80215-8000 ·(303) 239-4100