Two primary barriers for beginning farmers and ranchers are access to land and funding – capital – with which to begin farming. The Land Contract Guarantee Program offers a good option for retiring farmers looking to work with new farmers directly, and helps beginners access the land they need to grow a viable farm. This program helps by reducing the financial risk for retiring farmers who sell their farmland to a beginning or socially disadvantaged farmer by providing a federal guarantee in case the buyer runs into trouble making payments.
Learn More About Land Contract Guarantees!
The Land Contract Guarantee Program, administered by USDA’s Farm Service Agency (FSA), provides federal loan guarantees to retiring farmers who self-finance the sale of their land to beginning or socially disadvantaged farmers or ranchers. The program is designed to encourage private land contract sales by providing a degree of protection to the retiring farmer whose retirement savings is often in the land and farm. It provides the seller with a federal guarantee much like that available to commercial banks and other lenders.
The program is structured to provide the seller of the farm or ranch two choices:
For either option, the loan guarantee stays in effect for 10 years. The purchase price or appraised value of the farm or ranch that is the subject of the contract sale cannot be greater than $500,000. The buyer of the farm or ranch must contribute at least 5 percent as a down payment for the land.
Under the Prompt Payment Guarantee option, if the new farmer/buyer does not pay an annual installment due on the contract, or pays only part of an installment, FSA provides the scheduled payment or the unpaid portion to the seller through an escrow agent after the seller unsuccessfully attempts collection. In that circumstance, the buyer would then try to restructure the debt and obtain an approved repayment plan.
Under the Standard Guarantee option, the seller is protecting him or herself against the possibility that the value of the farm may have sharply declined between the time the contract was entered and any default by the buyer.
To be eligible for a loan guarantee, the buyer of the farm or ranch must:
Additionally, the seller must also meet eligibility criteria established by FSA. Contact your local FSA office for more information.
Since 2012 when this new credit program first launched, FSA has provided 2 loan guarantees in Wisconsin and Oregon. These guarantees have financed the transfer of $342,950 in farmland real estate to beginning and socially disadvantaged farmers.
One of these land contracts helped a young farming couple purchase an existing dairy operation that was owned by a family member. They were able to secure a 10-year guarantee under the prompt payment provision, which allowed one generation of farmers to pass down a part of their farming operation to the next generation.
Read about the latest news about Land Contract Guarantees and other loan programs on our blog!
NSAC developed the policy proposal for the Land Contract Guarantee program, and fought for its inclusion in the 2002 and again in the 2008 Farm Bill. The 2002 Farm Bill established the Beginning Farmer and Rancher Land Contract program as a pilot program in 9 states. The 2008 Farm Bill makes the program permanent and available nationwide, which went into effect starting in January 2012. The 2008 Farm Bill also added socially disadvantaged farmers as an eligible group for the loan guarantee program and added the standard asset guarantee option, with the stipulation that the seller obtains the services of a loan servicing agent. The 2014 Farm Bill continues the program without any additional changes.
The land contract guarantee program is funded out of the annual appropriation for guaranteed farm ownership loans. The farm bill authorized program level for guaranteed farm ownership loans is $1 billion, but in recent years Congress has appropriated enough funds to result in a program level of $1.5 to $2.0 billion. Sufficient funding therefore should be available from this overall appropriation for guaranteed farm ownership loans to cover all eligible land contract program proposals submitted.
Section 5005 of the Food, Conservation, and Energy Act (FCEA) of 2008 amends Section 310F of the Consolidated Farm and Rural Development Act of 1972, to be codified at 7 U.S.C. Section 1936.
Last updated in October 2014.