Beginning Farmer Loan Programs
Several states operate special loan programs for beginning farmers and ranchers. One of the most common types of beginning farmers programs are called “Aggie Bond” programs. Through these programs states can assist beginning, first-time farmers to purchase land, farm equipment, farm buildings and breeding livestock through reduced interest rate loans.
Through an Aggie Bond program, the state coordinates the creation of a bond that allows lenders to earn federally-tax exempt interest income on loans to eligible beginning farmers and ranchers. The tax-savings allows the lenders to provide the loans at a reduced interest rate to the first time farmer., while the credit decisions and financial risk remain with the local lending institutions. Aggie bond programs are federal-state, public-private partnership programs that provide a cost effective way for states to assist beginning farmers.
History of Aggie Bonds
Agricultural loan programs based on the use of tax-exempt bonds began in 1980 with the passage of legislation to create pilot Aggie Bond programs in Georgia, Alabama and Iowa. Activity peaked in the mid-eighties and abruptly leveled off in response to interest rate adjustments and other limiting factors contained in the 1986 tax bill. In the peak year of 1984, 24 states had tax-exempt bond agricultural loan programs or capabilities.
In 1988, commercial lenders renewed their interest in the use of Aggie Bonds as a way to support rural economic development efforts in their communities as well as support agriculture. The 1993 tax bill granted a permanent extension for the use of Aggie Bonds. This action greatly improved the availability of the program to eligible participants and allowed beginning and first-time farmers, lenders and state agencies to use the program more fully
The Aggie Bond program was further expanded on August 20, 1996 to allow state loan programs to finance beginning farmer purchases of agricultural property from their grandparents, parents and/or siblings. The definition of first-time farmer also was revised, so someone may own as much as 30 percent of their county median farm size and still be eligible for a beginning farmer loan.
In June 2008, as part of the 2007 farm bill, Aggie Bonds were further enhanced by increasing the maximum bond amount to $450,000. In addition the maximum amount was indexed to inflation and will adjust annually beginning January 1, 2009. The stipulation that the value of previously owned real estate could not exceed $125,000 was removed from the requirements.
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The following states have an active aggie bond program:
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