It’s no secret that the amount of capital needed to enter into production agricultural is a large barrier to entry for young farmers. With that being said, there are things you can do to set yourself apart and grow your operation.
Understanding the programs and assistance available for your benefit is crucial for success. The other day I sat down with the folks from the Iowa Agricultural Development Authority (IADA), and learned more about how you can use their programs to help expand your operation.
The IADA offers three programs: The Iowa Beginning Farmer Loan Program, Iowa Beginning Farmer Tax Credit Program, and Loan Participation Program. One or all of these programs could be beneficial to you and your operation. The Iowa Beginning Farmer Loan Program is also eligible for use in collaboration with the FSA Beginning Farmer program to maximize opportunities for young farmers or new producers entering the field.
Iowa Beginning Farmer Loan Program: This program gives young farmers an opportunity to purchase ag property at lower and more competitive interest rates. This is achieved by offering lenders a tax-exempt bond. The lender can be a bank, individual, partnership or a corporation. To qualify, you must be at least 18 years old, have a net worth of less than $691,172, and have not previously owned any substantial amount of farmland. The loans can be for as much as $501,100, and can be used for ag land, livestock, machinery or ag improvements.
Loan Participation Program: This program can be used to help supplement a borrower’s down payments, making it easier for them to secure a loan. The IADA can cover 30 percent of the purchase price or $150,000, whichever is less, and offers the lender a “last in last out” loan participation that lowers the lender’s risk for taking on the loan. This program can be used in conjunction with the Iowa Beginning Farmer Loan Program for those who qualify. You must be 18 years or older and a resident of Iowa. Loans cannot exceed three times the net worth of the borrower. To be eligible, the individual’s net worth cannot exceed $400,000. These loans can be used toward the purchase of agricultural land, agricultural improvements, livestock and machinery. Partnerships, corporations and LLCs are also eligible to participate in the program.
Beginning Farmer Tax Credit Program: This program is beneficial to anyone who owns land. It is beneficial to the beginning farmer because he or she has the opportunity to rent land and expand an operation. This program can also be used as a tool for any landowner by giving them the opportunity to receive a tax credit toward their Iowa income tax. The land being leased can be owned as an individual, partnership, LLC, corporation, estate or trust as long as they are in compliance with corporate farming laws. The beginning farmer must be a resident of Iowa with a net worth under $366,324. The beginning farmer must also have the proper education, training or experience, which will be proven through a background letter from a third party.
The lease has stipulations, too. It has to be between two and five years in length. Cash rent, crop share, and flex leases are all eligible for this program. Listed below are examples provided by the IADA for each eligible lease.
Cash Rent Example
150 acres of crop ground
$150 per acre
$22,500 gross lease income
$22,500 x 5% = $1,125 tax credit issued
$7.50 per acre
Crop Share Lease Agreement Example
160 acres of crop ground in Clay County, Iowa
50/50 crop share lease
Clay County T-yield for 2012 was 182.67 bushels per acre
Total crop is 29,227.2 bushels
The owner’s share is 14,613.6 bushels
The previous year (2012) posted USDA Iowa fall price for corn was $6.82 per bushel
This results in a tax credit of $14,950 (14,613.6 x $6.82 x 15.00%)
Flex Lease Example
160 acres of crop ground in Clay County, Iowa
Rent is $200 per acre base with a bonus payment on yield production in excess of 150 bushels per acre
Clay County T-Yield for 2012 was 182.67 bushels per acre
Tax Credit would be $1600 (160 acres x $200 base rent x 5 percent)
$1782 (160 x 32.67 x $6.82 x 5 percent) 32.67 (182.67-150.00)
$3,382 = total tax credit
I just brushed the surface on each of these programs. For more in depth information on any of the programs, contact the Iowa Agricultural Development Authority at (515) 281-6444 and visit them on the web at www.iada.state.ia.us.
I can relate to the challenges and opportunities associated with overcoming obstacles when you’re new to the business. If you would like a better understanding on how you can utilize these programs in your operation, please feel free to contact me. I would appreciate the opportunity to sit down and see if we can use these programs to benefit you.