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Loan Programs that Help Farmers Bridge the Conservation Cost-Share Gap

April 12, 2012


Background - Why there is a Gap

USDA’s conservation programs, as well as numerous state conservation programs, provide financial resources for farmers to implement conservation practices that protect natural resources and the environment.  Many of these programs fund only a share of the cost of implementing the practices, and hence are referred to as cost share programs.

The cost share funding is generally available only after the farmer has established the cost share practice.  The farmer is responsible for payments to contractors and others who provide equipment, services, or materials for the conservation practice.  The farmer then provides receipts for services and materials to the agency involved upon completion of the conservation practice, or in some cases just signals the practice has been installed.  Provided the conservation practice meets the standards and criteria required under the conservation program, the farmer is provided with a share of the costs as reimbursement.

In addition, the conservation program cost-share payments may not be based on the actual costs incurred.  For example, currently under the Farm Bill’s Environmental Quality Incentives Program (EQIP), the cost share payment is based on the average costs for the conservation practice in a state or a specific region of the state multiplied by a payment rate.  Typically, the cost-share payment rates used to establish the NRCS fixed dollar cost-share amount are 50 percent or 75 percent.  Limited resource, socially disadvantaged, and beginning farmers and ranchers are eligible for an additional 15 percent added to the applicable payment rate for most practices.  Program participants cannot receive more than the actual costs incurred in a cost-share payment but many receive even less than the cost share rate if their actual costs exceed the average costs.

For many farmers and ranchers, especially beginning, limited resource, or socially disadvantaged farmers and ranchers, the need to have full funding in hand to implement a conservation practice can be a barrier to participating in conservation programs.  The cost burden can be particularly high when the conservation practice is associated with a new agricultural operation that has not yet provided income to the farmer.

Bridging the Gap

Here are some loan programs that can help bridge the cost-share gap:

USDA’s Conservation Loan Program

USDA’s Conservation Loan Program, administered by the Farm Service Agency, was established in the 2008 Farm Bill.  The program provides direct loans of up to $300,000 (not currently available) and guaranteed loans of up to $1.2 million.  The Conservation Loan Program includes a priority for loans to beginning farmers and ranchers and socially disadvantaged farmer or ranchers.  However, USDA’s regulations for the program also provide an advantage to wealthier farmers and ranchers in the form of a streamlined application for loans and the waiver of FSA’s normal requirement that borrowers cannot own larger than family sized farms.  Lenders may be less willing to deal with USDA guaranteed loans in smaller amounts, with more paperwork required for less wealthy farmers. NSAC’s Farm Bill Platform  is calling for amendments to this program to make it work better for small and mid-size farms, including beginning and socially disadvantaged farmers and ranchers.

There are other financing opportunities to bridge the cost-share gap that have fewer administrative hoops than USDA’s Conservation Loan Program.  Here are three examples.

ShadeFund Loans from The Conservation Fund and the U.S. Endowment for Forestry and Communities

ShadeFund, a nonprofit program of The Conservation Fund and the U.S. Endowment for Forestry and Communities, can help farmers and forest-based businesses with the short term “gap” financing they may need to take advantage of conservation cost share programs.  This gap financing provides upfront money for a project, with the loan repaid from the cost share funds or permanent financing when it becomes available.  Loans repaid through a cost share can have interest rates as low as 4%.  ShadeFund charges an origination fee of $200 (+ filing fees) on loans up to $20,000.

The ShadeFund website features an example of funding received by beginning farmers at New Beat Farm in Knox, Maine.  The farmers had a Natural Resources Conservation Service EQIP contract with cost share to construct a seasonal high tunnel greenhouse, but lacked the upfront funding to cover the purchase cost.  They received a ShadeFund gap financing loan for the greenhouse and were able to repay the entire amount when they received the EQIP reimbursement funds two months later.

ShadeFund can loan up to $50,000 to farms and natural resource-based businesses that do not have a cost share.  These loans may have a higher interest rate and require additional documentation.  A 1-percent origination fee (+ filing fees) is charged on loans larger than $20,000.

The ShadeFund welcomes partnerships with agencies and non-profits that support farming and business practices that promote conservation of farmland and forestland.  For information on how to apply for a ShadeFund loan, see the ShadeFund website or contact Rick Larson by email at rlarson@conservationfund.org or by phone at (919) 951-0113.

Center for Regional Food Systems Hoop House Loan Funding (Michigan)

In Michigan, the Center for Regional Food Systems at Michigan State University has teamed with the Michigan Farmers Market Association to administer a Hoop House Loan Program supported through the Kellogg Foundation.  Technical assistance is provided by the MSU-Student Organic Farm.  Zero interest loans are made to farmers who are current vendors at select farmers markets.

Rather than repay the loan directly to the lender, the loans are “repaid forward” through the distribution of food to low income individuals, using a voucher redemption system at the farmers market.  The payback period is five years, with no penalty for early repayment.  This creative arrangement assists farmers to establish their farming operations, helps create a market for their products, and ensures that low income members of the community can have access to fresh local produce.

Maryland’s Low Interest Loans for Agricultural Conservation (LILAC)

Under its LILAC program, the state of Maryland works with banks and farm credit institutions to make low interest loans available to farmers for projects designed to address nonpoint-source pollution from agricultural sources.  The lenders set the terms and conditions for the loans, with the loans in the LILAC program typically discounted by three to four percent.  The Maryland state revolving fund provides financial resources for the lower interest rate.

Maryland farmers interested in the LILAC program should contact their local soil conservation district.  The soil conservation district can provide technical assistance on the first step of the program, which is designing or verifying best management practices to address water quality issues related to the farm.  The soil conservation districts also help farmers apply for cost-share funds and obtain a certification from the Maryland Department of Agriculture and the Department of the Environment that the practices installed meet the requirements for LILAC.  The loan funds cannot be used to finance practices or other capital improvements on concentrated animal feeding operations or other privately owned projects considered point-source water pollution control projects by the U.S. Environmental Protection Agency or the Maryland Department of the Environment.

From FY2009 to the present, the program has helped 31 Maryland farmers access loans for over $1.4 million to fund equipment for conservation practices.

If you know of other gap loans or gap financing, please contact Martha Noble at mnoble@sustainableagricutlure.net.


Categories: Beginning and Minority Farmers, Commodity, Crop Insurance & Credit Programs, Conservation, Energy & Environment


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